i) Minimum technology limit bandwidth to be offered in the following areas will be: Pricing will be benchmarked against metro prices in New Zealand

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1 Bay of Plenty Broadband Business Case Study Summary of Conclusions from the Deliverables We propose to take you through the following conclusions from each of the deliverables. This will enable us to identify any major areas of concern and confirm an understanding of the findings of those deliverables. Deliverable 1 Broadband Definition The following points of definition apply to any service provider who may invest in broadband infrastructure in the region in any form of partnership with Bay of Plenty Councils: i) Minimum technology limit bandwidth to be offered in the following areas will be: a. Metro 10Mbit/s b. Urban 10Mbit/s c. Rural 2Mbit/s d. Remote 512kbit/s i iv) Pricing will be benchmarked against metro prices in New Zealand Standards based scaleable technology will be used wherever possible Backhaul infrastructure will preferably support open access wholesale services to competitive retail service providers Deliverable 2 - Architecture The Bay of Plenty region has a potentially convenient set of metro locations and exit points from the region that might permit the development of a resilient core network that can lower costs for investors in distribution networks. Any single point of failure on this network would be unlikely to interrupt service if self healing switching were installed at each node (Tauranga, Rotorua and Whakatane). Some parts of the network topology will be difficult to build cost effectively and achieve inherent reliability through redundant network elements. This weakness is currently apparent in parts of the region with existing networks, so does not indicate a reduction of quality in service delivery. The answer here is to provide limited backup capacity where services will slow but not necessarily stop. Deliverable 3 Options Open to Council to Stimulate Investment There is a willingness on the part of central government and ISPs to cooperate with councils where they can close the gap in one or more ways described in section 5 and develop more broadband infrastructure in the region. Detailed plans for all the initiatives described in this document will be the subject of later deliverables in this project. Page 1

2 Deliverable 4 Funding Investigation A model has been presented in this paper describing cost components of the core network and how they might be funded. The purpose of the model is to leverage regional investment and broadband demand wherever possible, to reduce real costs of the core network. The first part of the gap in funding is to be covered by Central Government to ensure the remaining funds, to be regionally borrowed, will produce a positive return on investment. Interviews with all potential sources of the cost components described in section 6 indicate positive interest in the project subject to a viable business case being produced. Deliverable 5 Customer Connection CPE costs for the most likely distribution technology, WiMAX, may present barriers to takeup by some parts of the market for some time even when total costs reach their lowest point in the case of the need for an external antenna for remote sites. We suggest these costs will not inhibit takeup by most businesses, but may limit the penetration in residential communities. It is recommended that CPE costs be regularly monitored through the course of the project and some subsidy support be considered if necessary to ensure maximum takeup by all parts of the community. Deliverable 6 Service Providers Service providers are not currently willing to invest in broadband infrastructure in the Bay of Plenty region because of the relatively high cost of serving the region. This report has discussed a number of ways councils can influence the investment decisions of service providers, and reports on interviews with eleven national and regional service providers seeking their investment criteria. We conclude that councils can positively influence the investment criteria of service providers, and that the Bay of Plenty region, acting as one entity in this case, can strongly influence suppliers, especially through demand aggregation (assured revenues) and access to the core network described in previous deliverables. Deliverable 7 - Operational Operational costs for the base core network (ducts only) will be in the vicinity of $700,000 per annum, with the largest cost being asset depreciation of $400,000 per annum, which will be tax deductable and therefore not a direct cost of operations. The costs for the three forms of core network set revenue benchmarks for the core network. If the total length of the network is 300km, the cost recovery per meter is shown in Table 3 below: Page 2

3 Core Network Cost Recovery Estimation Version 1 - Duct Network Annual Cost $ 695,700 Cost per Network Meter $ 2.32 per annum Version 2 - Cable Network Network Annual Cost $ 701,300 Cost per Network Meter $ 2.34 per annum Version 3 - Cross Connection and Data Centre Annual Cost $ 781,800 Cost per Network Meter $ 2.61 per annum Table 3 Cost Recovery Requirements, Core Network Per Meter The cost per meter can be further divided by the number of cables installed or the number of fibres installed and used. Deliverable 8 Sample Costing The maximum cost of the core network is in the region of $13.5m and this should be reduced considerably through the cost reduction strategies discussed in earlier deliverables. Installation of ducts, pits and fibre optic cables is much cheaper for green fields sites and it is recommended this be a requirement of developers, to raise the quality of broadband service delivery in these new subdivisions. Deliverable 9 MUSH Network Design This paper has estimated the value of aggregated demand and the consequent value to a supplier and the resulting cost reduction for the core network. More information is needed to complete this paper due to the lack of information regarding government demand for telecommunications services. What this paper currently discusses and illustrates is that demand aggregation can be used to help fund capital investment in infrastructure and is an important way to get commitment from these bodies in the Bay of Plenty who are interested and can play a part in developing broadband capability and accessibility in the Bay of Plenty. Deliverable 10 Network Partners We conclude that if the core network can be developed, there are a number of network providers who will bid for the aggregated demand and to contribute to the cost of the core network in return. We anticipate the core network would be owned by councils and other regional stakeholders, as well as private investors. Page 3

