UTOPIA Feasibility Assessmentsteveshu.typepad.com/steve_shus_weblog/files/dean_report.pdfUTOPIA...
Transcript of UTOPIA Feasibility Assessmentsteveshu.typepad.com/steve_shus_weblog/files/dean_report.pdfUTOPIA...
UTOPIA Feasibility Assessment
– Eleven City Build –
May 13, 2004
DEAN & COMPANYSTRATEGY CONSULTANTS
WASHINGTON, D.C.
1DEAN & COMPANYagenda,05-13-04,UTPDYN01A.ppt npl,
Agenda
• Overview
• Demand Benchmarks
• Cost Benchmarks
• Sensitivities & Scenarios
2DEAN & COMPANY
Summary
• Dean & Company have evaluated the feasibility of UTOPIA’s Eleven City Build with an emphasison the Phase 1 plan. We have evaluated Phase 1 on a standalone basis. It is our understandingthat 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 broadbandoverbuilders 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 inthe telephone, internet, and video services markets
— Wholesale price levels are sufficiently low for service providers to become profitable on UTOPIA, and arecomparable to or more attractive than wholesale access over the incumbent telephone and cable networks. Thisholds even considering the price pressure on local and long distance telephone services placed by voice-over-IPservices.
— Active/Ethernet technology choice is well-suited over the long term for UTOPIA’s model, leverages a broadsupplier 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 theimportant costs drivers for FTTH/B networks (e.g. aerial vs. buried mix, replacement lifecycles). The Phase 1 planis large enough that fixed costs (e.g. NOC) are lower on a per-subscriber basis than the costs that are driven byhomes passed (terminal costs) and by subscriber density (distribution, maintenance) - i.e. Phase 1 is large enough toachieve required economies of scale in construction and operation.
3DEAN & COMPANY
Summary - continued
• The primary areas of risk relate to the competitive environment:
— The competitive response from Comcast and Qwest may be escalated relative to the plan assumptions, potentially drivingdown market price levels, increasing churn, and/or putting pressure on recovery of installation fees. While the serviceproviders on UTOPIA’s network bear the initial impact of these pressures, they could ultimately flow through to UTOPIAin order to maintain service provider profit margins as an incentive to continue their marketing efforts.
— The smaller footprint means that UTOPIA is more dependent on the success of fewer retail service provider tenants in thefirst 2-3 years, vs.the larger build where the diversity of service providers could expand more quickly. On the positiveside, the smaller footprint will facilitate tighter operational coordination in signing up and provisioning subscribersbetween UTOPIA and its initial retail service providers, one of the concerns in the larger build plan.
— The usage-tiered wholesale pricing model for data services is well-structured to capture the value of increasing datatraffic over the long term. This traffic can be expected to grow dramatically with increased internet use and migration ofvoice and video service to internet protocols. However, customer acceptance of usage-based pricing is uncertain givenhistorical experience and counter-marketing by incumbent service providers.
• The Phase 1 plan has a high degree of robustness to these risks
— Downside sensitivity analysis and scenarios show sufficient cash flow to meet the projected debt obligations across thefull range of cases we examined.
— In cases that combine multiple downsides: take rates lower than the conservative view, price war lasting 3 years or morethat flows through to UTOPIA, and construction and operating cost overruns of 10% and 20% respectively, additionalfunding of $1MM to $12MM would be required over the 3rd to 5th year of operation. Past that point, UTOPIA wouldgenerate positive cash surplus even in outcomes with combined downsides.
— While UTOPIA has no control over the competitive environment, UTOPIA is in a position to proactively manage projectcosts and retail tenant performance. Success in managing these two areas of risk would keep the potential for additionalfunding to a level under $1-2 MM.
