City of Baltimore. Broadband Public Infrastructure Strategies Report. Draft Version 3.0 June 8, 2015

Transcription

1 City of Baltimore Broadband Public Infrastructure Strategies Report Draft Version 3.0 June 8, 2015 Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/2015 1

2 Table of Contents I. Executive Summary... 3 II. Introduction III. Process IV. Baltimore s Broadband Infrastructure Assets A. Types of Broadband Infrastructure Assets B. Mapping and Documentation of Existing Assets C. Valuation of Existing Assets V. Broadband Community Needs A. Overview of Broadband Technologies B. What is Driving Broadband Demand? VI. Opportunity Assessment for Baltimore A. Expanding Broadband Access & Availability B. Overview of Business Models C. Business Model Considerations D. Commonly Used Business Models E. Comparison of Commonly Used Business Models F. Playbook of Options for Consideration G. Matrix of Multiple Strategies VII. Ownership & Governance Structure A. Creating a Baltimore Broadband Authority B. Ownership & Operational Details VIII. Action Plan and Resources IX. Appendix A: Glossary X. Appendix B: Baltimore Broadband Maps Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/2015 2

3 I. Executive Summary The Baltimore Broadband Strategies Report presents feasible strategies that the City can utilize to enhance broadband services in its community. It provides a roadmap for the City to follow based on opportunities to leverage the City s infrastructure and policy tools to support the broadband needs of the community. The following recommendations present the most plausible broadband initiatives for the City to consider that have achievable goals and produce the greatest community benefits, in terms of meeting the community s long-term broadband needs as well as those of Baltimore s community anchor organizations and the City itself. Recommended Strategies 1. Leverage the City s Fiber-Optic Network to Provide Greater Capacity and Potential Savings to Baltimore City Public Schools Description: The City should pursue the opportunity to utilize its fiber-optic network to provide wide-area network connectivity to Baltimore City Public Schools ( BCPS ). The upgrade of the City s fiber-optic network 1 will provide sufficient excess capacity that can be utilized to deliver 1 Gbps or greater fiber-optic services to up to 206 BCPS schools and administrative facilities throughout Baltimore. Benefits: The City s fiber connectivity will help accommodate BCPS s future needs for additional bandwidth by providing wide-area network connectivity that can scale to greater bandwidths; supporting BCPS s long-term growth of classroom, teaching, and administrative technologies. Based on the analysis conducted in this Study, the City may be able to provide these services at discounts up to 30% 2 lower than current rates while enabling more bandwidth to serve the needs of Baltimore s students, teachers, and administrators. Upfront investment will be required by the City to extend its current network to each school; therefore, the business case developed in this Study should be refined to accommodate the City s budgetary constraints. This opportunity also requires that the City is able to meet the requirements of the USAC Schools & Libraries Program (commonly known as E-Rate) to ensure that BCPS s 85% average discounts for wide-area connectivity services remain intact. It will require the City to comply with the rules and regulations of the E-Rate program and become an E-Rate service provider. The City has several viable options to provide this service including dark fiber and transport service which should be considered by both the City and through discussions with BCPS to determine the most achievable solution to meet BCPS s wide-area connectivity needs.!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1 Upgrade of the City s existing 800MHZ fiber-optic network to a 216-count fiber cable over a 54-mile span is anticipated for completion in October of Actual discounts, pricing and costs should be calculated by the City based on its payback and return requirements. The initial business case utilizes a 5-year payback on a cost recovery model for the City, not including any potential debt service that the City would incur from borrowing funds. Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/2015 3

