Professional Documents
Culture Documents
WASHINGTON, D.C.
Agenda
• Overview
• Demand Benchmarks
• Cost Benchmarks
agenda,05-13-04,UTPDYN01A.ppt npl,
DEAN & COMPANY 1
Summary
• Dean & Company have evaluated the feasibility of UTOPIA’s Eleven City Build with an emphasis
on the Phase 1 plan. We have evaluated Phase 1 on a standalone basis. It is our understanding
that the future phases will follow, based on Phase 1.
• While it represents a smaller footprint, the Phase 1 plan remains feasible, given the fundamentals:
— Conservative and Expected take rates are within the achievable range given the experience of other broadband
overbuilders and competitive service providers.
— Planned build out rates are conservative, particularly since the scope of construction is lower than the 18 city plan
— The Open Access, IP-based business model remains consistent with the evolution of competition and technology in
the telephone, internet, and video services markets
— Wholesale price levels are sufficiently low for service providers to become profitable on UTOPIA, and are
comparable to or more attractive than wholesale access over the incumbent telephone and cable networks. This
holds even considering the price pressure on local and long distance telephone services placed by voice-over-IP
services.
— Active/Ethernet technology choice is well-suited over the long term for UTOPIA’s model, leverages a broad
supplier base, and has minimal risk of obsolescence by other technologies, including wireless
— Projected capital and operating costs are within the range of comparable projects, and take into account the
important costs drivers for FTTH/B networks (e.g. aerial vs. buried mix, replacement lifecycles). The Phase 1 plan
is large enough that fixed costs (e.g. NOC) are lower on a per-subscriber basis than the costs that are driven by
homes passed (terminal costs) and by subscriber density (distribution, maintenance) - i.e. Phase 1 is large enough to
achieve required economies of scale in construction and operation.
• Overview
• Demand Benchmarks
• Cost Benchmarks
agenda,05-13-04,UTPDYN01A.ppt npl,
DEAN & COMPANY 4
Given the experiences of other municipalities and over-builders, UTOPIA’s
predicted take-rates over time are feasible
80% Harlan, IA
80%
Cedar Falls, IA
10% 10%
Bristol, VA
0% 0%
0 1 2 3 4 5 6 7 8 0 1 2 3 4 5 6 7 8
Average Average
16% 46% 36% 45% 41% 56% 29% 42% 43% 45%
Take Rates Take Rates
100%
Any 1
Any 1 Any 1
15%
18% 20%
1 to 2
services A La
80% 37% Carte
and 2 1 to 2
Product services
Bundles
Percent of Any 2 Any 2 Any 2
50%
66%
37% 37% 30%
Subscribers 60%
taking one,
two, or
three
services 40%
2-3
Service
Triple Bundles 3
Triple Play 63%
Triple Service
Play 50%
Play Bundles
20% 48%
50% Bundle
45%
34%
0%
UTOPIA UTOPIA SureWest RCN Everest Harlan, IA
(2005) (2009)
70%
60% Utopia
61%
Percent
of 50%
Customers
40%
30%
20%
10%
0%
Everest
Everest
Everest
RCN
RCN
RCN
Cedar Falls, IA
Harlan, IA
Glasgow, KY
Newnan, GA
Astound
Astound
Tacoma, WA
Astound
Cedar Falls, IA
Newnan, GA
Harlan, IA
Scottsboro, AL
Glasgow, KY
Harlan, IA
Utilicom
Ashland, OR
Newnan, GA
Knology
Utilicom
Knology
Utilicom
Ashland, OR
Tacoma, WA
Scottsboro, AL
Knology
Utopia likely to exceed Utopia likely to come under Utopia likely to exceed
benchmark average given their benchmarks given their focus benchmarks given higher regional
lesser focus on voice on video demand for internet
80% 80%
74% 15%
70% 70%
64%
60% 60%
54%
50% 50% 31% Satellite
59%
40% 40%
20% 20%
33% Cable
10% 10% DSL 4% 10%
5% Cable Modem 7%
0% 0%
UTOPIA Region U.S. Average UTOPIA region U.S. Average
$120
$98
$100
$91
$0
National UTOPIA Conservative Conservative
Average Spend Case ARPU Case ARPU
(2005)1 (2008)
Price Comparisons
– Triple Play Packages –
$180
$160
$140
$120
Price $100
per
$80
Month
$60
$40
$20
$0
Basic Mid Premium Full Super Totally Totally Resilink Resilink Local California National
Circuit Charged Wired Wired Plus Gold Platinum
Price
Price $82.05
$82.05 $119.45
$119.45 $153.48
$153.48 $84.95
$84.95 $109.95
$109.95 $139.95
$139.95 $149.95
$149.95 $135.00
$135.00 $159.00
$159.00 $109.95
$109.95 $119.95
$119.95 $142.90
$142.90
Local
LocalPhone
Phone 11line
line 11line
line 22lines
lines 11line
line 11line
line 11line
line 11line
line 11line
line 22lines
lines 11line
line 11line
line 11line
line
Features
Features 33 33 66 00 66 11
11 11
11 33 44 44including
including 44including
including 44including
including
voicemail
voicemail voicemail
voicemail voicemail
voicemail
LD
LD--Free
FreeMinutes
Minutes 100
100 150
150 120
120 00 00 Unlimited
Unlimited
Basic
BasicCable
CableChannels
Channels 70+
70+ 70+
70+ 70+
70+ 70+
70+ 81,
81,11box
box 81,
81,22boxes
boxes
Digital
DigitalCable
CableChannels
Channels 100
100 150
150 150
150 40+
40+ 40+
40+ 40+
40+ 40+
40+ 35
35 35
35 150
150 180
180 230
230++
Internet
Internet 1M
1M 10
10M/Sec,
M/Sec, 10
10M/Sec,
M/Sec, 256K
256K 1.5M
1.5M 3M
3M 3M
3M 3M
3M 3M
3M 10M
10M 10M
10M 10M
10M
10G/Mo.
