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PACKET Town Board Budget Study Session 2015-07-28
Tuesday, July 28, 2015 TOWN BOARD 3:00 p.m. – 5:00 p.m. STUDY SESSION Rooms 202/203 AGENDA 1. Review of Board Retreat held June 25, 2015. 2. Review of flood recovery expenses and funding. 3. Update on flood effects to financial statements/budgets. 4. Forecast of fund balances. 5. General thoughts on remainder of 2015 and 2016. a. Review of department needs b. Personnel costs c. Benefits costs and changes FINANCE Memo To:Honorable Mayor Pinkham Board of Trustees Town Administrator Lancaster From: Steve McFarland – Finance Officer Date: July 28, 2015 Re: Town Board Study Session Review of Board Retreat held June 25, 2015 Information will be provided by Town Administrator Lancaster. Review of flood recovery activity Forecast of fund balances General thoughts on 2015-2016 Information will be provided by Finance Officer McFarland Please refer to the spreadsheet accompanying this memo. Staff will bring 11”x”17” copies for reference/discussion. 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Draft Strategic Plan new objectives with financial implications. (All draft Board objectives are shown in bold italics) a)Pursue funding opportunities for construction of the Fall River Trail – may require financial match – Potential match sources – Larimer Co. Open Space Money, 1% sales tax b)Pursue funding for additional parkingstructures – probably will require financial match c)Explore the need for a storm water master plan and the feasibility of a storm water utility (including flood plain considerations) - consulting and engineering fees d)Investigate ways to improve signage for special events Cost for implementation e)Complete a needs assessment and conceptual plan for improvements to the Conference Center – consulting fees f) Develop plans for the Town’s 100th Anniversary in 2017 – cost unknown, but some cost are anticipated. Probably more 2017 g)Complete a needs assessment and recommendation for an enterprise document management system. – Consulting fees h)Conduct the biennial Citizen’s Survey $15,000 budgeted for next year. NRC recommends every 2-3 years, so we could push it off a year. 7) Personnel costs a) ~2.5-3% for market adjustments (just starting market analysis, so this is a very rough estimate) – no funds for merit adjustments b) Benefits? – still no spousal health insurance 8) Review of department needs a) Staffing i) Payroll Clerk (1) Contracting out? ii) Streets staff (1) Will need an additional engineer if we get the Moraine Bridge grant (2) Traffic control for events (3) storm drainage maintenance (4) just putting out fires at this point iii) Special Events Staffing iv) Clerk’s support staff v) Police records clerk – move from part time to full time vi) Add two more CSO’s go from 4 to 6 vii) Workload in Community Development (1) They are working on a staffing plan and should be wrapped up in the near future. viii) Potentially 4 new staff in utilities (funded) 9) Other Department Needs a) Administration i) Cuts (1) E-Civis (2) NCEDC ii)Develop plans for the Town’s 100th Anniversary in 2017 – cost unknown, but some costs are anticipated. Probably more 2017. iii) Conduct the biennial Citizen’s Survey b) Administrative Services i)Complete a needs assessment and recommendation for an enterprise document management system. – Consulting fees c) Community Services i) Events Center Expenses ii)Investigate ways to improve signage for special events Cost for implementation (1) Variable Message Sign to replace banners iii) Completea needs assessment and conceptual plan for improvements to the Conference Center – consulting fees iv) Funding for Museum Storage Facility d) Community Development i) Implementation of Downtown Neighborhood plan (1)Develop wayfinding plan for downtown neighborhood, as determined by Downtown Neighborhood plan ii) Code changes – Working with EDC committee. May need some outside consulting help to get this done, given the current workload in the department iii) Update fees – should be done on an annual basis. Need for a policy on cost recovery percentage. e) Public Works i) Cut the Ice Rink ii)Explore the need for a storm water master plan and the feasibility of a storm water utility (including flood plain considerations) - consulting and engineering fees iii) Pursue funding opportunities for construction of the Fall River Trail. may require financial match – Potential match sources – Larimer Co. Open Space Money, 1% sales tax iv) GIS Data management and expansion of Lucity software, streets and facilities modules – cost to purchase v) Heated storage for the spray patcher and aggregate vi) Master planning of Town Elm Road campus – Utilities, PW, Storage, evidence storage f) Police i) Move part-time records clerk to full time ii) Increase 2 CSO’s g) Finance i) Payroll Clerk ii) HTE upgrade – (could be funded by IT fund) h) Utilities i) Project to find redundant source for Mary’s Lake ii) Extending fiber associated with electric system management 10) Board discussion and comment Tuesday, July 28, 2015 TOWN BOARD 5:00 p.m. – 6:40 p.m. STUDY SESSION Rooms 202/203 AGENDA 5:00 p.m. Dinner Served 5:10 p.m. Trustee & Administrator Comments & Questions. 5:20 p.m. Future Study Session Agenda Items. (Board Discussion) 5:30 p.m. Final Draft of NeoFiber Broadband Strategy Report. 6:40 p.m. Adjourn for Town Board Meeting. “Informal discussion among Trustees concerning agenda items or other Town matters may occur before this meeting at approximately 4:45 p.m.” Future Town Board Study Session Agenda Items July 28, 2015 August 11, 2015 Items Approved – Unscheduled: Session on Zoning Basics (Items are not in order of priority) Update on Town of Estes Park International Property Maintenance Financial Policies Code (Dangerous Buildings Code) and Adoption of New International Building September 8, 2015 Code Draft Reviews Update on the Status of the Events Fish Hatchery Property Discussion Center Finances Local Preference Purchasing Policy Briefing on Storm Drainage and Flood October 19, 2015 Management Issues and Management Final Avalanche Economic Options Development Strategy Report Update on Environmental Assessment NEPA Process Draft Concerning the November 10, 2015 Loop Discussion of Noise Ordinance Study Session Items for Board Consideration: Update on Upcoming Construction Schedules for Major Projects Through 2018 Review of Draft Recommendations for Vacation Rentals 2015 Park EDC Fiber 23, Park Estes NEO July of by Estes & Town the for Prepared al. 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Town Partnership 10 infrastructure residential broadband Light the infrastructure entirely and to service Public of and retiring CompetitivebusinessFundingApproximatemillionAfterrevenuePowerPrivateinternet NEO Fiber Draft Deliverable July 22, 2015 Prepared for Town of Estes Park and Estes Park EDC 1 NEO Fiber Draft Deliverable 4 ¡«¤ ®¥ #®³¤³² 1. Executive Summary ............................................................................................................................... 4 2. Introduction and Overview .................................................................................................................. 6 Abundant Broadband is a Necessity for Economic Vitality. ........................................................... 6 The Community has Overwhelmingly Supported this Need for Abundant Broadband. ........... 7 Local Service Provider Capabilities ..................................................................................................... 8 Dramatically Transform the Current Broadband Offering Abundant Broadband that is Affordable. .............................................................................................................................................. 9 Two of the Five Service Delivery Models are Feasible. .................................................................... 9 Possible Private-Public Partnership Roles for Current Local Service Providers......................... 10 Capital Costs Required for Implementation and Potential Phases. .............................................. 10 Financial Results, Sustainable Approach and Return on Investment. ......................................... 11 3. Survey and Speed Test Results .......................................................................................................... 12 The Community has Overwhelmingly Supported this Need for Abundant Broadband. ......... 12 Residential Survey Results ................................................................................................................. 13 Business and Anchor Institution Survey Results ............................................................................ 21 Respondent Comments. ...................................................................................................................... 26 4. Local Service Provider Capabilities ................................................................................................... 31 5. Ownership Model Recommendations .............................................................................................. 32 6. Possible Private-Public Partnership Roles for Current Local Service Providers ........................ 39 7. Laying the Groundwork, Methodology and Process ...................................................................... 40 Existing Fiber Optic Network ............................................................................................................ 40 Connecting Anchor Institutions ......................................................................................................... 42 Expansion into Neighborhoods ......................................................................................................... 44 Projected Capital Costs, FTTH/FTTB and Possible Phasing .......................................................... 46 2 NEO Fiber Draft Deliverable Using the Communications Space vs. Power Space on Utility Poles ........................................... 48 What are We Aiming For? Pricing Considerations ........................................................................ 49 Take Rate Assumptions and Product Mix ........................................................................................ 55 A Note about Phone Service and Cable TV Services. ..................................................................... 55 What about Wireless? .......................................................................................................................... 56 .............................................................................................................................. 57 8. Service Delivery Models ..................................................................................................................... 59 Two Service Delivery Models are Feasible ....................................................................................... 59 Why are the Other Models Not Feasible? ......................................................................................... 60 9. Financial Plan and Results .................................................................................................................. 64 Financing Assumptions, Amortization Schedule ............................................................................ 64 Revenue Assumptions ......................................................................................................................... 64 Tap Fee, Utility Fees or Installation Charges ................................................................................... 65 Capital Costs ......................................................................................................................................... 66 Operating Expense Assumptions ...................................................................................................... 67 Financial Results ................................................................................................................................... 68 10. Benefits of Advanced Broadband Networks and Why This Matters, Abundant Broadband is a Necessity for Economic Vitality .......................................................................................................... 82 Stimulate Economic Growth. .............................................................................................................. 82 Speed Matters. ...................................................................................................................................... 83 Community Outreach and Support. .................................................................................................. 86 Telecommuting Opportunities ........................................................................................................... 91 ............................................................................ 93 Affordable Healthcare ......................................................................................................................... 93 Education and Distance Learning ...................................................................................................... 95 Public Safety: Our first responders need reliable, ubiquitous coverage ..................................... 96 Digital Inclusion and Civic Engagement .......................................................................................... 97 Civic Engagement, Transparency, Access to Government Resources. ........................................ 98 Higher Home Values ........................................................................................................................... 98 3 NEO Fiber Draft Deliverable 11. In Summary ...................................................................................................................................... 100 1. Executive Summary In this report, NEO Fiber provides detailed engineering and financial analysis of broadband service options for the area served by Estes Park Power and Light Division. This analysis is based on extensive, real-world experience and industry-standard assumptions. financially sustainable, state-of-the-art broadband service that would provide: Competitive broadband internet speed and cost to business and residential customers, Funding entirely through user fees, Approximate 10 to 12 year debt retirement of $27 - $30 million of infrastructure buildout costs, Provides a source of revenue to the Town similar to that since 1945 from the Power and Light Division, Private-Public Partnership opportunities for local internet service providers. NEO Fiber examined, in detail, five different models of service delivery. After extensive evaluation, the only two financially viable models were 1) Retail Services to Businesses Alone or 2) Retail Services to Businesses and Homes. These two models were financially viable because they provided sufficient income from user fees to retire infrastructure buildout debt. The other three models, 3) Infrastructure Owner Only, 4) Government Services Provider, and 5) Open Access Provider, did not produce sufficient income to retire infrastructure buildout costs. There is strong public support for access to competitive broadband as demonstrated in the February 2015 SB-152 special election results, and as found in the NEO Fiber broadband survey in which 93% said they would be interested in accessing a faster, more reliable broadband network. 4 NEO Fiber Draft Deliverable determination that broadband internet access is a utility, as necessary to contemporary life as electricity, roads, and water systems. ve and slower than . If providing competitive broadband services to Estes Park were financially attractive to the private sector, it could be argued that it would have already happened. High initial capital costs, higher than public sector borrowing costs, need for higher return on investment than in the public sector, and our comparatively small customer base and consequent small revenue stream, make private sector provision of speed and cost competitive broadband service unlikely. In the course of its evaluation of broadband delivery options, NEO Fiber met with all of the local service providers. Along with the general private sector issues identified above, restricted access to capital and return on investment concerns may limit local internet service provider ability to furnish more competitive broadband services. 5 NEO Fiber Draft Deliverable 2. Introduction and Overview In February this year, the Town of Estes Park and the Estes Park Economic Development Corporation engaged NEO Fiber to prepare a business plan and strategy for broadband expansion and technical assistance for the Town of Estes Park and the surrounding region, stretching from Allenspark to Glen Haven. NEO is a broadband consulting firm that is working with municipalities, counties and regions to improve advanced broadband infrastructure. Mile Fiber to the Home FTTHand Middle Mile fiber optic networks. A Fiber to the Home or Business network is one in which fiber optic cable is brought all the way to the home or business location. This broadband plan contains technology driven business strategy that leverages existing fiber optic facilities and wireless capabilities, and is intended to attract investment, spur innovation and diversify Estes Park Platte Rivring that includes the core commercial area and connects certain Town facilities and key locations. The existing fiber optic network was underutilized and the goal of the broadband plan was to leverage this existing network and provide strategies to best use this existing infrastructure. The existing fiber network has connectivity through Loveland to the national internet backbone. This portion of the network is currently deployed using Western Area Power Administrations (WAPA) transmission lines. In addition to the network deployed in Estes Park, PRPA owns and services fiber optic facilities in all four communities of its shareholders (Fort Collins, Estes Park, Loveland and Longmont.) PRPA leases a portion of the existing fiber optic network to many telecommunication providers; CenturyLink and Level 3 are among them. During the flood in September 2013, Century Link lost its fiber through Glen Haven resulting in a CenturyLink outage that left much of Estes Park and other nearby communities without telecommunications, phone, Internet and 911 services. For public safety reasons, re-establishing redundancy and several diverse communication paths in and out of the Estes Park area were noted as important goals of this project. !¡´£ ³ "±® £¡ £ ¨² .¤¢¤²²¨³¸ ¥®± %¢®®¬¨¢ 6¨³ «¨³¸ȁ The economic health and survival of this region depends in large part on the availability and affordability of advanced telecommunication services. Advanced broadband service is no longer a luxury. The Internet and its use have infiltrated every area of our lives. The Internet and its associated technologies are used for social media and staying connected, for entertainment and streaming 6 NEO Fiber Draft Deliverable videos.More importantly it is used to transfer files and download/upload information that is critical to businesses, medical establishments, public safety, online banking, training and distance education, smart metering, point of sale applications, and every part and parcel of our lives. Communities that lack adequate broadband services are finding a disparity between the - local businesses leaving the community. Additionally tourists and visitors to the community may decide to visit other places where their lives and businesses can continue to be conducted rather than a community that does not have adequate broadband services. 1 sessment addresses the need for advanced broadband services as an opportunity for professionals to live and work in the community. Throughout their draft report, broadband is referred to as a challenge that needs to be tackled in order to provide the proper infrastructure for targeted industries. Targeting professional services as a growth industry requires that people have abundant and affordable broadband services at home, allowing the professional to telework. According to a recentAspen Institute Communications and Society Program publication, which is also referred in Section 10 of this deliverable, -speed Internet connection, at any time. Section 10 of this report speaks to The Benefits of Advanced Broadband Network and Why This Matters. 4§¤ #®¬¬´¨³¸ § ² /µ¤±¶§¤«¬¨¦«¸ 3´¯¯®±³¤£ ³§¨² .¤¤£ ¥®± !¡´£ ³ Broadband. On February 3rd, 2015 a public vote to opt- conducted within the Town of Estes Park. 92% of the voters in Estes Park voted to reclaim local authority to establish a telecommunications utility. In other similar elections held in Colorado the results have been 60-75% in favor of opting-out of the current law that restricts municipalities from building telecommunications infrastructure. The overwhelming and unprecedented results of this election are a clear indication that the community is interested in making a change and speaks to the need for better broadband services. NEOconducted community outreach meetings discussing the need and process for advanced broadband services. The community outreach meetings were well-attended and feedback from the community confirmed the vast need for better broadband services. NEO Fiber put together two surveys to receive input from the community in regards to broadband needs for the Town of Estes Park and the region. The first survey was designed and distributed to residential users 1 7 NEO Fiber Draft Deliverable and the second was distributed to businesses and anchor institutions within Estes Park and the surrounding areas. 300 survey responses were received for the survey targeting the residential users. 55 responses were received for the business and anchor institution survey. Survey results were consistent with the election outcome. When asked if respondents would be interested in accessing a faster, more reliable The survey provided instructions to respondents to take an actual Internet speed test. The lowest speeds recorded were 0.22 Mbps download and 0.49 Mbps upload. The highest speeds recorded were 66 Mbps download and 5.5 Mbps upload. The average speeds recorded were 10.75 Mbps download and 2.07 Mbps upload. Considering that other towns, cities and communities are investing in networks that provide services that are 500 1000 times faster speeds than actual capacity available in Estes Park, speaks to the lack of adequate broadband services actually available. These real-world speed test results confirm the need for more abundant broadband. ,®¢ « 3¤±µ¨¢¤ 0±®µ¨£¤± # ¯ ¡¨«¨³¨¤² In addition to community outreach meetings, NEO conducted individual interviews with the local service providers currently providing Internet services in the community. Although the providers have invested in limited fiber optic infrastructure to key businesses and anchor modem, Digital Subscriber Line (DSL) and wireless technologies. Each of these network technologies are shared; meaning, as more users are on the network, the capacity and availability of bandwidth is diminished. DSL service is provided by copper telecommunication lines and can carry high bandwidth signals only for a short distance a few hundred yards; after which the signal is degraded and bandwidth diminishes. While cable modems generally provide transmission speeds of anywhere between five and 50 megabits per second on the download (and are generally much slower when uploading), this technology is shared and therefore, all users on the network share this bandwidth. For example, if there are 100 users sharing 50 Mbps, each user receives 0.5 Mbps of service. Fiber optic technology provides two-way speeds of up to 1 Gigabit per second, with 10 Gigabit systems now coming to market. This is 1,000 times to 10,000 times faster than DSL, wireless and cable modem networks. Additionally, the carrying capacity of fiber is unlimited. As fiber optic technology transmit pulses of light, more bandwidth can be delivered on a fiber optic network by adding various colors of light or additional spectrum. Fiber is unique because it can carry high bandwidth signals over long distances without signal or bandwidth degradation and it can provide that capacity in both directions for both upload and downloading information. 