4 Risks: The City s primary risk in providing fiber connectivity to BCPS is its success in executing the implementation of this initiative. It will require the City to coordinate resources between multiple departments including MOIT, Planning, Public Works, and Finance to ensure that the City is positioned to aggressively implement the proposed network for BCPS. It will also require that the City establish funding for the construction of the fiber lateral extensions off of the City s new fiber ring to BCPS locations as soon as the contract is approved by BCPS and E-Rate. Timing is paramount in this process since the City must adhere to the delivery schedule for BCPS s services to ensure the City and BCPS maintain compliance with the E-Rate program. Failure to do so may result in BCPS losing a portion of its E-Rate subsidies, which could result in a significant unbudgeted cost to BCPS. It may also put the City s capital investment in the project at risk in the event BCPS was forced to continue its contract with the current provider. Financial Summary: BCPS currently maintains an E-Rate contract for Priority 1 Telecommunications or wide-area networking services for approximately $5,649,600 per year with a current provider. This contract provides connectivity to approximately 206 BCPS schools and administrative facilities. E-Rate provides discounts averaging 85% of this total contract cost, or approximately $4,802,160. BCPS appears to pay about $847,440 of this contract, or the remaining 15% that not covered in E-Rate funding. If the City were to provide these services directly, it would require an initial investment of approximately $16 million to build out to the 200+ schools and administrative offices. $14.5 million of this cost is direct fiber-optic construction and it includes a 10% contingency, resulting in a total cot of $16 million. Depending on BCPS s plan for future connectivity services, the City and BCPS may utilize a phased approach to connect schools and administrative sites over a 3-5 year period, which may allow for a phased funding approach with appropriations of $3-5 million each year. The details of a phased approach must be well coordinated between the City and BCPS. The City could provide a dark fiber or lit transport option in delivering fiber connectivity to BCPS, another decision that will need to be determined after further analysis of BCPS s needs. If the City provides a dark fiber solution, it will have no additional capital investments beyond capital improvement of the newly constructed fiber. If the City provides a lit transport option, it will incur an additional $1M in equipment costs necessary to provide these services to BCPS, resulting in a total capital investment of $17 million. Over the first 5-year period, the City will also incur operations and maintenance ( O&M ) costs to manage the fiber-optic network and ensure it meets the service levels required by BCPS. The dark fiber option requires $2M of O&M costs while the lit transport option requires $4M of O&M costs. Based on a 5-year payback and assuming that BCPS desires a dark fiber option, the City could provide these services for $3.6M annually by competitively bidding and winning BCPS s E-Rate contract. This would represent up to a 37% savings to BCPS over its current contract and the capability to provide 1 Gbps of connectivity to every school covered under the E-Rate contract. To maintain E-Rate funding, BCPS will eventually be required to rebid this contract and the City should expect that the competitive nature of E-Rate bidding will drive down pricing beyond the initial 5-year term; therefore, the City should expect its annual revenues to fall after this initial 5-year period. Nevertheless, even at reduced rates, the City can expect this contract to become a long-term revenue source that leverages its fiber- Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/2015 4

5 optic network. Over a 10-year period and once the City s payback is achieved, it is expected to generate between $7 - $15 million in net revenues for the City. Action Items: The City should refine the initial business case established in this Study to determine a feasible financial and operational scenario for providing fiber connectivity services to BCPS. The City should also further its initial discussions with BCPS around utilizing the City s network for BCPS s fiber connectivity needs while adhering to any E-Rate regulations concerning fair and open bidding processes. BCPS s current wide-area connectivity service contract expires in June of 2016; therefore, the City must determine the feasibility of this opportunity quickly since a potential buildout of the City s network to BCPS facilities may take up to 18 months. 2. Develop a Dark-Fiber Leasing Program to Leverage the City s New and Existing Investments in Fiber-Optic Infrastructure Description: The upgrade of the City s fiber ring presents an opportunity to develop a dark-fiber leasing program that utilizes excess capacity to expand the availability of broadband services in key corridors of the City. The City s fiber ring will overbuild 54 miles of 216-count ribbon fiber on top of the existing Net800 fiber network. The project is scheduled for completion in October of Excess dark fiber strands in this network provide an opportunity for the City to lease or sell IRU 3 capacity to broadband providers who require metropolitan fiber within Baltimore. In commercializing the fiber, the City has the opportunity to expand broadband providers access to competitively priced dark fiber in Baltimore and generate a recurring revenue stream from the use of a public asset. This program is not limited to the City s newly created fiber ring and can be employed throughout the majority of the City s fiberoptic assets where excess capacity is available. Benefits: Providers could utilize this network to enhance their local broadband services for residents, businesses, and community anchors by: Providing additional direct fiber connectivity options for customers Creating feeder and distribution networks for new fiber-based broadband deployments Increasing the capacity and redundancy of existing broadband deployments Providing lower costs to subscribers through a potential City-adopted incentive program that establishes a discounted rate structure for dark fiber leasing and IRU sales In addition, commercializing the dark fiber will provide a recurring stream to the City. The City should market and sell dark fiber leasing and IRU services to broadband providers in Baltimore at rates that incentivize these providers to make use of the City s infrastructure. In return, the City will receive onetime and recurring revenues through lease and IRU programs. Leasing will provide monthly or annual recurring revenue streams to the City while IRUs will provide a one-time upfront payment to the City!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 3 Indefeasible Rights of Use: A contractual agreement between the operators of a communications cable in which one party provides unrestricted use of a portion of the cable for a long period of time at a fixed price which is generally paid upfront.! Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/2015 5

