Broadband Project Update City Council Special Meeting. Brieana Reed-Harmel, Broadband Project Manager June 27, 2017

Transcription

1 Broadband Project Update City Council Special Meeting Brieana Reed-Harmel, Broadband Project Manager June 27, 2017

2 Presentation Purpose An open discussion to provide information and answer questions regarding the broadband initiative in Loveland Staff would like to affirm our understanding of City Council s broadband initiative goals and expectations Broadband Advancement Shared Goals and Vision Fundamental Assumptions Risk vs Reward Analysis Understanding Consumer s Needs Learning from Other s Successes & Failures What People See What It Takes to Get There 2

3 Agenda Introductions and Overview of Roles Background Review of Documents Recently Released to Council Community Outreach and Stakeholder Report May 22 SWOT Analysis June 6 Wireless Technologies and Potential Impact June 6 Information on Privacy and Security June 6 Case Studies Report June 6 Information on Conjoint Take-Rate Study June 16 Information on Economic Development Impacts June 22 Financial Feasibility Analysis Request For Information for Public- Private Partnership Further Discussion Next Steps 3

4 Introductions and Overview of Roles 4 Brieana Reed-Harmel, Broadband Project Manager for the City of Loveland John Honker, President and CEO of Magellan Advisors Colman Keane, Director of Fiber Technology for Electric Power Board (EPB) of Chattanooga, TN Jill Mosteller, Associate Professor of Marketing for the University of Tampa and Independent Consultant with I2U Insights2Use

5 How Did We Start? Council Received Incumbent Customer Service Complaints Renegotiation of Comcast Franchise Agreement Council Identified Broadband as an Important Service and Added it as a Goal at 2015 City Council Goal Setting Workshop Council Considered Municipal Broadband Initiatives Across the Nation Council Directed Staff to Explore Broadband Opportunities for Loveland Council Expressed to staff Broadband Vision Statements in May

6 Where Have We Been? March 19, 2015 Joint broadband discussion, City Council and Thompson School District Board of Education July 21, 2015 First reading of Ordinance for SB152 override election November 3, % of votes cast to override SB152 allow City s exploration of broadband options February 29, 2016 Councilor Fogle appointed as liaison to Broadband Task Force October 25, 2016 City Council Study Session: Broadband Assessment & Feasibility Analysis and description of broadband business models Monthly Broadband Task Force Meetings Community & Stakeholder Outreach Today Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 May 12, 2015 City Council Study Session presentation on override election January 24, 2015 Broadband discussion at City Council Workshop August 4, 2015 Second reading: Ordinance for SB-152 override election February 9, 2016 City Council Study Session: Budget appropriation, Broadband Assessment & Feasibility Analysis, creation of Broadband Task Force April 5 & 19, 2016 Supplemental appropriation approved on first & second readings July 6, 2016 Magellan Advisors contracted to perform Broadband Assessment & Feasibility Analysis February 28, 2017 City Council Study Session presentation on Draft Feasibility Report April 12, 2017 RFI released for Public-Private Partnership 6

7 Broadband Business Options Business Model Description Summary Do Nothing Public Policy Only Public Services Infrastructure City does not involve itself in broadband services, leaving it to incumbent providers City uses policy tools and standards to streamline construction and may reduce the cost to provider for building infrastructure City financed or shared financing with other public organizations Dark fiber or data services to community organizations Sometimes retail services provided by the city to these organizations City provides conduit and/or dark fiber to businesses, broadband providers and other public organizations but does not provide retail services Eliminates City s financial or operational risk Relinquishes City control of how broadband is served in the community May reduce City s competitiveness with surrounding communities if they deploy broadband networks Low risk/reward option to support incentives to accelerate broadband investment but no quick wins to improve services Improves the cost, access and collaboration among public organizations without competing with the private broadband providers Improves the cost and availability of fiber infrastructure to providers, businesses and community organizations Not generally used for residential 7

8 Broadband Business Options Business Model Description Summary Open Access Public-Private Partnership Public-Public Partnership Municipal Retail City financed and operated Wholesale services only to retail broadband providers Retail providers deliver Internet, telephone and other services City finances and owns the fiber network and uses another private partner to deliver content and retail services City finances and owns the fiber network and uses another public partner to deliver content and retail services City finances, owns and operates the fiber network and provides content and retail services to subscribers Enables more competition and choice but difficult to incentivize broadband providers to use municipal infrastructure Public-private partnerships come in many forms and are an early stage business model with minimal examples available Public-public partnerships come in many forms and are an early stage business model, these partnerships are becoming more prevalent with emerging examples available Provides the city the most control over the operations and services but requires significant investment and operational capabilities 8

