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HomeMy WebLinkAbout4 Broadband Business Planning Agenda Item # 4 'TUCK7PTI�ic P Workshop To: Board of Directors From: Alan Harry; Telecommunications Manager Date: August 10, 2007 Subject: Broadband Business Planning: Construction of Broadband Infrastructure; Presentation by 180 Connect and North Sky Communications Why this matter is before the board On June 20, 2007, representatives of 180 Connect and North Sky Communications presented a report to the Board regarding the concept of a design/build and lease-back of a broadband system (broadband infrastructure) within the District's service area. At that time the Board directed staff to meet with 180 Connect et al to prepare the financial structure necessary to bring the project to fruition. 180 Connect has completed the necessary structure, located the necessary financing and has requested that they make a presentation to the Board detailing their plan. As such, representatives from 180 Connect and Victor Capital are scheduled to speak to the Board at August 15 regular meeting. History The District has, since 1999, worked diligently toward the possible provision of broadband services within its service area. Staff has prepared various business plans, system designs and has gone out to bid for the construction of the systems backbone and purchase of system electronics. Great strides have occurred since we began the project including the opportunity to utilize District "dark fiber" from Reno to Sacramento. However, great hindrances have occurred as well, the greatest of which was the lawsuit filed against Nevada County LAFCo by Cequal III following LAFCo's approval of the District's proposed business plan to construct a fiber-optic system for the provision of broadband services including voice, video and data services. The filing of this lawsuit in 2004 stalled the project by making the necessary financing of the proposed system unavailable. Since that time Cequal III has lost their case at the County level, appealed the Nevada County Courts findings to the California Appellate Court and in June 2007, lost the appeal. Now, with the removal of legal barriers, is an opportune time for the District to once again look seriously at the construction of a fiber-optic broadband system to provide video, data, voice, meter reading and SCADA services. 0 Page 1 New Information Following their presentation to the Board 180 Connect, North Sky Communications and Victor Capital have prepared the financial structure and located the financing necessary to construct and lease-back a fiber-optic broadband system to the District. Attached please find 180 Connect's power point presentation for your review. Recommendation It is recommended that the Board direct staff and legal counsel to review the financial structure provided by 180 Connect et al, and report back to the Board in September with our findings and recommendations. 0 Page 2 LI _. b� Truckee Donner oo �q 013 10 PUD P ` FTTx Development Review o13 -D,v i Project Funding �oo®000,a E E_I, l�00000000Of.- f, 1L7000000 1E:10D Ior�� 00000000000000r i , �t 8/14/07 u ao a ��u' T oo13=000000000000o�11C_�P,L,�.��:_� oonct00000 r�000000000000000000000Iii_ci.; �0000❑000000©®00000000000000000000t- 111 k �00000©c3oo0ooc�©o®0000®o®oo0000Do 30 �_ .,.. �o❑oa0000®Dodo®000®oo©000000000r��o _ .. ._;,_, �00000000000000000000000DooOO ..� . 0000000000000000 0 QUANTA NORTH SKY COMMUNICATIONS 180 CONNECT ■ . NETWORK �7 W R SERVICES VICES A 4DUANTA SERVICES COMPANY li!