6 for a long-term capital lease of its infrastructure. These programs should immediately utilize the City s existing fiber-optic infrastructure and should not be limited to only the newly installed fiber ring as described more completely in the full Report. Risks: The City must develop internal processes to ensure that its dark fiber meets the legal, regulatory, performance, and cost requirements of broadband service providers. Without gaining common ground with broadband service providers in these key areas, the City s dark fiber leasing program will be less successful; resulting in a lower volume of dark fiber leases/irus, less benefits to the community, and less revenues to the City itself. Financial Summary: Although no significant upfront costs should be required for the City to commercialize its dark fiber assets, some startup costs are anticipated. These include program setup costs which may include consulting, external legal and related professional fees to structure the initial program, develop rate structures, legal agreements, and organizational documents/charters. These costs are not expected to exceed $400,000 in the first year and will be reduced significantly in the following years to a nominal amount. The City may also incur some capital costs in preparing the dark fiber networks for use by broadband service providers. This Report projects a very conservative forecast for the City s dark fiber services. While demand for these services may be higher than anticipated, this Study discounts the forecast because of several reasons: The City will be a new entrant into the dark fiber capacity market The City has no previous experience leasing or selling IRUs for dark fiber Public organizations generally realize a slow start approach to providing dark fiber Broadband service providers may be hesitant to procuring dark fiber from a public organization The City can expect various types of providers to utilize its dark fiber including fiber overbuilders, mobile operators, public organizations, and wholesalers. Based on analysis of municipal dark fiber leasing and IRU programs in cities across the country, the City can expect monthly lease rates between $100 to $250 per strand mile, depending on the rate structure developed for the City s network and market acceptance of these pricing levels. The City can expect IRU rates between $250 to $750 per strand mile for 10 to 20 year IRUs, also depending on the City s adopted rate structure and market acceptance of these pricing levels. Dark fiber leases and IRUs will gradually increase over time as more adoption of the City s network is achieved with revenues growing from $500K over the first 5 years. Over the 10-year period, the program could achieve up to $6.8 million in free cash flow after operating expenses are paid, not including debt service. Action Items: Prior to commercializing its dark fiber, the City will need to determine the most appropriate ownership, governance, and operation model for this service in conjunction with Recommendation #7. The key items for the City to consider include: What agency will manage the process? Is the agency structured to manage a utility type of service? How will rates be established and what rate setting process will be utilized? How will revenues be collected and costs be paid? Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/2015 6

7 Who will negotiate dark fiber leases and IRUs on behalf of the City? Who will manage the day-to-day operations of the network? How will the City meet the service level requirements of broadband providers? The City should identify internal resources responsible for developing answers to these key questions including MOIT, public works, utilities, the department of transportation, and the City attorney s office. The City should develop the tactical plan through MOIT and in conjunction with other City departments. 3. Leverage the Baltimore Department of Transportation s Conduit System as a Platform to Expand Broadband Availability Description: The Department of Transportation s (DOT) extensive underground conduit system could become a key resource to use in expanding the availability of broadband infrastructure in Baltimore. This Study analyzed the City s current documentation on the conduit and based on this initial analysis, this Report recommends that the City institute a program to proof sections of the conduit that have value to broadband development in the City. The City should engage its Department of Transportation to complete a feasible conduit-proofing program in areas prioritized for economic and community development. On successful proofing, the City will allocate conduit into its inventory of available broadband assets for employment with City technology projects and in conjunction with broadband service providers. Benefits: The significant cost of building underground broadband infrastructure in Baltimore makes the City s conduit system a resource that could incentivize broadband service providers to accelerate their deployments; reducing some of the initial investment needed to deploy fiber-optic networks in the City. In its current state, the conduit system will need significant proofing and documentation of usable resources; however, if the results are positive, the City will have identified an important resource that can be leveraged with broadband service providers to expand access and availability. Similar to the City s dark fiber networks, the conduit systems can be leased to broadband service providers to serve more of Baltimore s communities. These leases may be particularly attractive for fiber overbuilders that are interested in delivering fiber-based broadband technologies into residential and business areas. Risks: Although the City s conduit system is a significant asset for use in broadband initiatives, the proofing process will determine its overall usability in these projects. Physical proofing will determine not only the physical condition of the pipe but also the feasibility of accessing it. Access is an important issue, particularly in heavily built-out urban environments. The City will need to determine what infrastructure is available that provides access to conduit including vaults, handholes, manholes, and other outside plant structures. Sufficient proofing, access, and documentation of the City s infrastructure are precursors to commercializing DOT s conduit system. Broadband providers will require certain industry standard specifications to be met prior to negotiating the use of the conduit system. Financial Summary: If the City chooses to outsource the proofing of DOT conduit to external contractors, the City can expect to incur labor charges at the prevailing rates for inspection of outside plant facilities. Magellan recommends Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/2015 7

