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

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 The investment equation usually looks like this: Returns May Challenge Private Investors 3

Sector /opportunity Ecosystem changeCapExOpExRiskRevenue Competitive Losses TelcoGrant of monopoly LowerRaise CableGrant of monopoly, pole attachment law, compulsory broadcast license LowerRaise Rural areasUSF Lower WirelessLimited # of licenses Lower DBSLimited # of licenses, program access LowerRaise Broadband upgrade Deregulation, two wire policy Raise Wireless upgrade More licenses, lowered TAC, oversight of siting authority LowerRaise Government Can Alter The Investment Equation 4

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

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

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

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

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 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 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 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 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