10G/Mo. 20G/Mo.
20G/Mo.
$40
Conservative Case: Expected Case: Additional Subscribers
28,752 Connected Homes 29,259 Connected Homes
Voice and Internet
• Phase 2: 51,167
Triple Play • Phase 3: 82,587
$30
Voice Only
Service $20 (Local + LD, Circuit switched)
Provider
NPV Internet Only
($MM) $10
Video Only
$0 (renting UTOPIA head-end)
($10)
0 10,000 20,000 30,000 40,000 50,000
Note: Based on proposed UTOPIA service charges as of April 2004 plan, assumes that service provider offer 20% discount to standard retail price
017,05-13-04,UTPDYN01A.ppt unk, cgL3
DEAN & COMPANY 11
VoIP offers will continue to provide service providers with sufficient margin for
profitability
VoIP Pricing
– Residential Calling Plans –
$45
$39.99
$40
$34.99
$35
$29.99
$30
$24.99
Monthly $25
Charges $19.99 $19.95
$20
$14.99
$15 $12.25
$1.25 Access Charge
$10
$0
Regional National National Local Regional1 National AT&T UTOPIA
Plan Plan Plan Plan Plan CallVantage2 Wholesale
Pricing
Voice Glo Packet 8 Vonage
$100 $24.77
Average = $98.49
Monthly $88.16
$60.20
Spending per $80 $17.95 $76.26
Household $16.82
$68.03
$47.66
$60 $12.35 Internet
$37.26
$32.66 $28.43 Phone
$40
$52.89
$20 $41.25
$32.95 Cable
$26.78 $27.25
$0
Quintile: 1 2 3 4 5
• Overview
• Demand Benchmarks
• Cost Benchmarks
agenda,05-13-04,UTPDYN01A.ppt npl,
DEAN & COMPANY 14
UTOPIA’s scale-adjusted projected network operations cost is comparable to
other operators
$100
UTOPIA
$/ Phase 1 UTOPIA
Expected Phase 3
Home $10 Expected
Passed/
Month
RCN Qwest
Typical MSO
90% Scale
Log/Log
Log/Log
$1
10,000 100,000 1,000,000 10,000,000 100,000,000
Note: NOC costs include asset management, headend, co-location, and interconnect expense. Field expenses include field maintenance and electronics maintenance.