8 that the City internalize this process where possible to eliminate any external costs from such contracts where staff can be assigned to this project. Revenues attributable to the lease or IRU sale of DOT conduit are indeterminable at present due to the current state of the asset and its overall usability in future broadband projects. Action Items: The City should employ the resources of DOT to institute a proofing program for the conduit across key areas of the City. DOT should work with MOIT to analyze, document, and digitize conduit in targeted areas of the City (more fully described in the full Report). 4. Enable and Incentivize the Use of the City s Vertical Assets to Promote More Wireless Broadband Development Description: The City maintains ownership of vertical assets including towers and rooftops throughout various corridors of Baltimore. These assets are currently utilized primarily for public safety communications to support the City s 800 Megahertz wireless network. Available capacity on these structures may be utilized to support the future buildout of wireless infrastructure in Baltimore at rates that are more competitive than commercial tower leasing rates. These assets are predominantly connected to the City s fiber ring which would enable wireless providers to gain access to high-speed fiber backhaul to support higher speed wireless data within the City. Benefits: Leveraging Baltimore s vertical assets may provide a valuable resource to accelerate wireless data and broadband deployments throughout the City. Due to the high deployment costs of fiber-optic broadband services that result in lethargic deployments, wireless broadband options may provide a valuable interim option to get enhanced broadband services to residents and businesses across the City. Where feasible, the City s towers and rooftops can facilitate the last mile wireless connections, allowing wireless broadband providers to reach more of the community and while providing a sufficient option to expand access to broadband for residents and businesses. Risks: The availability of the City s vertical structures will be subject to any City ordinances governing access to structures that support public safety services. In the event that restrictive ordinances limit commercial use of these towers and rooftops, the City will be limited in the amount of capacity available to support wireless data and broadband service providers. The City will also be required to develop an appropriate organizational structure that allows for the leasing of available space on towers and rooftops. This organizational structure is presented more fully in Recommendation #5. Financial Summary: Wireless tower and rooftop leasing is not anticipated to become a significant source of revenue for the City and is expected to achieve only a marginal net revenue after costs such as contract and program management are accounted for by the City. Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/2015 8

9 Action Items: The City should work with the Baltimore Police and Fire Departments to determine if any ordinances exist that prohibit the City from leasing access to its vertical assets. In accordance with Recommendation #5, the City should determine the most appropriate organizational structure and contract vehicles through which it can negotiate, authorize, and approve such leases. 5. Establish an Autonomous Baltimore Broadband Authority ( BBA ) that Enables the City to Implement Broadband Initiatives Under an Appropriate Governance and Ownership Structure Description: Broadband has become the must have utility for the 21 st century and beyond. Similar to electricity and telephone service, broadband has become the basic building block required to grow and sustain economic development. Going forward, broadband planning, management, and governance will be the starting point for all other community activities and service delivery platforms. The current and future broadband inventory and possibilities of how to use and leverage these assets are critical elements of successful implementations of all future services for the City of Baltimore and economic well being of the city. It is with this background and for these reasons that the City should establish a Baltimore Broadband Authority (BBA). Much like Metropolitan Transit Authorities or Utility Authorities, for the City to be effective in engaging its broadband assets to expand services, it will need to adopt the right organizational structure and governance model to serve as custodian of the assets. At present, the City has significant broadband assets composed of conduit, dark fiber, lit fiber, vertical structures, and other City-owned properties that can be leveraged for the benefit of bringing more broadband to Baltimore s residents, businesses, and community anchors. However, the City needs an organizational structure that will receive assignment of broadband assets, manage these assets, and implement programs to commercialize them; allowing the City to engage with other public organizations and broadband service providers who will utilize them. This structure will be dependent on a comprehensive legal and regulatory analysis of Baltimore s options to determine what structures the City can utilize to commercialize its broadband assets including utility models, non-profit organizations, and publicprivate partnerships. Once the most appropriate model is chosen, the City will need to develop the organizational structure, governance model, regulatory filings, and legal documents to support that model. This process will also determine how the Entity will be managed and staffed within the City. Based on our analysis of the City s current status, a broadband Enterprise Fund model may be the most appropriate structure for the City s broadband initiatives. It would enable the City to manage its broadband assets within an internal organization of the City, maintain separate accounting and records, and potentially establish a governing board composed of personnel from the City s departments that maintain oversight of these assets. This structure would allow the City (through this Authority) to maintain complete control over its broadband assets yet have the structure through which it could negotiate and enter into agreements. Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/2015 9

