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TRUCKEE DONNER
PUBLIC UTILITY DISTRICT
MASTER SERVICES ELEMENT
FOR
BROADBAND TELECOMMUNICATIONS
SERVICES
NEVADA COUNTY
LOCAL AGENCY FORMATION COMMISSION
December, 2002
Prepared by:
Sauers Engineering, Inc.
TABLE OF CONTENTS
I. INTRODUCTION ................................................................................................................. 1
A. General Project Overview ......................................................................................... 1
B. District’s Sphere of Influence ................................................................................... 2
II. SPECIFIC ELEMENT REQUIREMENTS .......................................................................... 2
A. Existing and Proposed Facilities ............................................................................... 2
Passive Optical Network (PON) ........................................................................... 2
Network Operations Center (NOC) ...................................................................... 4
B. Services To Be Provided .......................................................................................... 4
Data Transfer Service ......................................................................................... 5
Cable TV Service ............................................................................................... 6
Local Telephone Service .................................................................................... 6
C. Present Service Level Capacity ................................................................................. 6
D. Anticipated Service Level ......................................................................................... 6
E. Actions, Improvements, and Construction ................................................................. 7
Actions ............................................................................................................... 7
Improvements .................................................................................................... 8
Construction ....................................................................................................... 8
F. Projected Revenue and Expense ................................................................................ 8
G. Cost of Services ....................................................................................................... 9
H. District Enabling Legislation .................................................................................... 10
FIGURES
I-1 Broadband Telecommunications Unit Sphere of Influence ........................................ 3
APPENDICES
A. Projected Revenue and Expenditures ........................................................................ 11
B. District Enabling Legislation ..................................................................................... 12
1. INTRODUCTION
The Truckee Donner Public Utility District (the “District”) intends to provide broadband
telecommunications services to customers within its existing service area and, as development
continues around the Truckee community, to future customers within its sphere of influence. This
Master Services Element will provide descriptions of the services to be provided, the
infrastructure improvements and facilities necessary to provide the services, and projections of the
costs and revenues generated by the provision of the new telecommunications services.
Projections will be made at the 1, 5, and 10 year planning intervals. All projections will be
consistent with the District’s existing sphere of influence. Projections for time periods greater than
10 years in the future were not available at the time this document was prepared. This report is
intended to satisfy the requirement of the Nevada County Local Agency Formation Commission
(“LAFCo”) for submittance of a Master Services Element that demonstrates the District’s ability
to provide adequate and efficient broadband telecommunications services within its sphere.
A. General Project Overview
The District intends to construct and operate a Passive Optical Network (PON), consisting
primarily of fiber optic cable and passive optical splitters in order to provide broadband
telecommunications services for the District’s existing water and electric facilities and for
residential, commercial, and public agency customers. Generally speaking, the District will
provide three types of broadband telecommunication services. These services are as follows:
Voice (ie. telephone service)
Video (ie. cable television service)
Data (ie. high speed internet access and ethernet connectivity)
The District has considered several different business models, of which include being the direct
service provider, partnering with another provider, and/or simply leasing bandwidth to an
independent provider. The District has decided that it is in its best interest to partner with an
already established provider for the particular service to be offered.
The result of adopting such a business model is that the District will be entitled to a portion of the
revenue share, typically around 20% of the gross revenue. There are numerous advantages to this
arrangement. The entire broadband telecommunications system will entail much more than just
constructing and operating the PON. There will also be a Network Operation Center (NOC) to
house the headend equipment used for creating and processing signals. In addition, there will be
various equipment installed in the customer’s homes and businesses. One such example would be
the TV set top boxes that permit cable television subscribers to order pay per view programs.
Through a partnership, the District would accept responsibility for the maintenance and operation
of the PON, while the District’s partner would assume all the costs associated with building and
operating the NOC. The partner would also own or rent the equipment located in the customer’s
home and would be responsible for all programming costs and sale of advertising. Customer
service related issues would be shared by the District and its partner. Although the provision of
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services will be made through a partnership, all three services will be branded with the Truckee
Donner Public Utility District’s name. The name and logo to be marketed to the public are
currently in the process of being developed.
B. District’s Sphere of Influence
In 1998, the District completed an update of its “Sphere of Influence Report.” The Sphere of
Influence Report was based on the District providing water and electric services. The report
describes the District’s existing service area boundary along with projected spheres of influence in
five year planning periods over twenty years.
The telecommunications services to be provided by the District as described in this Master
Services Element are consistent with the District’s existing sphere of influence as approved by
Nevada LAFCo. Figure I-1, found on the following page, depicts the proposed broadband
telecommunications service area, which is identical to the District’s existing electric service
territory. Expansion of telecommunications services into outside sphere areas will occur as
development occurs and in a similar fashion to the expansion of water and electric facilities
described in the Sphere of Influence Report.
