Broadband Deployment Considerations

Overview• CNS is a Federation of Cooperatives

that provides its members with operating efficiency opportunities for essential service offerings while opening opportunities for new services that will allow the members to control their own destiny.

Overview

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Broadband - Key considerations

• Defining goals• Construction costs• Key sources of revenue• Contracted services• Partnering

Community Goal Identification

• Economic development– Business attraction / retention– Residential attraction / retention

• Revenue/profit generation• How will you measure success?

Project Goals• Scare a current provider to action• Overbuild a competing network• Attract a provider to provide

improved services to your area• Build a network where one doesn’t

exist

Project considerations• Goals should drive project design• Clear and valuable benefits for potential

partners and stakeholders need to be outlined early-on

• Scalability for any solution is paramount• What works in one community may not

work in others• How will telecom consolidation affect

the likelihood of success

CONSTRUCTION COSTS

Construction Cost Considerations

• Research shows a wide range of FTTH construction costs– $1,500-$10,000 per connection

• These numbers are only part of the story– Embedded costs are likely not included

in these “homes passed” costs

Construction Cost Considerations• Starting from scratch

– It’s much more than bringing fiber or wireless services to each home or business• Technical staff – challenge to find experienced talent, requires redundancy, costly• Management, operations, and customer support staff (quality = costly)• Marketing/Advertising – Required and increasingly complex ($100-$500 CPGA)• Management and billing platforms• New product development (not a build it and forget it)• Central office & remote terminal buildings/real estate• Routers/switches• Voice switches• Network Access equipment• Transport connectivity to carrier hotels• Middle and final mile network construction• Etc.

• Partnership (network expansion for provider)– Core network/management components and infrastructure can be leveraged (scales

well)• Transport from new location to existing central office• Middle and final mile network construction• Remote access gear/CPE

Network Construction CostsCosts can vary substantially depending on:• Network goals• Network type

– Plow/aerial/wireless• Terrain impacts

– Bore vs plow– Level of ROW congestion – Sensitive area construction (wetlands, federally-owned, historic, etc.)– Topography– Pole attachments/make ready requirements

• Location– Costs of construction can vary based on geographic project location

• Rural vs city construction• Prevailing wages are invoked depending on project cost and

funding used (broadband grants)

Other Network considerations

• New construction can lead to redundant providers lessening the success of both providers (competition only helps when there are ample customers)

• Cherry-picking can hurt deployment to adjacent low-density areas (depending on goals)

Funding Construction• Bonding• Aid to construction by anchor

institutions may be a way to reduce construction costs

• Grants – limited funding opportunities

• Loans - Rural Utilities Service may be an option

Cost/Feasibility studies• Required for accuracy (too many

variables for even a “rough estimate”)• Project goals can be used to create

high-level cost estimates based on:– Type of network– Scope (town + rural?)– Terrain– Network type required– Geographic location

REVENUE SOURCES

Revenue Sources• Business• Residential• Special access circuits

Revenue SourcesRevenue is easy… Margins are the challenge

• Business– Phone, Internet, Special circuits, data center?,

network management?, monitoring/security?• Residential– Phone, Internet, TV, security?, home

monitoring?

Revenue Sources• Phone (res. ARPU $35)

– Adequate gross margins, but weakening demand– LD and Feature revenue are reducing

• Internet (res. ARPU $40)– Likely highest gross margins of any service offered

• TV (res. ARPU $75)– Break-even margins as best– May drive sales of Phone/Internet services– Requires substantial ongoing investments– Requires ongoing legal costs– Requires substantial ongoing efforts (technical, contractual,

billing)– Cable TV product is changing very rapidly – future is going to be

increasingly challenging

Revenue Risks• Competitive response threats• Cash-flow can be a challenge as with any

new business• Take rates – vary from area to area– 70-85% of HH have HSI (demographic variations)

• Customer expectations are very high (customer service to technology to support)

• “Internal customer” savings need to be used for upgrades, expansion, offsetting lower margin customers

Breakeven calculation – simple math

• Assume network expansion (for a current provider) @ $5,000/connected home

• Assume $50 avg. monthly gross margins/home

• Breakeven = 100 months (8 years)• This does not assume cost of capital,

back-office costs, core network costs, depreciation, maintenance, etc.

CONTRACTED SERVICES

Contracted servicesDepending on the goals of the service, a large portion of the back-office components could be performed on a contract basis to improve scalability of broadband business.• Feasibility studies• Engineering/design• Construction• Turn-up/Cutover/Activation• Switching• Network management• White-label service offerings

– TV service middleware platforms– Hosted voice services

• Customer service & support• Installation/repair• Marketing/sales• Billing• Regulatory filings• Accounting• Facilities locates• Network security threat prevention/mitigation

PARTNERING

Partnering ConsiderationsPartnering takes creativity, but can provide substantial benefits:• Expertise

– Increasingly complex– Labor costs are substantial– Building from scratch takes time– Building from scratch likely to incur substantial hiccups– Lessened legal risk

• Cost savings– Experience expedites launch times, consulting costs, and can lower retail prices

• Leverage equipment better– Scalability– Costs for spare units– Built-in redundancy

• Utilizing the same equipment allows for faster, lower cost installation and troubleshooting

• Many options– Lease, Manage, Operate– “Open networks” are not likely to be attractive to provider partners

What do potential partners want?

• Identify the value your community brings to a potential partner:

• Clear goals & expectations• Demand aggregation• Assistance (simplified permitting, grant

applications)• Investment dollars• An understanding of the economics

Vetting a potential partner• Track record supporting communities

served• Clear understanding of expectations

of each party• Provider’s long-term goals• Don’t be scared of distance

Discussion

Paul SolsrudPaul.Solsrud@cooperative-networks.com218.564.3000www.cooperative-networks.com