Source: UTOPIA cost and revenue model, April 2004; company statements; Dean & Company research
045,05-13-04,UTPDYN01A.ppt npl,
DEAN & COMPANY 15
UTOPIA’s planned fiber construction costs are consistent with our experience
$40 $300
$37 $37
$264
$32 $250
$30
$200
$200
$177
$/Mile $/Mile
(000s) $20 $17 (000s) $150
$99
$93
$100
$80
$10
$50
$0 $0
Public Utility UTOPIA Beltway Cable Public Seattle, Palo Alto UTOPIA TCS Beltway
District Cable Overbuilder Utility Washington Commu- Cable
Telecommu- Services District nications Services
nications Telecom-
Study munications
Study
$10,000
Actual Build Costs
$9,000
Planned Build Costs
$8,000 UTOPIA 18 City Build
Everest
$7,000 Phase 1 Expected
HFC
Chiliclothe
$6,000 Telephone
VDSL
$5,000
Hometown, Morris MN
FTTH
Capital Cost $4,000 Palo Alto
FTTH Ashland, OR RCN
per Subscriber HFC HFC Eagle BB
(Log Scale) $3,000
Palo Alto FTTH
FTTH
Murray Electric Harlan, IA Kutztown, PA
HFC American FTTH
Broadband Scottsboro, AL
$2,000 HFC HFC
Corning Estimate
FTTH in New
Housing Development
$1,000
20% 30% 40% 50% 60% 70% 80%
Penetration — Subs per Home Passed
Note: Palo Alto costs include core network and subscriber drops but not headend
Capital cost per subscriber defined as cumulative capital expenditures over installed subscriber base
Source: UTOPIA Business Model, Palo Alto business case, company websites
007,05-13-04,UTPDYN01A.ppt ini, cgL4
DEAN & COMPANY 17
UTOPIA’s build-out rate appears to be achievable
2,000,000
1,800,000
RCN
(includes
1,600,000 acquisitions in
years 4 & 5)
1,400,000
1,200,000
Homes 1,000,000
Passed
800,000
Altrio - plan
600,000
Years of Operations
FTTH Deployments
– 2002 –
Active Passive/PON
80-100K 10-20K
• Grant County - WA (ZIPP) • Palo Alto Utility - Palo Alto, CA
• WIN - Sacramento WA (include HFC drops)
• Lyse Tele - Norway
• Fastweb - Italy
Ethernet/ • B2 - Sweden
IP • Competisys - American Canyon/CA
<10K 40-60K
• Few • Bell South - Dunwoody, GA (trial)
• Blair Tel. - NE
• Rye Tel - Colorado City, CO
• NexTech - KA
ATM • Itex Communications - TX
• Baldwin Telecom - WI
• Bristol Utilities - VA
• Hometown Solutions - Morris, MN
• Kutztown, PA
• SBC - Mission Bay, CA
024,05-13-04,UTPDYN01A.ppt sbg,
DEAN & COMPANY 20
Agenda
• Overview
• Demand Benchmarks
• Cost Benchmarks
agenda,05-13-04,UTPDYN01A.ppt npl,
DEAN & COMPANY 21
The various cases test the Phase 1 plan’s ability to withstand competitive
pressures, demand declines, and cost overruns
Escalated
Escalated Competitive
Competitive
Plan
Plan Assumptions
Assumptions Downside
Downside
Response
Response
Demand • 100% recovery of premise wiring • Marketing War • 100% recovery of premise wiring
Assumptions — 50% recovery of premise wiring
• Residential Churn: 16% • Residential Churn: 16%
— Residential Churn: 25%
• Business Churn: 9% • Business Churn: 9%
— Business Churn: 20%
• No price war • No price war
• All-out: Marketing War + Price War
— Additional 20% price discount for 3
years (on top of 20% discount already
assumed) passed through to UTOPIA
Cost • Expected operating cost level • Expected operating cost level • 20% higher operating costs
Assumptions
• Expected product mix • Expected product mix • 10% Higher CapEx costs
• Expected CapEx costs • Expected CapEx costs • Cap on growth in revenue per
subscriber for data (Data mix
frozen in Year 5)
Conservative Case
50%
40%
Take Rate
(% of homes
passed that 30%
take 1 or
more
services) 20%
Downside ramp
(e.g. retail providers
drop the ball)
10%
0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Scenario Overview
– Key Financials –
Combined
Escalated Competitive Response Downside and
Assumptions Competitive
Take Rate Plan Marketing War All-Out Downside Response2
• Expected
— Minimum Debt Coverage1 1.75 (2008) 1.69 (2008) 1.65 (2008) 1.48 (2008) 1.39 (2008)
— Construction Loan $80.65MM $83.5MM $86.0MM $85.1MM $91.2MM
— Bond $85MM $86MM $88MM $88MM $91MM