10 Benefits: Consolidating Baltimore s broadband assets under a single entity would enable the City to more easily manage the asset base and programs associated with it. This Report proposes a number of broadband strategies that require the coordination of multiple City departments to be implemented effectively. This entity will be responsible for coordinating the functions, resources, and strategies between departments to utilize the assets in broadband initiatives. This recommendation does not envision a new department but rather an Authority that will be composed of staff from multiple departments who maintain responsibility for their respective areas of expertise regarding broadband assets. Risks: The City may face resource allocation issues associated with developing the organizational structure for its broadband initiatives. The City will need to assess its internal capabilities for managing a broadband infrastructure program and decide how it will supplement its existing staff to effectively administer such a program. This includes assessing internal staff capabilities, resources, and workload as well as considering outsourcing certain broadband infrastructure functions to external organizations with particular capabilities in this area. The governance model must also consider key issues in commercializing the City s broadband infrastructure that pose political, financial, and regulatory risk to the organization if not managed properly. Below is a list of these key questions that must be carefully analyzed by the City: How will joint investment in broadband infrastructure be accomplished between the City and private sector organizations? How will the City balance private sector goals of revenue growth and profitability with public goals of providing affordable and easily accessible broadband services? How will future system expansion be handled between the City and private sector providers and what contributions will the parties make to infrastructure investments? How will the City maintain a neutral and non-discriminatory status with broadband providers and promote a competitive environment that benefits the City s broadband user base? Financial Summary: Although the City will bear internal costs to develop the Baltimore Broadband Authority, it is unclear what resource allocations will be required of the City to establish and manage the entity. The second phase of the Public Broadband Infrastructure Strategies project will work to determine the potential costs borne by this program and indicate the total current resource allocation as well as any new costs associated with the Authority. Action Items: The City should conduct a thorough internal review of the legal and regulatory framework under which it can commercialize its broadband assets. This review will: Identify how the City will implement the BBA using internal and external resources Determine the oversight board and roles required in the BBA Determine the total costs to the City for implementation and management of the BBA Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/

11 ! Summary of Recommendations Recommendation Key Benefits Total Cost Payback or Return Risk 1. Leverage the city s fiber-optic network to provide greater Capacity and potential savings to Baltimore City Public Schools 1 Gbps to every school Future proof BCPS s technology needs New City revenue source $16 Million $7-$15 Million Over 10 Years Moderate 2. Develop a dark-fiber leasing program to leverage the City s new and existing investments in fiber-optic infrastructure Expand access & availability New City revenue source Fiber-based broadband options for businesses and residents $400,000 $6.3 Million Over 10 Years Low 3. Leverage the Baltimore Department of Transportation s conduit system as a platform to expand broadband availability More broadband access to City neighborhoods & business corridors Internal Costs Only Payback & Return are TBD Moderate 4. Enable and incentivize the use of the City s vertical assets to promote more wireless broadband development Increased fixed wireless broadband coverage in neighborhoods Greater mobile wireless data bandwidth More broadband options for businesses & residents Internal Costs Only Break-Even Scenario Low 5. Establish an autonomous Baltimore Broadband Authority ( BBA ) that enables the City to implement broadband initiatives under an appropriate governance and ownership structure Creates City authority to implement broadband initiatives more easily & with control Internal Costs Only Not Applicable Moderate Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/

