Alameda Power & TelecomAn Enterprise of the City of Alameda

FEASIBILITY STUDY AND

BUSINESS PLAN DEVELOPMENT

Vision

NationalInformation

Infrastructure

NationalInformation

InfrastructureTelecommunications Transport System

Utility Network-Monitoring & Control-Energy Services-System Automation-Auto. Meter Reading

Residential Network-Residential Services-CATV/HSD Services-Information Services-Security Systems

Community Network-Government Offices-Libraries-Schools and College-Hospital

Enterprise Network-Industrial-Financial-Commercial-Information ProvidersA Municipally Owned

Broadband Network

...Reliable Telecommunications...Lowest Cost...

Universal Access...Variety of Services...

Source: Businness Plan Figures 1.1 and 1.2

1998• Electric market deregulation, general

economic downturn – desire to diversify• Telecom deregulation – consumer

demand for competitive services, including community broadband

• Fiber-optic network – electric command and control and telecom services

• Unresponsive incumbent CATV provider

Industry Driving Forces

Industry Driving Forces

Providing Choice

and Quality

Telecommunication

Services

Satisfying an Existing

Market Need

Building a Solid

Customer Base

Providing a New

Revenue/Profit

Source to the City of Alameda

+

+

Properly Designed Strategies Around the Positive Industry Driving

Forces Will Lead to Success

2004• Consumer demand for competitive

broadband services• Demand for advanced broadband

services (“triple play” of voice, video, and data)

• Demand for community broadband continues

• Increased municipal funding concerns

Choosing aProficient Consultant

• “Experience, experience, experience”• Retain legal counsel with telecom expertise to

negotiate contracts• Incorporate flexible terms in contracts to

respond to changing competitive environment• Use contractors with prior telecom design,

construction, and operations experience• Include performance incentives and penalties

How We Built It

• Turn-key partner first 3 years– Brought design, operation, and corporate

credit

• Assumed control to complete build out– Experienced personnel became available– Grew in operating experience

Value Chains

Distribution DistributionSupportServicesSupportServices

MarketingMarketing

MarketingMarketing ProgramsProgramsSignal

ReceptionSignal

Reception

CustomerService

CustomerService

Generation Generation Transmission Transmission

Electric

Cable TV

Electricity SBU

Telecommunications SBU

-Construction-Dispatch-Restoration-Complaints

-Warehousing-Finance-Accounting-MIS-Billing

-Cashiering-Information-New Service-Change Service

Business Plan Preparation

• Identified competitive advantages– Lower rates more disposable income– Local employment opportunity– Improved customer service

• Experience and knowledge of the community

• Incorporate feasibility data

• Market research – Local focus groups

Business Plan Summary

• Own and operate hybrid fiber-coaxial network • Provide TV and data (Internet) services

• Build to provide alarm monitoring and telephony

• Priced below competition– Administrative efficiencies with electric utility– Marketing advantage – local ownership, no stockholders– Newer plant means lower maintenance costs

Satellite 22,500 Miles

Satellite dishComm. Tower

Node

Off Air

Headend

Cable

Cable

Drop

Customer

DCT

computer

Modem

Capital Costs• Fiber-optic network• Electric distribution system command and control (SCADA)• Municipal Area Network (MAN) (city facilities and libraries)• SchoolNET (all school district facilities• 860-MHz hybrid fiber coaxial (HFC) system• Headend (HFC, satellite/antenna farm, periodic upgrades)• Cable Modem Termination System (CMTS)• Nodes• Fiber-coaxial distribution system – single-family dwellings, multi-unit

dwellings, and commercial• Lateral service extensions – underground areas• Customer premise – converters and cable modems

O&M

• Staff recruitment, developing methods and procedures, training

• In-house and contract technicians/installers (plant maintenance/upgrades and residential installations)

• Traffic coordination/dispatch• Installation costs• Customer service staff (24x7x365) in-house

and outsourced call center

O&M (continued)• Internet service provider - modem provisioning and

customer technical support (24x7x365)• Customer information and billing system • Acquisition of programming - NCTC• Connection to POP/Internet• Operating costs allocated to support services