9 9 City Council Broadband Vision Statements: May 2015 City-wide Accessibility: Fast: Reliable: Affordable: Customer Service Excellence: Service must be available to all homes, businesses, schools, non-profit groups, health service providers and other users within Loveland Any broadband system must deliver symmetrical service at the rate of 1 gigabit per second. Consider future proofing for higher speeds when new technologies become available. The service must accommodate diverse uses, from home entertainment, to business, education and health care, with high reliability. Our efforts have the goal of delivering broadband service to all at a reasonable cost, regardless of how broadband service is used. Provide consistent and reliable customer service

10 Broadband Business Models Do Nothing Option Leaves market to be driven by existing and future incumbents Price, service options, and service builds out are dependent on private providers No ownership or role by the City Retail Model Option City Internet City Owned Fiber City builds all the infrastructure City owns and maintains the infrastructure City operates the entire system City provides all customer service and tech support Public-Public Model Option Public Partner City Owned Fiber City builds the infrastructure and partners with a public company to provide some portion of the service City contract for services provided including customer service, content and technical support Public-Private Model Option Private Partner City Owned Fiber City builds the infrastructure and a private company provides the service City negotiates a financial contract based on the take rate City negotiates a contract for services provided including customer service, content and technical support 10

11 11 Community and Stakeholder Outreach Community Engagement Efforts To Date 1,028 residential survey responses 288 business survey responses Continuous engagement through Open City Hall 13 Broadband Task Force meetings 22 one-on-one Key Account meetings 8 community meetings 5 community listening sessions 11 City Council meetings 1 joint City Council/Thompson School District meeting 3 Incumbent Provider meetings Ballot measure overriding SB152 passed with 82% of votes cast in November Putting the Pieces Together!

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13 13 Survey Statistics Residential Survey 1,028 Total Responses 95% Confidence Level with 5% Margin of Error 97.5% Have Internet Service at Home Cable Dial-Up DSL Fiber Optic Fixed Wireless Cellular Satellite Not Sure 5.9% 1.0% 14.0% 20.9% 2.8% 3.8% 0.7% 50.9% Business Survey 288 Total Responses 95% Confidence Level with 6% Margin of Error 97.2% Businesses Have Internet Service Cable Dial-Up DSL Fiber Optic Fixed Wireless Cellular Satellite Not Sure 7.5% 9.7% 2.8% 5.0% 10.9% 22.7% 0.3% 41.1%

14 Residential Survey Response Location Map 14

15 Business Survey Response Location Map 15

16 Residential Survey Demographics 16 Demographic - Gender Demographic - Age 11.8% 4.4% Male Female 40.6% 59.4% Years Years Years Years Years 70+ Years 25.3% 21.7% 19.0% 17.9% Demographic - Educational Attainment Have at Least a Bachelor's Degree Have Less than a Bachelor's Degree or No Degree 64.8% 35.2% Demographic - Household Income Less than $20,000 per annually $20,000 - $29,999 per annually $30,000 - $39,999 per annually $40,000 - $49,999 per annually $50,000 - $59,999 per annually $60,000 - $69,999 per annually $70,000 - $79,999 per annually $80,000 - $89,999 per annually $90,000 - $99,999 per annually $100,000 or more per annually 1.5% 1.0% 1.2% 3.0% 14.7% 35.4% 7.5% 17.3% 16.6% 1.8%

17 Business Survey Demographics What is the industry category of your business? Agriculture, Forestry, Fishing, Hunting Mining, Quarrying, Oil and Gas, Extraction Energy and Utilities Construction Manufacturing Wholesale Trade Retail Trade Logistics, Transportation and Warehousing Information/Data Processing and Publishing Real Estate or Development Finance and Insurance Professional, Scientific and Technical Services Management of Companies and Enterprises Education Health Care and Social Assistance Art, Entertainment and Recreation 9.1% 7.6% 1.8% 6.7% 3.7% 1.2% 11.9% 0.3% 2.1% 1.5% 14.0% 6.4% 4.0% 3.4% 0.9% 13.1% 0.6% 4.9% 6.7% 2. How many people are employed locally by your business? 2.1% 0.7% 0.7% % 12.9% 2.1% % % Accommodation and Food Services Government and Public Administration Other 300+

18 18 Common Broadband Themes from Community Feedback Consumer Perceptions Cost is too high for services received Few providers equals lack of choice Lack of redundancy for business users Uncertainty: Will future technology needs be met and at what price? Influence on Future Broadband Decisions How can Loveland play a role in providing value for services received? Would having another provider in Loveland create market competition and increase customer satisfaction? How can Loveland promote the network redundancy that businesses and institutional users are looking for? Should the City play a role in ensuring that future stakeholders technology needs are met?

