Broadband Planning for Electric Utilities. December 17, 2015

Transcription

1 Broadband Planning for Electric Utilities December 17,

2 Agenda u Broadband technologies & drivers u Common myths vs. realities u Financial analysis structure u Consumer services & margins u Common mistakes in financial analysis u Consumer density impact to model u Funding considerations u Partnerships considerations u Potential approach 2

3 Broadband Technologies & Drivers 3

4 4

5 Benefits to Pioneering Gig Communities u Documented increase in home values and rental rates u Only a handful of gig communities to date, all of which have had extensive press coverage and host international visitors u Bond rating improvements? Fitch cited fiber as one reason for increasing rating of Kansas City, KS u Documented impact in attracting and retaining businesses, workers, and graduating students (anecdotal thus far, given early stage)

6 Chattanooga, TN u u u u Amazon.com 2,000+ jobs and growing HomeServe new call center Volkswagen & Claris Networks expanding in Chattanooga Startup Activity Retickr, Lamp Post Venture Capital, The Company Lab

7 Common Myths 7

8 Common Myths vs. the Reality u Deployment of fiber is an economic development strategy u Fiber is a tool, part of the overall strategy which includes training, utilities, financing, taxes, and other tools u A large pent up demand exists for broadband access u Marketing is critical. Must create demand by showing value it delivers to consumers. u Unlike electricity, consumers have an option of not purchasing broadband 8

9 Common Myths vs. the Reality u Cable television service has substantial positive net margin u Often is a break-even in competitive markets needed to increase broadband penetration u Rural consumers not hooked on by bundling u Advertising offers a modest revenue stream u Websites, search engines, Facebook, and others have eroded the opportunity u Opportunity varies market-by-market, need to find niche 9

10 Common Myths vs. the Reality u Wireless will offer the long-term solution for broadband u Wireless will play a role, but requires fiber access u Wireless has a 5 to 7 year depreciation cost vs. 20-plus for fiber (need to compare total cost of ownership) u Wireless has limits on supported service speeds u Advanced Metering Infrastructure (AMI) will pay for FTTP u AMI can be enhanced with fiber, but does not require it 10

11 Financial Analysis Structure 11

12 Financial Statements u Income Statement u Revenues u Allocations u Expenses u Depreciation u Interest u Taxes u Cash Flow Statement u Implementation capital u Allocations u Equipment replenishments u Sources and uses of funds u Debt service u Balance Sheet 12

13 Key Inputs Beyond Revenue u Depreciation & replenishments u Electronics (5 year, 7 year, and 10 year) u Fiber (20 plus years) u Expenses (partial) u Staffing u Contracted services u Churn u Sales and marketing u Locates u Electronics (license and annual maintenance) u Network operations center (NOC) u Content (Internet access, programming, dial-tone) 13

14 Consumer Services 14

15 Consumer Services u Data (Internet and transport) u Telephone u Cable television u Advertising Which service has the greatest revenue potential? Which service offers the greatest net revenue potential? Which service has the lowest threat of substitute products? Data 15

16 Trends in Broadband Speeds & Price $ $1.00 Monthly Fee ($) Speed (Mbps) Cost ($ per Mbps) 16

17 17

18 Cable Television Contribution Margin as a Percent of Revenue 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% 18

19 19

20 20

21 Streaming Video Internet of Things 21 Streaming Music & Audio IP Telephone 21

22 Common Mistakes 22

23 Common Mistakes u To account for inflation, add a multiplier for expenses and revenues u This approach will greatly overstate margins in the outyears (uses inflation to increase net margins) u A flat model is more appropriate u Do not inflate any revenues or expenses except maybe salaries and cable programing 23

24 Common Mistakes u Add churn with a consumer payment for connection fee greater than the cost of acquiring a new customer u This approach makes churn a contributor of revenue, rather than a loss u Churn needs to be included, but as a net cost u Using the same depreciation & replenishment period for fiber and electronics u This approach overstates cash flow projections in outyears since electronics need replenishment every 5 to 7 years 24