2. SPECIFIC ELEMENT REQUIREMENTS
A. Existing and Proposed Facilities
Construction of the Passive Optical Network will be similar in nature to the construction of other
wire utilities such as electricity and telephony. The fiber optic lines will consist of non-conductive
self supporting cables that will be mounted on existing electric poles. The cable will be installed
in parallel with the existing electricity lines. The majority of cable installation will be done in this
fashion, where there does not already exist overhead utilities, the fiber optic cables will be buried
in underground conduits. Customer service connections will also be similar to other utility
connections with fiber optic cable being connected directly to a termination box located at the
customer’s point of service. The passive nature of PON’s and the exclusive use of fiber optic
cable, as opposed to a hybrid system with coaxial cable, will minimize the use of electronic
equipment. In a PON system, active electronic components are only required at the endpoints of
the network, namely the Network Operations Center and the customer’s point of service.
Passive Optical Network
The District has selected a PON that involves extending fiber-to-the-home (FTTH) instead
deploying a hybrid fiber/coax type of system architecture for numerous reasons. The PON and
FTTH are relatively simple, reliable, and have low operating costs in comparison to their
counterpart technology, the hybrid fiber/coax system (HFC). Another significant advantage is that
the PON offers dramatically greater bandwidth than digital service lines (DSL) or HFC. The
greater bandwidth will allow the District the flexibility to provide a “bundle” of services while
having additional bandwidth available for expansion and/or for leasing to competing providers.
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The District is expecting that the bandwidth made available through the PON will not reach
capacity for at least 20 years; whereas, the use of HFC could require upgrading in the near future.
Passive Optical Networks use hair-thin filaments of transparent glass or plastic to allow the passage
of light pulses that transmit voice, video, and data signals. In the case of television signals, satellite
transmissions are collected at the NOC through the headend equipment and then relayed through
the PON to the subscribing customers. The non-conductive nature of the fiber optic cables will
enable the District to pull the new cable near overhead conductors and through energized
conduits all the way to the point of service.
The Passive Optical Network will stretch approximately 152.3 miles. Initially the network will be
utilized to complement the District’s existing Supervisory Control and Data Acquisition System
(SCADA) that connects electric substations, water pumping stations, and other District facilities.
The District’s Broadband Business Unit has estimated that a capital expenditure of approximately
$10 million will be required to install the PON and the associated components.
Within the first year of the project, broadband service should be available to all of the District’s
current customers. This would translate to approximately 10,290 households and roughly 1,710
businesses for a total 12,000 potential subscribers. By the tenth year the total number of potential
subscribers is expected to increase to a total of 18,616.
Network Operations Center
As previously stated, the District’s partner(s) will be responsible for the installation, operation,
and maintenance of the headend equipment associated with the particular service (ie. cable
television, telephone, or internet service). The District will contribute the physical space needed
for the Nework Operations Center. The NOC, or headend, will house all the electronics
responsible for receiving signals from the channels and for combining them and modulating them
into a form that can be transmitted over fiber. The facility/room will be in the range of 1,200-
1,500 square feet with most of the floor space being occupied by racks of electronic equipment.
One significant cost of providing the NOC will be the need to install a substantial air conditioning
system to offset the heat generated from all of the electronics. The NOC will be centrally located
at the District’s headquarters off of Donner Pass Road in Truckee.
B. Services To Be Provided
The District, in partnership with other providers, will offer three classes of telecommunications
services: voice, video, and data transfer. All of the aforementioned services are classified and will
be marketed as being “digital”.
As mentioned, one of the advantages of a PON with a FTTH architecture is that a variety of
services can be delivered though a single fiber. The District plans on marketing all three services
together as a “bundled” package. The intent is to convince customers to that there are several
advantages to subscribe to all three services as a package. Some of the benefits will be that the
installation is simpler, the quality of service will be as equal or better to what is currently locally
available, billing can be done on one invoice, and customer service representatives can respond to
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all of a subscriber’s concerns, from electricity and water to telecommunications. The “bundle” of
services, as well as each individual service, will be marketed under the District’s branded name.
Preliminary estimates assume that approximately 90% of customers will be subscribing to a
“bundled” service package. The remaining 10% will subscribe to services on an “a-la-carte” basis.
Data Transfer Service
1. Internet Access Service
High speed internet access be provided in conjunction with the District’s partner. The
internet provider (IP) will build the headend at its own cost and will subsequently own and
operate its portion of the NOC. The IP will also purchase its own programming and will
be in charge of selling local advertising. Connection to the worldwide web will be in the
form of a fiber link to a Point of Presence, or POP. Projections for data transmission rates
are not available at this time.