4DEAN & COMPANYagenda,05-13-04,UTPDYN01A.ppt npl,
Agenda
• Overview
• Demand Benchmarks
• Cost Benchmarks
• Sensitivities & Scenarios
5DEAN & COMPANY
0%
10%
20%
30%
40%
50%
60%
70%
80%
0 1 2 3 4 5 6 7 8
004,05-13-04,UTPDYN01A.ppt JTS, cgL7
Take-Rates Over Time– One or More Services –
Given the experiences of other municipalities and over-builders, UTOPIA’spredicted take-rates over time are feasible
Municipal Networks
TakeRate
(Percentof
HomesPassed)
Years After Availability
Glasgow, KY
Cedar Falls, IA
Newnan, GA
Tacoma, WA
Ashland, OR
Harlan, IA
Overbuilder Networks
Years After Availability
Astound
Scottsboro, AL
AverageTake Rates
29% 42% 45%43%Average
Take Rates16% 46% 45%36% 41% 56%
Bristol, VA
Full Build
Phase 1Expected
Phase 1Conservative
TakeRate
(Percentof
HomesPassed)
UTOPIA Plan
0%
10%
20%
30%
40%
50%
60%
70%
80%
0 1 2 3 4 5 6 7 8
UTOPIA Plan
RCN
Altrio (business case)
Utilicom
EverestCommunications
Knology
SureWest
SpanishForks
Provo
Full Build
Phase 1Expected
Phase 1Conservative
6DEAN & COMPANY008,05-13-04,UTPDYN01A.ppt kaL, jrb5
Overbuilder Customer Demand for Bundles– By Product Mix –
Expectations of selling service bundles are in line with other “triple play”networks
0%
20%
40%
60%
80%
100%
Percent ofSubscriberstaking one,
two, orthree
services
TriplePlay50%
Any 230%
Any 120%
2-3ServiceBundles
63%
1 to 2services
37%
Bundle34%
1 to 2services
66%
3ServiceBundles
50%
A LaCarteand 2
ProductBundles
50%
Any 115%
Any 237%
TriplePlay48%
Any 118%
Any 237%
TriplePlay45%
SureWest RCN Harlan, IAEverestUTOPIA(2009)
UTOPIA(2005)
Source:Company statements, Dean & Company research
7DEAN & COMPANY
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
016a,05-13-04,UTPDYN01A.ppt JTS, jrb2
Product Mix– 2002 vs. UTOPIA Conservative Case Scenario –
The variation between the expected UTOPIA product mix and benchmarks aredirectionally consistent with differences in UTOPIA’s market demographics andbusiness model
Percentof
Customers
Voice Video Data
Utopia 77%
Utopia61%
Utopia 92%
Note: Take rates decline over time.Ashland, OR; Glasgow, KY, and Tacoma, WA assume 12% of Internet customers do not have cable TV. Harlan, IA assumes 1% of Voice customers do not have cable TV.
RC
NA
stou
ndE
vere
st
Ash
land
, OR
Ced
ar F
alls
, IA
Gla
sgow
, KY
Kno
logy
Util
icom
Har
lan,
IAN
ewna
n, G
A
Tac
oma,
WA
Scot
tsbo
ro, A
L
RC
NA
stou
ndE
vere
st
Ash
land
, OR
Ced
ar F
alls
, IA
Gla
sgow
, KY
Kno
logy
Util
icom
Har
lan,
IAN
ewna
n, G
A
Tac
oma,
WA
Scot
tsbo
ro, A
L
RC
NA
stou
ndE
vere
stK
nolo
gyU
tilic
om
Har
lan,
IAN
ewna
n, G
A
Utopia likely to exceedbenchmark average given their
lesser focus on voice
Utopia likely to exceedbenchmarks given higher regional
demand for internet
Utopia likely to come underbenchmarks given their focus
on video
8DEAN & COMPANY
UTOPIA has attractive residential market environment