25 Common Mistakes u Underestimate the value of buying power 80.00%% 70.00%% Percent'of'Programing'Expenses'to'Cable'Revenues' 64.55%% 63.73%% 67.13%% 72.03%% 60.00%% 50.00%% 48.85%% 52.98%% 40.00%% 32.32%% 32.18%% 33.84%% 32.53%% 32.87%% 33.81%% 30.00%% 20.00%% 10.00%% 0.00%% 2003% 2004% 2005% 2006% 2007% 2008% Comcast% NCTC%Muni% 25

26 Impact of Consumer Density 26

27 Capital Cost Recovery $ Fiber Passing Cost (per meter per month) $ $ $ $ $50.00 $44.80 $22.40 $60.40 $ Meters per Feeder Mile 100 Percent Take Rate 50 Percent Take Rate 25 Percent Take Rate Example only actual results will vary from market to market. Based on a 20 year fiber life and 3 percent annual interest rate. Cost does not include network equipment, consumer electronics. Cost also assumed 100 percent overhead with no make-ready costs. 27

28 Funding Areas 28

29 Funding Sources u Subscriber revenues u Federal programs u Health connect u E-rate u Grants u Capital u Ongoing O&M u Bonding u Internal loans u Consumer payments u Electric utility allocations u Capital u Ongoing O&M 29

30 Partnership Considerations 30

31 Framework for Understanding Options Balance risk, benefit, and control u Municipal broadband u Incumbent upgrade u Partnerships u Model 1: Private risk & investment u Model 2: Public risk & private execution u Model 3: Shared risk, investment 31

32 Framework for Understanding Options Balance risk, benefit, and control u Municipal & Cooperative broadband u Incumbent upgrade u Partnerships u Model 1: Private risk & investment u Model 2: Public risk & private execution u Model 3: Shared risk, investment 32

33 u Risk, reward, and control all at maximum u Established strategies u Electric utility confers huge benefits u Example case studies u Ninestar, IN u Chattanooga, TN u Longmont, CO Municipal & Cooperative Model

34 Framework for Understanding Options Balance risk, benefit, and control u Municipal & Cooperative broadband u Incumbent upgrade u Partnerships u Model 1: Private risk & investment u Model 2: Public risk & private execution u Model 3: Shared risk, investment 34

35 Incumbent Upgrade u Largely catalyzed by prospect of competition (100% overlap with Google Fiber builds) u Easy upgrade path for some cable operators will deliver solid speed and good competition for FTTP u Telco upgrade path typically more challenging, requires significant investment

36 Framework for Understanding Options Balance risk, benefit, and control u Municipal & Cooperative broadband u Incumbent upgrade u Partnerships u Model 1: Private risk & investment u Model 2: Public risk & private execution u Model 3: Shared risk, investment 36

37 Model 1: Private risk, public facilitation u City facilitates private investment u Leading private entity is Google Fiber u Strong interest by smaller companies u Reduced risk, no control, potential benefit u Facilitation can expand to tax benefits, other economic development incentives u Beware entities seeking benefits without offering investment 37

38 Framework for Understanding Options Balance risk, benefit, and control u Municipal & Cooperative broadband u Incumbent upgrade u Partnerships u Model 1: Private risk & investment u Model 2: Public risk & private execution u Model 3: Shared risk, investment 38

39 Model 2: Public risk with private execution u Variation on traditional municipal ownership u All risk, benefit, and full control u Emerging innovation makes use of the traditional P3 structure used in Europe and increasingly in US u Leverages private sector strengths u First time applied to broadband in US u Guaranteed revenue stream to private partner u Financial risk u Political risk 39

40 Model 2 Case Study: Utopia u Macquarie Capital team very viable partner team u Midst of complex process with range of Utopia member communities u Turn-key private financing, deployment, operations, and revenue-sharing u Guaranteed public funding in the form of a utility fee to all residents u In some communities, will not be a politically viable model (this has been true with some in Utah) u In others, can be strong model for buildout 40

41 Framework for Understanding Options Balance risk, benefit, and control u Municipal & Cooperative broadband u Incumbent upgrade u Partnerships u Model 1: Private risk & investment u Model 2: Public risk & private execution u Model 3: Shared risk, investment 41