12 II. Introduction! The City of Baltimore issued a Request for Proposal ( RFP ) to secure services from consultants with proven expertise and experience in developing planning strategies for effectively utilizing and growing the City s current broadband infrastructure. This infrastructure currently supports the City of Baltimore s municipal operations and could possibly be leveraged to provide additional services to the community. It supports Baltimore s various City departments such as public safety (Baltimore Police Department, BPD, Baltimore City Fire Department, BCFD ), Department of Public Works DPW, Department of Recreation and Parks Rec & Parks, to name a few. It supports the City s public safety organizations ensuring vital communications are available for fire, police, and emergency responders. It supports the local government applications and how these organizations interface with citizens. Further, it has the capacity to enhance Baltimore s economic and community development strategies by improving the access, availability, and affordability of Baltimore s local broadband services. The City of Baltimore has an opportunity to positively influence the development of broadband services for the benefit of the community. By utilizing its existing City-owned infrastructure, strategic investments in new broadband infrastructure, and broadband-friendly public policy tools that are at its disposal, the City can increase access, availability, and affordability of broadband within the City. This requires the participation of multiple public and private entities including Baltimore s schools, libraries, healthcare, and community support organizations, as well as private broadband providers. This Baltimore Broadband Strategies Report presents feasible strategies that the City can utilize to enhance broadband services in its community. It provides a roadmap for broadband development based on opportunities to leverage the City s infrastructure and policy tools to support the broadband needs of the community. Magellan Advisors was selected by the City of Baltimore through a competitive procurement to develop the Baltimore Broadband Strategies Report. Magellan works with cities nationwide addressing broadband and technology issues in their communities by developing feasible solutions that leverage public sector strengths and private sector competencies. Magellan specializes in developing strategies that result in deployment of affordable, high-speed broadband services, in conjunction with local service providers, community anchors, businesses, and residents. Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/

13 III. Process! Magellan s approach began with a comprehensive goal and expectation setting exercise with the City s project team; this was critical to determining the desired outcomes and measuring the level of success the project achieved. We anticipated coordinating with the stakeholders involved in the project to determine the beneficiaries of future broadband development within the City and greater community. We suggested incorporating all relevant stakeholders into the process to achieve desirable outcomes for economic and community development, efficient public administration, and future broadband development. Upon completion of this initial step, Magellan inventoried City-owned infrastructure to allow the project team to formulate a baseline of broadband assets. The baseline helped identify what infrastructure was available throughout the greater Baltimore region. Once documented, Magellan utilized comparisonbased valuation methods ( comps ), a Cost to Install and Market Valuation methodologies to determine the overall value of the infrastructure. Magellan identified comps in the market for conduit, fiber, and other assets from the current telecommunications market and derived a valuation of the City s infrastructure for use in negotiating use, pricing, and investment in the project. Magellan utilized comparisons in similarly sized cities to Baltimore and in cases where municipalities sold, leased or exchanged in-kind value with service providers for use of these assets. Magellan proceeded to conduct a comprehensive needs analysis of the region, focusing particularly on the community anchors, such as education, healthcare, City, and related organizations. In addition, Magellan evaluated broadband availability within business and residential communities in the Baltimore area to determine how the market is currently served and what impact the City s broadband assets had on expanding advanced broadband in the region. The needs analysis is a critical component to determining how the City s infrastructure may be utilized by service providers, valued in the market, and expanded to meet future needs. During the analysis, Magellan worked with the City and key community anchors within the City to determine strategic applications of the Inter-County Broadband Network ( ICBN ) network to promote long-term expansion of broadband in Baltimore. The ICBN is a 17-mile segment of 216-strand fiber running through downtown Baltimore, connecting Anne Arundel County on one side, and Baltimore County on the other. ICBN was part of a Department of Commerce Broadband Technology Opportunities Grant (BTOP) grant awarded in 2010 to the State of Maryland. The grant was funded by the American Recovery and Reinvestment (ARRA, or Stimulus) Act. ICBN fiber was installed in 2013, and the grant closed in 2013.) The ICBN network also interconnects the majority of the City s fire stations to one another using a mix of City-owned-fiber and ICBN-installed fiber. Magellan created an overlay of the ICBN network on top of the City s fiber and conduit infrastructure to determine what current and future opportunities existed to bring ICBN s services to local community anchors in the Baltimore market. The analysis also identified open-access opportunities whereby service providers could expand further into the Baltimore market from other points in the ICBN. These open-access opportunities would potentially help the City s current providers reach more of the community and create an environment where new providers could enter the market more easily. Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/