019,05-13-04,UTPDYN01A.ppt sbg, JTS1
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
UTOPIA Region U.S. Average0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
UTOPIA region U.S. Average
Source: UTOPIA Survey; U.S. Department of Commerce (2002) , MediaWeek
74%
54%
59%
43%
10%
5%
4%
7%
Dial-Up
DSL
Cable Modem
64%
84%
31%
15%
33%
69%
Satellite
Cable
Internet Penetration– % of HH –
Video Services Penetration– % of HH –
U.S. Census %for all Utah
Internet services are thecornerstone for FTTH success
Typical of older TCI cable systems -implies upside for higher quality network
Residential Service Intensity Comparisons– UTOPIA vs. the National Average –
9DEAN & COMPANY
$40 $41
$98
$91
$0
$20
$40
$60
$80
$100
$120
002a,05-13-04,UTPDYN01A.ppt JTS, kaL6
UTOPIA Revenue per Subscriber Benchmarks– Voice, Video, and Data Triple Play Example –
UTOPIA’s wholesale service charges are in a range where service providers havesufficient margin to be profitable
NationalAverage
UTOPIASpend
Average RetailConsumer Spend
$/Month/HH
Service Provider GrossMargin opportunitysignificantly greater thanthe 40% baseline neededfor an attractive serviceprovider business case
ConservativeCase ARPU
(2005)1
ConservativeCase ARPU
(2008)
UTOPIA’s WholesaleARPUs
1 Includes Access Charge
10DEAN & COMPANY
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
To evaluate service providers’ business cases, we assumed bundled offers similarto other triple play providers
020a,05-13-04,UTPDYN01A.ppt npl,
Price Comparisons– Triple Play Packages –
Modeled prices for UTOPIAService Providers
Priceper
Month
Source: UTOPIA Model,company websites and representatives
Basic Mid Premium FullCircuit
SuperCharged
TotallyWired
TotallyWired Plus
ResilinkGold
ResilinkPlatinum
Local California National
Everest RCN SureWest
Price $82.05 $119.45 $153.48 $84.95 $109.95 $139.95 $149.95 $135.00 $159.00 $109.95 $119.95 $142.90
Local Phone 1 line 1 line 2 lines 1 line 1 line 1 line 1 line 1 line 2 lines 1 line 1 line 1 lineFeatures 3 3 6 0 6 11 11 3 4 4 including
voicemail4 including voicemail
4 including voicemail
LD - Free Minutes 100 150 120 0 0 Unlimited
Basic Cable Channels 70+ 70+ 70+ 70+ 81, 1 box 81, 2 boxes
Digital Cable Channels 100 150 150 40+ 40+ 40+ 40+ 35 35 150 180 230 +Internet 1M 10 M/Sec,
10G/Mo.10 M/Sec, 20G/Mo.
256K 1.5M 3M 3M 3M 3M 10M 10M 10M
Price $82.05 $119.45 $153.48 $84.95 $109.95 $139.95 $149.95 $135.00 $159.00 $109.95 $119.95 $142.90
Local Phone 1 line 1 line 2 lines 1 line 1 line 1 line 1 line 1 line 2 lines 1 line 1 line 1 lineFeatures 3 3 6 0 6 11 11 3 4 4 including
voicemail4 including voicemail
4 including voicemail
LD - Free Minutes 100 150 120 0 0 Unlimited
Basic Cable Channels 70+ 70+ 70+ 70+ 81, 1 box 81, 2 boxes
Digital Cable Channels 100 150 150 40+ 40+ 40+ 40+ 35 35 150 180 230 +Internet 1M 10 M/Sec,
10G/Mo.10 M/Sec, 20G/Mo.