Following the first year of service the District will open up its platform to other internet
service providers (ISPs). These ISPs will have the option to lease bandwidth from the
District. This will permit some customers to continue using their existing ISP. These
ISPs will still be responsible to address any service issues their customers may have and to
take care of day-to-day operations of their system. The revenue projections presented in
this document do not reflect any revenue that may be generated through the leasing of
unused bandwidth.
b. Business to Business Ethernet Connectivity
The District has identified several businesses that may be interested in ethernet
connections. An ethernet is essentially a local area network that is used for connecting
computers, printers, workstations, terminals, servers, etc. within the same building or
within a campus. Some candidates for this type of service include, schools, hospitals,
government offices, or large companies that are located in a business complex
encompassing several buildings. Installation of such a system would be billed on a case-
by-case basis to the client. Revenue estimates included in this Master Services Element do
not include potential ethernet connections.
c. Supervisory Control and Data Acquisition (SCADA)
Although this isn’t a service, the provision of broadband telecommunications services
within the District will greatly enhance the utility of the District’s current SCADA system.
SCADA systems are used by most water and electric utilities as tools to help manage the
system efficiently. The subsequent improvement to the operation of the water and electric
systems will save the District an estimated $140,000 annually starting after the first year.
Data transfer services would be made available to other customers with similar needs
involving data communication between remote sites within the service area.
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Cable TV Service
Cable television will also be provided through a partnership arrangement. The number of
channels to be offered to customers remains to be determined; however, customers will be able to
choose between a basic service, a premium service, or any combination of premium channels
added on to their basic channel lineup. As part of the cable TV service provision the District will
offer subscribers access to pay-per-view programming and video on demand.
Local Telephone Service
The provision of local telephone service will be accomplished by teaming up with another
telephone company which is a licensed competitive local exchange carrier in the State of
California. Due to the legal intricacies involved in operating a telephone system (e.g. Emergency
911) the competitive local exchange carrier would be responsible for all the operational and
service issues, while the District would provide the fiber optic cable bandwidth. It should be
clarified that the service to be provided only pertains to local calling. All long distance telephone
service will continue to be offered by the carrier which was chosen by the customer.
C. Present Service Level Capacity
The broadband telecommunications services being proposed by the District are not currently
available within the District’s service area nor are they being provided by any other overlapping
service provider. The facilities needed to provide the telecommunication services are also non-
existent. Although some communication services are available such as telephone, cable TV, and
traditional internet access through phone lines, the level of service of these systems does not
compare with that of the broadband network proposed by the District. The broadband
telecommunications service addressed in this Master Services Element is considered a new service
to the District’s service area.
D. Anticipated Service Level
It is anticipated that all of the telecommunication services offered by the District will be available
to customers throughout the District’s service area within 10 months of a decision by the District
to proceed. This will likely result in telecommunications services being available to all existing
residences and businesses within the District’s service area between the years 2003 and 2004. As
the construction progresses and systems become operational, subscribers will be added so that the
District may begin to generate revenue prior to finalizing construction.
Upon final completion of the passive optical network, the telecommunication system will be
comparable to the District’s water and electric systems in that it will be available to all existing
customers within the current service area. Expansion of telecommunications service into the
District’s spheres of influence will occur as development continues around the Truckee
community following the same patterns described in the Sphere of Influence Report for water and
for electric service. However, unlike water and electric service where it is expected that virtually
every residence and business will connect, it is not anticipated that every potential customer will
desire telecommunications services. The District has made projections of the number of
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customers that will utilize each of the services based on the total number of homes passed by the
network and the penetration rate, or anticipated percentage of homes utilizing the services.
Table 1
1
PROJECTED CUSTOMERS
Year 1 Year 5 Year 10
Total homes passed by PON 10,290 12,508 15,963
Total businesses passed by PON 1,710 2,079 2,653
Total potential subscribers 12,000 14,586 18,616
Cable TV penetration rate 23.7% 35.7% 31.4%
Cable TV customers 2,437 4,461 5,018
Internet penetration rate 10.8% 17.6% 15.5%
Internet customers 1,112 2,195 2,469
Telephone penetration rate 0% 22.3% 22.3%
Telephone customers 0 3,248 4,146
2
“Bundled” service penetration rate 23.8% 35.7% 31.4%
2
“Bundled” service customers 2,452 4,462 5,019
Note: 1. These estimates are based on “end of the year” projections.
2. “Bundled” service customers refers to those households subscribing to all three
services (i.e. cable television, telephone, internet)
E. Actions, Improvements, and Construction
Actions
There will be additional actions required by the District prior to implementation of the
telecommunications service project. First and foremost, the District must make the determination
to move ahead with the telecommunications services plan. If the District determines that it is in
the best interest of its customers to provide the proposed telecommunications services, the
District, through its Board of Directors, will take action to approve the plan. Following approval
of the plan, the District will take a number of other actions leading up to implementation of the
project. These actions include authorization for financing the construction of the network,
approval of network design, authorization of construction contracts, and authorization of service
agreements with service providers for internet, cable television, and telephone services.