14 From Magellan s study of the Baltimore market and the needs assessment, Magellan developed a comprehensive market and demand plan that forecasts broadband expansion through use of the City s infrastructure. It details the types of services, types of customers, customer uptake, and growth across the City. The market and demand plan indicates the total impact of the City s network to the greater Baltimore community by illustrating how the network could be used to expand advanced broadband services. Magellan considered both direct and indirect impacts of employing the City s infrastructure on the City itself and the Baltimore community, including:! Revenue-generating opportunities from lease of the City s broadband infrastructure assets by broadband and utility providers, businesses, and other organizations needing fiber-optic capacity; Revenue-sharing opportunities with broadband providers utilizing public-private partnerships; Cost reducing opportunities for the City itself through utilizing the broadband infrastructure assets to support more of the City s municipal operations; Tax base increases to the City through employing Baltimore s broadband infrastructure as an economic development tool to attract new business Potential cost reductions that businesses and/or residents may receive in their services through utilization of the City s broadband infrastructure. Based on an analysis of available assets and the mix of public and private organizations, Magellan assisted the City to understand and identify optimal business models to be implemented and potential structures that may be used to accomplish the City s goals. This included evaluation of different public and private ownership options. Magellan assisted the City evaluate appropriate governance options for the potential business models that would help the City ensure that its broadband initiatives were managed appropriately, paying particular attention to governance structures employed by local government organizations in broadband projects. This process evaluated the regulatory and statutory requirements for Maryland municipalities to engage in the lease, sale and exchange of broadband infrastructure with both other public and private organizations. The project covered the following subject matter areas: A. Governance and Ownership Strategies Magellan assisted the City in developing and evaluating various governance and ownership strategies including public/private partnerships, joint ventures, special authorities and non-profit organizations. This analysis identified the environments in which the City could engage with public and private organizations to employ the use of its broadband infrastructure, and key issues that determined what structures best ensured the City s goals. Some of the key questions addressed include: How will joint investment in broadband infrastructure be accomplished between the City and private sector organizations? What organizational and operational structures should be considered by the City and private sector organizations in use of the City s broadband infrastructure? How will the City balance private sector goals of revenue growth and profitability with public goals of providing affordable and available broadband services in the City? Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/

15 How will future system expansion be handled between the City and private sector providers and what contributions will the parties make to this infrastrucutre? How will the City maintain neutrality and non-discriminatory practices with private sector providers, promoting a competitive environment that benefits the City s broadband user base and ensures compliance with state and federal statutes? What organizational structures are optimal to ensure the City maintains compliance with state andfederal statutes. What changes to Baltimore law and regulation are required to support the new governance structures? How will the City measure success of potential engagements to ensure that public-private partnerships have lived up to their goals set by the parties.! B. Financial Pro Forma Development and Business Planning Magellan conducted significant financial and business planning to help the City determine feasible business models and long-term financial sustainability of various broadband initiatives. Magellan presented viable alternatives to Baltimore to help the City understand the pros and cons of each from a financial perspective. This process developed various scenarios that Baltimore could pursue in employing its broadband infrastructure and a pro forma financial model for each one. Magellan utilized its Broadband Financial Sustainability Model to forecast and analyze financially feasible options for the City and determine performance metrics for each scenario that enabled the City to determine the ones that were most appropriate for its organization, from a risk/reward perspective. Magellan incorporated the following functional areas into this analysis: Demand Planning Forecasting Services Portfolio Rates and Adjustments Market Strategy Growth Management Financial Planning Funding Strategy C. Funding Strategies Analysis Magellan worked with the City to determine viable funding solutions for those options that required a public funding component. Magellan modeled projected capital and operating costs related to buildout and implementation of broadband infrastructure. Magellan identified potential system revenues generated by investments in the infrastructure to understand how these cash flows supported future operating and capital costs as the infrastructure expands. This information was critical to accurately predict the type and amount of funding required to make the recommended strategies sustainable and to ensure debt service coverage. Some of the areas Magellan examined include: Total amount of funding needed for the project Capital versus operational funding needed for the project Funding term, identifying short-term and long-term portions of funding Taxable versus tax-free financing Short-term and long-term bond analysis Short-term and long-term loan analysis Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/