256K 1.5M 3M 3M 3M 3M 10M 10M 10M
11DEAN & COMPANY
($10)
$0
$10
$20
$30
$40
0 10,000 20,000 30,000 40,000 50,000
017,05-13-04,UTPDYN01A.ppt unk, cgL3
Service Provider Business Case– Combination of Residential and Business Customers –
The first phase plan is large enough to support two to three service providers
ServiceProvider
NPV($MM)
Service Provider Customers (after ramp)
Video Only(renting UTOPIA head-end)
Voice and Internet
Voice Only(Local + LD, Circuit switched)
Triple Play
Internet Only
Note: Based on proposed UTOPIA service charges as of April 2004 plan, assumes that service provider offer 20% discount to standard retail price
Conservative Case:28,752 Connected Homes
Expected Case:29,259 Connected Homes
Additional Subscribers
• Phase 2: 51,167• Phase 3: 82,587
12DEAN & COMPANY
$39.99
$34.99
$24.99
$14.99
$19.95
$29.99
$19.99
$12.25
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
041,05-13-04,UTPDYN01A.ppt JTS, cgL1
VoIP Pricing– Residential Calling Plans –
VoIP offers will continue to provide service providers with sufficient margin forprofitability
1 Includes a larger local area2 6 months into offer at $19.99/month
MonthlyCharges
RegionalPlan
NationalPlan
NationalPlan
Local Regional1
PlanNational
PlanAT&T
CallVantage2UTOPIA
WholesalePricing
Unlimited0
3.9¢/minute
UnlimitedUnlimited
–
UnlimitedUnlimited
–
Unlimited5003.9¢
Unlimited5003.9¢
UnlimitedUnlimitedUnlimited
UnlimitedUnlimited
–
Local MinutesLD MinutesLD Rate
Voice Glo VonagePacket 8
Access Charge
Line Charge
$1.25
$11.00
13DEAN & COMPANY
Percentage ofPeople WhoTake Service
Households in the highest spending quintile spend 2x more on telecom servicesthan those in the fifth quintile, with data and voice spending driving the majority ofvariation. This allows UTOPIA service providers to target heavy-spendingcustomers offering high margins.
021,05-13-04,UTPDYN01A.ppt sbg, JTS1
Relative Bill Size by Quintile — UTOPIA Region– For Those Who Buy Service –
$52.89$41.25
$32.95$26.78 $27.25
$60.20
$47.66
$37.26
$32.66 $28.43
$33.22
$24.77
$17.95
$16.82$12.35
$0
$20
$40
$60
$80
$100
$120
$140
$160
1 2 3 4 5
MonthlySpending per
Household
• Internet• Phone• Cable
$146.31
$113.68
$88.16
$76.26$68.03
Internet
Phone
Cable
94%100%67%
76%99%76%
77%98%71%
61%97%49%
40%74%7%
Quintile:
Average = $98.49
Source: UTOPIA survey
14DEAN & COMPANYagenda,05-13-04,UTPDYN01A.ppt npl,
Agenda
• Overview
• Demand Benchmarks
• Cost Benchmarks
• Sensitivities & Scenarios
15DEAN & COMPANY
$1
$10
$100
10,000 100,000 1,000,000 10,000,000 100,000,000
045,05-13-04,UTPDYN01A.ppt npl,
Network Operating Expense Comparison — NOC and Field– $ per Home Passed –
UTOPIA’s scale-adjusted projected network operations cost is comparable toother operators
Source: UTOPIA cost and revenue model, April 2004; company statements; Dean & Company research
Note: NOC costs include asset management, headend, co-location, and interconnect expense. Field expenses include field maintenance and electronics maintenance.