8 NEO Fiber Draft Deliverable The current service providers do not have plans to upgrade their networks to Fiber to the Home in Estes Park. The current local providers have access to limited capital and therefore, simply cannot implement this technology throughout the community. As the existing networks that are built on DSL, wireless and cable modem do not support the needs of bandwidth today, the problem will only grow bigger as time goes on. Internet bandwidth consumption is doubling every year. With continued explosive national growth in demand for bandwidth for the foreseeable future, the lack of existing infrastructure to support bandwidth consumption is a problem that is not going away. $± ¬ ³¨¢ ««¸ Transform ³§¤ #´±±¤³ "±® £¡ £ /¥¥¤±¨¦ !¡´£ ³ "±® £¡ £ ³§ ³ ¨² !¥¥®±£ ¡«¤ȁ The current model for providing Internet or broadband services is based upon a model of scarcity. In order to get Gigabit-type Internet services, as there is not fiber available on a wide-spread basis, users must pay a lot for this service. This model of scarcity makes abundant broadband unaffordable. C urrently the businesses and anchor institutions do not ever or rarely subscribe to Gigabit-type services as these services due to high prices. Gigabit Internet service pricing currently is provided at approximately $3,000 per month. If the Town embarked upon building a FTTH network, targeted pricing for businesses and anchor institutions would be $300 - $500 per month for Gigabit Internet service. Residential pricing is targeted at $70 - $95 per month for Gigabit Internet. This would dramatically transform the pricing and broadband offering that is currently available in Estes Park, making high-bandwidth Internet services attainable, accessible, abundant and affordable. 4¶® ®¥ ³§¤ &¨µ¤ 3¤±µ¨¢¤ $¤«¨µ¤±¸ -®£¤«² ±¤ &¤ ²¨¡«¤. NEO provided financial models for all of the various service delivery options. These options ranged from providing dark fiber services - which the Town is currently providing; to wholesale services - where the Town builds the network and current local service providers provide retail Internet services on an open network; to retail models where the Town builds the network and provides services directly to the end users. All of the financial models are based on detailed, realistic analysis and extensive real-world, industry-standard assumptions. The Town of Estes Park has higher than average capital costs due to being both located in the mountains with rocky conditions, and in a rural has area with a relatively low customer base. As a result, the two models that are feasible and financially sustainable are ones in which the Town offers services directly to end users. The Town could offer services on a wholesale basis; however, in order for this model to be financially sustainable, the pricing to end users would need to be increased to a point where the service is no longer affordable. Alternatively, a wholesale model would work if the service providers took a substantially lower percentage of the revenue than what has worked 9 NEO Fiber Draft Deliverable throughout other FTTH communities that have deployed a wholesale open access network. It is unlikely that a private company would provide retail services under such a proposal, since it would not provide them sufficient revenue. The two financially sustainable models produce a revenue stream for the Town that is similar to the residual revenue stream of the Estes Park Light and Power Division. These two models of providing services directly to the anchor institutions and businesses - and to the business community as well as the residents and homes of the community - have successfully been deployed in numerous communities throughout the country. These two models resemble what the City of Longmont is implementing, with a city-wide phasing of both commercial and residential neighborhoods. These models are financially sustainable, have been successful in other locations and can be implemented in the Estes Valley. 0®²²¨¡«¤ 0±¨µ ³¤-0´¡«¨¢ 0 ±³¤±²§¨¯ 2®«¤² ¥®± #´±±¤³ ,®¢ « 3¤±µ¨¢¤ 0±®µ¨£¤±² Throughout the community engagement process and in conversations with the broadband steering committee and the Town Trustees, it was expressed that the community wants to engage with the local service providers. The two models that are financially sustainable provide for possible Private-Public Partnership roles for the current local service providers. Final design, engineering, project management, program management and construction of the network would be outsourced. This opportunity represents approximately $27 - $30 Million in potential revenue to the existing service providers. Additionally, the network operations and management, truck rolls and repair service could be outsourced. Sales, marketing, customer service and billing services could potentially be outsourced as well. Based upon the assumptions used in the financial models, this represents $500k to $1.5M in annual operating revenue potentially available to local service providers. Estes Park would be required to competitively bid these opportunities; however, a local preference could be given to local service providers and/or local service providers that bid jointly with national providers. # ¯¨³ « #®²³² 2¤°´¨±¤£ ¥®± )¬¯«¤¬¤³ ³¨® £ 0®³¤³¨ « 0§ ²¤s. The projected capital costs for a Fiber to the Home (FTTH) and Fiber to the Business (FTTB) network in the Estes Park region is estimated at $27 - $30 information of existing utility poles and conduit in place through Estes Park Light and Power and used this information to conduct a preliminary design and engineering of the network using existing utility poles when possible. NEO provided recommendations on potential phasing of the network build out and provided financial models and their respective financial results for building the network at once as well as building the network out in a phased 10 NEO Fiber Draft Deliverable approach in 2-5 years. Capital costs can be recovered through offering Internet services directly to end users and all financial feasibility objectives are met. &¨ ¢¨ « 2¤²´«³²Ǿ 3´²³ ¨ ¡«¤ !¯¯±® ¢§ £ 2¤³´± ® )µ¤²³¬¤³ȁ NEO ran several financial models based upon a number of revenue models all producing favorable and feasible results. There is no one-size fits all approach to a community broadband network and therefore, there are a number of possibilities for pricing services. NEO has provided financial models for the following revenue benchmarks: Retail Model #1, $70/month residential service Retail Model #2, $95/month residential service Retail Model #3, Tap Fee and $70/month Retail Model #4, Tap Fee and $95/month Retail Model #5, Utility Fee and $70/month Retail Model #6, Utility Fee and $95/month All of these models have positive results. Cash flow generated from offering broadband services for all of the various models produce Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) of $4 - $6 Million per year after year 3. The purpose of showing these various approaches is to provide options for pricing and revenue models that provide strong financial results that are sustainable. 11 NEO Fiber Draft Deliverable 3. Survey and Speed Test Results 4§¤ #®¬¬´¨³¸ § ² /µ¤±¶§¤«¬¨¦«¸ 3´¯¯®±³¤£ ³§¨² .¤¤£ ¥®± !¡´£ ³ Broadband. On February 3rd, 2015 a public vote to opt- conducted within the Town of Estes Park. 92% of the voters in Estes Park voted to reclaim local authority to establish a telecommunications utility. In other similar elections held in Colorado the results have been 60-75% in favor of opting-out of the current law that restricts municipalities from building telecommunications infrastructure. The overwhelming and unprecedented results of this election are a clear indication that the community is interested in making a change and speaks to the need for better broadband services. NEOconducted community outreach meetings discussing the need and process for advanced broadband services. The community outreach meetings were well-attended and feedback from the community confirmed the vast need for better broadband services. NEO Fiber put together two surveys to receive input from the community in regards to broadband needs for the Town of Estes Park and the region. The first survey was designed and distributed to residential users and the second was distributed to businesses and anchor institutions within Estes Park and the surrounding areas. 300 survey responses were received for the survey targeting the residential users. 55 responses were received for the business and anchor institution survey. Survey results were consistent with the election outcome. When asked if respondents would be interested in accessing a faster, more reliable The survey provided instructions to respondents to take an actual Internet speed test. The lowest speeds recorded were 0.22 Mbps download and 0.49 Mbps upload. The highest speeds recorded were 66 Mbps download and 5.5 Mbps upload. The average speeds recorded were 10.75 Mbps download and 2.07 Mbps upload. Considering that other towns, cities and communities are investing in networks that provide services that are 500 1000 times faster speeds than actual capacity available in Estes Park, speaks to the lack of adequate broadband services actually available. These real-world speed test results confirm the need for more abundant broadband. Although the survey is a randomized sample; however, the results of the survey strongly suggest the following take-aways: The community wants to see faster, more abundant broadband services 12 NEO Fiber Draft Deliverable The actual speed tests confirm the lack of adequate broadband services throughout the community Speed is the most important factor to the community, followed by redundancy and then by price. Education to the community regarding what is possible, what other cities are experiencing and the opportunity to change the model of scarcity/affordability should be done to further educate the public. 42% of the respondents have either one or two people working primarily from home, providing insight into the need to not only serve businesses within the community, but to also address providing abundant broadband services to homes. In the application part of the survey, 53% of respondents stated that they telecommute. If the Town of Estes Park implements a FTTH/FTTB network that is affordable, receiving take rates of at least 40% will be achievable which helps ensure the financial sustainability of the project. Here are the results of the surveys. 2¤²¨£¤³¨ « 3´±µ¤¸ 2¤²´«³² .¤³¶®±ª 4¤¢§®«®¦¸ȁ Most of the residents have Cable, DSL or a wireless connection for their Internet service at home. 90% of residents have DSL, Cable or a wireless connection. Four of the respondents responded that they have a fiber connection at home. This may, in fact, be incorrect but was not verified. Many of the providers advertise having fiber and there is often the misperception that the providers are offering a fiber connection at the home. However, none of the providers in Estes Park are currently 13 NEO Fiber Draft Deliverable offering a fiber connection to the home in Estes Park. Reliability. When asked about reliability of the Internet connection, in some cases (29%) the connection drops either all the time or regularly. In most cases (77.8%) the speed or capability of the connection varies from time to time or considerably. 3¤±µ¨¢¤ 0±®µ¨£¤±²ȁ The existing service providers are Baja Networks/TDS Telecom, CenturyLink, Airbits, RMDAS, AT&T and Estes Valley Networks. #´±±¤³ 0±¨¢¨¦ȁ The range of what is currently being spent for Internet services varies greatly for residential users; between $20 over $100 per month. In some cases the price for service includes TV (17%) and in others cases, the price for service includes phone service (29%). 14 NEO Fiber Draft Deliverable "´£«¨¦ Services. 73% of the respondents stated it was NOT important to bundle TV and phone service in one invoice with Internet services. Only 7% stated it was extremely important to bundle service and 19% stated it was somewhat important. 0¤±¢¤¯³¨® ®¥ 3¯¤¤£ȁ When asked to rate the speed of the Internet, many of the respondents stated that the Internet speed was good or acceptable. Some stated is was slow or very slow. Some also stated the speed was excellent. Interpreting this data, it could be said that more education should be done with the public regarding what is acceptable or good. 15 NEO Fiber Draft Deliverable 3¯¤¤£ 4¤²³ 2¤²´«³²ȁ The survey provided instructions to respondants to take an actual speed test. The lowest speeds recorded were 0.22 Mbps download and 0.49 Mbps upload. The highest speeds recorded were 66 Mbps download and 5.5 Mbps upload. The average speeds recorded were 10.75 Mbps download and 2.07 Mbps upload. Download Upload RatingSpeedSpeed Excellent1.561.68 actual speed test, here were the speed test results. Excellent1.970.72 Excellent3.493.01 eed ranges were 0.74 Mbps/0.75 Mbps and Excellent3.520.65 56.88 Mbps/2.18 Mbps. Again, the results imply that more Excellent4.50.5 Excellent4.750.53 information can be shared with the community regarding Excellent5.51.6 what other communities are experiencing, or what the rest of Excellent7.0211.86 the world is receiving in terms of speed, bandwidth and Excellent11.320.73 Excellent11.495.52 pricing. Excellent18.840.88 Excellent28.455.07 Excellent3010 Excellent51.14.2 Excellent, Baja sells me "50"455.6 Top speeds for the service providers that offer services through a wireless connection were recorded at 12 Mbps download and 5.6 Mbps upload. Average speeds for wireless was 5.43 Mbps download and 2.78 Mbps upload. 4¨¬¤ ®¥ $ ¸ 5²¤ȁ When asked what time of day is the Internet used the most at home, respondants answered durning the morning and during the evening. 16 NEO Fiber Draft Deliverable '±¤ ³ Interest ¨ & ²³¤±Ǿ -®±¤ 2¤«¨ ¡«¤ .¤³¶®±ª. When asked if respondents would be interested in accessing a faste 7§ ³ - ³³¤±²ȁ Respondents were asked to rank what was the most important to them in as the most impo 17 NEO Fiber Draft Deliverable Devices. The survey asked which devices were used to connect to the Internet and asked to check all the devices that apply. 30.1% of the respondents stated they used a smart TV and nearly ½ (48.16%) use Streaming TV. 7®±ª ¥±®¬ (®¬¤ȁ 30.5% of the survey respondents have one person who works at home and 11.74% of the respondents have two people who work at home. 18 NEO Fiber Draft Deliverable School-!¦¤£ #§¨«£±¤ȁ 89.67% of the people taking the survey do not have school-aged children living at their home. Approximately 9% of the people taking the survey have kids at home. According to the 2010 Census data, 16.9% of households in Estes Park have children under the age of 18 living in the home. This might mean that those households that have kids at home did not have time to take the survey. (®¶ ¨² ³§¤ )³¤±¤³ 5²¤£Ȉ The following uses of the Internet applied for survey respondents. Browsing and online banking topped the list, and 52.86 of the survey takers stated, 19 NEO Fiber Draft Deliverable 3¤±µ¨¢¤ ' ¯²ȁ and found Allenspark and Glen Haven have the slowest Internet speeds. However, each neighborhood reported spotty Internet speeds; reporting low bandwidth of 1-2 Mbps from several respondents. 20 NEO Fiber Draft Deliverable "´²¨¤²² £ !¢§®± )²³¨³´³¨® 3´±µ¤¸ 2¤²´«³² .¤³¶®±ª 4¤¢§®«®¦¸ȁ Most of the businesses have Cable, DSL or a wireless connection for their Internet service for the business One of the respondents responded that they have a fiber connection at their business. There are more wireless connections for businesses than for residential customers. Reliability. When asked about reliability of the Internet connection, 47.27% stated the speed varies from time to time, but the connection never drops. 36.36% stated the speed varies considerably and the connection regularly drops. 21 NEO Fiber Draft Deliverable #´±±¤³ 0±¨¢¨¦ȁ The range of what is currently being spent for Internet services varies for business users; most are paying between $100 - $250, followed by between $50 - $100. For those that were spending between $500 - $1,000 per month for Internet services alone, the speed test results were 20.91 download and 3.21 upload. The business that responded that there was a fiber connection to the business is paying between $500 - $1000 per month for Internet and the speed test results were 44.87 download and 48.69 upload. 44.23% of the respondents stated that their pricing includes telephone service, 50% stated it just included internet service. 22 NEO Fiber Draft Deliverable 0¤±¢¤¯³¨® ®¥ 3¯¤¤£ȁ When asked to rate the speed of the Internet, 50% of the business respondents stated it would be better if the Internet were faster, but the business can still do what it needs. 25.93% stated it is not fast enough to do what the business needs. 3¯¤¤£ 4¤²³ 2¤²´«³²ȁ The survey provided instructions to respondants to take an actual speed test. The average speeds recorded were 15.46 Mbps download and 3.45 Mbps upload. "´²¨¤²²¤² 7 ³ & ²³¤±Ǿ -®±¤ 2¤«¨ ¡«¤ "±® £¡ £. When asked if respondents What are the main reasons your business doesn't 23 NEO Fiber Draft Deliverable responded that faster Internet service is not available, followed by the monthly bill for faster Internet service would be too expensive. Answer Options123 2899 Faster Internet service is not available. The monthly bill for faster Internet service would be too 141511 expensive. 472 No interest in having faster Internet service. 343 Other 211 The business is limited by purchasing rules. The business would have to purchase or lease 11018 equipment to get faster Internet service. 068 The business would be required to sign a contract to get faster Internet service. 7®´«£ ¸®´ 3´¡²¢±¨¡¤Ȉ When asked if the business would subscribe to Gigabit service if it was available, 63.64% stated either very likely (43.64%) or most likely (20%). Another 20% stated it would depend upon how much it costs. & ²³¤± )³¤±¤³ 3¯¤¤£ )¬¯ ¢³ȁ Businesses were asked if faster Internet speed was available, how the business would be impacted. Businesses were asked to check all that applied. Here were the results: 24 NEO Fiber Draft Deliverable Response Response Answer Options PercentCount 53.8%28 Conducting more business 44.2%23 More email or other communications 26.9%14 More webinars or online training 26.9%14 Conducting more research 26.9%14 More with maintaining a database/record keeping 23.1%12 More videoconferencing 21.2%11 Internet is fast enough. The business would not do anything different. 19.2%10 Connecting with similar businesses more 15.4%8 More financial management/billing 9.6%5 Set up more locations 1.9%1 Hire more employees 18 Other (please specify) #®²¨£¤±¤£ -®µ¨¦Ȉ considering moving my business outside of the Estes Park area because I cannot get Inter considering moving. The bulk of the respondents (67.92%) stated they were staying put but wish for faster Internet. 7§ ³ - ³³¤±²ȁ Respondents were asked to rank what was the most important to them in attribute, followed by 25 NEO Fiber Draft Deliverable 2¤²¯®£¤³ #®¬¬¤³²ȁ Perhaps the comments from the survey respondents are the most compelling. Below are comments from the community surveys. Names of providers have been taken out. I really like my current service and the friendly staff, but I sure wish my connection was times faster Our current service is awful. It is the lowest speed they offer AND the only speed available where we live on Rams Horn Rd. They say they are NOT going to upgrade it. Also, we can't get xxxx or xxxx there. We currently are paying for TWO DSL lines to our home just so we can limp along. PLEASE figure out a way for us to get better service. This really affects us. I am spending my summer at our condo in AZ instead of our cabin in CO; one factor was awful Internet access available at our cabin. The ping is 60ms, download speed 1.3Mbps, upload speed 0.63. These are not errors. They are real numbers!! Help!! My current internet service has gotten continually slower since I moved into this house two and one half years ago. Would love to have faster cheaper service Please get us faster internet! Currently, the price is high and the speed/service is not good. Need it to be fast, dependable, secure, and reasonable! We need alternatives I would like to have high speed Wi-Fi available at the Library and throughout downtown. Current service at these locations is spotty and often slow. I would like more ISP alternatives. 26 NEO Fiber Draft Deliverable we would use internet for tv/video but our service is too slow and buffers and its not feasible to do it through the tv Treat like a public utility. It's to provide high speed at a reasonable cost. The internet is going to become the predominant delivery system for entertainment and communications. We need reliable, high speed internet. It should be a public entity, like telephone land lines and electricity, that gives us good service at a reasonable price. Not a big telecommunications monopoly that can dictate what we get and what we pay. I chose my provider when I moved to Estes Park because they're a local company with decent speed, price, and excellent customer service. I have been very satisfied with their service, although speed could be better at times. I do NOT want to have to use a non- local company as customer service will suffer. The speed issues we have with our provider are usually in the evening, especially on the weekend while watching our Internet connected smart TV; that TV connecting drops our often during those times. The TV is connected directly to a Apple Airport Express WiFi device (as an extension from our main Airport Extreme ~ 20 ft away) Occasionally too slow, excessive buffering. Sometimes just quit because of this. I don't need screaming fast, but it's really slow down here in the canyon. I reset my modem every day in hopes that will help, but it doesn't seem to. Current service is much too slow!!! Very slow-difficult to work at home Service is slow and almost unreliable during peak times. Very annoying. Improvement is needed. Currently using xxxx; they are okay, but these are things I dislike: - The internet service drops unexpectedly a few times a week (not good for working at home). - Sometimes the speed seems slower than it should be. - Once a year they raise their rates and I have to call and ask them if I can pay what a new customer would pay (which is month-to- month and no contract, so I don't understand why they try to penalize customers who have been loyal). We need to do better. This Valley is falling behind those places we compete with for tourists and jobs. If not a matter of economic survival, it is close to it. Estes Park, because of its lack of adequate broadband, is becoming increasingly non-competitive. Hopefully this recognition is shared by those in a position to do something about it in a proactive way and assert the needed leadership. We are in Little Valley and choices are limited. No one offers true broadband. I hope we can change this relatively soon. Current provider goes down more frequently than xxxx in Denver. Also slower. Streaming Video will halt and buffer... 