�T rYY� �►1t CONNECT PcketFr onf muNet The Future or 6roodband.1roday Presentation Outline rr Project Direction and Recap • Project Committed Investment Details • Project Committed Fund Breakdown • Fund Summary and Port Fees • Project Capital and Operational Organization • Project Capital Budget Summary • Project Operational Budget Summary • Project Risks • Provider Responsibilities • Project Provider Commitment - SureWest • Next Steps & Q/A 2 Project Direction and Recap • TDPUD to deploy a "Homes Passed" FTTx System Review and Finalize the Capital and Operational Budgets • Review and Finalize the "Investor" Options and Details • Review Payback Schedule vs. Take Rate Revenue • Review Utility Risks and Exist Options 3 Project Committed Investment Details • Deploy a Phased Installation Plan (3 Phases) • TDPUD Development Fee Included ($2.5 Million) • Build Option Selected "Home Passed" } Total Capital Budget Cost $24.9 Million ➢ Per Unit Cost $1 ,652 ➢ Provider Broadband Service Installation Cost $234 ➢ Reserved 2 Year Operational Capital Budget ➢ Reserved Upgrade Capital Budget ■ ($1 .2 Million — 15 Years) • Total Project Investment Payback 17 Years ➢ 6 Month Payments ($951 k) ➢ 3 Year Interest Rate Only Option (2 Yr Build & 1 Yr Setup) 4 kdownProj ect Committed Fund Brea • Victor Capital as "Investment Partner" • Use Hedge Fund "Lease Payback" Bond Funding • Issuance would be 20 Years • Restructuring Option between the (3rd & 5th) Year ®' TDPUD Interest Rate Set at "8%" • Three (3) Year Interest Rate Option • Six (6) Weeks to Full Project Fund • Capital Held in Interest Bearing Market • Capital Draws Based on Completed Project Tasks • Take Rate Based on Multiple Stages ➢ 1 Year Initial Take Rate of (5%) ➢ 2 Year Blended Take Rate of (15%) ➢ Minimum Required Take Rate after Year 3 (25%) ➢ Years 4-7 Average Take Rate of (34%) • Early Payback beyond 25% Take Rate Revenue ➢ 30% Take Rate (12 Year Payback) ➢ 35% Take Rate (10 Year Payback) 5 ➢ 40% Take Rate (8 Year Payback) Fund Summary Port Fees Investment Company Victor Capital, LLC. Average Port Fees $30 Investment Type Bond Lease Purchase Required Take Rate 3,691 Total Homes Passed 15,066 ys` Investment Bond Amount $24,901,995 Take Rate % 2 ars Maturaty Terms (Years) 17 Maturaty Schedule 3 Ye ea Interest Rate 8.0% 30% Phone Basic Amoritized Bond Payment(Monthly) ($122,068.60) Phone Advanced 20% **operations Cost(Monthly) ($36,443) Internet Basic 30% Total Required Revenue (Monthly) ($158,511.10) Internet Advanced 20% Total Required Revenue (Yearly) ($1,902,133.24) Video Basic 30% Video Advanced 17% Security 5% Port Fee Assessment User Cost TDPUD Provider% TDPUD % Phone Basic $ 24.99 $ 6.00 76% 24% r Advanced $ 36.00 $ 8.00 78% 22% Data I Basic $ 19.99 $ 6.00 70% 30% Advanced $ 29.99 $ 10.00 67% 33% Video Basic $ 29.99 $ 10.00 67% 33% Advanced $ 59.99 $ 21.00 65% 35% 9 Combined Basic $ 74.97 $ 22.00 71% 29% 6 Combined Advanced $ 125.98 $ 39.00 69% 31% Capitalp g and O erational Or anization Lease Payback Victor Agreement _ _ TDPUD Capita ,I L LC. Victor Capital -Secure Funding -Establish Entity Single Ilse Entity TDPUD Fiber Division Fund($AS Mil) 180 Connect -Manage Project&Budget -Process Payments Manage Operations(5 Years) I 180 Connect Project Managment F— 1 Operations Marketing r Quanta Project Construction i TDPUD TDPUD Outsource Operations Manage Marketing (5 Years) 7 4.. Project Capital Budget Summary Truckee Donner PUD FTTx - Budget Summary Business Units Passed 1500 Residnetial Units Passed 13566 Total Units Passed 15066 FTTH Budget"Homes Passed" `rm Capital Engineering/Construction Budget $ 15,491,915.03 Phase 1 $ 6,005,278.67 Phase II $ 4,603,902.71 Phase III $ 4,882,733.66 *30% Take Rate Capital Drop/Equipment Budget $ 4,835,460.00 Phase 1 $ 1,885,800.00 Phase II $ 1,352,478.00 Phase III $ 1,597,182.00 24 Month Opertaional Capital Reserve Budget $874,620 24 Month Defferred Interest Reserve $1,000,000 Headend/Collocation Capital Budget $ 200,000.00 Truckee Donner PUD Development Fee $ 2,500,000.00 Total Project"Homes