— Largest Annual Cash Deficit — — — — $4.3MM (2007)
— Largest Cumulative Cash Deficit — — — — $4.7MM (2008)
• Conservative Case
— Minimum Debt Coverage1 1.44 (2008) 1.31 (2008) 1.29 (2008) 1.17 (2008) 1.11 (2008)
— Construction Loan $77.25MM $81.0MM $82.4MM $82.35MM $87.95MM
— Bond $85MM $90MM $91MM $91MM $91MM
— Largest Annual Cash Deficit — — $3.0MM (2008) $3.8MM (2008) $4.9MM (2007)
— Largest Cumulative Cash Deficit — — $0.2MM (2008) $2.9MM (2009) $11.3MM (2010)
• Downside
— Minimum Debt Coverage1 1.39 (2008) 1.30 (2008) 1.30 (2008) 1.18 (2008) 1.12 (2008)
— Construction Loan $79.00MM $82.6MM $83.6MM $84.3MM $89.0MM
— Bond $87.0MM $91.0MM $91.0MM $91.0MM $91.0MM
— Largest Annual Cash Deficit — $3.0MM (2008) $3.0MM (2008) $3.7MM (2008) $5.9MM (2007)
— Largest Cumulative Cash Deficit — $0.1MM (2009) $1.5MM (2009) $4.8MM (2009) $12.4MM (2010)
Competitive Response
Municipality/
Municipality/ Political
Political Upgraded
Upgraded No
No
Overbuilder
Overbuilder Competitor(s)
Competitor(s) Lowered
LoweredRates
Rates Marketing
Marketing Lobbying
Lobbying Network
Network Action
Action
Altrio
Altrio Adelphia
Adelphia 50%
50%discounts
discounts -- $200
$200incentives
incentives xx
Charter
Charter (limited
(limitedtime)
time) -- Loyalty
Loyaltybonus
bonusof
ofevery
everythird
thirdmonth
monthfree
free
SBC
SBC
Verizon
Verizon
Ashland,
Ashland,OR
OR Charter
CharterCommunications
Communications 25%
25% lower
lower -- Went
Went door-to-door
door-to-door right
right before
before AFN
AFN came
came through
through
-- Instant
Instantinstalls
installs
Astound
Astound AT&T
AT&T Broadband
Broadband -- Special
Special customer service centers to dissuade customers
customer service centers to dissuade customers from
from cancelling
cancelling
Pacific
PacificBell
Bell service
service
Qwest
Qwest
Charter
CharterCommunications
Communications
Bristol,
Bristol,VAVA Charter
CharterCommunications
Communications xx
Cedar
CedarFalls,
Falls,IA
IA Charter
CharterCommunications
Communications Lowered
Lowered rates
rates -- Expanded
Expanded services
services
TCI
TCICommunications
Communications (14%
(14% lower
lower than
than
national
national average)
average)
Coldwater,
Coldwater,MI
MI Lowered
Lowered rates
rates to
to -- Eliminated
Eliminatedmonthly
monthlyfees
feesfor
foradditional
additionaloutlets
outlets xx
$5/month
$5/month -- Eliminated
Eliminated franchise
franchise fee
fee pass
pass through
through
-- Added
Added additional
additional channels
channels
Everest
Everest Time
Time Warner
Warner 20%
20% lower
lower -- $200
$200incentive
incentivetotoreturn
return(more
(moreififwrite
writeaatestimonial)
testimonial) xx
Communications
Communications -- 50%
50%discount
discountforforsigning
signingup upfor
for11year
year
SBC
SBC -- Invested in marketing efforts
Invested in marketing efforts
-- Incumbent
Incumbentmonopolizes
monopolizesterrestrially
terrestriallydelivered
deliveredprogramming
programming&
&won't
won'tsell
sell
-- local
local regional
regional sports
sports network
network
Glasgow,
Glasgow,KY
KY Comcast
ComcastCable
Cable xx Purchased
Purchased by
by
Glasgow
GlasgowPlant
PlantBoard
Board
Grande
Grande AT&T
AT&T Lowered
Lowered rates
rates by
by
Communications
Communications Time
Time Warner
Warner $16-$28/month
$16-$28/month
Harlan,
Harlan,IA
IA TCI
TCICommunications
Communications 17%
17% lower
lower -- Expanded
Expanded basic
basic package
package xx
($20
($20 lower
lowerthan
than -- Expanded
Expanded offerings
offerings (compressed
(compressed digital
digital service)
service)
surrounding
surrounding areas)
areas)
Knology
Knology Comcast
Comcast Predatory
PredatoryPricing
Pricing -- Selling
Sellingblocks
blocksof
oflong
longdistance
distance xx xx
BellSouth
BellSouth
Charter
CharterCommunications
Communications
LaGrange,
LaGrange,GA
GA Charter
CharterCommunications
Communications Joint
Joint Venture