Log/LogLog/Log
$/Home
Passed/Month
Total Homes Passed
UTOPIAPhase 1
ExpectedUTOPIAPhase 3
Expected
RCN
Typical MSO
Qwest
90% Scale
16DEAN & COMPANY
$264
$200
$99$93
$80
$177
$0
$50
$100
$150
$200
$250
$300$37 $37
$32
$17
$0
$10
$20
$30
$40
006a,05-13-04,UTPDYN01A.ppt unk, cgL5
Fiber Construction Costs– Benchmarks –
UTOPIA’s planned fiber construction costs are consistent with our experience
$/Mile(000s)
$/Mile(000s)
Aerial Fiber Underground Fiber
Public UtilityDistrict
Telecommu-nications
Study
BeltwayCable
Services
CableOverbuilder
PublicUtilityDistrict
Telecom-munications
Study
Seattle,Washington
TCSCommu-nications
BeltwayCable
Services
Palo AltoUTOPIA UTOPIA
Note: Contingency has been excluded
17DEAN & COMPANY007,05-13-04,UTPDYN01A.ppt ini, cgL4
Capital Cost Comparison– Distribution, Core, NOC, NIU –
UTOPIA’s projections for total capital cost per subscriber are in the range of otherbroadband and fiber network overbuilds
Note: Palo Alto costs include core network and subscriber drops but not headendCapital cost per subscriber defined as cumulative capital expenditures over installed subscriber base
Capital Costper Subscriber
(Log Scale)
Penetration — Subs per Home Passed
Palo AltoFTTH
RCNHFC
Murray ElectricHFC
Ashland, ORHFC
EverestHFC
Scottsboro, ALHFC
Harlan, IA
ChiliclotheTelephone
VDSL
Eagle BBFTTH
Corning EstimateFTTH in New
Housing Development
Hometown, Morris MNFTTH
Kutztown, PAFTTHAmerican
BroadbandHFC
Palo AltoFTTH
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000$8,000
$9,000
Source: UTOPIA Business Model, Palo Alto business case, company websites
Actual Build CostsPlanned Build CostsUTOPIA 18 City BuildPhase 1 Expected
$1,000
$10,000
20% 30% 40% 50% 60% 70% 80%
18DEAN & COMPANY001,05-13-04,UTPDYN01A.ppt JTS, cgL5
Build-Out Rate Benchmarks
UTOPIA’s build-out rate appears to be achievable
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
2,000,000
0 1 2 3 4 5 6 7 8 9 10
Years of Operations
HomesPassed
UTOPIA 18 city build
RCN(includes
acquisitions inyears 4 & 5)
Altrio - plan
Phase 3Phase 2Phase 1
19DEAN & COMPANY
FTTH deployments appear to be roughly split between Active/Ethernet vsPassive/ATM
023,05-13-04,UTPDYN01A.ppt sbg,
FTTH Deployments– 2002 –
• Grant County - WA (ZIPP)• WIN - Sacramento WA (include HFC drops)• Lyse Tele - Norway• Fastweb - Italy• B2 - Sweden• Competisys - American Canyon/CA
• Palo Alto Utility - Palo Alto, CA
• Bell South - Dunwoody, GA (trial)• Blair Tel. - NE• Rye Tel - Colorado City, CO• NexTech - KA• Itex Communications - TX• Baldwin Telecom - WI• Bristol Utilities - VA• Hometown Solutions - Morris, MN• Kutztown, PA• SBC - Mission Bay, CA
Ethernet/IP
ATM
Active Passive/PON
10-20K80-100K
<10K
• Few
40-60K
Source: Dean & Company Analysis, KMI estimates
20DEAN & COMPANY
Active fiber Ethernet solutions have the advantage of support by establishedsuppliers, and Cisco in particular
024,05-13-04,UTPDYN01A.ppt sbg,
FTTH Technology Suppliers– Partial List –
NewAllOptic
One Path
Optical Solutions
Paceon
Quantum Bridge
Salira
Terawave
WWP
Riverstone
Optical Access
Extreme Networks
EstablishedNEC Illuminant
Nortel
Cisco
Pirelli
Lucent
Alcatel
Marconi
APON
+
+
+
+
+
+
+
+
EPON
+
+
+
+
A-Active E-Active
+
+
+
3
+
+
+
+
+
Resolution into a stable marketlikely to wait until RBOCs begin
large scale deploymentLeverages existing
metro-opticalequipment markets
21DEAN & COMPANYagenda,05-13-04,UTPDYN01A.ppt npl,
Agenda
• Overview
• Demand Benchmarks
• Cost Benchmarks
• Sensitivities & Scenarios