27 NEO Fiber Draft Deliverable $55/month for 15mbps seems like a lot for pretty slow speed compared to what's available in the valley. Speed varies from time to time; connection drops from time to time Please, god, bring fiber fast! I previously built and sold an ISP business (2003 - 2011). I am currently an Internet Entrepreneur and build and run internet based companies. I work from my home in Estes Park. When I build the ISP, we installed and managed fiber, ethernet, and broadband wireless connections to three cities. In Estes, we need to be thinking about getting 100Mbps fiber to homes in the near term and moving to 1Gbps+ in the future. Obviously, we won't be able to get Fiber to every residence in the area due to terrain constraints, but doing what we can is a good start. Beyond that, I think we need 2 - 3 total redundant feeds coming into the community. As I understand currently, there is one main point of presence feeding the entire EP Valley. The existing DSL and Cable serving the community is fine for the very short term, but we need to be thinking about how we keep Estes relevant in the future. We can attract more young professionals and startups if we have great infrastructure. Estes is a great place for entrepreneurs to live and having great internet is part of the equation. Internet isn't going away and I'm glad we're starting to have this conversation now. (This respondent provided contact information and the Competitive Broadband Committee has followed up with him.) Internet is vital to my work. Without reliable, fast internet I would be forced to relocate. Very excited at the prospect of higher speeds and dependability. Because we live here seasonally we would like to turn it off during the winter months. Unfortunately we live in a part of Little Valley with no current service. Can I get some other choice besides xxxx? Anyone at all? As a part-year resident, it is extremely important that I have enough bandwidth to be able to access the security cameras that I have installed in my home. They worked when I first put in xxxxx, but now there is insufficient upload speed for me to access them unless I am physically at the house - in which case the cameras are useless. I would imagine others in the Estes Valley are experiencing the same issues. Would like to see excellent wireless broadband service for visitors, tourists and others. need local DNS servers for when we can't connect to the valley. I work in the hospitality industry and more and more free wi fi is expected by visitors. Most complaints that I hear are regarding spotty cell phone service. Don't hear too many complaints about internet connectivity. It's adequate, but not great. However if our internet service quality were to be reduced, we have to move to an area where I could continue to work. 28 NEO Fiber Draft Deliverable Our current internet service through xxxxx is extremely unreliable. Although the company is very honest and helpful when requested, their service is not reliable or fast enough for a serious internet user. It is impossible for several individuals to use their service at the same time - streaming sites such as YouTube, Vimeo, Netflix (esp. in 4K), and Vessel are very slow to load and buffer near constantly on high-use periods of the day. A community broadband service would offer a significant advantage over privately held options - incredible speed, reliability, and customer support. This can be seen in many locations where fiber, community internet was rolled out - particularly with Google Fiber installations in Kansas City, Provo, and Austin. I am writing this as a high school student who is soon moving to a college with fiber internet, and intend to largely base my housing decision on where I can receive very fast internet at a reasonable rate. If I were to move back to Estes Park, the availability of a very fast, fiber, community broadband service would SIGNIFICANTLY impact my decision, especially considering Estes' relative remoteness from other locations, encouraging work-from- home professionals. The faster, cheaper, and reliable, the better. Very supportive of fast internet service at a reasonable price. Really looking forward to a new ultra high speed internet service in estes park. I would likely sign up no matter how high the monthly price was (up to $200/month at the max maybe, but hoping it would be somewhere between $50-$100/month). Have no interest at all in bundling services. It's very expensive for what we get. Since I got a smart phone, I use that almost exclusively now except for paying bills. If it is too expensive, I will drop it as I only use it 6 or 7 times a month. Internet is so slow, my smart phone works so much better. I need an inexpensive option. My service is regularly far below the promised "up to" rate most of my waking hours. I can never watch a TV show or movie without waiting for load time to catch up. A locally-owned service is important to me. Terrible! Even my phone calls keep getting dropped; internet is very slow and is always dropping! We don't work from home, but we are involved in non-profit and volunteer work that uses the computer quite a lot Excellent wireless broadband also needed for tourists. Best if it could extend outside of downtown, including areas of RMNP, certainly visitor centers. DSL is limited to 12 MB The speed of my service is adequate for now, but in future, it will not be. More and more is coming via internet. 29 NEO Fiber Draft Deliverable Currently do not use for movies but probably will. xxxxguaranteed 50Mbits speed. I am getting 18 today. Sometimes, it's as slow as 3 Mbits. xxxx has been incredibly "spotty" at best, then when I call them (very regularly) I have to wait for a long time. They then tell me to do all the "power downs" and such, then they just reset it from their office. Super frustrating as this happens at least twice per month. Please Please please get better internet to Estes Park ASAP! Thanks. I feel the poor internet in Estes is holding Estes back! We are really to have greater bandwidth and higher speed and are willing to pay a premium for it. slow, slow, and slow. Very hit and miss when it comes to speed. Upload speed is very slow! Wireless reception in Prospect Estates is limited or poor. Can't stream at 1.3 speed and slow response is difficult. It is bad!!! My internet service is terrible and xxxx says there is nothing they can do. We are changing this month to bundle with our sat. TV provider in order to save money. We will bundle TV, land-line, & internet. I would love to see faster, cheaper internet. wireless inside the house disconnects frequently requiring resetting of satellite DVR to get on-demand movies/programs xxxx abysmal. 2 megabits just sucks. Supposed to get 12Mb download .. got 5.33Mb during this test. One of the reasons I moved my business to the Valley was the poor business internet speed, reliability, and cost. I spent nearly $2000 per month for less capability than what I now pay $300 for in Loveland. Speeds occasionally drop below 1mb/s but regularly drop into the 3 - 6 mb/s range. Most slowdowns occur in the evenings but then that's when we most use the service and are most aware. The modem needs a reboot on average once per week but seems to go through periods when a couple times a day may be needed. This of course may be the internal network or the modem itself but I suspect the link to the provider is frequently the problem. We get dropped often by xxxx, and sometimes it is frustratingly sloooooooooow. I get to Gigabit speed is important to me. Fast and reliable is required. 30 NEO Fiber Draft Deliverable 4. Local Service Provider Capabilities In addition to community outreach meetings, NEO conducted individual interviews with the local service providers currently providing Internet services in the community. Although the providers have invested in limited fiber optic infrastructure to key businesses and anchor modem, Digital Subscriber Line (DSL) and wireless technologies. Each of these network technologies are shared; meaning, as more users are on the network, the capacity and availability of bandwidth is diminished. DSL service is provided by copper telecommunication lines and can carry high bandwidth signals only for a short distance a few hundred yards; after which the signal is degraded and bandwidth diminishes. While cable modems generally provide transmission speeds of anywhere between five and 50 megabits per second on the download (and are generally much slower when uploading), this technology is shared and therefore, all users on the network share this bandwidth. For example, if there are 100 users sharing 50 Mbps, each user receives .5 Mbps of service. Fiber optic technology provides two-way speeds of up to 1 Gigabit per second, with 10 Gigabit systems now coming to market. This is 1,000 times to 10,000 times faster than DSL, wireless and cable modem networks. Additionally, the carrying capacity of fiber is unlimited. As fiber optic technology transmit pulses of light, more bandwidth can be delivered on a fiber optic network by adding various colors of light or additional spectrum. Fiber is unique because it can carry high bandwidth signals over long distances without signal or bandwidth degradation and it can provide that capacity in both directions for both upload and downloading information. The current service providers do not have plans to upgrade their networks to Fiber to the Home in Estes Park. The current local providers have access to limited capital and therefore, simply cannot implement this technology throughout the community. As the existing networks that are built on DSL, wireless and cable modem do not support the needs of bandwidth today, the problem will only grow bigger as time goes on. . Internet bandwidth consumption is doubling every year. With continued explosive national growth in demand for bandwidth for the foreseeable future, the lack of existing infrastructure to support bandwidth consumption is a problem that is not going away. 31 NEO Fiber Draft Deliverable 5. Ownership Model Recommendations There are a number of considerations to how the network can be operated and who or what type of entity would own the network. The primary considerations are the regulatory environment, how the network could be financed, the weighing of control, risks and rewards and finally, what entity is most likely to succeed in the implementation of the network and strategy. The pros and cons of the various organizational structures and examples of various communities that have used the different types of organizational structure were provided as a deliverable to this project to the Town Trustees in May. NEO Fiber recommends that the Town Light division or as a separate enterprise within the Town. This recommendation is given for the following reasons: 1. There are no regulatory constraints for the Town to own and operate telecommunications infrastructure. Further description of the regulatory environment is provided below. 2. The existing service providers are not able to and therefore will not implement a fiber optic network to every home and/or business. In interviews with local service providers, availability of capital is limited and therefore the local service providers will not be able to have access to the amount of capital needed to implement a Fiber to the Home/Fiber to the Business network. CenturyLink does not currently have plans to implement FTTH/FTTB in Estes Park, nor does Baja Broadband/TDS. 3. The Town of Estes Park could fund the network through revenue bonds, using revenue generated from use of the FTTH/FTTB network and the network itself as collateral. Funding could also be obtained through general obligation bonds. Both revenue and general obligation bonds have relatively low interest rates, a longer term (20-30 years) and often can be set up to include payments of interest only for the first one three years. Sometimes interest is tax exempt for municipal and revenue bonds. Debt coverage is one of the biggest risks for these networks and the Town of Estes Park can mitigate this risk as it has access to low interest and flexible, long-term payment plans. Additionally, there are loan and grant programs that are available for municipalities and utilities. Obtaining grant funding for implementation of the network is another possible option that is available to the Town of Estes Park. The grant program that is available ipalities and regional councils of government to improve telecommunications and broadband infrastructure. It is anticipated, however, that grants would cover only a fraction of total capital costs. 32 NEO Fiber Draft Deliverable 4. utility, has customer service, billing and operating experience. he functions of operating a FTTH/FTTB network can be outsourced to existing service providers, providing opportunities for Public/Private Partnerships and leveraging the existing service fees, and expenses for submitting permits, can be lowered by having the Town of Estes Park own and operate the network versus having the private sector do so. 5. The Town of Estes Park can put in place policies to further help in building out telecommunications infrastructure. Policies such as Dig-Once, Joint Trench Agreements, and a streamlined permitting process can be implemented to leverage other public works projects that will allow the Town to further build out telecommunications capacity. 6. The Town of Estes Park Power and Light Division is planning to implement smart-grid technology that would be connected with a fiber backbone network. Smart-grid technology will assist the power division in operations, maintenance and load-balancing energy resources. Two of the highest cost locations for operations and maintenance of the power distribution are located within Glen Haven and Allenspark. The Town of Estes can build a fiber network connection to these locations, lowering operations and maintenance expenses for the power division and at the same time, offer advanced broadband services to place that have dismal service today. Additionally the Town is looking at smart-parking and smart-parking meters that can utilize the fiber optic network. The fiber network can serve multiple purposes automated meter reading and smart-grid, parking applications and providing advanced broadband and data services to the community. Other e-government applications can also be supported on the FTTH/FTTB network. 7. The Town of Estes Park has a vested interest in the local vitality and economic development opportunities that need adequate telecommunications and broadband infrastructure to be supported. The Town of Estes Park can control its own destiny in offering robust infrastructure to support further economic development, education, medical and e-government applications, not waiting for the private sector to solve a problem that will only become more of an issue as bandwidth needs continue to expand. As a refresher, further information is provided below in regards to the reasons why NEO Fiber is making this recommendation. Regulatory Environment. The first consideration in determining models for ownership and operations structure is to consider the regulatory environment in Colorado and specifically, within the Town of Estes Park and whether or not there are any limiting factors in regards to 33 NEO Fiber Draft Deliverable the Town of Estes Park building telecommunications or broadband networks, providing services, entering into public -private partnerships and/or financing a broadband build. had prior Estes Park reestablish the Town's right to provide all services restricted since 2005 by Title 29, Article 27 of the Colorado Revised Statutes, technologies, utilizing community owned infrastructure including, but not limited to, the existing fiber optic network, either directly or indirectly with public or private sector partners, to potential subscribers that may include telecommunications service providers, residential or commercial users within the Town and the service area of the Town's light and power nguage also specifically references public Town has very broad authority to enter into any one of the wide variety of public private partnerships that exist today or may be developed in the future. Any restrictions or limitations are based upon general authority of a statutory municipality and not as a result of state law addressing local government involvement in broadband matters. Financing of a broadband network, just like the financing of any other public project, is governed by state law, and primarily by the Constitutional Amendment known as the Constitution, Article X, Section 20. With respect to multiple-fiscal year direct or indirect district debt or other financial obligation whatsoever without adequate present cash reserves pledged irrevocably and held for payments in all future network would require the issuance of debt, the Town would be required by TABOR to seek a vote of the registered electors in the Town. To the extent that the Town owns or controls existing network facilities that it wishes to use in a network, or has the financial resources to pay for new facilities, it may do so without an election. 34 NEO Fiber Draft Deliverable Statutory municipalities are granted their authority in Title 31 of the Colorado Revised Statutes. Estes Parkis a statutory town. Among the powers of statutory municipalities are the power to enter into contracts and the power to acquire, hold, lease, and dispose of both real and personal property. C.R.S. 31-15-1(b) and (c). The Town also has the power to contract indebtedness any public purpose of the municipality, including but not limited to the following purposes: Supplying water, gas, heating and cooling, and electricity; purchasing land; and purchasing, constructing, -15- 302(1)(d)(I). While this section of the statute does not specify telecommunications, the authority granted to Towns is specifically not limited to the examples stated, and the broadband facilities the Town is considered would, according to Denver-based attorney, Ken Fellman, be deemed a indebtedness for all authorized purposes may not exceed three percent of the actual value, as determined by the assessor, of the taxable property in the Town. C.R.S. 31-15-302(1)(d)(II). Financing Options. Other considerations for choosing an ownership model include the ability to receive financing and funding to pay for the capital costs of the network construction. Municipalities may finance these networks through obtaining revenue bonds or general obligation bonds. This financing is typically available for low interest rates of 3-6%. Alternatively, financing for a private sector fiber network may have interest rates of 5-15%. Certain financing and funding programs restrict who is eligible to apply for and receive funding. The federal grant and loan programs available for funding broadband construction include the following: State-LevelFederal Level Distance Health Rural Broadband Learning and Connect, Rural Experiments, Connect Community Connect Telemedicine Healthcare DOLAAmericaGrantsGrant ProgramProgramE-rate Grants Eligibility Regional Council of GovernmentsYes----- Local Government, TribesYesYesYesYes-- Non-profit-YesYesYes-- Corporations-YesYesYes-- Cooperatives-YesYesYes-- Education---Yes-Yes Medical Providers---YesYes- Eligible Telecommunications Carrier-Required---- November 7, 2014; Phase II Grant cycle is in early Timing Ongoingin 2015part of year. Grants available $100M total, grant for Equipment, amounts dependent upon inside wiring and How much?technology/bandwidth"other facilities" 35 NEO Fiber Draft Deliverable The Colorado Department of Local Affairs (DOLA) has announced a $20 Million grant program for regional councils of governments and municipalities. In 2015, DOLA will have three rounds stst of financing applications with deadlines for grant submission being April 1, August 1 and st December 1. Recently, we learned that such funds are likely to be exhausted by the December st 1 round of applications. Further funding will depend upon legislative action. The Rural Broadband Experiments and Connect America programs are available to unserved areas; the definition for eligibility is 3 Mbps combined upload and download. As the FCC in 2015 raised the definition of served to 25 Mbps download and 3 Mbps in upload speeds, there may be funds available through the Connect America to a wider group of communities. One caveat currently of the Connect America program is that it is available for Eligible 2 Telecommunication Carriers. long-term direct and guaranteed loans to qualified organizations for the purpose of financing the improvement, expansion, construction, acquisition, and operation of telephone lines, facilities, or systems to furnish and improve Telecommunications service in rural areas. The f any incorporated or unincorporated city, 3 village, or borough having a population less than 5,000 inhabitants As of 2014, Estes Park population is 5,901 people. Estes Park would not qualify as a rural area for this program and therefore, would not qualify for the Telecommunications Infrastructure Loan Program. loans for funding, on a technology neutral basis, for the costs of construction, improvement, and acquisition of facilities and equipment to provide broadband service to eligible rural 4 Again, the definition of rural includes communities with a population less than 5,000 inhabitants. Other sources of funding should also be considered. These include internal loans, bonds, TIF and revenue funds, economic development financing programs, and crowd sourcing. 2 With assistance from the Estes Park EDC Competitive Broadband Committee, the Town submitted a letter of interest to the FCC concerning Connect America in March 2014. 3 US Department of Agriculture Rural Development, About Telecom Infrastructure Loans, available at http://www.rurdev.usda.gov/utp_infrastructure.html 4 US Department of Agriculture Rural Development, About the Farm Bill Loan Program, available at http://www.rurdev.usda.gov/utp_farmbill.html 36 NEO Fiber Draft Deliverable E-rate is available for schools and in the past was used to as a reimbursement or supplement for Internet access services. The E-rate program has had a number of changes recently; one significant change is the ability to reimburse for construction of facilities (i.e. fiber optic cable) to serve the school. There are grant programs that are available for Telemedicine and Distance Learning as well as program targeted specifically for Rural Health. There are a number of other financing options some of which include; New Market tax credits, for which allocations would have to be secured; economic development retail sales tax funds, and bond financing through a number of different structures and types of bonds. Control, Risk and Reward, Local Vested Interest. Other considerations for selecting the most appropriate ownership model include balancing the tension between control, risk and rewards. Control considerations include who owns the network and makes decisions regarding how the network is used coupled with who maintains the network and the types and levels of services offered. Many proponents of community broadband networks are in favor of having a local entity own the network. Local ownership implies having a vested interest in the economic outcomes for the community. Networks are built to spur economic development and are built to key anchor institutions that require high availability of bandwidth. A local entity may own the network, but the impact of the cost of building the network must be weighed against the risks of doing so. Fiber networks are capital intensive. Consideration of bearing the financial risk must be weighed against the rewards that the network could potentially bring to the community. Rewards of local ownership of the network may include more abundant broadband, higher bandwidth speeds available, and lower costs to end users. These attributes may also entice companies, research facilities, education centers and entrepreneurs to re-locate to the community. The network infrastructure then becomes a catalyst for economic development. Owning the network can give the local entity more control over the services being offered. For example, if the network owner provides services directly to the end user using a retail model, the network owner sets pricing and service offerings. Ability to Finance the Network. As the option to finance the capital costs of the network through low interest-bearing revenue bonds, the risk of debt coverage is lower for the Town of Estes Park to finance the capital costs than having another organization fund it. Municipal securities are issued to finance public-purpose projects for infrastructure such as roads, airports, hospitals, school, water and sewer systems and telecommunication networks. Generally, municipal bonds fall into one of two categories general obligation bonds or revenue bonds. 