Venture
Bell
BellSouth
South
Newnan,
Newnan,GA
GA Charter Communications
Charter Communications -- $300
$300to
toswitch
switch xx xx
RCN
RCN CableVision
CableVision 10-15%
10-15% lower
lower -- Threatened
Threatened contractors
contractors working
working with
with RCN,
RCN, leading
leading contractors
contractors to
to charge
charge
Verizon
Verizon higher
higher prices
prices
Scottsboro,
Scottsboro,AL
AL Charter
CharterCommunications
Communications 50%-66%
50%-66% lower
lower -- Offered
Offered$200
$200totoSEPB
SEPBcustomers
customerswho
whoswitch
switchCATV
CATV
(limited
(limitedtime
time -- "Amnesty
"AmnestyProgram":
Program":forgave
forgaveSEPB
SEPBcustomers'
customers'old
olddebts
debtsto
toFalcon
Falconor orCharter
Charter
predatory
predatory pricing)
pricing)
SureWest
SureWest Pacific
PacificBell
Bell -- SBC
SBCisisbundling
bundling44services
services(DBS,
(DBS,LD/Local,
LD/Local,DSL/Dial-up,
DSL/Dial-up,wireless)
wireless)
AT&T
AT&T Broadband
Broadband
Tacoma,
Tacoma,WA
WA AT&T
AT&T Broadband
Broadband 20%
20% lower
lower -- Funded
Fundedreports
reportsabout
aboutClick's
Click'slack
lackof
ofsuccess
success xx
WOW
WOW Comcast
Comcast 50%
50%discount
discount -- Free
FreePPV
PPV
(limited
(limitedtime)
time) -- Free
Free digital
digital upgrade
upgrade
028,05-13-04,UTPDYN01A.ppt sbg, cgL2
DEAN & COMPANY 25
Highly competitive markets can see churn levels over 2% per month
Churn Benchmarks
– Residential –
7% 2.10%
5%–8% 2.00%
2.0%
2.00%
6%
1.70%
DirecTV
5% UTOPIA Expected Case EchoStar
1.5%
(Residential)
1.25% 1.25% 1.50%
Churn Churn 1.20%
4%
Rate Rate
1.10%
1.0% 1.00%
3% 1.00%
2%–3% 2.6% 2.5% 2.4% 2.4%
UTOPIA Expected (Business)
0.80%
2% 1.7%
1.5% 0.60%
1.4% 1.2% 0.5%
1%
0% 0.0%
CLECs Wireless Cable EchoStar Typical 1995 1996 1997 1998 1999 2000 2001
RBO (pre-
competition)
Digital Earthlink/ AT&T DirecTV UTOPIA
Cable1 AOL LD (Residential)
$20 $25
Expected Revenue
Available for Expected
Conservative Debt Service $20
$15
Downside $15
$10 Downside
Conservative
$MM Total Debt $MM $10
Downside
$5 Conservative
Expected
$5
$0
$0 Requires Additional
(e.g., City) Capital
($5) ($5)
2004 2005 2006 2007 2008 2009 2010 2011 2004 2005 2006 2007 2008 2009 2010 2011
Year Year
042,05-13-04,UTPDYN01A.ppt JTS,npl1
DEAN & COMPANY 27
Scenario Comparison: Marketing War
– Expected vs. Conservative vs. Downside –
– First 8 Years –
$20 $20
Expected Revenue
Available for Expected
$15 Conservative
Debt Service $15
Downside
$0 $0 Requires Additional
(e.g., City) Capital
($5) ($5)
2004 2005 2006 2007 2008 2009 2010 2011 2004 2005 2006 2007 2008 2009 2010 2011
Year Year
044a,05-13-04,UTPDYN01A.ppt JTS,npl1
DEAN & COMPANY 28
Scenario Comparison: Combined Downside
– Expected vs. Conservative vs. Downside –
– First 8 Years –
$15 $10
Expected
Revenue
Conservative Available for
Debt Service $5
$10 Downside
Total Debt
Downside $0 Requires Additional
Conservative (e.g., City) Capital
$MM $5 Expected $MM Expected
($5)
$0
($10)
Conservative
Downside
($5) ($15)
2004 2005 2006 2007 2008 2009 2010 2011 2004 2005 2006 2007 2008 2009 2010 2011
Year Year
043a,05-13-04,UTPDYN01A.ppt JTS,npl1
DEAN & COMPANY 29
Real value creation relies on proactive management of complementors and
economic development
Jumpstarting Value
– Broadband Economic Development –
Pro-active
Community • Broadband-enabled
+ Strategy Required centers of excellence
– Telemedicine
– Software
development
• Tele-work •
• In-region e- •
• Net Value commerce •
Creation • e-government
– Employment • e-education
– Wages • New Services • e-health
– Home Value – High Speed • e-utilities
– Quality of Life internet •
0 – Digital cable •
•
• Price/quality
• Shift of local competition
commerce and taxes • Choice of providers
out of region via e-
commerce
• Net employment loss
- in Incumbent service
providers
Network/Community Effects
029,05-13-04,UTPDYN01A.ppt sbg,
DEAN & COMPANY 30