22DEAN & COMPANY032a,05-13-04,UTPDYN01A.ppt jrb, jrb2
Phase 1 Downside Scenarios– Details –
The various cases test the Phase 1 plan’s ability to withstand competitivepressures, demand declines, and cost overruns
DemandAssumptions
CostAssumptions
• 100% recovery of premise wiring
• Residential Churn: 16%
• Business Churn: 9%
• No price war
PlanPlan Escalated CompetitiveResponse
Escalated CompetitiveResponse Assumptions DownsideAssumptions Downside
• Marketing War
— 50% recovery of premise wiring
— Residential Churn: 25%
— Business Churn: 20%
• All-out: Marketing War + Price War
— Additional 20% price discount for 3years (on top of 20% discount alreadyassumed) passed through to UTOPIA
• 100% recovery of premise wiring
• Residential Churn: 16%
• Business Churn: 9%
• No price war
• Expected operating cost level
• Expected product mix
• Expected CapEx costs
• 20% higher operating costs
• 10% Higher CapEx costs
• Cap on growth in revenue persubscriber for data (Data mixfrozen in Year 5)
• Expected operating cost level
• Expected product mix
• Expected CapEx costs
23DEAN & COMPANY
0%
10%
20%
30%
40%
50%
60%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
033,05-13-04,UTPDYN01A.ppt jrb, JTS1
Take Rate Scenarios
The business case has been tested at three different take rate scenarios
Expected Case
Conservative Case
Downside ramp(e.g. retail providersdrop the ball)
Take Rate(% of homespassed thattake 1 or
moreservices)
Most likely outcomein this range
24DEAN & COMPANY031,05-13-04,UTPDYN01A.ppt JRB, kaL4
Scenario Overview– Key Financials –
The UTOPIA business model looks robust in all but the most negative cases
1 After Dynamic Cities Deferral2 Includes Price War
Note: Minimum cash balances $500K
• Expected— Minimum Debt Coverage1
— Construction Loan— Bond— Largest Annual Cash Deficit— Largest Cumulative Cash Deficit
Take Rate
1.75 (2008)$80.65MM
$85MM——
1.65 (2008)$86.0MM$88MM
——
1.69 (2008)$83.5MM$86MM
——
1.48 (2008)$85.1MM$88MM
——
1.39 (2008)$91.2MM$91MM
$4.3MM (2007)$4.7MM (2008)
• Conservative Case— Minimum Debt Coverage1
— Construction Loan— Bond— Largest Annual Cash Deficit— Largest Cumulative Cash Deficit
1.44 (2008)$77.25MM
$85MM——
1.29 (2008)$82.4MM$91MM
$3.0MM (2008)$0.2MM (2008)
1.31 (2008)$81.0MM$90MM
——
1.17 (2008)$82.35MM
$91MM$3.8MM (2008)$2.9MM (2009)
1.11 (2008)$87.95MM
$91MM$4.9MM (2007)
$11.3MM (2010)
• Downside— Minimum Debt Coverage1
— Construction Loan— Bond— Largest Annual Cash Deficit— Largest Cumulative Cash Deficit
1.39 (2008)$79.00MM$87.0MM
——
1.30 (2008)$83.6MM$91.0MM
$3.0MM (2008)$1.5MM (2009)
1.30 (2008)$82.6MM$91.0MM
$3.0MM (2008)$0.1MM (2009)
1.18 (2008)$84.3MM$91.0MM
$3.7MM (2008)$4.8MM (2009)
1.12 (2008)$89.0MM$91.0MM
$5.9MM (2007)$12.4MM (2010)
Escalated Competitive Response
Plan All-OutMarketing War
AssumptionsDownside
CombinedDownside andCompetitiveResponse2
25DEAN & COMPANY
Incumbents frequently respond to overbuilders by cutting price and escalatingmarketing efforts
028,05-13-04,UTPDYN01A.ppt sbg, cgL2
Municipality/Overbuilder Competitor(s) Lowered Rates
Political Lobbying
Upgraded Network
NoAction
Altrio AdelphiaCharterSBCVerizon
50% discounts(limited time)
--
$200 incentivesLoyalty bonus of every third month free
x
Ashland, OR Charter Communications 25% lower --
Went door-to-door right before AFN came throughInstant installs
Astound AT&T BroadbandPacific BellQwestCharter Communications
- Special customer service centers to dissuade customers from cancelling service