37 NEO Fiber Draft Deliverable Interest income is generally federally tax exempt; although there are several types of general obligation and revenue bonds and it should not be assumed that all bonds are tax exempt. General obligation bonds are backed by the full faith and credit of the governmental entity, and taxes can be issued to pay back the loan. Revenue bonds are secured by revenues generated by the issuer or by certain taxes such as sales, fuel or hotel occupancy taxes. As community broadband networks are considered infrastructure that serves the public purpose, municipalities can use bonds to finance the construction costs. Leverage existing skills and systems in place. has many desirable and already established operational skills and systems in place. These skills and systems include an established customer call center and/or a billing system. Power and Light Division already maintains electric infrastructure and owns bucket trucks and has outside plant engineers that maintain power lines and equipment. The skills needed to maintain a fiber network may be taught to existing electric department employees that are already familiar with maintaining outside plant or some of these functions can be outsourced to local service providers. Estes Park may own the network, but outsource portions of the operation and maintenance of the network to another entity, creating opportunities for Public- Private Partnerships with the local service providers. Favorable Policies. A municipality may also have the ability to implement favorable policies and ordinances to facilitate community broadband network construction. For example, the Town improvement projects to install additional conduit for the Town while there is an open trench. The Town of Estes Park may also have an ordinance whereby any abandoned fiber located within the limits reverts to the Town policies in place allows the Town of Estes Park to have access to conduit and fiber that could be used to build infrastructure. Either way, much of the capital costs of opening a trench and installing conduit are greatly reduced by having these policies in place. It is our recommendation that these two polices be put in place within Town of Estes Park at the earliest opportunity, no matter what model is used. Leveraging Utility Department Needs. seeking ways to implement smart-grid technology to help lower operations and maintenance costs. This technology can be implemented on the FTTH/FTTB network. Other applications or road congestion can be implemented on the fiber network. 38 NEO Fiber Draft Deliverable 6. Possible Private-Public Partnership Roles for Current Local Service Providers operational risks potentially for the Town of Estes Park, and yet provide all of the benefits that are associated with local ownership and patient funding. A PPP is a negotiated contract between a public and private entity to fulfill certain requirements and obligations. The Town of Estes Park could engage in a Request for Proposal process with local and national service providers for many of the functions associated with building out and operating the network. The following functions are possible roles for current local service providers: Design and engineering. Construction of the network. Service turn-up, installation and maintenance Marketing and sales activities Customer service, billing and trouble resolution Network monitoring Throughout the community engagement process and in conversations with the broadband steering committee and the Town Trustees, it was expressed that the community wants to engage with the local service providers. The two municipal enterprise business models that are financially sustainable provide for possible Private-Public Partnerships for the current local service providers. Final design, engineering, project management, program management and construction of the network would be outsourced. This opportunity represents approximately $27 - $30 Million in potential revenue to the existing service providers. Additionally, the network operations and management, truck rolls and repair service could be outsourced. Sales, marketing, customer service and billing services could potentially be outsourced as well. Based upon the assumptions used in the financial models, this represents $500k to $1.5M in annual operating revenue potentially available to local service providers selected to perform these outsourced functions for the Town. Estes Park would be required to competitively bid these opportunities; however, a local preference could be given to local service providers and/or local service providers that bid jointly with national providers. Requests for proposals may be in an open and non-discriminatory process by which one or more service providers could be selected to enter into a PPP with the Town of Estes Park for construction, maintenance and operations of the FTTH/FTTB network. 39 NEO Fiber Draft Deliverable 7. Laying the Groundwork, Methodology and Process This section lays the groundwork for the financial plan as it discusses the existing fiber optic information regarding defining and determining what is feasible and a discussion of pricing considerations. The discussion of pricing considerations are included in this section to help provide information on the most connected cities of the world and their pricing for abundant broadband as well as studies on the average pricing in the world. This information will used to help provide a comparison to what is currently being provided in Estes Park and to give a good foundation for providing abundant broadband at an affordable price. %·¨²³¨¦ &¨¡¤± /¯³¨¢ .¤³¶®±ª The Town of Estes Park and Platte River Power Authority (PRPA) have built a 72-count fiber optic ring that includes the core commercial area and key businesses and government offices throughout the community. Of the 72-fibers, there are approximately 24-32 fibers that are available for expanded use. The primary goal of this engagement is to identify ways in which the existing network could be better utilized to enhance and expand commercial access to the fiber optic network as a key need for both existing businesses and for attracting new businesses. PRPA was and currently is in the process of replacing much of their backbone fiber network within Estes Park and sent a map of the locations in which various segments of the fiber where there should be additional access points (enclosures/cabinets/huts) to be able to access the fiber optic network for later buildout into other commercial and residential areas. A map of the existing fiber optic network and areas where the network will be upgraded and/or replaced is shown on the following page. 40 NEO Fiber Draft Deliverable 41 NEO Fiber Draft Deliverable In addition to the fiber network that is installed within the community, Estes Park and PRPA also own fiber from Estes Parkthrough Loveland to the national internet backbone. This portion of the network is currently deployed using Western Area Power Administrations (WAPA) transmission lines. Additionally, PRPA owns and services fiber optic facilities in all four communities of its shareholders (Fort Collins, Estes Park, Loveland and Longmont.) PRPA leases a portion of the existing fiber optic network both within the community and with access to the community (on the WAPA transmission lines) to many telecommunication providers; CenturyLink and Level 3 are among them. During the September 2013 floods, CenturyLink lost its fiber through Glen Haven, causing an outage that left much of Estes Park and other nearby communities without telecommunications, phone, Internet and 911 services. For public safety reasons, re-establishing redundancy and several diverse communication paths in and out of the Estes Park area were noted as important goals of this project. PRPA has engaged an engineering firm, Black and Veatch to further research ways to obtain fiber optic connectivity in and out of Estes Park providing redundancy and connectivity to the efforts by also providing research and preliminary capital costs and engineering services for these potential routes; however, N that are planning fiber optic expansion in and out of Estes Park. The entities that are currently planning or considering fiber optic facilities are Crown Castle, the Colorado Department of Transportation (CDOT), EAGLE-Net Alliance, Tri-State Power and Generation, PRPA and CenturyLink. Possible routes include Highway 36, Highway 34 and through the Adams Tunnel. #®¤¢³¨¦ !¢§®± )²³¨³´³¨®² NEO and the Competitive Broadband Committee put together a list of community anchor institutions made up of government offices, schools, the hospital and other key medical establishments, key business parks and large broadband users within the community. Anchor institutions are often the largest employers and largest telecommunication/broadband users within the community. NEO and the Competitive Broadband Committee, working with PRPA, designed a fiber network that leve anchor institutions that were not currently being served with fiber optic facilities. Below is a list of the anchor institutions identified in this process: 42 NEO Fiber Draft Deliverable Fiber Now?CountAnchor NameFull Address 1County - Larimer County Shops, 543 Elm Ave, Estes Park Yes2County - Larimer County's Estes Park offices 1601 Brodie Avenue, Estes Park. 3Fed - Bureau of Reclamation, 2015 Marys Lake Road, Estes Park Yes4Fed - East Portal YMCA Tunnel Road (Adam's Tunnel Road) Yes5Fed - Mary Lake SubStation 6Fed - US Interior Department, 841 S Saint Vrain, Estes Park Fed - Postal offices 7Fire - Allenspark Fire Protection (Same) 8Fire - Allenspark Station 47400 Colorado Highway 7 Allenspark CO 80517 Yes9Fire - Estes Park Fire Department901 North Saint Vrain Avenue Estes Park CO 80517 10Fire - Glen Haven Area Fire Station 2142 Elk Ridge Court Estes Park CO 80515 11Fire - Pinewood Springs Fire Protection District, 61 Kiowa Rd, Lyons, CO 80540 (36 corridor to Lyons) 12Forest - Roosevelt National Forest Estes Park Ranger Station 161 2nd Street, Estes Park 13Library - Estes Valley Public Library District335 East Elkhorn Avenue Estes Park CO 80517 Yes14Med - Estes Park Medical Center555 Prospect Avenue Estes Park CO 80517 Yes15Med - Estes Park Medical Center Ambulance555 Prospect Avenue Estes Park CO 80517 16Med - Salud Family Health Center-Estes Park1950 Red Tail Hawk Drive Estes Park CO 80517 17Med - Prospect Park Living Center555 Prospect Avenue Estes Park CO 80517 18Med - Harmony Foundation1600 Fish Hatchery Rd, Estes Park, CO 80517 19Med - Timberline Medical PC131 Stanley Ave Ste 202 Estes Park CO Yes20Police - Estes Park Police Department170 Macgregor Avenue Estes Park CO 80517 Yes21Police - Estes Park Police Department Jail170 Macgregor Avenue Estes Park CO 80517 Yes22Police - Estes Park Police Department PSAP170 Mcgregor Estes Park CO 80517 Yes23County - Larimer County Sheriffs Office - Estes Park Substation1601 Brodie Avenue Estes Park CO 80517 660 Community Drive 24Rec - Aquatic Center Rec - Estes Valley Recreation and Parks District 690 Big Thompson Ave, Estes Park, CO 80517 25 380 Community Drive, Stanley Park 26Rec - Youth Center 27RMNP - Rocky Mountain National Park EAGLE-Net28School - Estes Park Elementary1505 Brodie Avenue Estes Park CO 80517 EAGLE-Net29School - Estes Park High1600 Manford Avenue Estes Park Co 80517 EAGLE-Net30School - Estes Park Middle1500 Manford Avenue Estes Park CO 80517 EAGLE-Net31School - Estes Park Middle School1500 Manford Avenue Estes Park CO 80517 32School - Estes Park WIC Clinic1601 Brodie Avenue Estes Park CO 80517 EAGLE-Net33School - Park (Estes Park) R-31605 Brodie Avenue Estes Park CO 80517 School - American Honda Education Corporation, Eagle Rock 34Town - Conference Center101 S St Vrain Ave Estes Park CO 80517 Yes, PRPA and RMDAS35Town - Fairgrounds 1209 Manford Ave Estes Park CO Yes36Town - Fleet Maintenance 575 Elm Rd Yes37Town - Housing Authority 500 Big Thompson Ave 38Town - Museum200 4th St, Estes Park, CO 80517 Town - Senior Citizens Center, Yes39220 4th St Estes Park CO Yes40Town - Water Treatment Plant at Mary's Lake Town - Water Treatment Plant at Glacier (between YMCA and Park YesTown - Visitor's Center500 Big Thompson Ave YesTown - 1470 AM Radio GearProspect Mountain Visit Estes Park/Local Marketing District1200 Graves Avenue Yes41Town of Estes Park170 Macgregor Avenue Estes Park CO 80517 42Utility - Allenspark Water & Sanitation, 14861 State Hwy 7, Allenspark, 80510. Yes43Utility - Estes Park Power SubStation 5 Utility - Estes Park Water Department 44Utility - Estes Park Sanitation District, 1201 Graves Avenue, Estes Park CO 81517 Yes45Utility - Power and Light Service Center Yes46Utility - Prospect Mountain (wireless towers) 47Utility - Upper Thompson Sanitation District, 2196 Mall Road, Estes Park, CO 80517 State - CDOT shops on Elm Yes, PRPA and CenturyLinkISP - Airbits439 West Elkhorn Ave Yes, PRPA and CenturyLink and Level 3ISP - Estes Valley Networks1180 Woodstock Drive RMDAS FiberManske's BuildingAcross the street from 1180 Woodstock Drive RMDAS FiberJudy Manske's complexcorner of RT7, 1st street and RT36 43 NEO Fiber Draft Deliverable Businesses 48Stanley Hotel 49Wellness Center 50Lower and Upper Stanley Village 51EP News191 Woodstock Drive #2 Estes Park CO 80517 52EP Trail Gazette351 Maraine Ave Suite B Estes Park CO 80517 53Nick Mollé Productions - Estes Park TV142 E Elkhorn Ave, Estes Park, CO 80517 54US Bank363 East Elkhorn This by all means does not need to be a final and conclusive list of anchor institutions and some listed occupy the same building/physical space; however, NEO based the design and capital cost assumptions based upon this preliminary list of locations. A GIS map of the proposed fiber network design has been provided to PRPA and to Town staff as well as the Competitive Broadband Committee. %·¯ ²¨® ¨³® .¤¨¦§¡®±§®®£s In addition to a map of the existing fiber optic network, NEO obtained GIS mapping and parcel data information on the various neighborhoods, residential and business areas within the electric poles and conduit. InVision GIS also provided unit counts of existing utility customers by neighborhood. NEO aligned potential phasing and capital costs with Estes community. their boundaries. 44 NEO FiberDraft Deliverable Below is mapping and utility counts by neighborhood provided by InVision GIS. 45 NEO Fiber Draft Deliverable sting electric poles by neighborhood and provided preliminary capital costs for building a Fiber to the Home (FTTH) and Fiber to the Business (FTTB) network projected capital costs to serve the anchor institutions, the downtown area, Highway 34 and Highway 36 and each potential neighborhood. 0±®©¤¢³¤£ # ¯¨³ « #®²³²Ǿ &44(ȝ&44" £ 0®²²¨¡«¤ 0§ ²¨¦ The following capital costs are projected by neighborhood for a Fiber to the Home (FTTH) and Fiber to the Business (FTTB) network in Estes Park. These capital costs are based upon the 46 NEO Fiber Draft Deliverable assumption of deploying aerial fiber in the communications space on existing utility poles and are based upon an initial take rate assumption of 40%. Capital Costs Summary, at 40% Take RateResidentialAllensparkGlen HavenBusinessesTotal Anchor Tenants $ 1,904,069 $ 1,904,069 Allenspark Connection $ 1,135,512 $ 1,135,512 Allenspark$ 1,774,960$ 1,774,960 Beaver Point$ 2,163,075 $ 2,163,075 Carriage Hills$ 3,021,392 $ 3,021,392 Downtown$ 1,326,076$ 1,326,076 Fall River$ 1,772,142 $ 1,772,142 Fish Creek$ 5,203,155 $ 5,203,155 Glen Haven Connection$ 684,892$ 684,892 Glen Haven$ 440,121$ 440,121 Hwy 34 and Hwy 36$ 1,368,557$ 1,368,557 North End$ 3,953,618 $ 3,953,618 Spur 66$ 2,134,749 $ 2,134,749 Totals$ 18,248,131$ 2,910,471$ 1,125,013$ 4,598,702$ 26,882,318 To further break down these costs into timing of how capital is spent, there are two instances in which capital is spent for a FTTH/FTTB project. The first instance is when the backbone or distribution network is built, and equipment to support the network is established at a centralized location. Total costs for the full-region distribution network are estimated at $17.2 million. The second instance is when the customer subscribes to service and the network is extended from the backbone network to the home or to the business. Equipment is installed at the home or business and the service is provisioned to be turned on. These two capital spends breakdown of these costs: Capital Costs Summary, Outside Plant Only, to ResidentialAllensparkGlen HavenBusinessesTotal "Pass" Customer Anchor Tenants $ 1,003,598 $ 1,003,598 Allenspark Connection $ 997,602 $ 997,602 Allenspark$ 1,010,442$ 1,010,442 Beaver Point$ 1,270,510 $ 1,270,510 Carriage Hills$ 2,084,025 $ 2,084,025 Downtown$ 750,281 $ 750,281 Fall River$ 1,048,143 $ 1,048,143 Fish Creek$ 3,227,696 $ 3,227,696 Glen Haven Connection$ 601,658$ 601,658 Glen Haven$ 134,479$ 134,479 Hwy 34 and Hwy 36$ 921,214 $ 921,214 North End$ 2,660,486 $ 2,660,486 Spur 66$ 1,450,367 $ 1,450,367 Totals$ 11,741,226$ 2,008,044$ 736,137$ 2,675,093$ 17,160,500 47 NEO Fiber Draft Deliverable Capital Costs Summary, at 40% Take Rate, to ResidentialAllensparkGlen HavenBusinessesTotal "Light" Customer Anchor Tenants $ 900,471 $ 900,471 Allenspark Connection $ 137,909 $ 137,909 Allenspark$ 764,518 $ 764,518 Beaver Point$ 892,565$ 892,565 Carriage Hills$ 937,368$ 937,368 Downtown$ 575,795 $ 575,795 Fall River$ 723,999$ 723,999 Fish Creek$ 1,975,460 $ 1,975,460 Glen Haven Connection$ 83,234$ 83,234 Glen Haven$ 305,642$ 305,642 Hwy 34 and Hwy 36$ 447,344 $ 447,344 North End$ 1,293,131 $ 1,293,131 Spur 66$ 684,383$ 684,383 Totals$ 6,506,905 $ 902,427 $ 388,876$ 1,923,610$ 9,721,818 5²¨¦ ³§¤ #®¬¬´¨¢ ³¨®² 3¯ ¢¤ µ²ȁ 0®¶¤± 3¯ ¢¤ ® 5³¨«¨³¸ 0®«¤² When other fiber optic cables occupy the communications space, they sometimes must be moved to allow space for the placement of a new fiber optic attachment in compliance with National Electric Safety Codes for clearance between power and communication cables, and between communication cables and ground levels. Make-ready tasks and expenses therefore include moving existing utilities and installing extension arms. When poles cannot be made ready for an additional fiber optic attachment by moving communication cables on the existing pole and keeping all clearances from ground and power space, it may become necessary to place a taller pole that would allow the new fiber attachment with adequate and required clearances. In some cases, the poles are too old and worn to support the weight of additional fiber placement. If this is the case, all utilities currently on the pole would need to be moved from the old pole to the new pole. These tasks bump up the costs for make ready expenses and can also delay construction of the network. This has been the case with the City of Longmont, as they are experiencing higher make ready costs to accommodate placement of fiber cable using their poles. Because Estes Park Power and Light operates transmission and generation facilities, it is subject to requirements and regulations by the North American Electric Reliability Corporation (NERC) and the Federal Energy Regulatory Commission (FERC). One of the most important of these requirements is that Estes Park Power and Light must maintain control of infrastructure located in its power space on utility poles, including any maintenance activities. This means that Power and Light could install fiber in their power space, but they would be required to do the actual placement and the maintenance activities associated with the fiber. Their linemen would place and maintain the fiber in the power space because they are certified to work in the power space or certified linemen would be hired to place fiber. There are other practices in the FTTH 48 NEO Fiber Draft Deliverable industry to place most fiber in the power space, and to place cabinets and taps in the communications space, so they would be accessible to general contractors and other communications providers and would not be restricted to power space certified crews or Estes Park Power and Light linemen. This is a practice used in other FTTH deployments with power utilities, including those in Jackson and Pulaski, Tennessee, and in Bristol, Virginia. Atlantic Engineering Group, NEO's subcontractor for this project, was the primary FTTH design and engineering firm for many of these projects and may be able to lend practices to be considered to reduce capital costs associated with make ready expenses, and yet also address safety concerns for use of the power space. If the power space is used for placement of fiber instead of the communications space, make ready expenses could potentially be reduced by nearly $5 million, reducing the overall projected capital costs from $26.9 Million down to $22 Million. Detailed excel spreadsheets identifying the assumptions, the percentage of aerial vs. underground fiber, projected bills of material and labor costs were provided for projected capital costs for use of the communications space and for use of the power space by NEO to the Competitive Broadband Committee and to Town staff. 7§ ³ ±¤ 7¤ !¨¬¨¦ &®±Ȉ 0±¨¢¨¦ #®²¨£¤± ³¨®² The current model for providing abundant Internet or broadband services is based upon a model of scarcity. In other words, in order to get Gigabit-type Internet services, as there is not fiber available on a wide-spread basis, users must pay a lot for this service. Incumbent providers prefer to offer services through the existing infrastructure. This model of scarcity makes abundant broadband unaffordable. C urrently the businesses and anchor institutions do not ever or rarely subscribe to Gigabit-type services. Gigabit Internet service pricing currently is provided at approximately $3,000 per month. If the Town embarked upon building a FTTH network, targeted pricing for businesses and anchor institutions would be $300 - $500 per month. Residential pricing is targeted at $70 - $95 per month for Gigabit Internet. This would dramatically transform the pricing and broadband offering that is currently available in Estes Park, making high-bandwidth Internet services attainable, accessible, abundant and affordable. Below is a discussion of the best pricing and abundance or service offerings in the world as well as a discussion of the average price per Mbps in the world. Currently anchor institutions and service providers are paying a range of $1,000 - $1,500 per month for 100 Mbps of service and a handful of customers are receiving Gigabit service for $3,000 per month. Most of the attendees in the community meetings, according to the questionnaire, are paying $50 - $100 per month for up to 6 - 15 Mbps. The goal of this project is to transform this model of pricing dramatically. The question is, what level of service is appropriate and at what price? 49 NEO Fiber Draft Deliverable In order to answer that question, it is helpful to understand what is being offered in other cities across the U.S. and the world, and what price points are offered as well.According to the Open 5 , the top 25, best-in-class or speed leaders around the world have the following service levels and pricing: Price Download Upload RankCityISPPriceper SpeedSpeed Mbps 1(tie)SeoulHelloVision10001000$ 30.30$ 0.03 1(tie)HongKongHong Kong Broadband Network Ltd10001000$ 37.41$ 0.04 1(tie)TokyoKDDI10001000$ 39.15$ 0.04 1(tie)Chattanooga, TNEPB10001000$ 69.99$ 0.07 1(tie)Kansas City, KSGoogle Fiber10001000$ 70.00$ 0.07 1(tie)Kansas City, MOGoogle Fiber10001000$ 70.00$ 0.07 1(tie)Lafayette, LALUS10001000$ 109.95$ 0.11 8ZurichSwisscom1000100$ 157.55$ 0.16 9Bristol, VABVU100050$ 319.95$ 0.32 10BucharestRCS & RDS100030$ 32.35$ 0.03 11ParisFree1000.