19 Why Another Take-Rate Study? Take rate assumption is an important aspect of the financial modeling Magellan outreach is almost a year old Use a different methodology to affirm Magellan s results What is a Conjoint Analysis? A statistical technique used in marketing research: Measures preferences for product features, to learn how changes to price affect demand for products or service, and to forecast the likely acceptance of a product if brought to market. Predictive (versus descriptive) Realistic choices reflect similar offers found in the marketplace Determines the value of attribute levels based on trade-off situations Determines the importance of attributes relative to one another 19

20 % Importance Conjoint Analysis Marketplace Choices Features and Options Speed 50mbps 100mbps 1Gbps Price $30 $50 $100 ISP Provider Loveland Provider A Provider B Feature Importance Survey Questions: Rate the offer from {ISP Provider} at {Speed} for {Price}.. Conjoint Analysis measures importance of each feature 10 0 Choices Speed Price ISP These features and options are for illustrative purposes only. Actual options and results will differ.

21 21 Municipal Broadband Case Studies Report Successful Municipal Broadband Case Studies Comparable to Loveland Organization Population Cedar Fall, IA 40,859 Morristown, TN 29,304 Bristol, VA 17,184 Longmont, CO 90,237 Common Themes: Strong commitment from leadership Commitment to stated business plan Strong sales and marketing Clearly defined governance Broadband utility allowed to operate like a business Less Successful Municipal Broadband Case Studies Comparable to Loveland Organization Population Ashland, OR 20,684 Burlington, VT 49,395 Wilson, NC 17,296 Lafayette, LA 126,066 Common Themes: Mixed leadership commitment Lack of business plan or deviation from plan Regulatory and legal complications Governance not clearly defined

22 Community Network Map - data from 95 communities with publicly owned FTTH networks to most or all of community 77 communities with publicly owned cable networks to most or all of community More than 200 communities with some publicly owned fiber to parts of community 22

23 23 SWOT Analysis Report SWOT ANALYSIS STRENGTH Advantages within the. company that strengthen it over others WEAKNESS Limitations that place the. business in a disadvantage situation over others OPPORTUNITY External elements that. might be transformed into an advantage to the company THREAT External elements coming. from the environment that put the company at risk Do Nothing Municipal Retail Public- Public Partnership Public- Private Partnership EVALUATED BUSINESS MODELS

24 24 City of Loveland SWOT Analysis Do Nothing Model Strengths Weaknesses Opportunities Threats No immediate financial investment from the city Relinquishes control of how citizens and businesses are served. Providers will continue to make decisions on cost, speed and service areas. Constituents have no alternatives other than current providers City can see how surrounding communities implement broadband services and learn from them for any future deployment considerations Reduces competition in the market, potentially driving market prices higher Economic development is threatened if surrounding communities offer broadband at higher speeds and lower cost

25 25 City of Loveland SWOT Analysis Municipal Retail & Public-Public Models Strengths Weaknesses Opportunities Threats Existing fiber network and facilities reduce cost City s operational experience with utilities City s engineering experience with fiber infrastructure City owns and is familiar with pole and conduit infrastructure Solid City brand for service and support Local ownership and control of the network Ability to leverage other internal utility resources Operational experience building and maintaining utility infrastructure Limited organizational and management experience in broadband Limited operational experience in broadband Little experience in a competitive market, particularly sales and marketing functions Start-up competing against mature private operators Labor costs for specialized electric workers Aggregate stakeholder demand for service Deploy fiber to community providing better service, speed and pricing Introduce new fiber product to small and medium businesses Market new services to existing utility customers Co-branding with public partner or marketing City as single provider Fiber remains the gold standard in service delivery Use Longmont s experience and others to avoid pitfalls and key mistakes City assumes all risks in competing against DOCSIS 3.1 and other deployments by the incumbents Competition for video services from incumbents may challenge take rate Incumbent backlash, negative PR campaigns Future regulatory changes Rising interest rates on financing costs Changing political environment