Bristol, VA Charter Communications xCedar Falls, IA Charter Communications
TCI CommunicationsLowered rates
(14% lower than national average)
- Expanded services
Coldwater, MI Lowered rates to $5/month
---
Eliminated monthly fees for additional outletsEliminated franchise fee pass throughAdded additional channels
x
Everest Communications
Time Warner
SBC
20% lower -----
$200 incentive to return (more if write a testimonial)50% discount for signing up for 1 yearInvested in marketing effortsIncumbent monopolizes terrestrially delivered programming & won't sell local regional sports network
x
Glasgow, KY Comcast Cable x Purchased by Glasgow Plant Board
Grande Communications
AT&TTime Warner
Lowered rates by$16-$28/month
Harlan, IA TCI Communications 17% lower($20 lower than
surrounding areas)
--
Expanded basic packageExpanded offerings (compressed digital service)
x
Knology Comcast BellSouthCharter Communications
Predatory Pricing - Selling blocks of long distance x x
LaGrange, GA Charter CommunicationsBell South
Joint Venture
Newnan, GA Charter Communications - $300 to switch x xRCN CableVision
Verizon10-15% lower - Threatened contractors working with RCN, leading contractors to charge
higher pricesScottsboro, AL Charter Communications 50%-66% lower
(limited time predatory pricing)
--
Offered $200 to SEPB customers who switch CATV"Amnesty Program": forgave SEPB customers' old debts to Falcon or Charter
SureWest Pacific BellAT&T Broadband
- SBC is bundling 4 services (DBS, LD/Local, DSL/Dial-up, wireless)
Tacoma, WA AT&T Broadband 20% lower - Funded reports about Click's lack of success xWOW Comcast 50% discount
(limited time)--
Free PPVFree digital upgrade
Marketing
Municipality/Overbuilder Competitor(s) Lowered Rates
Political Lobbying
Upgraded Network
NoAction
Altrio AdelphiaCharterSBCVerizon
50% discounts(limited time)
--
$200 incentivesLoyalty bonus of every third month free
x
Ashland, OR Charter Communications 25% lower --
Went door-to-door right before AFN came throughInstant installs
Astound AT&T BroadbandPacific BellQwestCharter Communications
- Special customer service centers to dissuade customers from cancelling service
Bristol, VA Charter Communications xCedar Falls, IA Charter Communications
TCI CommunicationsLowered rates
(14% lower than national average)
- Expanded services
Coldwater, MI Lowered rates to $5/month
---
Eliminated monthly fees for additional outletsEliminated franchise fee pass throughAdded additional channels
x
Everest Communications
Time Warner
SBC
20% lower -----
$200 incentive to return (more if write a testimonial)50% discount for signing up for 1 yearInvested in marketing effortsIncumbent monopolizes terrestrially delivered programming & won't sell local regional sports network
x
Glasgow, KY Comcast Cable x Purchased by Glasgow Plant Board
Grande Communications
AT&TTime Warner
Lowered rates by$16-$28/month
Harlan, IA TCI Communications 17% lower($20 lower than
surrounding areas)
--
Expanded basic packageExpanded offerings (compressed digital service)
x
Knology Comcast BellSouthCharter Communications
Predatory Pricing - Selling blocks of long distance x x
LaGrange, GA Charter CommunicationsBell South
Joint Venture
Newnan, GA Charter Communications - $300 to switch x xRCN CableVision
Verizon10-15% lower - Threatened contractors working with RCN, leading contractors to charge
higher pricesScottsboro, AL Charter Communications 50%-66% lower
(limited time predatory pricing)
--