$ 35.28$ 0.04 12(tie)AmsterdamXS4ALL500500$ 72.29$ 0.14 12(tie)CopenhagenSES-NVE500500$ 129.24$ 0.26 12(tie)RigaBaltcom500500$ 142.29$ 0.28 12(tie)Los Angeles, CAVerizon500500$ 299.99$ 0.60 12(tie)New York, NYVerizon500500$ 299.99$ 0.60 12(tie)Washington, DCVerizon500500$ 299.99$ 0.60 18TorontoRogers350350$ 182.25$ 0.52 19PragueUPC24020$ 83.63$ 0.35 20(tie)San Francisco, CAWebpass200200$ 30.00$ 0.15 20(tie)Mexico CityAxtel200200$ 156.32$ 0.78 22BerlinDeutsche Telekom200100$ 57.63$ 0.29 23DublinUPC20010$ 63.41$ 0.32 24LondonVirgin1500$ 55.71$ 0.37 The U.S. cities are highlighted. The price per Mbps ranges from .32/Mbps to .07/Mbps. Since 2012, almost every city in the ranking above has increased the top speed offering and has dramatically lowered their pricing. For example, Lafayette, LA charged $999.95 per month for its gigabit service in 2013 and dropped that price to $109.95 per month in 2014. In Mexico City, a 5 See http://www.newamerica.org/downloads/OTI_The_Cost_of_Connectivity_2014.pdf New America 50 NEO Fiber Draft Deliverable 200 Mbps package was available for nearly $100 less than the price offered for that speed by a different provider in2013. Per the report, the average download speed of plans in this ranking increased from 233 Mbps in 2012 to around 500 in 2013, and almost 650 Mbps in 2014. Nearly half of all cities in this ranking offer Gigabit speeds, and more than two-thirds of all cities offer service over 500 Mbps. Per the rankings, Chattanooga, TN; Bristol, VA; and Lafayette, LA, now offer some of the fastest and most affordable high-speed residential products available in the country despite the fact that they have some of the lowest population densities among the cities that are surveyed. All three cities offer gigabit speeds that place them on par with Hong Kong, Seoul, Tokyo, and Zürich. All three of these examples are city- or utility-owned entities, rather than a private sector ISP. In fact, the only other provider that offers gigabit speeds in the cities we surveyed is Google Fiber, which sells 1 Gbps service in Kansas City, KS, and Kansas City, MO, for the same price as EPB in Chattanooga, TN. residents of New York, NY; Washington, DC; and Los Angeles, CA for about $300/month, which is significantly more than the cost of a gigabit in Chattanooga, TN (around $70/month) or Lafayette, LA (around $110/month) and comparable to the price of the gigabit package in Bristol, VA (around $320/month) but only half the speed. Also to note from the report, rural areas with low population density have historically struggled to attract adequate private sector infrastructure investment, similar to what has been the case in Estes Park. More recently, many of these local communities have taken broadband investment into their own hands and now provide residential service through a publicly-owned network or utility company. There are many examples of successful locally-owned networks. In general, the research shows that these locally-owned networks tend to deliver better value to their customers when compared on a price-per-megabit basis to competing cable and telecom providers in their own cities. Business customers for Google Fiber and Chattanooga do pay higher prices for Gigabit service. Here is a summary of the services available in each of these cities: 51 NEO Fiber Draft Deliverable Monthly Google Fiber Fee Residential Gbps service$ 70.00 Residential Gbps service plus TV$ 120.00 Business Gpbs service$ 100.00 Monthly Chattanooga EPB Fee Residential Gbps service$ 70.00 Residential 100 Mbps service$ 57.99 Business Gpbs service$ 299.99 Another relevant data point is setting pricing for Estes Park is to understand on average, what is 6 being offered within the U.S. According to a broadband report by Point Topic which was conducted in the first quarter of 2014, the average monthly combined stand-alone and bundled residential broadband subscription for copper networks in North American came in at $8.54, that for cable at $2.03 and that for fiber at $1.45. Point Topic found the global average monthly charge for residential broadband services was $76.61. The average bandwidth provided for residential services was 55 Mbps, meaning the global average cost per megabit was $1.39. market research and analysis, ranking just behind Colombia and one place ahead of Greece. Monthly U.S. broadband subscription rates did fall below the global average of $76.61, however. Access to actual U.S. average broadband pricing data requires a subscription to Point $65 price range. These pricing examples can serve as a benchmark for Estes Parkiders as a standard or goal for providing Gigabit service to the end-users. According to the Airbits and Estes Valley Networks websites, the two companies offer the following service levels and pricing to residential customers. 6 See http://www.telecompetitor.com/report-average-u-s-broadband-prices-are-below-world- average-of-76-61/ 52 NEO Fiber Draft Deliverable Cost of Cost of Price per Residential ServiceDownload Upload Month MbpsMbps Airbits 6 Mbps/3 Mbps$49$8.17$16.33 .35 Mbps/.35 Mbps$29$82.86$82.86 12 Mbps/6 Mbps$79$6.58$13.17 Estes Valley Networks 3 Mbps/1 Mbps$35$11.67$35.00 6 Mbps/1 Mbps$50$8.33$50.00 15 Mbps/3 Mbps$75$5.00$25.00 Both companies offer a seasonal service for $25 - $50 per month for a minimum of four months. Neither Baja Networks/TDS nor CenturyLink advertise their pricing on their websites. It could be assumed that pricing for Baja Network/TDS and CenturyLink are comparable to advertised pricing for Airbits and Estes Valley Networks. This assumption is also verified by the results of the surveys that were conducted. The current residential price per Mbps in Estes Park is $5 - $12 for download speeds and $13 - $50 for upload speeds. Airbit calculation range. Again, the global average noted above is $1.39. Recommended Pricing. Estes Park has several challenges that make the feasible financial model difficult to achieve. First, the capital costs are higher than other cities because Estes Park is located within a mountainous area where there is significant rock. Underground utility construction is higher because additional costs must be considered for boring and trenching in densely-rocky conditions. The Town of Estes Park has a seasonal population resulting in uncertain revenue projections. Although residents may continue to subscribe to broadband services while they are away for security and video surveillance applications or to rent their property while gone, it is not certain that they will continue to subscribe to service while away. Estes Park is a rural community with low housing unit density. These factors drive the costs of providing fiber to the community to be more expensive than metropolitan build-outs and the cost to build within the community to be more expensive than in higher density or more populated areas. 53 NEO Fiber Draft Deliverable Therefore, the recommended pricing for services must take these conditions into consideration. Much Better Speeds at the Same Price. One strategy for pricing is to offer 1 Gbps service - which is 67 times faster than Airbits and Estes Valley Networks top tier offering (15 Mbps) - for pricing that is comparable to their top tier offerings of $70 - $79 per month. This would put Estes Park in the running for the top 24 fastest cities/towns in the world offering the most cost effective bandwidth per Mbps. This pricing strategy was modeled and the financial model is feasible only by offering services in a retail fashion meaning, providing Internet services directly to the end user. A minimum take rate percentage to achieve financial feasibility is 40% at $70 per month. The financial results are positive close to breakeven; however, NEO cautions using this approach. It is better to have a financially sustainable plan than to need to raise taxes later. There are other strategies to pursue that would strengthen the financial plan. These include charging a tap fee or installation charge, having a minimal amount of service/pricing a year for the seasonal population, accessing a monthly utility charge and/or providing dark fiber services on new routes where there is excess fiber. These strategies are discussed in detail under the Financial Plan section. Much Better Speeds at Global Average Pricing. Another strategy for pricing is to offer 1 Gbps service for the global average pricing per Mbps or $139 per month. It is uncertain whether or not services will be subscribed to at this level of pricing. If the typical customer subscribes to Internet services currently for $50 per month for 6 Mbps download and 1-3 Mbps upload, will the residential customer pay $139 per month for much better services? In this case, comparing 6 Mbps to 1 Gbps, customers would receive speeds that are 167 times faster than current speeds. This pricing strategy is feasible with minimum take rate percentages of 25%. - Somewhere in Between, Less than $100/month. Perhaps another consideration is to understand how the Internet has changed the way cable TV or entertainment services are used. Typically, customers will pay $100 per month for cable TV and Internet services combined. As more users are receiving cable TV programming and entertainment over the Internet through companies such as Netflix, Hulu, Amazon, Vessel, YouTube, and Vimeo, justify offering Gigabit service for $95 per month. Pricing for Businesses. NEO recommends offering businesses two tiers of service levels at the following price points: 100 Mbps $150/month 1 Gbps $400/month 54 NEO Fiber Draft Deliverable 4 ª¤ 2 ³¤ !²²´¬¯³¨®² £ 0±®£´¢³ -¨· The financial models were run based upon a take rate of 40% in the first year. The City of Longmont is experiencing a take rate of 47% when the City runs fiber within the neighborhood. Google Fiber will often conduct neighborhood competitions to see which neighborhood can sign up and reach a certain take rate percentage first. Whichever neighborhood reaches the certain take rate first, will have fiber built to that neighborhood first. A good take rate goal for pre-sign ups is 40%. After the first year, the financial models were based upon additional take rate percentages of 5% each year up to 55% (40% in the first year + 5% in the second year, 5% in the third year and an additional 5% in the fourth year) for residential customers and additional take rate percentages of 20% in years 2 and 3 up to 60% for businesses (40% in the first year, 20% in the second year and 20% in the third year). The Fiber to the Home Council has conducted studies of municipal broadband and has found the average take rate percentage for municipally-owned FTTH network is 65% within three years of offering services. This percentage does not take into consideration the transformation caused by offering Gigabit-type services. Take rate percentages for fiber network with Gigabit services receive take rates of 40-50% before construction happens and 75% within the first three years of offering services. Of those that took service, it was assumed that 50% of businesses would subscribe to the 100 Mbps service and 50% of the businesses would subscribe to the 1 Gbps service. For residential service, it was assumed that all customers were offered a 1 Gbps service. ! .®³¤ ¡®´³ 0§®¤ 3¤±µ¨¢¤ £ # ¡«¤ 46 3¤±µ¨¢¤²ȁ Phone Service. With enhancements being made to cellular phones and the increasing mobility needs of customers today, more customers are opting for cell phone services over their landline phones. Smartphones have more advanced computing ability and connectivity than landline phones. Smartphones are now cameras, media players, video cameras, GPS navigation units, web browsers, and personal digital assistants. Landline phone service is a product in decline. Only 30% of the American population have a landline phone as of 2015. The FCC is recommending changing the Universal Service Fund, which helped subsidize the installation of networks to build landline phones; to subsidizing broadband services. The Universal Service Fund would no longer subsidize landline phone service, but would instead subsidize broadband or Internet services. Given these trends, NEO is not recommending that Estes Park invest in infrastructure to provide phone service or VoIP services. 55 NEO Fiber Draft Deliverable Cable TV Services. Video and cable TV usage is dramatically changing too. The top 12 cable companies have all seen a dramatic decline in cable TV subscribers in the past twenty-four months. Former pay-TV subscribers are opting for lower-priced Internet streaming solutions, such as Net most cable TV content is now offered online at no or very low cost depending upon the programming. As customers are becoming more Internet-savvy, more content is now offered online for free, and given the current context of the tough economic climate, when given a choice, customers are discontinuing their cable TV subscriptions in favor of Internet entertainment options. - seated. Customers do not want to experience channel delay or service disruptions, which have been typical in most IPTV service roll-outs. Initiating an IPTV service must meet or exceed previous customer experience from cable or satellite companies. Market research shows that if these experiences are not impeccable, the customer is already predisposed to changing services should their expectations (or anybo Offering Cable TV or IPTV services is challenging and complex. Even for existing service providers or other utility providers that already have an operational team and systems in place, launching IPTV service is unlike providing any other service offering in the past. The complexity of the last-mile network infrastructure, i.e. the fiber from the curb to the premise, the Customer Premise Equipment configurations, the difficulties in establishing programming and distribution rights, competition among Fortune 500 companies, the complexity of the service services difficult at best. It could take several years for Estes Park to overcome or build up to the operational challenges of offering IPTV services. In several years, the number of subscribers choosing pay-TV services will be even lower than it is today. Therefore, NEO is not recommending that Estes Park offers Cable TV or IPTV services. 7§ ³ ¡®´³ 7¨±¤«¤²²Ȉ Wireless services are important to the community as well as wireless technology can serve the mobile and portable customers and visitors to the community. Wireless services are an important public amenity, but wireless will not replace or provide an alternative technological solution over fiber networks. Many wireless access points and cell sites are already connected through a fiber network; and therefore, wireless service should be considered an application on a fiber network rather than a separate type of network. 56 NEO Fiber Draft Deliverable According to the service providers interviewed by NEO, there is currently network interference experienced between the two or three wireless providers in Town. Wireless technology is in a constant state of change with upgrades and new capabilities added each year. Typical wireless networks must be upgraded every two years. The next generation of wireless technology Wireless Hotspot is currently being developed to allow the wireless connection to stay connected (in other words, not drop the signal) while the user moves from one hotspot to another (similar to cell phone technology). NEO recommends that if the Town of Estes Park wanted to offer a wireless network to its constituents that it could certainly do so and fund the network through excess cash flows generated from the broadband services but it should wait to invest in the technology until the next generation of wireless hotspots is widely available and tested. There may be another source of revenue available to the Town of Estes Park by offering Wireless Hotspot services to visitors to the area. offered through a public-private partnership. Mobile backhaul is another revenue opportunity for the Town of Estes Park. Cellular data traffic grew 300-fold from 2006 to 2013 and will grow another sixfold by 2017. The exploding demands for mobile bandwidth are prompting wireless providers to upgrade the connections from their cell sites to the Internet. This represents an opportunity for the Town of Estes Park to offer dark fiber leases to mobile and cellular carriers, connecting their various cell sites throughout the Town and to the Internet. 50% of cell sites today are now connected by fiber. The next generation of wireless LTE Advanced will move all baseband processing to the cloud, rather than to the cell site. This means that all cell sites will have to be connected via fiber to the hubs where processing takes place i.e. the Internet. Before having a detailed discussion on each of the service delivery models, it is important to note what makes a financial model feasible or perhaps what are the minimum gating scenarios or financial results that make a project financially sustainable. Every entity, whether it is a business, or a non-profit organization, or a government agency, will organization in making financial decisions. For example, a private sector company may need to see an unleveraged IRR of 30% or greater in order to obtain financing to build a FTTH/FTTB network. Being a municipality, in order to meet its goals, Estes Park may not need to see an IRR of 30%; but rather simply a positive IRR. NEO recommends the following financial feasibility objectives: 57 NEO Fiber Draft Deliverable 1. Debt Service Constant on Outstanding Debt. The Debt Service Constant calculates the factor that, multiplied by the original loan principal, yields the annual debt service payment (principal plus interest) required to amortize a loan. NEO provided a Debt Service Constant Percentage on Outstanding Debt with Net Operating Cash flows that ncipal plus interest on the outstanding debt? And what percentage of Net Operating Cash flows opportunity to refinance; or use the collateral of the network and the collateral of the Net Operating Cash flows to further expand the network. As a litmus test, it is desirable to calculation of greater than 200 percent within the first 4-5 years. 2. Cumulative Cash flows of the Network over 10 years are greater than the Debt Service. This objective provides that Estes Park will be able to cover its Debt Service by the operating cash flows generated from the network and that after 10 years, cumulative cashflows are greater than the debt. 3. Positive Income. Income from operations covers interest and taxes. As depreciation and amortization are not subject to cashflow, NEO left these out of the assumptions. This objective allows Estes Park to seek debt financing to build out a FTTH/FTTB network; the operating income will cover interest and tax expenses. 4. Positive IRR. Estes Park may simply need to see a positive return on the investment. 58 NEO FiberDraft Deliverable 8. Service Delivery Models The following chart summarizes the various service delivery models for FTTH/FTTB networks. 4¶® 3¤±µ¨¢¤ $¤«¨µ¤±¸ -®£¤«² ±¤ &¤ ²¨¡«¤ If Estes Parkwants to provide pricing that is in the $70-$95price range for residential services of 1 Gbps, than the retail models of providing Internet services directly to either the businesses (model 4 above) and to the businesses and residential homes (model 5 above) are feasible. NEO provided financial models for all of the various service delivery options. These options ranged from providing dark fiber services -which the Town is currently providing; to wholesale services -where the Town builds the network and current local service providers provide Internet services; to retail models where the Town builds the network and provides servicesdirectly to the end users. All of the financial models are based on detailed, realistic analysis and extensive real-world, industry-standard assumptions. As the Town of Estes Parkhas higher than average capital costs due to being located in the mountains with rocky conditions, and is rural and has a relatively low customer base, the two models that are feasible and financially sustainable are ones in which the Town offers services directly to end users. 59 NEO Fiber Draft Deliverable The Town could offer services on a wholesale basis; however, in order for this model to be financially sustainable, the pricing to end users would need to be increased to a point where the service is no longer affordable. Alternatively a wholesale model would work if the service providers took a substantially lower percentage of the revenue than what has worked throughout other FTTH communities that have deployed a wholesale open access network. The two financially sustainable models produce a revenue stream for the Town that is similar to the residual revenue stream of the Estes Park Light and Power Division. These two models the first model of providing services directly to the anchor institutions and businesses and the second model to the business community as well as the residents and homes of the community have successfully been deployed in numerous communities throughout the country. These two models are what the City of Longmont is implementing. These models are financially sustainable, have been successful in other locations and can be implemented in the Estes Valley. The two models that are financially sustainable provide for possible Private-Public Partnership roles for the current local service providers. Final design, engineering, project management, program management and construction of the network would be outsourced. This opportunity represents approximately $27 - $30 Million in potential revenue to the existing service providers. Additionally, the network operations and management, truck rolls and repair service could be outsourced. Sales, marketing, customer service and billing services could potentially be outsourced as well. Based upon the assumptions used in the financial models, this represents $500k to $1.5M in annual operating revenue potentially available local service providers offering these outsourced functions for the Town. Estes Park would be required to competitively bid these opportunities; however, a local preference could be given to local service providers and/or local service providers that bid jointly with national providers. 7§¸ ±¤ ³§¤ /³§¤± -®£¤«² .®³ &¤ ²¨¡«¤Ȉ Below is a description of each of the service delivery models and their financial results. Infrastructure Provider. Currently Estes Park provides infrastructure through IRUs and dark fiber leases to providers in the area. This is an inefficient use of the fiber because the fiber is allocated on a 1:1 basis. This approach works when there is a large amount of fiber counts available from the municipality to sell to the existing service providers. For example, if Town of Estes Park built a 288-count fiber network, it could sell excess capacity to numerous service providers in an open-access manner. This is not the case. The Town of Estes Park has 30-36 fibers available for use. There is not enough fiber to continue to offer dark fiber leases in this manner in an efficient way. 60 NEO Fiber Draft Deliverable This approach does minimize Estes Park role in offering services and minimizes its capital costs, its investmentand its risks by shifting the capital costs of further expansion to the service providers. The service providers would be required to spend the capital costs needed to expand the network, and provide equipment to light up the network. This approach allows service providers the greatest degree of flexibility in the broadband access network they implement. This approach is not currently working within the Town of Estes Park. The existing service providers do not have access to capital that would be required to further build out to the homes and businesses. Government Service Provider. The municipality builds fiber to and provides services for anchor tenants, government offices, public safety, schools, universities, and medical establishments. In addition to providing more abundant broadband at an affordable price to these stakeholders, other services such as IT support, videoconferencing, software updates, etc. can be provided and shared amongst governments to reduce costs and provide better e- government applications. After the financial model was run, it was found that providing fiber services to the Anchor Tenants only is not feasible. The model never turns a profit and continues to lose money every year. There are not enough customers generating sufficient revenue to cover the debt service. Open Access Provider or Wholesale Model. An open access network is one in which the physical access to the network is separate from the services that are offered on the network. In its truest sense, the infrastructure owner does not supply services for the network; these services are provided by the service provider. There is clear delineation of separation of network ownership and service providers (i.e. wholesale only services). In many open access networks, the network owner may also be the retail service provider (for example, offer retail Internet services directly to end users) AND offer wholesale service is an open-access environment or perhaps the municipality retains the ability to serve anchor institutions and/or government agencies. In order for this model to work, pricing would need to be increased dramatically to a point where customers may not sign up as the monthly rate would not be affordable or the service providers would need to take a much lower percentage of the revenue. Industry averages of revenue share provided to the infrastructure owner is in the 30-40% range. The service providers would receive the bulk of the revenue (60-70%) as they are providing the Internet backhaul and access, customer support, marketing and sales. The model was run at a 40% revenue share to the Town. The following pricing would be financial feasible; however, it is 61 NEO Fiber Draft Deliverable questionable whether or not customers would subscribe to this service as it is much more expensive than what they are receiving now. Anchors and Businesses Wholesale Revenue Retail, Pricing to Revenue to Businessesto Estes ParkCustomerISP Shared Services: 100 Mbps Internet$ 75.00$ 250.00$ 175.00 Shared Services: 1 Gbps Internet$ 225.00 $ 750.00$ 525.00 Residents and Homes Wholesale Revenue Retail, Pricing to Revenue to Residential, Build 1to Estes ParkCustomerISP Shared Services: 100 Mbps Internet$ 45.00$ 150.00$ 105.00 Shared Services: 1 Gbps Internet$ 67.50$ 225.00$ 157.50 Other differences in the Open Access or Wholesale Model than the Retail Model: Internet Access and Backhaul Charges. The ISP would be responsible for providing Cost for backhaul and transport fees for Estes Park would be $0. Customer Care: The service providers would be responsible for Customer care; Estes Park would have minimal customer care issues, cost per customer for Customer Care changed from $5/customer in a Retail model to $.50/customer for the Wholesale Model. General and Administration Costs are reduced in a Wholesale Model. This changed from 5% of Revenue in a Retail Model to 2% of Revenue for the Wholesale Model. Marketing and Sales. 