Passed" Capital Budget $ 24,901,996.03 Per Homes Passed Cost $ 1,652.86 30% Includes Installation Budget I Additional Per Home Installation Budget Beyond 30% $ 234.00 I 8 Project Operational Budget Summary • $437k Operational Budget ➢ Equipment Upgrade Reserve ➢ Pole Attachment Fees ➢ General Maintenance and Emergency Reserve ➢ Network Operations Center (NOC) Fees ➢ Staff Operations ■ 2 OSP Engineers ■ 1 Network Engineer ■ 1 Support Staff ➢ Billing Cost, Collection and Management Fees • Installation Support as Requested (Provider Fees) ➢ Customer Installation (Wiring, Service Setup & Customer Orientation) ➢ Customer Outage Response Fees ➢ Equipment Installation Payback 9 k. Project Risks Risk: Incomplete Project — Secure Full Funding of the Project ($25 Million) • Risk: Take Rate is Low — Change Marketing Approach — Add New Services Hold Provider Meeting to Review Changes Risk: Provider Complaints — Review Provider Issues — Discuss Correction with Provider as Define in Agreement Terminate Provider Agreement & Transfer Customers to another Provider • Risk: Operational Staff Issues — Contract with New Operational Company — Internalize Operations within TDPUD i G 10 Provider Responsibilities Sign Access Provider Agreement with TDPUD { Define Services with TDPUD =r Review Network Architecture with Operations • Review and Test Provisioning Network Hooks • Review Active Service Level "On Net" • Manage Tier 1 Support Calls and Tickets • Notify Operations of Network Issues • Market "Homes Passed" Completed Areas • Install Services at the Premise (Customer Premise Switch, out to device) ➢ Placed by Provider or ➢ Placed by Operations Staff and Bill to Provider • Respond to Customer Issues ➢ Provider to Truck Roll to Premise ➢ Operations to Truck Roll to Premise and Bill to Provider 11 Provider Commitment - SureWest Negotiate a Five (5) Year Network Development Provider Agreement • Negotiate a fiber transport fee (Sacramento to Truckee) • Define the Network as "Development & System Burn-in" • Define the Business Relations (Truckee & SureWest) • Define the Marketing Approach and Coordination Efforts • Review Port or Access Fees on the Network i Review Operational Process (Tier 1 to Tier 3) 12 NextSteps & QA 1 . Project Approval 2. Project Agreement Execution (Two Weeks) 4 3. Project Funding (Six Weeks) m� 4. Project Kick-off Thomas Jones Paul Gentiloz 180 Connect, Inc. Victor Capital, LLC. Vice President 517.281 .5050 tjones@180connect.net GENTILOZ@aol.com 559.250.9564 Ron Ivie Rod Kuenzi 180 Connect, Inc. Quanta / North Sky Comm Director of Engineering & Construction President rivie@180connect.net rkuenzi@northskycomm.com 208.867.4645 503.209.6603 13 Truckee Donner PUD FTTx- Budget Summary Business Units Passed 1500 Residnetial Units Passed 13566 Total Units Passed 15066 FTTH Budget"Homes Passed" Capital Engineering/Construction Budget $ 15,491,915.03 Phase 1 $ 6,005,278.67 Phase 11 $ 4,603,902.71 Phase III $ 4,882,733.66 *30%Take Rate Capital Drop/Equipment Budget $ 4,835,460.00 Phase 1 $ 1,885,800.00 Phase 11 $ 1,352,478.00 Phase III $ 1,597,182.00 24 Month Opertaional Capital Reserve Budget $874,620 24 Month Defferred Interest Reserve $1,000,000 Headend/Collocation Capital Budget $ 200,000.00 Truckee Donner PUD Development Fee $ 2,500,000.00 Total Project"Homes Passed"Capital Budget $ 24,901,995.03 Per Homes Passed Cost $ 1,652.86 30%Includes Installation Budget Additional Per Home Installation Budget Beyond 300/c $ 234.00 Summary Page 1 of 1 Truckee Donner PUD Operational Budget Truckee Donner PUD Operations Development General Operations Equipment Upgrade Reserve $0 $0 $0 $50,000 $70,000 $80,000 $90,000 $90,000 Pole Attachment-Permit Fees $0 $0 $0 $40,000 $40,200 $40,401 $40,603 $40,806 General Maintenance&Emer anc $0 $0 $0 $25,000 $30,000 $30,000 $35,000 $35,000 Total NOC/NMS System Expenses $0 $0 $0 $119,000 $140,200 $150,401 $165,603 $165,806 NOC/NMS System Expenses Capital Budget Reserves Internet Connection Expense $0 $400 $400 $450 $450 $500 $500 $600 NOC Management Expenses Starts 2008 $0 $35,000 $45,500 $59,150 $62,108 $65,213 $68,474 $71,897 Total NOC/NMS System Expenses $0 $35,400 $45,900 $59,600 $62,558 $65,713 $68,974 $72,497 Staffing Expenses Network Engineer $0 $85,000 $88,400 $91,936 $94,694 $97,535 $100,461 $103,475 Field Service Technician $0 $145,000 $150,800 $155,324 $159,984 $164,783 $169,727 $174,819 New Services Installation $0 $0 $0 $30'000 $39,000 $40,800 $42,000 $45,000 Total Staffing Expense $0 $230,000 $239.200 $247,260 $254,678 $262,318 $270,188 $278,293 Billing Costs Provider Billing Cost $0 $15,000 $15,000 $15,450 $15,914 $16,391 $16,883 $17,389 Total Billing Cost $0 $15,000 $15,000 $15,450 $15,914 $16,391 $16,883 $17,389 Investor Lease Payback Note Payment 17 Year $0 $0 $0 $1,902,133 $1,902,133 $1,902,133 $1,902,133 $1,902,133 Total BillingCost $0 $0 $0 $1,902,133 $1,902,133 $1,902,133 $1,902,133 $1,902,133 TOW p ns 94"' 44mr," $0 $0 $0 $2,339,443 $2,375,482 $2,396,956 $2,423,780 $2,436,119 Market Development(Units Passed) 0 10.193 `t' "' 0 70 72 7 7 80 Yearly Units Passed 0 9,293 4,273 50 65 68 70 75 Residential Units Passed Commercial Units Passed 0 900 600 3 5 4 7 5 Total Units Passed Residential Units Passed 0 9,293 13,566 13,616 13,681 13,749 13,819 13,894 Commercial Units Passed 0 900 1,500 1,503 1,508 1,512 1,519 1,524 Total Units Passed 0 10,193 15,066 15,119 15,189 15,261 15,338 15,418 IArw Penefi*tf" > Residential Service Options Mn Rate Initial 2 Yr+ Build Year Initial Q(20/) Initial @(100/) -------- - - Phone Basic $ 6.00 30% 45% 0 0 1,017 4,085 6,127 6,187 6,219 6,252 Phone Advanced $ 8.00 20% 35% 0 0 678 2,723 4,788 4,812 4,837 4,863 Internet Basic $ 6.00 30% 45% 0 0 1,017 4,085 6,156 6,187 6,219 6,252 t Internet Advanced $ 10.00 20% 38% 0 0 678 2,723 5,199 5,225 5,251 5,280 558 s Video Basic $ %00 30% 40% 0 0 1,017 4,085 5,199 5,225 5,251 5,280 Video Advanced $ 21.00 17% 38% 0 0 577 2,315 5,199 5,225 5,251 1,2 Security $ 7.00 5% 10% 0 0 170 681 1,368 1,375 1,382 1,389 t 0 0 Adidlional Services $ 0% 0% 0 0 0 0 0 0 Residential Service Options Max Count-------� 1,017 4,085 6,156 6,187 6,219 6,252 25% 40% p Commercial Serulc Qyrticrs Phone/Video/Data $ 90 15% 45% 0 _ 0 225 225 679 680 684 686 Adidtional Services $ 0% 0 0 0 0 0 0 0 0 I Commercial Service Options t Revenue Pmjiset ons(Port Pa*)' $0 ... Phone/Video/Data $0 $574,656 $2,307,095 $4,049,659 $4,071,904 $4,092,635 $4,114,847 Commercial $0 $0 $20,250 $20,291 $61,074 $61,236 $61,520 $61,722 TotalRavenus{Yeariy� $0 $0 $594,906 $2,327,386 $4,110,733 $4,133,140 $4,154,155 $4,176,569 Operational Budgel(17) Page 1 of 2 8/8/07 Truckee Donner PUD Operational Budget �. Operations Cost $0 $0 $0 $2,339,443 $2,375,482 $2,396,956 $2,423,780 $2,436,1 19 Network Revenue $0 $0 $594,906 $2,327,386 $4,110,733 $4,133,140 $4,154,155 $4,176,569 $1,735,251 E1,736,184 $1,730,374 $1,740,450 Yearly Revenue Projection Totals $0 $0 $594,906 -$12,058 rr ir• rr• r r r r r r • Investor Funding Phase I Funding t$8,000,000; Phase II&III Funding `>15`3!I1,99') E1,902,133 53,804,266 E5,706,400 57,608,533 Investor Lease Payback Yearly Funding Requirements $£,OG ,�3= } 3'S CE1.3� 1 $0 $0 $1,902,133 $3,804,266 $5,706,400 E7,608,53 Port Fee Assessment User Cost TDPUD Provider% TDPUD Phone Basic $ 24.99 $ 6.00 76% 24% Advanced $ 36.00 $ 8.00 78% 22% Data Basic $ 19.99 $ 6.00 70% 30 Advanced $ 29.99 $ 10.00 67% 33% Video Basic $ 29.99 $ 10.00 67% 33 Advanced $ 59.99 $ 21.00 65% 35 Combined Basic $ 74.97 $ 22.00 71% 29% Combined Advanced $ 125.98 $ 39.00 69% 31 i 4 t 818/07 Operational Budgel(17) Page 2 of 2