Offered $200 to SEPB customers who switch CATV"Amnesty Program": forgave SEPB customers' old debts to Falcon or Charter
SureWest Pacific BellAT&T Broadband
- SBC is bundling 4 services (DBS, LD/Local, DSL/Dial-up, wireless)
Tacoma, WA AT&T Broadband 20% lower - Funded reports about Click's lack of success xWOW Comcast 50% discount
(limited time)--
Free PPVFree digital upgrade
Marketing
Competitive Response
26DEAN & COMPANY
5%–8%
2%–3% 2.6% 2.5% 2.4% 2.4%
1.7%1.5%
1.2%1.4%
0%
1%
2%
3%
4%
5%
6%
7%
8%
005a,05-13-04,UTPDYN01A.ppt ini, jrb6
Churn Benchmarks– Residential –
Highly competitive markets can see churn levels over 2% per month
Monthly Average Churn Monthly Churn Over Time
ChurnRate
ChurnRate
DigitalCable1
DirecTV
Cable
EchoStar
CLECs
Earthlink/AOL
Wireless
AT&TLD
Cable
DirecTV
EchoStar
UTOPIA(Residential)
1.00%
0.80%
0.60%
1.00%
1.25%
1.70%
1.20%
1.10%
1.50%1.25%
2.00%
2.40%
2.10%
2.00%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
1995 1996 1997 1998 1999 2000 2001
UTOPIA Expected (Business)
TypicalRBO (pre-
competition)
UTOPIA Expected Case(Residential)
27DEAN & COMPANY
($5)
$0
$5
$10
$15
$20
2004 2005 2006 2007 2008 2009 2010 2011
042,05-13-04,UTPDYN01A.ppt JTS,npl1
Scenario Comparison: Business Plan– Expected vs. Conservative vs. Downside –
– First 8 Years –
Year
$MM
Expected
Conservative
RevenueAvailable forDebt Service
Downside
ExpectedConservative
Total Debt
Debt Coverage
($5)
$0
$5
$10
$15
$20
$25
2004 2005 2006 2007 2008 2009 2010 2011
Year
$MM
End-of-Year Cash Position
Downside
Expected
Conservative
Downside
Requires Additional(e.g., City) Capital
28DEAN & COMPANY
($5)
$0
$5
$10
$15
$20
2004 2005 2006 2007 2008 2009 2010 2011
044a,05-13-04,UTPDYN01A.ppt JTS,npl1
Scenario Comparison: Marketing War– Expected vs. Conservative vs. Downside –
– First 8 Years –
Year
$MM
Expected
Conservative
RevenueAvailable forDebt Service
Downside
Expected
ConservativeTotal Debt
Debt Coverage
($5)
$0
$5
$10
$15
$20
2004 2005 2006 2007 2008 2009 2010 2011
Year
$MM
End-of-Year Cash Position
Downside
Expected
Conservative
Downside
Requires Additional(e.g., City) Capital
29DEAN & COMPANY
($5)
$0
$5
$10
$15
2004 2005 2006 2007 2008 2009 2010 2011
043a,05-13-04,UTPDYN01A.ppt JTS,npl1
Scenario Comparison: Combined Downside– Expected vs. Conservative vs. Downside –
– First 8 Years –
Year
$MM
Expected
ConservativeRevenueAvailable forDebt Service
Downside
ExpectedConservative
Total Debt
Debt Coverage
($15)
($10)
($5)
$0
$5
$10
2004 2005 2006 2007 2008 2009 2010 2011
Year
$MM
End-of-Year Cash Position
Downside
Expected
Conservative
Downside
Requires Additional(e.g., City) Capital
30DEAN & COMPANY029,05-13-04,UTPDYN01A.ppt sbg,
Jumpstarting Value– Broadband Economic Development –
Real value creation relies on proactive management of complementors andeconomic development
• Shift of localcommerce and taxesout of region via e-commerce
• Net employment lossin Incumbent serviceproviders
• Broadband-enabledcenters of excellence
– Telemedicine– Software
development
Broadband HighwayOut-of-Town
Broadband Service Zone(Individual Subscriber
Optimized)
Broadband Village(Regionally Optimized)
Broadband Corridor(Export-Led)
• Tele-work• In-region e-
commerce• e-government• e-education• e-health• e-utilities
•••
• Net ValueCreation
– Employment– Wages– Home Value– Quality of Life
+
-
•••
0
Network/Community Effects
• New Services– High Speed
internet– Digital cable
• Price/qualitycompetition
• Choice of providers
Pro-activeCommunity
Strategy Required