Feasibility Study and

Business Plan Development

APPA Broadband Conference

San Francisco, CA

October 10 - 13, 2004

Why enter into the Broadband Business?

• Financial Gain– Good Investment

• Favorable ROR projections on money invested

• Economic Development/Local Needs– Keep up with neighboring localities and nation wide

efforts in the recruitment/retention of industry/business

• Incumbents not making the investment– Rural Area– Responsibility as local municipal to provide

necessary/competitive services

Why enter into the broadband business?

• Once you have a path of reasoning for entering into the broadband business, you are then ready to prepare a feasibility study to ascertain whether your reasoning’s are sufficient and accurate.

• Always remember during this process, DO NOT lose sight of the reason you wanted to enter the broadband business.

Beginning the Study

1. What are your goals? What do you want to earn/gain from the deployment of Broadband?

• Serve all schools?• Reach industrial centers?• Reach medical facilities?• FTTP roll-out to all facilities, including

residential, on a planned/phased roll-out plan?

Beginning the Study

Once you have set your goals, which should directly coincide with your reasoning for entering the Broadband business, you are then ready to access the market and prepare a project capital projection.

Beginning the Study

2. Realization that you are not the expert. • You are, like most municipals in the U.S., a provider

of traditional utility services: electricity, water and wastewater

• Broadband is not like traditional utility services. It is a highly technical and capital intense business.

• Don’t be caught in the “We can do it ourselves…it can’t be that difficult” thought pattern. There are experts that do this EVERY day and will make your plan executable in a shorter time and with less capital.

Beginning the Study

3. So, who are the experts? Where do I find them?

• In Bristol, Virginia’s case, the experts came from recommendations from State Regulators who have dealt with such experts in past certification cases or hearings

• Once a recommendation is made, thorough interviews need to be conducted to see if the consultant/expert is knowledgeable in your planned area of business, to include the service and the jurisdiction (state laws, demographics, etc.)

• Once you “Latch” on to one good expert, which in my opinion should be the expert to develop your business plan, he/she, having to know all of the components of the business, will then be able to advise on other consultants/experts to help with the study.

Now that you have found the expert…..1. Share ALL with the consultant. DO NOT

hold anything back. The consultant knows nothing about YOUR motives/ plans and can only do his/her job based on your input and sharing of all information.

• If you hold back, it will only cost you more money and you will not get the results desired.

2. The consultant now becomes part of your staff in efforts to make the project work.

3. Develop an internal “TEAM” to assist/implement the plan.

• Make sure you assign people to this task that will be able to provide the necessary time and energy.

Do not expect 100% from them if you still require their efforts in other utility tasks.

• What if you do not have an internal team?Assess current staffing to determine availability of

those staff members for this development project.If there is no current staffing availability, the

management and the consultant will need to access the NEED for a team, large or small, and figure out what is needed to execute the plan.

Most consultants, at least in our situation, are SO equipped with knowledge, they only need to DRAW from staff routinely and are direct, organized and manage well.

4. Listen to your consultant(s)! Remember, they are the experts!• A good consultant will be sponge-like and take it

all in. After considerable thought and reasoning, he/she will advise you about your plan and its viability.

Feasibility Study/Business Plan Inputs

1. Be true to yourself.• What really is your market?

– Be realistic with the projected “take” rates.– Don’t forget to assume customer credit risks.

Develop a credit policy ASAP.

– Hire a marketing consultant, if deemed necessary, at this point to conduct customer polls. This can be done while other information is being

gathered for the plan.

Feasibility Study/Business Plan Inputs

• What is your service area?– Make sure you have considered all regulations, laws, etc. before

going much further with your plan.

• How are you going to deploy the infrastructure to your service area?

– Phases have proven to be the most cost effective way to deploy infrastructure.

DO NOT get caught up in “jumping around” to service the Mayor here or a school there. In the end, it will cost you a lot of money and you will not meet your plan projections.

– Be methodical and precise.

• Once you have a deployment plan, the consultant(s)/ experts will be able to assign a capital cost to your plan.

Feasibility Study/Business Plan Input

• Who is the competition?– What will the “fight” cost you?– What can you offer that they do not offer?– How do they price their services/products?– What is their technology?

• What will it take to operate the system?– Human Resources– Plant/Fiscal Resources

What should the plan look like?

The plan will consist of the following:

a) Results of marketing survey

b) Results of plant design for capital costing

c) Projections of customers to “take” the service/product

d) Retail pricing per line of service/product

e) Cost of goods sold per line of service/product

f) Plant Operating Expenses

g) Non-Plant Operating Expenses

h) Customer Relations Expenses– Sales Expenses

i) General & Administrative Expenses

j) Applicable Taxes

k) Cost of money/financing costs/interest

l) Extraordinary Expenses The results will calculate to project net income for the project.

Now that you have a plan that projects project net income, what’s next?

• Even though you have a net income projection, this does not necessarily mean the project is good or bad.– It gives you an initial feel as to how profitable the venture will be.

• The most important analysis is the cash flow analysis.– The cash flow analysis will take net income for the project and

add/take from to project an availability or cash deficit. This will incorporate capital requirements, debt financing, etc.

Since the cash flow analysis is the most important one, it should serve as your MAP for the decision process.

Decisions

1. Are you equipped with a map to lead you on your path of Do we or Don’t we?

2. Once again, your consultant will be your guide.

Remember, he/she has done this many times and has probably seen plan results similar to yours and can tell you what will and won’t work.

Good luck on your path to the decision!