3% of Revenue for Retail Services Model only; 0% for Wholesale Services In conclusion the pricing is not affordable and the concern of meeting a 40% take rate percentage to achieve financial feasibility may be difficult given the higher price needed to make the model work. Consequently, the following two models of providing retail services are feasible and the financial results are strong. Retail Service Provider Model, Businesses and Anchor Tenants. In this model, the municipality builds the fiber network, installs electronics to light the network and provides 62 NEO Fiber Draft Deliverable services directly to the end users. In this model, the municipality competes directly with the service providersoffering services to the business and anchor tenants in the community. The financial results are strong; the entity is projected to be profitable in year 1. All of the feasibility objectives are achieved. Retail Service Provider Model, Businesses and Residences. In this model, the municipality provides Internet services to the businesses and residences within the community. The financial results are strong; the entity is projected to be profitable in year 1. All of the feasibility objectives are achieved. A detailed financial plan is provided for the retail service models under the next section. 63 NEO Fiber Draft Deliverable 9. Financial Plan and Results Detailed financial models were run for all of the service delivery models discussed in Section 8. These models have been provided to the Competitive Broadband Committee and to Town staff. The financial model for providing services to all of the homes and businesses is discussed in detail under this section. The assumptions for financing, the amortization schedule, revenue assumptions, operational expenses and the financial results are provided herein. Additionally, there are other options to consider which may further reduce the financial and operational risks associated with community broadband networks. &¨ ¢¨¦ !²²´¬¯³¨®²Ǿ !¬®±³¨¹ ³¨® 3¢§¤£´«¤ The financial model assumes a low-interest revenue or general obligation bond or a low-interest loan with an interest rate of 5% is used to finance the capital costs of the network. A 30-year amortization schedule was used, with the assumption of paying principal and interest payments immediately. Many of the financing mechanisms that Estes Park Power and Light is using have the ability to pay interest only payments for one three years. To be conservative, the financial model assumes payment of principal and interest. As described in Section 7, capital cost projections include building the backbone and distribution network plus providing the drop cable, equipment and labor for an initial take rate percentage of 40%. It was assumed that additional expansion of customers would be financed through debt rather than funded through profits of the entity. This again, is a more conservative approach; however, there are excess profits that are generated and therefore, expansion of the network could be funded through operating cashflows or profit rather than additional debt. 2¤µ¤´¤ !²²´¬¯³¨®² Take rate assumptions for the first year were assumed to be 40%. After the first year, the financial models were based upon additional take rate percentages of 5% each year up to 55% (40% in the first year + 5% in the second year, 5% in the third year and an additional 5% in the fourth year) for residential customers and additional take rate percentages of 20% in years 2 and 3 up to 60% for businesses (40% in the first year, 20% in the second year and 20% in the third year). Of those that took service, it was assumed that 50% of businesses would subscribe to the 100 Mbps service and 50% of the businesses would subscribe to the 1 Gbps service. For residential service, it was assumed that all customers were offered a 1 Gbps service. Targeted pricing for businesses and anchor institutions would be $300 - $500 per month. Residential pricing is targeted at $70 - $95 per month for Gigabit Internet. This would dramatically transform the pricing and broadband offering that is currently available in Estes Park, making high-bandwidth Internet services attainable, accessible, abundant and affordable. 64 NEO Fiber Draft Deliverable The model was run at a price point of $70 per month (Retail Model #1, $70/month) and at $95 per month (Retail Model #2, $95/month) for residential service. The detailed results of the models are provided below. Pricing for Business and Anchor Institutions were: 100 Mbps $150/month 1 Gbps $400/month 4 ¯ &¤¤Ǿ 5³¨«¨³¸ &¤¤² ®± )²³ «« ³¨® #§ ±¦¤² Another way to improve the financial model may be to charge a tap fee per customer or an installation charge. This charge could be amortized for the customer over the first year of the contract. Tap fees are charged for other utilities such as power, water and sewer and can also be applied to broadband services. As mentioned earlier, statistics from the FTTH Council state that real estate developments communities that have deployed FTTH networks have instantly improved home sales values. According to the FTTH Council, access to fiber adds 3.1% to the value of a home and having a Gigabit-enabled service available increases home values by 7% over homes that have access to 25 Mbps or less. In Estes Park, the average home price is $560,000. A 7% homes value increase translates to $39,200. Therefore, it may be palatable to charge a $500 tap fee given the impact a Gigabit-enabled network has on increasing the value of the home. The financial model of $70 per month for residential service was modified by charging a $500 tap fee (an additional $42 per month is applied for the first year of the contract). The financial impact and results of this change are provided in Retail Model #3, Tap Fee and $70/month. Another model was run with a tap fee and the residential pricing of $95 per month (Retail Model #4, Tap Fee and $95/month). Another consideration may be to charge each utility customer a $5 fee per month whether they sign up for broadband services or not. If the Town of Estes Park Power and Light has 10,432 customers, the annual revenue generated from this would be $625,920. This dramatically offsets operating expenses for the network. See Retail Model #5, Utility Fee and $70/month and Retail Model #6, Utility Fee and $95/month. 65 NEO Fiber Draft Deliverable In summary, here are the various financial models that are provided herein: Retail Model #1, $70/month residential service Retail Model #2, $95/month residential service Retail Model #3, Tap Fee and $70/month Retail Model #4, Tap Fee and $95/month Retail Model #5, Utility Fee and $70/month Retail Model #6, Utility Fee and $95/month # ¯¨³ « #®²³² Again, the capital costs for building to all of the residential neighborhoods and businesses are projected to be: Phasing Residential Residential Residential Residential Capital Costs Summary, at 40% Take RateAnchorsBusinessesTotal Build 1Build 2Build 3Build 4 Anchor Tenants$ 1,904,069 $ 1,904,069 Allenspark Connection$ 1,135,512$ 1,135,512 Allenspark$ 1,774,960$ 1,774,960 Beaver Point$ 2,163,075$ 2,163,075 Carriage Hills$ 3,021,392$ 3,021,392 Downtown$ 1,326,076$ 1,326,076 Fall River$ 1,772,142$ 1,772,142 Fish Creek$ 5,203,155$ 5,203,155 Glen Haven Connection$ 684,892$ 684,892 Glen Haven$ 440,121$ 440,121 Hwy 34 and Hwy 36$ 1,368,557$ 1,368,557 North End$ 3,953,618 $ 3,953,618 Spur 66$ 2,134,749 $ 2,134,749 Totals$ 1,904,069 $ 2,910,471$ 1,125,013$ 12,159,764 $ 6,088,367 $ 2,694,634$ 26,882,318 The models were run with the assumption of building out to all of the homes and businesses at once. The model also is feasible if the build-out takes a longer time. If a one year build out seems too aggressive, NEO recommends building to the anchor institutions first, followed by the businesses the downtown core and along Highway 34 and Highway 36. Then, NEO recommends building the residential neighborhoods based upon demand for services. A Google-like neighborhood competition with a goal of 40% to sign up prior to construction could be implemented. After the initial take rate of 40%, it is assumed that the capital costs required to add additional customers is $1,550 per new business and anchor institution customers and $1,050 for residential customers. This cost include the drop cable from the backbone or 66 NEO Fiber Draft Deliverable distribution network, the utility box with the electro labor to install the drop cable, splice the fiber and install the electronic equipment. Fiber optic networks are typically depreciated over a 20-year flat depreciation schedule. Equipment is usually depreciated over a 5-year depreciation schedule. These assumptions were applied in the financial models. It was assumed that a vehicle expense of $60,000 was incurred for every technician. Easements may need to be perfected for commercial use for network that will be built on aerial electric lines. A more detailed analysis of the location of electric poles and the respective parcel information is being obtained. For purposes of the financial plan, assumptions used for capital costs for easement perfection were $100 per pole and $200 per parcel with the assumption of 20 parcels per mile for the aerial fiber plant. The aerial fiber plant makes up 65% of the total plant Division. There is precedent set in Colorado by Time Warner for payment to landowners of $100 per pole for perfection of easements for commercial use. /¯¤± ³¨¦ %·¯¤²¤ !²²´¬¯³¨®² Below are the operating expense assumptions: Operating Expenses and Other AssumptionsAssumptionNotes Uncollectable Revenue Percentage, Bad Debt1%of Revenue Sales Churn, percent of Total Revenue2%of Total Revenue Revenue Escalation (Inflation of Revenue per year)0%No increase in pricing Cost of Bandwidth AssumptionsAssumptionNotes Average Peak use per customer in Mbps250Very conservative City of Longmont currently uses 1 for 1,000 Oversubscription Rate400oversubscription rate Monthly Rate, starting in year 3, Assuming initial Cost of Backhaul Initially$ 15,000need is 10 Gbps circuit Cost of Additional Backhaul per Gbps$ 1,500 Annual Growth/Reduction Rate of Cost/Mbps-0.10The cost of bandwidth will continue to diminish The growth of bandwidth needs will continue to Annual Growth rate of Bandwidth per Customer120%grow The Town of Estes Park will need to subscribe to Internet services and mark-up these services to the end users. Oversubscription is a common practice in the industry. It assumes that for every 1 Gbps of service received from Estes Park, 400 customers would share in that 1 Gbps pipe. 67 NEO Fiber Draft Deliverable Th the entire Gbps of service provided will not be used at all times. The City of Longmont is currently experiencing a 1:1000 oversubscription rate. Network Management AssumptionsAssumptionNotes Software Maintenance$ 20,000Annual, starting in year 2 O&M Fees from IRUs$ -Annual, starting in year 3 Utilities, Power & Environmental $ 10,000Annual, starting in year 1 Pole Rent $ 4this. Facilities Rent $ 24,000Per year, to house electronic and optical equipment Maintenance materials $ 10.00Per mile Vehicle repairs/fuel$ 350.00Per Tech, per month Assumptions AssumptionNotes Install/service Network Technicians Salary$ 40,000 Service call or truck roll (% of customers, per month)1.0% Installs per day, per tech 4.00 Service calls per, per tech 4.00 Plant miles per maintenance tech60 Plant Maintenance tech annual wages$ 50,000 # of Technicians per Supervisor$ 8 Technician Supervisor Salary$ 80,000 % of Network Maintenance/Service Calls/Installs Outsourced 0% % Higher costs of Outsourcing 100% Salaries and Staffing Assumptions AssumptionNotes Salary, Administrator $ 90,000Annual, starting in year 1 Payroll Taxes and Benefits (% of Wages)38.2% Revenue3%3% of Revenue for Retail Services Model only Customer Care$ 5.00Per Customer General and Administrative Overhead, % of Revenue5% Financia« 2¤²´«³² Below is a summary of the results for all six variations of the model using different revenue and pricing assumptions. All of the results are positive; this has been provided to show various options and approaches to revenue generation. Some of the results are more positive than others. 68 NEO Fiber Draft Deliverable Annual Revenues Revenue Models Year 1Year 2Year 3Year 4Year 5 Retail Model #1, $70/month residential service $ 2,997,000$ 5,184,900$ 5,808,600 $ 6,417,000$ 6,642,000 Retail Model #2, $95/month residential service $ 3,681,000$ 6,464,900$ 7,125,400 $ 7,870,900$ 8,147,200 Retail Model #3, Tap Fee and $70/month $ 5,083,400$ 5,449,375$ 6,073,075 $ 6,677,800$ 6,642,000 Retail Model #4, Tap Fee and $95/month $ 5,767,400$ 6,629,375$ 7,389,875 $ 8,131,700$ 8,147,200 Retail Model #5, Utility Fee and $70/month $ 3,622,920$ 5,810,820$ 6,434,520 $ 7,042,920$ 7,267,920 Retail Model #6, Utility Fee and $95/month $ 4,306,920$ 6,990,820$ 7,751,320 $ 8,496,820$ 8,773,120 EBITDA Revenue Models Year 1Year 2Year 3Year 4Year 5 Retail Model #1, $70/month residential service $ 1,852,119$ 4,053,810$ 4,569,043 $ 5,127,776$ 5,379,102 Retail Model #2, $95/month residential service $ 2,495,079$ 5,163,010$ 5,806,835 $ 6,494,442$ 6,793,990 Retail Model #3, Tap Fee and $70/month $ 3,813,335$ 4,302,416$ 4,817,650 $ 5,372,928$ 5,379,102 Retail Model #4, Tap Fee and $95/month $ 4,456,295$ 5,411,616$ 6,055,442 $ 6,739,594$ 6,793,990 Retail Model #5, Utility Fee and $70/month $ 2,440,484$ 4,642,174$ 5,157,408 $ 5,716,141$ 5,967,467 Retail Model #6, Utility Fee and $95/month $ 3,083,444$ 5,751,374$ 6,395,200 $ 7,082,807$ 7,382,355 Debt Service Constant Stabilized Terminal Revenue ModelsIRR Percentage, Cash FlowValue Year 5 Retail Model #1, $70/month residential service 286%$ 5,379,1029%$14.9 Million Retail Model #2, $95/month residential service 361%$ 6,793,99016%$27.7 Million Retail Model #3, Tap Fee and $70/month 286%$ 5,379,10212%$17.6 Million Retail Model #4, Tap Fee and $95/month 361%$ 6,793,99019%$30.4 Million Retail Model #5, Utility Fee and $70/month 317%$ 5,967,46713%$20.8 Million Retail Model #6, Utility Fee and $95/month 393%$ 7,382,35520%$33.6 Million Here are the details financial results for each of the pricing models and their respective assumptions. 1. Retail Model #1, $70 per month for Residential Service 69 NEO FiberDraft Deliverable 70 NEO Fiber Draft Deliverable 20162017201820192020 Forecast Project Period Year 1Year 2Year 3Year 4Year 5 Depreciation$ 1,427,095 $ 1,560,942$ 1,694,987$ 1,826,927$ 1,841,146 Amortization$ -$ -$ -$ - $ - Earnings Before Interest and Taxes$ 425,024$ 2,492,868$ 2,874,056$ 3,300,849$ 3,537,957 Interest Expense - New Debt$ 1,440,283 $ 1,418,393$ 1,395,384$ 1,371,196$ 1,345,772 Interest Expense - Existing Debt$ -$ -$ -$ - $ - Interest Expense - Other$ -$ -$ -$ - $ - Income Before Taxes$ (1,015,259) $ 1,074,474$ 1,478,672$ 1,929,652$ 2,192,185 Property Tax$ -$ -$ -$ - $ - Income Taxes$ -$ -$ -$ - $ - Net Income$ (1,015,259) $ 1,074,474$ 1,478,672$ 1,929,652$ 2,192,185 EBITDA is positive; however, there is not enough cashflow from operations to cover the interest payments on the loan. Debt service constant on outstanding debt is over 200% within five years. 1. Debt service constant on outstanding debt; target over 200% after Year 5. 2016201720182019202020212022202320242025 YEARYEARYEARYEARYEARYEARYEARYEARYEARYEAR 12345678910 OPERATIONS Net Cash Flow from Operations$ 1,852,119 $ 4,053,810$ 4,569,043 $ 5,127,776$ 5,379,102 $ 5,379,008$ 5,379,008$ 5,379,008 $ 5,379,008$ 5,379,008 Debt Service Interest$ 1,440,283 $ 1,418,393$ 1,395,384 $ 1,371,196$ 1,345,772 $ 1,319,047$ 1,290,954$ 1,261,424 $ 1,230,383$ 1,197,755 Principal Payment$ 393,011 $ 449,746$ 472,756 $ 496,943$ 522,367 $ 549,093$ 577,185$ 606,715 $ 637,756$ 670,385 Additional Principal Payment$ -$ - $ -$ -$ - $ -$ - $ - Net Cash Flow $ 18,825 $ 2,185,670$ 2,700,904 $ 3,259,637$ 3,510,963 $ 3,510,869$ 3,510,869$ 3,510,869 $ 3,510,869$ 3,510,869 Cumulative Cash Flow$ 18,825 $ 2,204,495$ 4,905,399 $ 8,165,036$ 11,675,998 $ 15,186,867$ 18,697,736$ 22,208,605 $ 25,719,474$ 29,230,343 Debt Service Constant on Outstanding Debt 220%244%270%286%289%292% Stabilized annual cash flows or EBITDA are $5.3 Million and there is an IRR of 9%. 2. Retail Model #2, $95 per month for Residential Service: Here are the results if pricing for residential service is increased to $95 per month for residential service. 71 NEO Fiber Draft Deliverable Retail Model #2, $95/month Residential Service Income Statement 20162017201820192020 Forecast Project Period Year 1Year 2Year 3Year 4Year 5 Revenues Service Revenues Total Anchor$ 40,400$ 84,900 $ 117,300$ 134,500$ 137,600 Total Residential, Build 1$ 295,800$ 510,200$ 569,400$ 628,600$ 650,800 Total Residential, Build 2$ 134,800$ 232,600$ 259,400$ 286,500$ 296,400 Total Residential, Build 3$ 1,581,400 $ 2,728,100$ 3,044,300$ 3,360,600$ 3,479,200 Total Residential, Build 4$ 587,400$ 1,013,200$ 1,130,800$ 1,248,200$ 1,292,400 Total Businesses$ 1,041,200 $ 1,795,900$ 2,004,200$ 2,212,500$ 2,290,800 Tap Fee or Installation Fee - Residential (one time) $ -$ -$ -$ -$ - Tap Fee or Installation Fee - Business (one time) $ -$ -$ -$ -$ - Utility Fee (monthly) $ - $ - $ - $ - $ - Total Revenues$ 3,681,000 $ 6,364,900$ 7,125,400$ 7,870,900$ 8,147,200 $ -$ -$ -$ -$ - Uncollectable Revenues$ (36,810)$ (63,649) $ (71,254) $ (78,709)$ (81,472) SubTotal Revenues$ 3,644,190 $ 6,301,251$ 7,054,146$ 7,792,191$ 8,065,728 Revenue Inflation$ -$ -$ -$ -$ - Total Revenues$ 3,644,190 $ 6,301,251$ 7,054,146$ 7,792,191$ 8,065,728 Expenses Cost of Backhaul Initially $ -$ 180,000$ 180,000$ 180,000$ 180,000 Cost of Additional Backhaul per Gbps $ 56,333$ -$ 70,614 $ 77,656$ 77,656 Annual Growth/Reduction Rate of Cost/Mbps$ -$ (18,000) $ (25,061) $ (25,766)$ (25,766) Software Maintenance$ -$ 20,000 $ 20,000 $ 20,000$ 20,000 Utilities, Power & Environmental$ 10,000$ 10,000 $ 10,000 $ 10,000$ 10,000 Pole Rent$ 19,962$ 19,962 $ 19,962 $ 19,962$ 19,962 Facilities Rent$ 24,000$ 24,000 $ 24,000 $ 24,000$ 24,000 Maintenance materials $ 2,412$ 2,412$ 2,412$ 2,412 $ 2,412 Vehicle repairs/fuel$ 37,333$ 21,669 $ 21,946 $ 22,188$ 19,906 Network Technicians, Service Calls Salaries$ 20,864$ 23,509 $ 26,154 $ 28,762$ 28,762 Network Technicians, Installations Salaries$ 173,867$ 22,040 $ 22,040 $ 21,733$ - Maintenance Technicians Salaries$ 201,025$ 201,025$ 201,025$ 201,025$ 201,025 Network Technician Supervisors$ 88,888$ 51,592 $ 52,253 $ 52,829$ 47,395 Salary, Administrator$ 90,000$ 90,000 $ 90,000 $ 90,000$ 90,000 Payroll Taxes and Benefits$ 219,514$ 148,279$ 149,542$ 150,641$ 140,263 Outsourcing Network Maintenance$ -$ -$ -$ -$ - O&M Fees from IRUs$ -$ -$ -$ -$ - Sales Churn, percent of Total Revenue$ 73,620$ 127,298$ 142,508$ 157,418$ 162,944 Marketing and Sales Expense, percent of Total Revenue$ 110,430$ 190,947$ 213,762$ 236,127$ 244,416 Customer Care$ 20,864$ 23,509 $ 26,154 $ 28,762$ 28,762 0 $ -$ -$ -$ -$ - Total Expenses$ 1,149,111 $ 1,138,241$ 1,247,311$ 1,297,749$ 1,271,738 EBITDA$ 2,495,079 $ 5,163,010$ 5,806,835$ 6,494,442$ 6,793,990 72 NEO Fiber Draft Deliverable Stronger EBITDA numbers are achieved; and principal and interest payments can be made. (Depreciation expense does not impact cashflow.) 20162017201820192020 Forecast Project Period Year 1Year 2Year 3Year 4Year 5 Depreciation$ 1,427,095 $ 1,560,942$ 1,694,987$ 1,826,927$ 1,841,146 Amortization$ -$ -$ -$ - $ - Earnings Before Interest and Taxes$ 1,067,984 $ 3,602,068$ 4,111,848$ 4,667,515$ 4,952,845 Interest Expense - New Debt$ 1,440,283 $ 1,418,393$ 1,395,384$ 1,371,196$ 1,345,772 Interest Expense - Existing Debt$ -$ -$ -$ - $ - Interest Expense - Other$ -$ -$ -$ - $ - Income Before Taxes$ (372,299)$ 2,183,674$ 2,716,464$ 3,296,318$ 3,607,073 Property Tax$ -$ -$ -$ - $ - Income Taxes$ -$ -$ -$ - $ - Net Income$ (372,299)$ 2,183,674$ 2,716,464$ 3,296,318$ 3,607,073 A stronger debt coverage ratio is achieved: 1. Debt service constant on outstanding debt; target over 200% after Year 5. 2016201720182019202020212022202320242025 YEARYEARYEARYEARYEARYEARYEARYEARYEARYEAR 12345678910 OPERATIONS Net Cash Flow from Operations$ 2,495,079 $ 5,163,010$ 5,806,835 $ 6,494,442$ 6,793,990 $ 6,793,614$ 6,793,614$ 6,793,614 $ 6,793,614$ 6,793,614 Debt Service Interest$ 1,440,283 $ 1,418,393$ 1,395,384 $ 1,371,196$ 1,345,772 $ 1,319,047$ 1,290,954$ 1,261,424 $ 1,230,383$ 1,197,755 Principal Payment$ 393,011 $ 449,746$ 472,756 $ 496,943$ 522,367 $ 549,093$ 577,185$ 606,715 $ 637,756$ 670,385 Additional Principal Payment$ -$ - $ -$ -$ - $ -$ - $ - Net Cash Flow $ 661,785 $ 3,294,870$ 3,938,696 $ 4,626,303$ 4,925,851 $ 4,925,475$ 4,925,475$ 4,925,475 $ 4,925,475$ 4,925,475 Cumulative Cash Flow$ 661,785 $ 3,956,655$ 7,895,351 $ 12,521,654$ 17,447,504 $ 22,372,979$ 27,298,454$ 32,223,929 $ 37,149,404$ 42,074,879 Debt Service Constant on Outstanding Debt 280%310%343%361%365%368% Stabilized annual cash flows or EBITDA are $6.7 Million and it has an IRR of 16%. 3. Retail Model #3, Tap Fee and $70 per month Residential Service 73 NEO Fiber Draft Deliverable Retail Model #3, Tap Fee and $70/month Income Statement 20162017201820192020 Forecast Project Period Year 1Year 2Year 3Year 4Year 5 Revenues Service Revenues Total Anchor$ 40,400$ 84,900 $ 117,300$ 134,500$ 137,600 Total Residential, Build 1$ 218,000$ 376,000$ 419,600$ 463,200$ 479,600 Total Residential, Build 2$ 99,300$ 171,400$ 191,200$ 211,000$ 218,400 Total Residential, Build 3$ 1,165,300 $ 2,010,100$ 2,243,100$ 2,476,200$ 2,563,600 Total Residential, Build 4$ 432,800$ 746,600$ 833,200$ 919,600$ 952,000 Total Businesses$ 1,041,200 $ 1,795,900$ 2,004,200$ 2,212,500$ 2,290,800 Tap Fee or Installation Fee - Residential (one time) $ 262,200$ 36,450 $ 36,450 $ 32,775$ - Tap Fee or Installation Fee - Business (one time) $ 1,824,200 $ 228,025$ 228,025$ 228,025$ - Utility Fee (monthly) $ - $ - $ - $ - $ - Total Revenues$ 5,083,400 $ 5,449,375$ 6,073,075$ 6,677,800$ 6,642,000 $ -$ -$ -$ -$ - Uncollectable Revenues$ (50,834)$ (54,494) $ (60,731) $ (66,778)$ (66,420) SubTotal Revenues$ 5,032,566 $ 5,394,881$ 6,012,344$ 6,611,022$ 6,575,580 Revenue Inflation$ -$ -$ -$ -$ - Total Revenues$ 5,032,566 $ 5,394,881$ 6,012,344$ 6,611,022$ 6,575,580 Expenses Cost of Backhaul Initially $ -$ 180,000$ 180,000$ 180,000$ 180,000 Cost of Additional Backhaul per Gbps $ 56,333$ -$ 70,614 $ 77,656$ 77,656 Annual Growth/Reduction Rate of Cost/Mbps$ -$ (18,000) $ (25,061) $ (25,766)$ (25,766) Software Maintenance$ -$ 20,000 $ 20,000 $ 20,000$ 20,000 Utilities, Power & Environmental$ 10,000$ 10,000 $ 10,000 $ 10,000$ 10,000 Pole Rent$ 19,962$ 19,962 $ 19,962 $ 19,962$ 19,962 Facilities Rent$ 24,000$ 24,000 $ 24,000 $ 24,000$ 24,000 Maintenance materials $ 2,412$ 2,412$ 2,412$ 2,412 $ 2,412 Vehicle repairs/fuel$ 37,333$ 21,669 $ 21,946 $ 22,188$ 19,906 Network Technicians, Service Calls Salaries$ 20,864$ 23,509 $ 26,154 $ 28,762$ 28,762 Network Technicians, Installations Salaries$ 173,867$ 22,040 $ 22,040 $ 21,733$ - Maintenance Technicians Salaries$ 201,025$ 201,025$ 201,025$ 201,025$ 201,025 Network Technician Supervisors$ 88,888$ 51,592 $ 52,253 $ 52,829$ 47,395 Salary, Administrator$ 90,000$ 90,000 $ 90,000 $ 90,000$ 90,000 Payroll Taxes and Benefits$ 219,514$ 148,279$ 149,542$ 150,641$ 140,263 Outsourcing Network Maintenance$ -$ -$ -$ -$ - O&M Fees from IRUs$ -$ -$ -$ -$ - Sales Churn, percent of Total Revenue$ 101,668$ 108,988$ 121,462$ 133,556$ 132,840 Marketing and Sales Expense, percent of Total Revenue$ 152,502$ 163,481$ 182,192$ 200,334$ 199,260 Customer Care$ 20,864$ 23,509 $ 26,154 $ 28,762$ 28,762 0 $ -$ -$ -$ -$ - Total Expenses$ 1,219,231 $ 1,092,465$ 1,194,694$ 1,238,094$ 1,196,478 EBITDA$ 3,813,335 $ 4,302,416$ 4,817,650$ 5,372,928$ 5,379,102 74 NEO Fiber Draft Deliverable 20162017201820192020 Forecast Project Period Year 1Year 2Year 3Year 4Year 5 Depreciation$ 1,427,095 $ 1,560,942$ 1,694,987$ 1,826,927$ 1,841,146 Amortization$ -$ -$ -$ - $ - Earnings Before Interest and Taxes$ 2,386,240 $ 2,741,474$ 3,122,662$ 3,546,001$ 3,537,957 Interest Expense - New Debt$ 1,440,283 $ 1,418,393$ 1,395,384$ 1,371,196$ 1,345,772 Interest Expense - Existing Debt$ -$ -$ -$ - $ - Interest Expense - Other$ -$ -$ -$ - $ - Income Before Taxes$ 945,957$ 1,323,081$ 1,727,279$ 2,174,804$ 2,192,185 Property Tax$ -$ -$ -$ - $ - Income Taxes$ -$ -$ -$ - $ - Net Income$ 945,957$ 1,323,081$ 1,727,279$ 2,174,804$ 2,192,185 Debt service constant is 286% in year 5. Stabilized annual cash flows or EBITDA are $5.3 Million and it has an IRR of 12%. 