Creating The Business Case for A Gigabit Network

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Creating The Business Case for A Gigabit Network In Your Community

Creating The Business Case for A Gigabit Network In Your Community

Communities Can Make Gigabit Networks Happen • The All-Fiber Business Case At First Appears

Communities Can Make Gigabit Networks Happen • The All-Fiber Business Case At First Appears Challenging – – – Capital requirements are substantial Capital must be expended up front Competition for services often exists Demand is uncertain As a result, for a private entity, the payback on the investment may not be sufficient…and government subsidies are limited • But Communities Can Make It Happen By Using Their Unique Assets To Enable FTTH Deployments By Private Providers, Public-Private Partnerships, or Public Entities 1

Communities Can Make Gigabit Networks Happen Any community • The barrier is not that

Communities Can Make Gigabit Networks Happen Any community • The barrier is not that wants technology or economics its residents • The barrier is organization; specifically, organizing to have demand the better use access to a of underutilized assets Gig can do so 2

Returns May Challenge Private Investors The investment equation usually looks like this: C +

Returns May Challenge Private Investors The investment equation usually looks like this: C + O > (1 -r)R + SB + (-CL) C – Capital Expenditures O– Operating Expenditures r – Risk R- Revenues SB- System Benefits (Benefits that drive increased revenues outside the communities where the new or incremental investments are made. ) CL- Losses due to competition For FTTH Capex is high and Opex is significant; but while the System Benefits are great, they accrue both to the network operator and the community and private investors only care about the operator’s returns 3

Government Can Alter The Investment Equation Sector /opportunity Ecosystem change Telco Grant of monopoly

Government Can Alter The Investment Equation Sector /opportunity Ecosystem change Telco Grant of monopoly Cable Grant of monopoly, pole attachment law, compulsory broadcast license Cap. Ex Op. Ex Risk Revenue Lower Raise Rural areas USF Wireless Limited # of licenses Lower DBS Limited # of licenses, program access Lower Broadband upgrade Deregulation, two wire policy Wireless upgrade More licenses, lowered TAC, oversight of siting authority Lower Competitive Losses Lower Raise Raise 4

Communities Also Can Alter The Investment Equation For instance, Kansas City and Google are

Communities Also Can Alter The Investment Equation For instance, Kansas City and Google are working together to develop a gigabit broadband network Sector /opportunity Google Ecosystem change Cap. Ex Op. Ex Risk Revenue System Benefits Deals with City, State, and Utilities Lower Raise In other examples, Gi. G. U is working with 27 research universities to bring gigabit broadband to their communities Your community can also alter the equation for 5 investment

How Does Your Community Alter the Equation? C + O < (1 -r)R +

How Does Your Community Alter the Equation? C + O < (1 -r)R + SB + (-CL) • Key Elements • Creating the Plan 6

Key Elements to Changing the Equation Reduce Cap Ex • Build to Demand Model

Key Elements to Changing the Equation Reduce Cap Ex • Build to Demand Model • Access to ROWs, Facilities • Reduce Regulatory Time Reduce Op Ex • Access Payments • Reduce Ongoing Regulatory Costs • Utilize Existing Billing Platforms Reduce Risk • Build to Demand • Standardize Functions Across Areas, Vendors Increase Revenues • Demand Acceleration • Marketing Platform • New Services Increase Ecosystem Benefits • Distributed Innovation • Seeding Long-Term Growth 7

Community Points of Leverage • Demand: Expected Benefits • • Anchor institutions MDU’s Enterprise

Community Points of Leverage • Demand: Expected Benefits • • Anchor institutions MDU’s Enterprise users Residential • Assets Expected Costs • • Availability of fiber / access to dark fiber Access to ducts/conduit/poles Expedited permitting Joint marketing efforts 8

1. Assess and Aggregate Demand • Demand (current and projected) for the proposed service

1. Assess and Aggregate Demand • Demand (current and projected) for the proposed service area is critical for the business case • Communities should quantify for prospective providers amount of revenue – Location and type of users including anchor tenants such as local government and school systems – Current broadband services (cost/type/length of contracts) – Applications currently being offered and considered • Communities should conduct a demand aggregation survey of their citizens as part of this process – Each state has some sort of technology development service that can assist in developing demand surveys 9

2. Inventory Assets • Communities should leverage assets that are readily available, obtainable and

2. Inventory Assets • Communities should leverage assets that are readily available, obtainable and valuable, which will reduce the overall cost of financing • The first step is to create an inventory of such assets, which can include those that belong to the community or that the community can influence • Count both physical assets and “soft” assets which can reduce development costs and build awareness – Civic groups – Educational institutions – IT/GIS professionals 10

Examples of Community Assets • • • Rights of Way – used to expedite/reduce

Examples of Community Assets • • • Rights of Way – used to expedite/reduce cost of conduit placement Ongoing or pending Capital projects – can tie in fiber builds to water, road construction etc Municipally owned utilities – assets, customer base, back office operations can be leveraged for partnerships Existing vendor relationships – leveraged to provide enhanced or expanded services Land Ongoing/planned first responder communications upgrades – for economies of scale Permitting – provide expedited treatment Franchise agreements/contracts - offer favorable terms IT professionals Existing mapping (GIS) resources Educational institutions – sources of student labor and expertise Civic groups/volunteers – source of support and labor for community oriented activities 11

3. Supplement Funding • Communities should work with potential providers in identifying and seeking

3. Supplement Funding • Communities should work with potential providers in identifying and seeking supplemental funding for the project – Federal • RUS loans and grants • EDA loans and grants • USF support for Schools, Libraries and Rural Health – State • Many states have specific Broadband funds – Hawaii – Gigabit to Anchor Institutions – Illinois – Gigabit Incentive Fund • Many states also have economic development initiatives and/or infrastructure funds that would be applicable 12

Next Steps • Once your community has: – Collected the demand data leading to

Next Steps • Once your community has: – Collected the demand data leading to estimated initial revenues – Forecasted area growth and application needs leading to future revenue growth – Developed the list of assets you can bring to the table that reduce capital and operating expenditures – Determined supplemental sources of funding You are now ready to develop your Request for Proposal 13