26 26 City of Loveland SWOT Analysis Public-Private Model Strengths Weaknesses Opportunities Threats Existing fiber network and facilities City has engineering experience with fiber infrastructure City has owns and is familiar with pole and conduit infrastructure Good reputation of the City s brand for service and support Organizational, operational, competitive and management risks shift to the private partner City is at less risk of regulatory changes Labor costs for specialized electric workers Decision making will be shared between the City and private partner, creating less City control Internal utility resources may not be able to be leveraged due to private partnership controlling delivery of services Aggregate stakeholder demand for service Deploy fiber to community providing better service, speed and pricing Introduce new fiber product to small and medium businesses Co-branding and comarketing can be done with private partner Fiber remains the gold standard in service delivery City can make video service a condition of the private partner deal City assumes risk for the cost of the project if the partner is not successful City is tied to the partner s deployment and is at risk based on the success or failure of the partner to complete the technology deployment Incumbent backlash, negative PR campaigns Rising interest rates on financing costs Changing political environment City s brand can be damaged by failure of partner to deliver

27 1G 2G 3G 4G 5G 27 Wireless Technology Generations Voice Voice -Texting GHz -Voice -Texting -Internet Access GHz -Voice -Texting -Internet Access -Video 28 39GHz -Voice -Texting -Internet Access -Ultra High Definition Video -Internet of Things 0 mbps 0.6 mbps 2 mbps 200 mbps 1000 mbps

28 Wireless Technology Information Images of Small Cell Wireless Attachments on Street Lights Fiber Fiber 28

29 29 Broadband Privacy and Security Information Multiple privacy areas: Physical security of fiber infrastructure and equipment Privacy of information Infrastructure Security Network security would be monitored as part of ongoing operations and maintenance Equipment Security Headend and collectors housed in secure sites Equipment in the field locked

30 30 Broadband Privacy and Security Information Multiple privacy areas: Physical security of fiber infrastructure and equipment Privacy of information Access to customer information is limited only to City employees who require access to perform their job duties A Municipal Retail business model allows for the most City control of privacy requirements Partnerships would require contracts to control user privacy Privacy of Information Electronic Communications Privacy Act Communications Assistance for Law Enforcement Act (CALEA) Colorado Open Records Act (CORA)

31 31 Economic Development Impact Productivity and Attraction Economic Advantage Site selectors now seek broadband when evaluating sites Attract businesses Help existing business grow Advantage over communities without high speed internet Stay competitive with other communities that have high speed internet Attract and maintain quality workforce

32 Comparable Industry Pricing Residential Internet Incumbents in Loveland Speed/Price Comcast CenturyLink Rise 100/50 Mbps $65/month* $124/month* N/A** 1 Gbps/40Mbps $160/month* N/A** N/A** *Pricing listed is without promotional or bundling discounts **Residential pricing package not available at these speeds Public Private Partner Companies in the US Speed/Price Allo Ting Google 100 Mbps $65/month N/A $50/month 1 Gbps $90/month $90/month $70/month Municipal Retail Providers Speed/Price Cedar Falls, IA Wilson, NC Chattanooga, TN Longmont, CO 100 Mbps $58/month $80/month $60/ month $40/month (25 Mbps) 1 Gbps $117/month $100/month $70/month $100/month (charter rate: $50/month ) 32

33 33 Financial Feasibility Analysis -Retail Expected Case Scenario Break-Even Scenario Capital Cost Estimate to Build Network $39 million $50 million Fiber Drop and premise connections $16 million $13 million Operational Funding through Borrowing $11 million $21 million Estimated Total Borrowing Required $66 million $84 million Take Rate Estimate 41% 33.5% Payback estimated between 13 to 19 years Loveland Residential Pricing assumptions: $75/month or less for up to 1 Gbps $60/month or less for up to 100 Mbps Cash flow positive between 5 and 7 years These prices are used for projection purposes only. Actual prices will likely differ and will depend on many variables. Retail Model Option City Internet City Owned Fiber

34 Financial Feasibility Analysis Public-Public Partnership Expected Case Scenario Break-Even Scenario Capital Cost Estimate to Build Network $37 million $47 million Fiber Drop and premise connections $16 million $13 million Operational Funding through Borrowing $9 million $14 million Estimated Total Borrowing Required $62 million $74 million Take Rate Estimate 41% 33.5% Payback estimated between 14 to 19 years Cash flow positive between 6 and 8 years Loveland Residential Pricing assumptions: $90/month or less for up to 1 Gbps $70/month or less for up to 100 Mbps Public-Public Model Option Public Partner Assumed City owned fiber infrastructure These prices are used for projection purposes only. Actual prices will likely differ and will depend on many variables. City Owned Fiber 34