4. Retail Model #4, Tap Fee and $95 per month for Residential Service Debt service constant is 361% in year 5. Below is the projected income statement for this model. 75 NEO Fiber Draft Deliverable Retail Model #4, Tap Fee and $95/month Income Statement 20162017201820192020 Forecast Project Period Year 1Year 2Year 3Year 4Year 5 Revenues Service Revenues Total Anchor$ 40,400$ 84,900 $ 117,300$ 134,500$ 137,600 Total Residential, Build 1$ 295,800$ 510,200$ 569,400$ 628,600$ 650,800 Total Residential, Build 2$ 134,800$ 232,600$ 259,400$ 286,500$ 296,400 Total Residential, Build 3$ 1,581,400 $ 2,728,100$ 3,044,300$ 3,360,600$ 3,479,200 Total Residential, Build 4$ 587,400$ 1,013,200$ 1,130,800$ 1,248,200$ 1,292,400 Total Businesses$ 1,041,200 $ 1,795,900$ 2,004,200$ 2,212,500$ 2,290,800 Tap Fee or Installation Fee - Residential (one time) $ 262,200$ 36,450 $ 36,450 $ 32,775$ - Tap Fee or Installation Fee - Business (one time) $ 1,824,200 $ 228,025$ 228,025$ 228,025$ - Utility Fee (monthly) $ - $ - $ - $ - $ - Total Revenues$ 5,767,400 $ 6,629,375$ 7,389,875$ 8,131,700$ 8,147,200 $ -$ -$ -$ -$ - Uncollectable Revenues$ (57,674)$ (66,294) $ (73,899) $ (81,317)$ (81,472) SubTotal Revenues$ 5,709,726 $ 6,563,081$ 7,315,976$ 8,050,383$ 8,065,728 Revenue Inflation$ -$ -$ -$ -$ - Total Revenues$ 5,709,726 $ 6,563,081$ 7,315,976$ 8,050,383$ 8,065,728 Expenses Cost of Backhaul Initially $ -$ 180,000$ 180,000$ 180,000$ 180,000 Cost of Additional Backhaul per Gbps $ 56,333$ -$ 70,614 $ 77,656$ 77,656 Annual Growth/Reduction Rate of Cost/Mbps$ -$ (18,000) $ (25,061) $ (25,766)$ (25,766) Software Maintenance$ -$ 20,000 $ 20,000 $ 20,000$ 20,000 Utilities, Power & Environmental$ 10,000$ 10,000 $ 10,000 $ 10,000$ 10,000 Pole Rent$ 19,962$ 19,962 $ 19,962 $ 19,962$ 19,962 Facilities Rent$ 24,000$ 24,000 $ 24,000 $ 24,000$ 24,000 Maintenance materials $ 2,412$ 2,412$ 2,412$ 2,412 $ 2,412 Vehicle repairs/fuel$ 37,333$ 21,669 $ 21,946 $ 22,188$ 19,906 Network Technicians, Service Calls Salaries$ 20,864$ 23,509 $ 26,154 $ 28,762$ 28,762 Network Technicians, Installations Salaries$ 173,867$ 22,040 $ 22,040 $ 21,733$ - Maintenance Technicians Salaries$ 201,025$ 201,025$ 201,025$ 201,025$ 201,025 Network Technician Supervisors$ 88,888$ 51,592 $ 52,253 $ 52,829$ 47,395 Salary, Administrator$ 90,000$ 90,000 $ 90,000 $ 90,000$ 90,000 Payroll Taxes and Benefits$ 219,514$ 148,279$ 149,542$ 150,641$ 140,263 Outsourcing Network Maintenance$ -$ -$ -$ -$ - O&M Fees from IRUs$ -$ -$ -$ -$ - Sales Churn, percent of Total Revenue$ 115,348$ 132,588$ 147,798$ 162,634$ 162,944 Marketing and Sales Expense, percent of Total Revenue$ 173,022$ 198,881$ 221,696$ 243,951$ 244,416 Customer Care$ 20,864$ 23,509 $ 26,154 $ 28,762$ 28,762 0 $ -$ -$ -$ -$ - Total Expenses$ 1,253,431 $ 1,151,465$ 1,260,534$ 1,310,789$ 1,271,738 EBITDA$ 4,456,295 $ 5,411,616$ 6,055,442$ 6,739,594$ 6,793,990 76 NEO Fiber Draft Deliverable 20162017201820192020 Forecast Project Period Year 1Year 2Year 3Year 4Year 5 Depreciation$ 1,427,095 $ 1,560,942$ 1,694,987$ 1,826,927$ 1,841,146 Amortization$ -$ -$ -$ - $ - Earnings Before Interest and Taxes$ 3,029,200 $ 3,850,674$ 4,360,454$ 4,912,667$ 4,952,845 Interest Expense - New Debt$ 1,440,283 $ 1,418,393$ 1,395,384$ 1,371,196$ 1,345,772 Interest Expense - Existing Debt$ -$ -$ -$ - $ - Interest Expense - Other$ -$ -$ -$ - $ - Income Before Taxes$ 1,588,917 $ 2,432,281$ 2,965,071$ 3,541,470$ 3,607,073 Property Tax$ -$ -$ -$ - $ - Income Taxes$ -$ -$ -$ - $ - Net Income$ 1,588,917 $ 2,432,281$ 2,965,071$ 3,541,470$ 3,607,073 Stabilized annual cash flows or EBITDA are $6.7 Million and it has an IRR of 19%. 5. Retail Model #5, Utility Fee, $70 per month Residential Service 77 NEO Fiber Draft Deliverable Retail Model #5, Utility Fee and $70/month Income Statement 20162017201820192020 Forecast Project Period Year 1Year 2Year 3Year 4Year 5 Revenues Service Revenues Total Anchor$ 40,400$ 84,900 $ 117,300$ 134,500$ 137,600 Total Residential, Build 1$ 218,000$ 376,000$ 419,600$ 463,200$ 479,600 Total Residential, Build 2$ 99,300$ 171,400$ 191,200$ 211,000$ 218,400 Total Residential, Build 3$ 1,165,300 $ 2,010,100$ 2,243,100$ 2,476,200$ 2,563,600 Total Residential, Build 4$ 432,800$ 746,600$ 833,200$ 919,600$ 952,000 Total Businesses$ 1,041,200 $ 1,795,900$ 2,004,200$ 2,212,500$ 2,290,800 Tap Fee or Installation Fee - Residential (one time) $ -$ -$ -$ -$ - Tap Fee or Installation Fee - Business (one time) $ -$ -$ -$ -$ - Utility Fee (monthly) $ 625,920 $ 625,920 $ 625,920 $ 625,920 $ 625,920 Total Revenues$ 3,622,920 $ 5,810,820$ 6,434,520$ 7,042,920$ 7,267,920 $ -$ -$ -$ -$ - Uncollectable Revenues$ (36,229)$ (58,108) $ (64,345) $ (70,429)$ (72,679) SubTotal Revenues$ 3,586,691 $ 5,752,712$ 6,370,175$ 6,972,491$ 7,195,241 Revenue Inflation$ -$ -$ -$ -$ - Total Revenues$ 3,586,691 $ 5,752,712$ 6,370,175$ 6,972,491$ 7,195,241 Expenses Cost of Backhaul Initially $ -$ 180,000$ 180,000$ 180,000$ 180,000 Cost of Additional Backhaul per Gbps $ 56,333$ -$ 70,614 $ 77,656$ 77,656 Annual Growth/Reduction Rate of Cost/Mbps$ -$ (18,000) $ (25,061) $ (25,766)$ (25,766) Software Maintenance$ -$ 20,000 $ 20,000 $ 20,000$ 20,000 Utilities, Power & Environmental$ 10,000$ 10,000 $ 10,000 $ 10,000$ 10,000 Pole Rent$ 19,962$ 19,962 $ 19,962 $ 19,962$ 19,962 Facilities Rent$ 24,000$ 24,000 $ 24,000 $ 24,000$ 24,000 Maintenance materials $ 2,412$ 2,412$ 2,412$ 2,412 $ 2,412 Vehicle repairs/fuel$ 37,333$ 21,669 $ 21,946 $ 22,188$ 19,906 Network Technicians, Service Calls Salaries$ 20,864$ 23,509 $ 26,154 $ 28,762$ 28,762 Network Technicians, Installations Salaries$ 173,867$ 22,040 $ 22,040 $ 21,733$ - Maintenance Technicians Salaries$ 201,025$ 201,025$ 201,025$ 201,025$ 201,025 Network Technician Supervisors$ 88,888$ 51,592 $ 52,253 $ 52,829$ 47,395 Salary, Administrator$ 90,000$ 90,000 $ 90,000 $ 90,000$ 90,000 Payroll Taxes and Benefits$ 219,514$ 148,279$ 149,542$ 150,641$ 140,263 Outsourcing Network Maintenance$ -$ -$ -$ -$ - O&M Fees from IRUs$ -$ -$ -$ -$ - Sales Churn, percent of Total Revenue$ 72,458$ 116,216$ 128,690$ 140,858$ 145,358 Marketing and Sales Expense, percent of Total Revenue$ 108,688$ 174,325$ 193,036$ 211,288$ 218,038 Customer Care$ 20,864$ 23,509 $ 26,154 $ 28,762$ 28,762 0 $ -$ -$ -$ -$ - Total Expenses$ 1,146,207 $ 1,110,537$ 1,212,767$ 1,256,350$ 1,227,774 EBITDA$ 2,440,484 $ 4,642,174$ 5,157,408$ 5,716,141$ 5,967,467 78 NEO Fiber Draft Deliverable 20162017201820192020 Forecast Project Period Year 1Year 2Year 3Year 4Year 5 Depreciation$ 1,427,095 $ 1,560,942$ 1,694,987$ 1,826,927$ 1,841,146 Amortization$ -$ -$ -$ - $ - Earnings Before Interest and Taxes$ 1,013,389 $ 3,081,232$ 3,462,421$ 3,889,214$ 4,126,321 Interest Expense - New Debt$ 1,440,283 $ 1,418,393$ 1,395,384$ 1,371,196$ 1,345,772 Interest Expense - Existing Debt$ -$ -$ -$ - $ - Interest Expense - Other$ -$ -$ -$ - $ - Income Before Taxes$ (426,894)$ 1,662,839$ 2,067,037$ 2,518,017$ 2,780,550 Property Tax$ -$ -$ -$ - $ - Income Taxes$ -$ -$ -$ - $ - Net Income$ (426,894)$ 1,662,839$ 2,067,037$ 2,518,017$ 2,780,550 Debt service constant is 317% in year 5. Stabilized annual cash flows or EBITDA are $5.9M and it has an IRR of 13%. 6. Retail Model #6, Utility Fee and $95 per month for Residential Service Debt service constant is 393% in year 5. Stabilized annual cash flows or EBITDA are $7.3M and it has an IRR of 20%. 79 NEO Fiber Draft Deliverable Retail Model #6, Utility Fee and $95/month Income Statement 20162017201820192020 Forecast Project Period Year 1Year 2Year 3Year 4Year 5 Revenues Service Revenues Total Anchor$ 40,400$ 84,900 $ 117,300$ 134,500$ 137,600 Total Residential, Build 1$ 295,800$ 510,200$ 569,400$ 628,600$ 650,800 Total Residential, Build 2$ 134,800$ 232,600$ 259,400$ 286,500$ 296,400 Total Residential, Build 3$ 1,581,400 $ 2,728,100$ 3,044,300$ 3,360,600$ 3,479,200 Total Residential, Build 4$ 587,400$ 1,013,200$ 1,130,800$ 1,248,200$ 1,292,400 Total Businesses$ 1,041,200 $ 1,795,900$ 2,004,200$ 2,212,500$ 2,290,800 Tap Fee or Installation Fee - Residential (one time) $ -$ -$ -$ -$ - Tap Fee or Installation Fee - Business (one time) $ -$ -$ -$ -$ - Utility Fee (monthly) $ 625,920 $ 625,920 $ 625,920 $ 625,920 $ 625,920 Total Revenues$ 4,306,920 $ 6,990,820$ 7,751,320$ 8,496,820$ 8,773,120 $ -$ -$ -$ -$ - Uncollectable Revenues$ (43,069)$ (69,908) $ (77,513) $ (84,968)$ (87,731) SubTotal Revenues$ 4,263,851 $ 6,920,912$ 7,673,807$ 8,411,852$ 8,685,389 Revenue Inflation$ -$ -$ -$ -$ - Total Revenues$ 4,263,851 $ 6,920,912$ 7,673,807$ 8,411,852$ 8,685,389 Expenses Cost of Backhaul Initially $ -$ 180,000$ 180,000$ 180,000$ 180,000 Cost of Additional Backhaul per Gbps $ 56,333$ -$ 70,614 $ 77,656$ 77,656 Annual Growth/Reduction Rate of Cost/Mbps$ -$ (18,000) $ (25,061) $ (25,766)$ (25,766) Software Maintenance$ -$ 20,000 $ 20,000 $ 20,000$ 20,000 Utilities, Power & Environmental$ 10,000$ 10,000 $ 10,000 $ 10,000$ 10,000 Pole Rent$ 19,962$ 19,962 $ 19,962 $ 19,962$ 19,962 Facilities Rent$ 24,000$ 24,000 $ 24,000 $ 24,000$ 24,000 Maintenance materials $ 2,412$ 2,412$ 2,412$ 2,412 $ 2,412 Vehicle repairs/fuel$ 37,333$ 21,669 $ 21,946 $ 22,188$ 19,906 Network Technicians, Service Calls Salaries$ 20,864$ 23,509 $ 26,154 $ 28,762$ 28,762 Network Technicians, Installations Salaries$ 173,867$ 22,040 $ 22,040 $ 21,733$ - Maintenance Technicians Salaries$ 201,025$ 201,025$ 201,025$ 201,025$ 201,025 Network Technician Supervisors$ 88,888$ 51,592 $ 52,253 $ 52,829$ 47,395 Salary, Administrator$ 90,000$ 90,000 $ 90,000 $ 90,000$ 90,000 Payroll Taxes and Benefits$ 219,514$ 148,279$ 149,542$ 150,641$ 140,263 Outsourcing Network Maintenance$ -$ -$ -$ -$ - O&M Fees from IRUs$ -$ -$ -$ -$ - Sales Churn, percent of Total Revenue$ 86,138$ 139,816$ 155,026$ 169,936$ 175,462 Marketing and Sales Expense, percent of Total Revenue$ 129,208$ 209,725$ 232,540$ 254,905$ 263,194 Customer Care$ 20,864$ 23,509 $ 26,154 $ 28,762$ 28,762 0 $ -$ -$ -$ -$ - Total Expenses$ 1,180,407 $ 1,169,537$ 1,278,607$ 1,329,045$ 1,303,034 EBITDA$ 3,083,444 $ 5,751,374$ 6,395,200$ 7,082,807$ 7,382,355 80 NEO Fiber Draft Deliverable 20162017201820192020 Forecast Project Period Year 1Year 2Year 3Year 4Year 5 Depreciation$ 1,427,095 $ 1,560,942$ 1,694,987$ 1,826,927$ 1,841,146 Amortization$ -$ -$ -$ - $ - Earnings Before Interest and Taxes$ 1,656,349 $ 4,190,432$ 4,700,213$ 5,255,880$ 5,541,209 Interest Expense - New Debt$ 1,440,283 $ 1,418,393$ 1,395,384$ 1,371,196$ 1,345,772 Interest Expense - Existing Debt$ -$ -$ -$ - $ - Interest Expense - Other$ -$ -$ -$ - $ - Income Before Taxes$ 216,066$ 2,772,039$ 3,304,829$ 3,884,683$ 4,195,438 Property Tax$ -$ -$ -$ - $ - Income Taxes$ -$ -$ -$ - $ - Net Income$ 216,066$ 2,772,039$ 3,304,829$ 3,884,683$ 4,195,438 81 NEO Fiber Draft Deliverable 10. Benefits of Advanced Broadband Networks and Why This Matters, Abundant Broadband is a Necessity for Economic Vitality The following section is taken from a white paper written by NEO Fiber. The information is relative to Estes Park in understanding the applications and trends in broadband services. This section discusses the community benefits of advanced broadband networks and provides the context of why building Gigabit-enabled networks are important. 3³¨¬´« ³¤ %¢®®¬¨¢ '±®¶³§. Many municipalities across the country are deploying next-generation, high-bandwidth telecommunications networks as a means of stimulating economic growth and development. Our world is changing; and it is doing so rapidly. Technology is impacting every part and parcel of our lives -- from where and how we conduct work, to whether or not we thrive economically and socially. It has impacted the way we live, our entertainment, our culture, the way government services are provided and accessed, the way healthcare is being delivered, and the way we educate our children and provide education to better improve our workforce. With the introduction and accelerated advancement of technologies, having access to affordable, redundant and abundant broadband is quickly becoming the most critical infrastructure of our ability globally, create new technologies, increase enhance public safety, provide better and less expensive healthcare, and provide greater educational opportunities throughout our community. In a recent meeting/webinar and report 7 produced by Brookings in May of this year, fiber was added as a critical infrastructure. Advanced broadband networks are creating seismic changes in local, state, national and global societies, as well as markets, business and in institutions around the world. Access to social media and the Internet has shifted governments, threatened national and local boundaries, inspired revolutions, and has changed us culturally. The Internet and its associated technologies have impacted wealth, work, education, government, health, public safety, and 7 Joseph Kane and Robert Puentes, "Beyond Shovel Ready: The Extent and Impact of U.S. Infrastructure Jobs," Brookings Institution, (May, 2014) available at http://www.brookings.edu/research/interactives/2014/infrastructure-jobs#/M10420 82 NEO Fiber Draft Deliverable education. Having equal access to advanced broadband networks bridges the digital divide and creates better equality between the haves and the have-nots. Like the introduction of electricity, advanced broadband networks are fundamentally changing our world in ways that were not expected or anticipated. Much like electricity, advanced broadband networks are the enabling technology in which all things are impacted. Electricity was invented to turn on the lights, but empowered literally, the transformation to an industrial society. Advanced broadband networks are now the enabling technology to transform us yet again, to a global technology and information society; the new Knowledge Economy. (See Captive Audience by Susan Crawford). Just as it was impossible to know in advance the impact that electrification would provide the critical infrastructure to power all of our modern appliances, computers, health monitoring systems, manufacturing facilities, computers, radio and television, and financial markets; so too, is it impossible to predict the impact and reach of advanced broadband networks. We do not yet know the far reaching impacts that the Internet will have on our lives and on generations to come. However, it is certain that NOT having access to advanced broadband networks would be equivalent to being in the dark without electricity! The incumbent providers of phone service, Internet and cable TV services are not building best- in-class broadband networks fast enough. The model by which these services are being provided needs to shift dramatically to enable faster deployment of advanced services, affordable broadband and abundant capacity to support our current and future needs for bandwidth. 3¯¤¤£ - ³³¤±²ȁ Global network traffic has quadrupled from 2009 to 2014. Both commercial and residential Internet bandwidth consumption are doubling every year. Bandwidth refers to the capacity, or speed of the networks to carry traffic. The question is often Federal Communications Commission (FCC) has proposed in the National Broadband Plan that 8 (from the consumer into the network) by 2015. Given the growth trends in bandwidth needs 8 Federal Communications Commission, Connecting America: The National Broadband Plan (Mar. 17, 2010). Available at http://transition.fcc.gov/national-broadband-plan/national-broadband-plan.pdf 83 NEO Fiber Draft Deliverable and network traffic, this definition is conservative and barely meets the minimum needs for bandwidth consumption today and certainly does not address the needs that are forthcoming. In the early days of the Internet, text messaging, email and web sites were not data-rich or bandwidth intensive and the average consumer did not need more than 7 Mbps of bandwidth. When YouTube burst upon the scene in 2005, this dramatically changed things. One video download was the equivalent of downloading 30,000 web pages. Since that time, videos and picture-rich content have been downloaded and uploaded on a regular basis by the masses. The applications we use on the Internet are becoming much more feature-rich and bandwidth intensive and our existing networks cannot keep up with the demand for networks that support these applications. The Fiber to the Home Council (FTTH) stated its position clearly in a brief to the FCC. today, with most users still operating on last-generation broadband technologies, the capabilities of advanced video, cloud-based services, and other bandwidth-intensive applications are growing at a pace beyond what our existing networks are capable. Cisco and other scientific companies tal 9 . According to the Cisco 2012 Zettabyte Report, businesses today 10 Also referenced in the Cisco 2012 Zettabyte Report, global Internet traffic grew 45 percent during 2009 alone and has doubled every year since then. Both commercial and residential Internet bandwidth consumption are doubling every year, as video, cloud computing, advanced storage solutions, telemedicine, telecommuting, video conferencing, etc., are becoming more prevalent from end users. Applications are becoming more bandwidth intensive and as more devices tablets, Smartphones, computers, appliances are being used both in the home and for business applications. Research conducted by Cisco states by 2016, there will be nearly three Internet Protocol or IP-connected devices per person. Internet- connected televisions, radios, set-top boxes, Blu-ray players, Netflix, cameras and picture frames now receive or deliver movies, TV and photos through the Internet. According to FTTH's the Internet has been equivalent to 32 million people streaming Avatar in 3D, continuously for 50 percent of all Internet 9 Rulemaking to Establish a Gigabit Communities Race-to-the- 10 The Zettabyte Era 2012). 84 NEO FiberDraft Deliverable traffic. In the coming years, the sum of all forms of Internet Protocol (IP)video (Internet video, video on demand, video files exchanged through file sharing,video-streamed gaming, and videoconferencing) will reach 86 percent of the total Internet traffic. Applications supported by cloud-based services through multiple devices have created the need for always-on connectivity and advanced broadband network bandwidth. Table 1, Applications and their Needed Bandwidth While Internet bandwidth use is doubling, cellular networks are also greatly overextended. In addition to explosive growth in Internet consumption from homes and businesses, mobile Internet use has also advanced dramatically. Smartphone applications are spurring higher consumption of multimedia services. With tablet computers and smartphones having easy access to games, e-books, TV programs, email, shopping, banking and social media sites, wireless service providers have been scrambling to upgrade their networks. The need for advanced broadband connectivity must include both a consideration for fiber, connecting our businesses, offices and establishments, homes; as well as wireless and cellular, allowing for mobile and portable access as we travel, move about and commute. 85 NEO Fiber Draft Deliverable #®¬¬´¨³¸ /´³±¤ ¢§ £ 3´¯¯®±³ȁ All-Fiber networks are imperative, critical and necessary to stimulate economic development and growth. Municipalities, communities and regions that want to st impact economic development must build 21 Century infrastructure. Municipalities, communities and regions that have deployed all-fiber networks have already seen the tremendous economic impact of building symmetrical gigabit networks. These communities have fostered an environment of innovation, economic development and growth, collaboration, and creative activities. According to a 2012 survey of economic development professionals, 60 percent said that 1 Gigabit of service had a "definite impact" on new businesses that moved to an area (see Table 2). As having access to advanced broadband services is the number one priority for large businesses as they are looking for commercial real estate, the communities that have built gigabit-enabled fiber networks have already benefited economically by attracting businesses and industries to re-locate to their communities. 86 NEO Fiber Draft Deliverable 11 Table 1F After Chattanooga deployed their Gigabit network, the city attracted numerous high-tech firms, and entrepreneurs to relocate their company facilities, including Amazon, Alstom, and Volkswagen amongst others. Several venture capital firms were established in Chattanooga after their Fiber to the Home network was built because this fostered a business climate that was perfect for innovation and creativity. When surveyed, 42 percent of economic development professionals claimed that 1 Gigabit of service actually attracts new businesses to an area (see Table 3). Since building its gigabit network, Chattanooga has created over 7,000 new jobs and 12 11 Craig Settles, Building the Gigabit City, (e-book). Available at http://portal.calix.com/portal/calixdocs/mktg/w/gig/Building_the_Gigabit_City.pdf 12 http://www.thegigcity.com/gigtank/ 87 NEO Fiber Draft Deliverable 13 Table 2Broadband's impact on economic outcomes from the perspective of speed. In 2012, the Chattanooga Electric Power Board (EPB) established GigTank, an application- incubation facility. The goal of GigTank is to build applications to utilize the capabilities of living, metro-wide fiber optic network. Hosted by the Company Lab, this annual program attracts entrepreneurs from across the g widely-available gigabit Internet service. With Internet speeds that run 100x faster than the national average, Chattanooga offers entrepreneurs the opportunity to innovate on the broadband platform of the -up tracks accelerating seed stage startups in the additive manufacturing (3D printing), smart grid and healthcare industries by connecting these new companies with the tools, capital and connections to go to market. 