42 Model 3: Shared Risk u Extraordinary opportunity for innovation u Plays to strengths of both parties u From the standpoint of a locality, risk is shared but 100% of public benefit realized u Public benefit does not show up on financial statements u Private partner gets financial benefit 42

43 Model 3 case study: Westminster MD City near DC, Baltimore City will own fiber only; lease to partner to operate on open access basis Ting Internet selected as partner

44 Partnership Summary u Collaboration can enable scale u Buying coops analogous to the G&T u Partner with your counterparts and peers u Other cooperatives, including telephone u Municipals 44

45 A Few Cautions u Be skeptical of rosy projections u Be sure that risk as well as revenue are shared u Be aware of dependencies and control u Avoid snake oil (remember BPL?) 45

46 Seeking Understanding of Priorities & Goals u Balance reward, risk, and control u Potential priorities include: u Ubiquity u Consumer choice/competition u Community competitiveness u Control over infrastructure u Control over pricing u Residential sector u Small business sector u High tech sector 46

47 Fiber Deployment Potential Phases Create Backbone Connect Distribution Substations (SCADA, VoIP, Video Monitoring) Connect Transmission Substations (SCADA, Tie- Point Metering, Video Monitoring) Connect Electric Utility Facilities (Network Operations and dispatch) Create Foundation for Electric Distribution Operations 47

48 Fiber Deployment Potential Phases Create Backbone Connect Distribution Substations (SCADA, VoIP, Video Monitoring) Connect Transmission Substations (SCADA, Tie- Point Metering, Video Monitoring) Connect Electric Utility Facilities (Network Operations and dispatch) Provide Distribution Automation Support Distributed Generation Industrial Consumers Create Foundation for Electric Distribution Operations Reclosers Motor Operated Switches Expand Backbone to serve distribution assets and distributed generation - 48

49 Fiber Deployment Potential Phases Create Backbone Connect Community Anchor Institutions Medical (Hospitals and Clinics) Private Schools Connect Distribution Substations (SCADA, VoIP, Video Monitoring) Connect Electric Utility Facilities (Network Operations and dispatch) Provide Distribution Automation Support Public Schools Connect institutions and public facilities Connect Transmission Substations (SCADA, Tie- Point Metering, Video Monitoring) Distributed Generation Industrial Consumers Create Foundation for Electric Distribution Operations Reclosers Motor Operated Switches Expand Backbone to serve distribution assets and distributed generation - 49

50 Fiber Deployment Potential Phases Support Wireless (Mobile and Broadband) Connect Wireless Towers Wireless ISP s Cellular Providers Create Backbone Connect Community Anchor Institutions Medical (Hospitals and Clinics) Private Schools Connect Distribution Substations (SCADA, VoIP, Video Monitoring) Connect Electric Utility Facilities (Network Operations and dispatch) Provide Distribution Automation Support Public Schools Connect institutions and public facilities Connect Transmission Substations (SCADA, Tie- Point Metering, Video Monitoring) Distributed Generation Industrial Consumers Create Foundation for Electric Distribution Operations Reclosers Motor Operated Switches Expand Backbone to serve distribution assets and distributed generation - 50

51 Fiber Deployment Potential Phases Consumers FTTP for delivery of broadband services Deploy FTTP Multiple Dwelling Units Office Complexes Support Wireless (Mobile and Broadband) Connect Wireless Towers Wireless ISP s Cellular Providers Create Backbone Connect Community Anchor Institutions Medical (Hospitals and Clinics) Private Schools Connect Distribution Substations (SCADA, VoIP, Video Monitoring) Connect Electric Utility Facilities (Network Operations and dispatch) Provide Distribution Automation Support Public Schools Connect institutions and public facilities Connect Transmission Substations (SCADA, Tie- Point Metering, Video Monitoring) Distributed Generation Industrial Consumers Create Foundation for Electric Distribution Operations Reclosers Motor Operated Switches Expand Backbone to serve distribution assets and distributed generation - 51

52 Thank you! Tom Asp CTC Technology & Energy