35 35 Financial Feasibility Analysis Public-Private Partnership Expected Case Scenario Break-Even Scenario Capital Cost Estimate to Build Network $35.7 million $46.4 million Fiber Drop and premise connections $12 million $8 million Operational Funding through Borrowing $ 45.7 million $49 million Estimated Total Borrowing Required $93.4 million $103.4 million Take Rate Estimate 41% 33.5% Payback estimated between 30 and 35 years Cash flow positive after year 22 Loveland Residential Pricing assumptions: $90/month or less for up to 1 Gbps $70/month or less for up to 100 Mbps Public-Private Model Option Private Partner Assumed City owned fiber infrastructure These prices are used for projection purposes only. Actual prices will likely differ and will depend on many variables. City Owned Fiber

36 36 Net Surplus Comparison Positive Net Surplus in year 6 with Public-Public Partnership vs year 5 with Retail Services Net Surplus Break-Even Does Not Occur Until Year 14 with Public- Private Partnership

37 37 Free Cash Flow Comparison Cumulative Free Cash Flow at Year 10 Municipal Retail: $7.4M Public-Public Partnership: $1.8M Public-Private Partnership: -$13.1M Cumulative Free Cash Flow at Year 20 Municipal Retail: $35.8M Public-Public Partnership: $16.5M Public-Private Partnership: -$22.8M

38 38 Request for Information (RFI) for Public Private Partner Request for Information (RFI) is used to gather information to help make a decision on the next steps to take. It is used to understand the market, the types of options available, inform strategy and prepare for a Request for Proposal (RFP) which would be a formal business proposal. Responses were due May 4, 2017 Received 6 total responses o Advanced Broadband Castle Rock, CO o Allo Lincoln, NE o CenturyLink Monroe LA o Comcast o The Foresite Group Norcross, GA o GigabitNow Seattle, WA Staff is in process of evaluating responses and conducting meetings with respondents

39 39 Request for Information (RFI) for Public Private Partner Advanced Broadband Castle Rock, CO Newly formed company in January 2017 Allo Lincoln, NE Nebraska based telecommunications company since Currently serves 355,000 customers in 7 cities CenturyLink Monroe LA Incumbent communications company in Loveland. Network consists of fiber and copper telephone lines. Comcast Incumbent communications company in Loveland. Network consists of fiber and coaxial cable lines. The Foresite Group Norcross, GA Engineering and telecommunications consulting firm that has done many feasibility and construction design/build projects Preliminary findings of RFI: The proposals submitted by respondents to the City s RFI proposed a variety of frameworks for partnerships with the City, including the City owning the infrastructure, City-backed financing but not City-owned infrastructure, and open access model partnerships GigabitNow Seattle, WA Experience constructing and managing fiber networks within community subdivisions.

40 40 What Does Staff Need? 1. Do the current vision statements represent Council s vision for the broadband initiative? 2. Are you confident with the conjoint take-rate study questions? 3. Should we continue exploring publicprivate partnership opportunities? If yes, should the City issue an RFP? If yes, should the City maintain ownership of the entire fiber network? What Does City Council Need? 1. Are there other considerations that should be taken into account for the broadband initiative? 2. Is there any other specific information staff could provide Council regarding this topic? Questions

41 41 Looking Forward to Next Steps Issue a Request for Proposal (RFP) for Public-Private partner Complete the conjoint take rate study and present the results Complete the Feasibility Analysis and present the completed report Questions

42 Why High Speed Internet? The number of devices and what you do with them factors into speed needs. 5 Mb Casual internet use. Surfing the web, sharing photos, listening to music. 1-2 connected devices. 10 Mb Sending larger attachments, casual gaming, faster Internet surfing, light video streaming, listening to streaming music, sharing pictures and small videos. 3-6 connected devices. Remember to count every Internet connected device like phones, tablets, printers, televisions, etc. 25 Mb Advanced internet use. Sharing many pictures & videos, super fast movie downloads and streaming, listen to a lot of streaming music, serious gaming connected devices. 50 Mb+ Heaviest Internet use. Home offices, big families that do a lot of all of the above. More than 10 connected devices. 42

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44 Economic Development 44