13 Settles, Building the Gigabit City. 88 NEO Fiber Draft Deliverable Chattanooga itself has experienced great success with its smart grid system that is running on -fiber network. The smart-grid system promotes energy efficiency throughout the umption, load balancing and power substations. It allows the electric system to re-route around failures and downed power lines in storms and outages, restoring services within minutes. Prior to the smart-grid system implementation, typical outages may have lasted four to five hours and many neighborhoods Today, with the new smart-grid system in place over the all-fiber network, EPB can restore service in minutes. improved operations has paid for the cost of deploying the Fiber to the entire community 14 system. -ready 15 applications through the US Ignite Partnership. US Ignite is a non-profit, public-private organization that is supported by the White House Office of Science and Technology and the National Science Foundation. US Ignite is focusing on creating applications in the following disciplines of national priority: Education and Workforce Energy Health Public Safety Transportation Advanced Manufacturing In addition to creating transformative applications, US Ignite connects people and resources, coordinates test beds, provides efforts towards scalability and providing these applications to the masses, informs the public and takes these applications to market. One cutting-edge application being developed by researchers at the University of Massachusetts, and supported CASA uses predictive storm- n of severe weather events. These applications, as well as all of the other applications developed by US Ignite, are only possible with having access to a minimum of 100 Mbps of bandwidth. US Ignite is participating 14 Mike Smalley, "Broadband and the Smart Grid," (2008) available at http://www.carinatek.com/PDFs/BBP_AugSep08_SmartGrid.pdf 15 US Ignite, available at https://us-ignite.org/about/what-is-us-ignite/ 89 NEO Fiber Draft Deliverable with municipalities and communities that have built out fiber networks and are offering this type of bandwidth to their constituents. Kansas City offers another example. When Google issued a to host gigabit test-beds and have Google build within their city, over 16 one thousand communities across the country submitted applications. Google selected the bi- state Kansas City metropolitan region. Kansas City has already seen an uptake in new high- tech start- efforts. Through Homes for Hackers and the Kansas City Startup Village, entrepreneurs have built a community of innovators enticed by the 17 possibilities presented by the Google Fiber network. A prominent venture capitalist has even purchased a home in a City and build gigabit-ready applications. High-tech companies recognize the benefits of these networks and are willing to relocate just to have access to them. l-out of gigabit services in Kansas City, it has made plans to build Fiber to the Home in Austin and has recently purchased an existing system in Provo, Utah. Google last year announced plans to build FTTH in 34 municipalities across the country upon cooperation and attainment of a checklist put out by Google. Other communities that have built fiber networks have shown economic growth by attracting manufacturing, high-tech and technology companies in large part because of their investment in all-fiber networks. These include: Municipal FTTH New Companies, due in part, to Networks All Fiber Infrastructure Auburn, IN Cooper Tire Expansion Bristol, TN Media General Bristol, VA Northup Grumman CGI Chelan County, WA Yahoo Douglas County, WA Sabey Corporation Grant County, WA MSN (Microsoft) 16 Topeka, Kansas, even changed their name to Google in hopes of being selected as the test-bed. 17 Kansas City Startup Village, available at http://www.kcstartupvillage.org; and Homes for Hackers, available at http://homesforhackers.com. 90 NEO Fiber Draft Deliverable Ask Jeeves Intuit Independence, OR Metal fabrication companies Kutztown, PA Film production companies LENOSIWSCO, VA Data Centers Mason County, WA Louisville Slugger Sims Technology companies Online engineering firms Morristown, TN Cogate Palmolive Alpine Access Virtual Call Powell, WY Center These communities understand that symmetrical gigabit networks are essential for economic development and innovation. 4¤«¤¢®¬¬´³¨¦ /¯¯®±³´¨³¨¤² The number of people working from home or telecommuting has increased enormously in the past few years and will increase exponentially in the future. According to a study conducted by 18 the Global Workplace Analytics, telework grew nearly 80% from 2005 to 2012. In 2010, based on its own limited survey, WorldatWork estimated that 16 million employees worked at home at least one day a month, a number that increased almost 62% between 2005 and 2010. Extrapolating from 2010 to 2014 would put the current number of those who telecommute at least one day a month at approximately 25 million. According to the study, in twenty- people now telecommute than use public transportation as their principal means of transportation to work. More importantly, according to Global Workplace Analytics, the estimated based upon the current labor force composition is that 64 million U.S. employees hold a job that is compatible with at least part-time telework (50% of the total workforce). 79% of U.S. workers say they would like to work from home at least part of the time (WorldatWork Telework Trendlines 2009) and 87% of federal employees say they want to work from home (2013 Federal Viewpoint Survey). 18 Global Workplace Analytics Recent Statistics on Telecommuting available at http://www.globalworkplaceanalytics.com/telecommuting-statistics 91 NEO Fiber Draft Deliverable There are significant economic benefits from telecommuting and working from home. desire to work from home did so just half the time (roughly the national average for those who do so regularly) the nata points from the website are: o A typical business would save $11,000 per person per year o The telecommuters would save between $2,000 and $7,000 a year o The oil savings would equate to over 37% of our Persian Gulf imports o The greenhouse gas reduction would be the equivalent of taking the entire New York State workforce permanently off the road. o -year cost of implementing telework throughout government ($30 million) is less than a third of the cost of lost productivity from a single day shut-down of federal offices in Washington DC due to snow ($100 million). publication, between employees, contractors, vendors and suppliers happens 19 ability to work anywhere there is a high-speed Internet connection, at any time. Providing the ability for people to work from home or from Internet meeting rooms i.e. the local coffee shops, libraries, community centers, co-working spaces, incubator locations or virtual offices -- requires access to advanced broadband services. The benefits and cost savings of telecommuting can only be realized when workers have access to abundant broadband. If work is portable, people will choose communities that are rich in culture, art, entertainment, recreation, educational opportunities for kids and adults and are affordable. Work is no longer tied to place. Communities need to change to attract and maintain this new portable workforce. 19 David Bollier, Aspen 92 NEO Fiber Draft Deliverable : Medical Devices, Health Monitoring Systems, Our Cars, Our Clothes, Household Systems, Appliances, Energy Controls Every good thing out there is connected to the Internet; things include household systems that monitor security systems, locks, energy use, temperature, and water control. It includes appliances that call automatically for maintenance; make shopping lists, schedule events, order parts, and schedule repair -- all without the need for human intervention or oversight. The Internet of Things includes medical devices that monitor our health, detect and alarm us when medical issues are present, clothes that detect glucose levels or heart conditions, and hats that monitor our brain activity. Cars status and performance, notifying drivers of traffic delays, alternative routes, hazardous conditions and mechanical issues. Soon cars will drive themselves. Internet-connected cars will provide anti-collision technology, automatically braking and steering clear of accidents or potential accidents. Our coming and going, our location, customer information and applications will all be collected, stored and monitored. Some of this sounds a bit uncomfortable; however, the reality of all of this is here. Devices are all Internet-enabled. Although we as individuals will need to determine how far and how much data we want to have shared and collected, it is clear that the Internet of Things is only enabled with advanced broadband capacity. !¥¥®±£ ¡«¤ (¤ «³§¢ ±¤: The growing Baby Boomer population and the implementation of the Patient Protection & Affordable Care Act will create new challenges for our healthcare system. The baby boomers are getting older; the largest portion of our population is aging. Concerns of increased healthcare costs with our aging society will need to be curbed by providing better, smarter, more cost-effective healthcare. Implementation of the Patient Protection and Affordable Care Act is placing new demands on the medical industry to become more efficient, cost effective and nimble, demanding that physicians interact with more patients. Telemedicine is the use of information technology including the telephone, the Internet and personal computers, for diagnosing, treating and monitoring patients. Telemedicine is adding a 93 NEO Fiber Draft Deliverable new dimension to modern health care. These advances are not only making care more accessibleand convenient, they are lowering the costs of medical care, while not sacrificing the quality of care, and in many studies, improving the quality of care. Physicians can consult with more patients, and patients can meet with their physicians in a shorter time period. Less time is spent checking the patient in and leading the patient to the exam room. In terms of economic advantages, telemedicine can save a great deal of time for patients who otherwise would have to leave work. Telemedicine can also eliminate many ER visits, which are often the most costly means of providing healthcare services. According to the Wellness Councils of America (WELCOA), as many as 70 percent of primary care visits, and 40 percent of emergency room visits to treat acute medical conditions could 20 have been diagnosed and prescribed medication all over the phone. The methodology of providing care has not changed; however, the medium for providing care has. The physician can perform diagnostic testing, interview the patient, check vital signs, etc. remotely using videoconferencing and remote monitoring equipment, and the telephone or internet; instead of providing these services in person. The American Telemedicine Association highlights various reports on the efficacy, cost savings, 21 improved healthcare and patient benefits of telemedicine. One report highlights the experience of UPMC Health Plan, an integrated delivery and financing system headquartered in Pittsburgh, Pennsylvania, in its efforts to support primary care practices as they converted to patient-centered medical homes. From 2008 through 2010, sites participating in the UPMC pilot achieved lower medical and pharmacy costs; more efficient service delivery, such as lower hospital admissions and readmissions and less use of hospital emergency departments; and a Presbyterian Healthcare Services based in Albuquerque, New Mexico, adapted the Hospital at Home® model developed by the Johns Hopkins University Schools of Medicine and Public Health to provide acute hospital show comparable or better clinical outcomes compared with similar inpatients, and they show higher satisfaction levels. Available to Medicare Advantage and Medicaid patients with common acute care diagnoses, this program achieved savings of 19 percent over costs for similar inpatients. These savings were predominantly derived from lower average length-of- 20 Wellness Council of America, "Collecting Data to Drive Health Efforts," available at https://www.welcoa.org/resources/collecting-data-drive-health-efforts-classic-edition/ 21 American Telemedicine Association, numerous case studies available at http://www.americantelemed.org/about-telemedicine/telemedicine-case-studies 94 NEO Fiber Draft Deliverable stay and use of fewer lab and diagnostic tests compared with similar patients in hospital acute care. Additionally, patients that are participating in a home health program or telemedicine program experience higher satisfaction as they receive more personal one-on-one care, without taking time from work to travel to a medical clinic and wait for their appointment with the doctor. The source of satisfaction for most patients is the ability to see a specialist trained in the area most closely related to the patien provider in a very personal and intimate manner over the telecommunications technologies. With the Internet of Things for Medical Devices, it is now possible to remotely monitor a et transmitted via a gateway onto secure cloud-based platforms where the data is collected, stored, monitored fall outside a healthy range. Scanners can monitor inventory levels for pharmaceuticals before a medication runs out and order supplies and inventory ensuring that hospitals and clinics have the needed supplies. Other medical applications enabled with advanced broadband include medical training and consultation with other physicians and providers, electronic health records, and the ability to log-in and read patient charts, MRIs and X-rays. %£´¢ ³¨® £ $¨²³ ¢¤ ,¤ ±¨¦: Our workforce must continue to evolve through workforce training and education. The manner in which we provide education to our kids and to adults is changing, requiring us to access information and education through distance learning and reverse classroom experiences. The concept of working for a single company or within a single industry for thirty years until retirement is no longer an economic reality. Workers will change careers an average of seven employer, nor expect that employer to provide the training and skills needed as the work 95 NEO Fiber Draft Deliverable changes. Workers will require on-going training, education and mentorship. Many of these resources for further education and mentoring are now mostly available on-line and virtual. Educational institutions, workforce training, universities, and corporations must provide education when people can use it, rather than at a specific place and time, working around lifestyle, schedules and work/home priorities and pressures. Homework assignments, testing and accessing educational videos are all on-line. The methodology by which education is happening is changing. Schools are providing the reverse classroom, or flip education; a concept that includes providing a video of the lesson online. Students download the lesson remotely while at home, watch the lecture, can pause, reflect, rewind and watch again. The classroom time is then used for more in-depth study, homework, questions and interaction between the students and teachers. 0´¡«¨¢ 3 ¥¤³¸Ȁ Our first responders need reliable, ubiquitous coverage, higher standards than what our commercial networks currently have, interoperability between networks and priority access to information and databases. Emergency response teams have unique needs and higher standards for broadband and communications. Our first responders need networks that are reliable, always on, secure, provide ubiquitous coverage, interoperability between network and priority access to information and databases. Their devices need to be small, lightweight, versatile and autonomous, wearable and portable. The devices need to be capable of sensing the environment, of tracing and tracking resources and able to convey a wealth of information to other responders, civil protection authorities and to crisis management centers. Sensor-nets can provide for situational awareness for disasters, fires, emergencies, car wrecks and other events, but these sensors require access to high bandwidth and the current wireless networks do not currently support these applications adequately. Police officers are ready to trade in their handheld radios for use of their iPhones, iPads, and Android devices while on the job. Until recently, this has created a problem for law enforcement agencies as smartphones and tabl-Mobile Radio (LMR) networks. U.S. public safety agencies will soon be able to use the FirstNet network that provides priority access for law enforcement, first responder and public safety 96 NEO Fiber Draft Deliverable agencies. This is critical during disasters when cell phone networks can become congested, as FirstNet is a network that will have spectrum dedicated exclusively for public safety entities. Additionally, most devices for law enforcement include video applications camera-equipped police and camera-equipped cars, cameras on traffic stops and enforcement of speed sensors and speeding tickets, and live ambulance video-links to hospitals. The existing wireless networks cannot support the applications that are in use today. The 911 system cannot process be able to record events and send the information to first responders allows for better transparency, honesty and less mistakes. $¨¦¨³ « )¢«´²¨® £ #¨µ¨¢ %¦ ¦¤¬¤³: The Great Equalizer between the Haves and the Have-nots.....or Not? Broadband must be ubiquitous or it will further create a digital divide between the haves and the have-nots. When broadband is ubiquitous it can be the great equalizer between different economic classes. In 2014, the International Economic Development Council asked economic development professionals if broadband service could "encourage individual entrepreneurship among under-served constituents," and 35 percent said that it is quite likely and 14 percent said that they had seen it firsthand (see Table 4). Ubiquitous broadband access can help create social equality. However, not having advanced broadband access available to everyone can create further inequalities of wealth and potentially can create further gaps in education, social institutions and government resources. Broadband must be abundant, redundant and available to everyone. 97 NEO Fiber Draft Deliverable 22 Table 3Entrepreneurship among underserved constituents. #¨µ¨¢ %¦ ¦¤¬¤³Ǿ 4± ²¯ ±¤¢¸Ǿ !¢¢¤²² ³® '®µ¤±¬¤³ 2¤²®´±¢¤²ȁ Advanced Broadband Networks can transform civic engagement, access to government resources and transparency of government. All government documents, including GIS data, applications, information on initiatives, information on financial contributions etc. are now available on-line. Documents must be able to be in a standardized format, searchable and available where data can be edited and used by other programs. Providing citizens access to this data provides further transparency, community engagement, public input, and public impact on government. (¨¦§¤± (®¬¤ 6 «´¤² Finally, statistics from the FTTH Council state that real estate developments communities that have deployed FTTH networks have instantly improved home sales values. According to the FTTH Council, access to fiber adds 3.1% to the value of a home and having a Gigabit available 22 International Economic Development Council, "The Broadband-Driven Economy." 98 NEO Fiber Draft Deliverable increases home values by 7% over homes that have access to 25 Mbps or less. In Estes Park, the average home price is $560,000. A 7% homes value increase translates to $39,200. 99 NEO Fiber Draft Deliverable 11. In Summary In summary, the following provides the primary conclusions of this study. 1. Abundant Broadband is a Necessity for Economic Vitality. The economic health and survival of this region depends in large part on the availability and affordability of advanced telecommunication services. Advanced broadband service is no longer a luxury as the Internet and its use have infiltrated every area of our lives. The Internet and its associated technologies are used for social media and staying connected, for entertainment and streaming videos; but more importantly it is used to transfer files and download/upload information that is critical to businesses, medical establishments, public safety, online banking, training and distance education, smart metering, point of sale applications, and every part and parcel of our lives. 2. The Community has Overwhelmingly Supported this Need for Abundant Broadband. On February 3rd, 2015 a public vote to opt- the Town of Estes Park. 92% of the voters in Estes Park voted to reclaim local authority to establish a telecommunications utility. In other similar elections held in Colorado the results have been 60-75% in favor of opting-out of the current law that restricts municipalities from building telecommunications infrastructure. The overwhelming and unprecedented results of this election are a clear indication that the community is interested in making a change and speaks to the need for better broadband services. 3. Community Outreach Meetings and Surveys Provide Further Input from the Community in Support of this Project. The Town and NEO conducted community outreach meetings discussing the need and process for advanced broadband services. The community outreach meetings were well-attended and feedback from the community confirmed the vast need for better broadband services. NEO Fiber put together two surveys to receive input from the community in regards to broadband needs for the Town of Estes Park. When asked if respondents would be interested in accessing a faster, more reliable The survey provided instructions to respondents to take an actual Internet speed test. The lowest speeds recorded were 0.22 Mbps download and 0.49 Mbps upload. The highest speeds recorded were 66 Mbps download and 5.5 Mbps upload. The average speeds recorded were 100 NEO Fiber Draft Deliverable 10.75 Mbps download and 2.07 Mbps upload. Considering that other towns, cities and communities are investing in networks that provide services that are 500 1000 times faster speeds than actual capacity available in Estes Park, speaks to the lack of adequate broadband services actually available. These real-world speed test results confirm the need for more abundant broadband. 4. Local Providers are Not Investing in FTTH in Estes Park. Although the providers have invested in limited fiber optic infrastructure to key businesses and anchor tenants within the Subscriber Line (DSL) and wireless technologies. The current service providers do not have plans to upgrade their networks to Fiber to the Home in Estes Park. The current providers have access to limited capital and therefore, simply cannot implement this technology throughout the community. As more applications are bandwidth intensive, the lack of existing infrastructure that supports this type of bandwidth consumption is a problem that is not going away. Internet bandwidth consumption is doubling every year. As the existing networks that are built on DSL, wireless and cable modem do not support the needs of bandwidth today, the problem will only grow bigger as time goes on. 5. Estes Park Needs Abundant Broadband that is Affordable. The current model for providing abundant Internet or broadband services is based upon a model of scarcity. If the Town embarked upon building a FTTH network, targeted pricing for businesses and anchor institutions would be $300 - $500 per month for Gigabit Internet service. Residential pricing is targeted at $70 - $95 per month for Gigabit Internet. This would dramatically transform the pricing and broadband offering that is currently available in Estes Park, making high- bandwidth Internet services attainable, accessible, abundant and affordable. 6. Two of the Five Service Delivery Models are Feasible. All of the financial models are based on detailed, realistic analysis and extensive real-world, industry-standard assumptions. The two financially sustainable models produce a revenue stream for the Town that is similar to the residual revenue stream of the Estes Park Light and Power Division. These two models of providing services directly to the anchor institutions and businesses - and to the business community as well as the residents and homes of the community - have successfully been deployed in numerous communities throughout the country. These two models are what the City of Longmont is implementing. These models are financially sustainable, have been successful in other locations and can be implemented in the Estes Valley. 7. There are Possible Private-Public Partnership Roles for Current Local Service Providers. The two models that are financially sustainable provide for possible Private-Public Partnership 101 NEO Fiber Draft Deliverable roles for the current local service providers. Final design, engineering, project management, program management and construction of the network would be outsourced. This opportunity represents approximately $27 - $30 Million in potential revenue to the existing service providers. Additionally, the network operations and management, truck rolls and repair service could be outsourced. Sales, marketing, customer service and billing services could potentially be outsourced as well. Based upon the assumptions used in the financial models, this represents $500k to $1.5M in annual operating revenue potentially available local service providers offering these outsourced functions for the Town. Estes Park would be required to competitively bid these opportunities; however, a local preference could be given to local service providers and/or local service providers that bid jointly with national providers. 102