(warehouse, accounting, legal, HR, etc.)• Sales, marketing and customer acquisition (door-to-

door sales, advertising, campaigns/promos, direct mail, affinity programs, community events, and public relations)

Validating theCustomer Survey

1997 - Business Plan and market survey (marketplace ripe for an overbuild); validated by third party and focus groups

1998/1999 - City Charter revision - Measure ADevelopment of implementation plan; retained consultant, secured financing, and built MAN

2000 - Business Plan update, system design and construction started. Marketplace surveys, focus groups, reassessment of competitive landscape, to determine channel lineup, HSD services, price points

2001 - Video service launch2002 - Data service launch2001/date - 8,300 video customers and 4,000 HSD customers.

Validation of business plan and refinancingof project.

Projecting Revenues

• Develop penetration goals (video and HSD)

• Match construction rollout with customer acquisition targets

• Speed to market critical - delays will disappoint potential

customers

• Determine price points and design service tiers and bundles

• Differentiate offerings from CATV incumbent, ILEC and DBS

• Develop initial “core” offer

• Develop “Plan B” for competitors matching or exceeding offer

• Understand customer acquisition costs and most effective

methods

CompetitivelyPricing Services

• Goal – flexible options and packages• Establish and protect margins – know and appreciate

programming license fees• Competitive but differentiated channel line-ups and

packages• Bundling• Know the expectations of your customers – market research

– Price is the bottom line– Competitive response to your success– Clear, concise, understandable pricing

structure – no fine print, asterisk-free

Developing Realistic Penetration Rates

• Know the difference between homes passed and serviceable homes

• CATV goal = 30%; actual = 36% of serviceable homes• Data goal = 12%; actual = 16% of serviceable homes• Anticipate challenges to achieving goals:

– Customer resistance to “switching cost”– Difficulty acquiring MDU and HOA access agreements– Level of affinity with community (“build it and they will come” is not

necessarily true)– Competitor retention offers - price motivates the consumer– Successful sales and marketing strategies (leverage existing

customer relationship, door-to-door sales, campaigns/promos, direct mail, advertising, community events, and public relations)

– Must be responsive to changing business environment

Legal Issues

• Authority to offer telecommunication services• City Charter• Validation action• Franchise obligations (PEG, leased access)• First amendment, obscenity, and public

control of programming• Public sector/private sector competition• Open meeting and open records laws

Economics2000 - $10 million equity (early startup costs)

$16 million construction loan (P & I)2004 - $33 million BANs, tax exempt

– $16 million earlier loan repayment– $11 million capitalized interest– $5 million construction

2004 - $2.2 million interfund/cash loans 2007 - Cash flow is positive2008 - $3.9 million positive cash flow2009 - System refinance, tax exempt

Marketing Structureand Goals

•Unique selling proposition– 117 years of electric utility service– Local ownership and control– Superior technology

•Market penetration– Neighbor-to-neighbor connection

•Market pressures and competition– Meet industry specials with

responsive service andunderstandable pricing

Cable SubscriberAcquisition Strategy

Cable Television Customer Growth for Fiscal Years 2004 to 20086,085 New Customers

22%

41%

30%

7%

Servicable Units Main Island

Units to be Constructed Main Island

Bay Farm Island

Exclusive Bulk Agreements

Internet SubscriberAcquisition Strategy

Internet Customer Growth for Fiscal Years 2004 to 20083,462 New Customers

19%

41%

38%

2%

Servicable Units Main Island

Units to be Constructed Main Island

Bay Farm Island

Exclusive Bulk Agreements

Marketing Tools

• Direct marketing• Events• Affinity• Community-based• Promotions• Public relations• In-house sales• Door-to-door sales

Developingthe Schedule

“Everything is within walking distanceIf you have the time.” - Steven Wright)

• Speed to market is critical • Buy-in from the community• Carefully manage customer expectations (under-promise and over-

deliver, link construction plans and consumer demand)• Legal and regulatory issues• Public contracting process• Competitor opposition efforts• Development of franchise agreement• Development of contractor agreements• Acquisition of programming and retransmission

agreements