4 Management and maintenance services for the network are not onerous or highly technical, but might be outsourced at least initially, to industry professionals. Deliverable 11 Benefits/Synergies of Core (MUSH) Networks and Broadband Access There is significant telecommunications demand within a few km of the proposed core network and this is fundamentally important to the aggregation opportunity for the region. The bulk of this demand is MUSH which will be coordinated through the COBoP organisation, with the active support of the State Services Commission. Deliverable 12 Legislation Review There appear to be little or no conflicts with the Act, or with the planned amendments regarding LLU and operational separation. At worst, the core network operator might have to acquire a network provider license, or contract such a licensee to manage this aspect of the business on behalf of councils. The regulatory environment is a changing one and we recommend ongoing monitoring of legislative changes and the actions of the government and Telecom. Deliverable 13 Resources Management Act Review The RMA interpretation across the councils in the Bay of Plenty has been summarised in Table 1. Matters of note are: i) Radio masts and towers have a consistent and reasonable set of terms applied and would not be expected to impact most design considerations. Cabinets and powered cabinets are not subject to RMA concerns, and while this is useful in terms of limited delays, it may be necessary to consider issues of visual impact and noise resulting from cooling fans. Section 4.1 suggests some conditions relating to the location of cabinets. Further thought might need to be given to the maximum size of cabinets. Deliverable 14 Code of Practice Review If councils determine that the establishment of a regionally owned broadband network is an important project for the economic development of the region, it will be necessary that the engineering managers in council adopt a new set of skills in the design and management of duct systems. This lies within the skills and resources of councils and was confirmed by the engineering attendees at seminars held for all councils. If councils endorse and establish a policy into their District Plans that requires developers to install duct networks into green fields developments, such a policy would require similar documentation suggested in this report which is specific to residential and commercial developments. Page 4

5 Deliverable 15 Final Report We conclude that a core network described in this report, consisting of 348km of ducts, operated by a commercial entity owned by councils and other appropriate stakeholders can reduce the cost of delivery and expand the geographic coverage of broadband services in the Bay of Plenty region. Councils working together can reduce the cost of the core network to a point where it can operate sustainably as a regional open access wholesale access provider. Central government supports the principles of this project and may provide financial support on the production of a detailed business plan, recommended to be the next phase of work for this project. Deliverable S1 This supplementary report makes the following conclusions about two investment options for the region: i) WiMAX spectrum. It is unlikely the region can or should bid directly for the WiMAX spectrum to be auctioned in June 2007 because of the anticipated cost, risks and national responsibilities that will arise. There are several ways to influence the auction process that could improve the opportunity for early use of the national spectrum in the Bay of Plenty. The preferred option in this matter is to positively influence the tender process for the spectrum to ensure all the tendered spectrum is available to the Bay of Plenty, and this strategy is the preferred first option. Subject to a viable business case for the core network, there will be little problem in raising funds for this asset, to be owned by the region. Deliverable S2 There is a real danger that the use of much of the 2.3GHz band will be denied to the Bay of Plenty for up to four years as a result of the planned spectrum auction, other than the 15MHz of the managed spectrum park which is considered to be inadequate for broadband service provision in the region. The preferred changes to the auction process are: i) Shorten service delivery times in nominated areas for national bandwidth holders from four years to two years. i Create an opportunity to aggregate the demand for the whole region and allow substitution for a number of TLAs, to create the opportunity for greater regional aggregation and cooperation with national license holders. Force national spectrum holders to relinquish bandwidth to the managed spectrum park if demand exceeds supply for the managed spectrum park within two years of award of national spectrum. Page 5

6 Deliverable S3 The wireless spectrum auction planned by the MED for broadband service delivery is fundamentally important to the development of widespread broadband services in the Bay of Plenty. If the result of the auction were to be that auction winners did not opt to deliver services to the region, the proposed 15MHz band for the managed spectrum park is inadequate for effective competitive service delivery in the region. At worst, the result would be that the Bay of Plenty would be unable to make effective use of the newly available wireless spectrum for the delivery of broadband services. This project has taken the initiative and made clear to the MED and the Minister s office that changes must be made to the auction process to ensure more of the available band is available for use in the region. The next step is to send the letter, on behalf of all the councils in the Bay of Plenty in appendix 1 to the MED seeking their agreement to the suggested changes to the planned auction process. Page 6

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