16 Institutional, regional, and local bank financing Debt service coverage analysis Optimizing public and private funding sources State and Federal grant and loan programs such as FirstNET, USDA RUS and the Healthcare Connect Fund D. Public/Private Partnership Development A critical step in this project was the identification of potential partnerships with both public and private organizations. The City s broadband infrastructure is a key asset that will have long-term, positive impact on enhancing broadband conditions in Baltimore; however, it must be employed with the right combination of partners from Baltimore s local public organizations and broadband service providers. Public partners, including local schools, hospitals, government and public safety organizations have a key role to play in becoming users of Baltimore s broadband infrastructure while private organizations, including broadband and utility providers have a key role to play in delivering services to Baltimore s community. Magellan assisted the City to determine what roles each of these organizations would play in the City s broadband initiatives and how together these public/private partnerships could enhance local broadband. E. Coordination with ICBN Magellan worked with the City to determine the strategic benefits of working with and partnering with the ICBN network. Magellan identified opportunities to expand the use of the ICBN, for community anchors, and wholesale providers. This analysis identified new opportunities for service providers to expand services within the Baltimore market from through use of available ICBN capacity, creating a more diverse and competitive telecommunications market with greater reach into Baltimore s communities. F. Mapping and Valuation Magellan s team implemented comprehensive GIS-based mapping of Baltimore s broadband infrastructure to determine the locations of available assets for use in the project. In addition to this infrastructure documentation process, Magellan completed a market study of Baltimore s broadband availability and penetration. This analysis helped determine how Baltimore was served by broadband providers and how many users in Baltimore subscribed to broadband services, using a granular analysis of every census tract in the City. The goals of Magellan s analysis are to achieve the following: 1. Geocorrect documentation of the City s conduit, fiber networks, manholes, vaults, handholes, towers, rooftops, and related infrastructure; 2. Accessibility of this infrastructure along each route to determine how it may be expanded, interconnected, and utilized by City departments, community anchors, utilities, and broadband providers; 3. Initial capacity of the infrastructure its availability for use in the project, including conduit space, innerduct, fiber strands, cable slack, tower space, rooftop space, and related infrastructure; and, 4. From the documentation of these assets, determination of their valuation using several different approaches, including a cost to build today approach and a fair market valuation approach. Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/

17 The maps enabled the accurate analysis and reporting on key broadband infrastructure assets throughout Baltimore. Once all infrastructure inventories were identified, Magellan assisted the City by providing valuation of the City s current infrastructure using several approaches including a cost to install valuation and a market based comparison valuation. G. Goals and Objectives In this Study, the City desires to evaluate the opportunities to utilize its broadband infrastructure assets and public policy tools to positively impact the development of broadband within Baltimore. The key objectives of this study are to: 1 Document and inventory the City s current broadband infrastructure and determine its availability for use in potential broadband initiatives. 2 Determine a fair valuation for the broadband infrastructure owned by the City to use in supporting the City s needs for potential broadband initiatives. 3 Determine a range of feasible business models that the City may employ to expand broadband in Baltimore through use of its broadband infrastructure. 4 Identify a range of public-private partnership opportunities that the City should consider in expanding broadband in Baltimore. 5 Identify feasible ownership and operations models that the City should utilize with public and private organizations to expand broadband in Baltimore. Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/

18 IV. Baltimore s Broadband Infrastructure Assets! Baltimore owns a range of potential assets that may be employed for use in developing long-term broadband strategies, termed in this study the Broadband Infrastructure Assets. These include outside plant resources that have been installed by the City over many years or have been built cooperatively between the City and local utility or telecommunications providers who provide services to residents and businesses in Baltimore. Cities across the country have achieved success in using their broadband infrastructure assets to serve their local communities, as described in Section IV: Goals and Objectives. The City has substantial assets that could be utilized to improve broadband access, availability, and affordability in Baltimore. This section lays out the initial scope of Baltimore s assets to provide a baseline framework from which to develop a range of utilization strategies, broadband opportunities, and business models for the City to consider. A. Types of Broadband Infrastructure Assets The City of Baltimore owns the following types of broadband infrastructure assets. Conduit Infrastructure Conduit is protective tubing that is used in broadband communications systems to carry fiber-optic and copper cables in underground environments. Conduit is generally constructed of high-density polyurethane pipe and comes in various sizes to support different broadband applications. The City owns significant conduit infrastructure that runs through many City corridors. Fiber-optic infrastructure owned by the City is installed in much of this conduit system. In addition to the physical pipe, conduit infrastructure includes structural elements that are used to contain fiber-optic and copper cables. These include vaults, manholes, handholes and other structures that are placed in the ground to connect segments of conduit. Fiber-Optic Infrastructure Also known as optical fiber, a physical cable constructed of extruded glass through which light signals are carried between communications systems. The City maintains a significant amount of fiber-optic infrastructure that is used to support municipal communications across information technology, public safety and other functions. Dark Fiber Infrastructure Dark fiber provides the physical fiber-optic strand or strands for use in a communications infrastructure, contrasted to lit fiber, whereby a transport service or circuit is provided for the infrastructure. For the purposes of this report, dark fiber infrastructure denotes fiber-optic cables owned by the City and available for use in potential broadband projects. Lit Fiber Infrastructure A communications service running over a physical strand of fiber-optic cabling, otherwise known as transport service or a circuit. The City has implemented many lit fiber networks that provide connectivity between municipal buildings, network-connected video cameras and wireless systems. Baltimore Broadband Public Infrastructure Strategies Report - Draft /08/