Improvements
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None of the improvements needed to provide the telecommunications services are currently in
existence. All of the infrastructure including fiber optic cable, passive optical splitters, and
electronic equipment needed to create the broadband network will have to be installed in order to
provide the proposed level of services.
Construction
In order to provide the proposed broadband telecommunications services, the District will have to
construct the passive optical network (PON) and prepare a space for the installation of the
network operations center (NOC). Construction of the passive optical network will involve
installing fiber optic cable along existing poles or in buried conduits depending on the type of
electric service (overhead or underground) that is already existing in a particular area. The
preparation of the physical space required for the NOC will primarily involve installation of an air
conditioning unit and doing some minor renovations to the room. The NOC will be located
within the District’s existing office on Donner Pass Road in Truckee.
The majority of the construction will focus on the approximately 152 miles of fiber optic cable
that will be hung on existing poles or pulled through existing underground conduits. The District
does not foresee there being significant costs associated with readying and preparing the poles to
accept the fiber optic cable. Due to the fact that the cable is non-conductive and self supporting,
most of the cable will be able to be installed in parallel to the electrical lines and oftentimes
utilizing the same support brackets. The District has budgeted $10 million for the construction
and installation costs.
F. Projected Revenue and Expenses
The revenue and expense projections presented in this document are based on a projected launch
ndrd
date for the TDPUD Broadband Business Unit of the 2 or 3 quarter of 2003. The District
plans to finance the project through a $10 million dollar loan to be paid over 12 years with an
interest rate of 7.0%. The primary revenue generating pathways will be through residential and
business subscriptions for cable TV, telephone, and internet service. The projections do not
include revenue that could be generated from “point to point” services such as ethernet
connections or from leasing of “dark fiber” (unused bandwidth).
The District has prepared revenue and expense projections for a ten year period. The projections
indicate that operating expenses will exceed operating income the first year. In all subsequent
years the operating income will exceed the operating expenses; however, the District will not have
positive net income (on an accrual basis) until the second year. According to the projections, in
the second year of operation the District will be taking in more money than it pays out. The
payback time for the total investment, including principle and interest payments on the $10 million
thth
loan, will occur sometime between the 8 and the 9 years of operation. Table 2, found on the
following page, summarizes the total revenue, total expenses, operating income, net income, and
the running cash flow. A more detailed breakdown of the revenue and expense projections is
included in Appendix A.
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Table 2
REVENUE AND EXPENSE PROJECTIONS
Year 1 Year 5 Year 10
Total Revenue $1,307,526 $2,985,224 $3,362,994
Total Expenses $1,861,052 $2,800,465 $3,000,052
Operating Income $(528,526) $ 384,758 $ 362,942
Net Income (accrual basis) $(224,314) $ $
735,806 1,395,350
G. Cost of Services
The District has estimated the cost of services for a ten year period. Because telecommunications
services are not considered essential services such as water and electric services, costs will only be
incurred by consumers who choose to take advantage of the services provided. Residences and
businesses may choose to utilize some or all of the services offered and will be billed only for the
services provided.
The District has assumed that 90% of their residential customers will subscribe to a “bundled”
service package which would include all three of the services previously mentioned. The
remaining 10% of residential customers would subscribe to just one or two of the District’s
services. Table 3. reveals the anticipated subscription rates for each service and for the
“bundled” package. Airing on the conservative side, the District has assumed that subscription
rates will remain constant over the first 10 years.
Table 3
SUBSCRIPTION RATES
Rate TDPUD Revenue
SERVICE
per Subscription
Internet Service $49.95/mo. $9.99/mo.
1
Cable TV Service $38.95/mo. $7.79/mo.
2
Pay-Per-View $2.68/movie $0.54/movie
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Telephone Service $25.00/mo. $n/a
5
“Bundled” Service Package $94.56/mo. $18.91/mo.
5
Business Internet Service $249.50/mo. $49.90/mo.
Notes: 1. The monthly subscription rate for cable TV is a broad average that takes into account
basic and premium cable customers.
2. The pay-per-view rate is an average cost per movie.
3. The rate for telephone service does not include long distance service and reflects
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a monthly average.
4. The TDPUD revenue from telephone subscribers is based on the details of the
partnership being established with the local competitive exchange carrier. Preliminary
estimates indicate that the District can expect revenue from $12.04 to $14.68 per subscription.
5. The sum of the individual monthly subscription rates is greater than the monthly rate for the
“bundled” service package because a discount will be given to customers subscribe to all
three services.
H. District Enabling Legislation
The enabling legislation for the District is the California Public Utility Code, Division 7 - Public
Utility District Act. Of particular pertinence to this Master Services Element is Chapter 4,
Powers and Functions of Districts, Article 3, Utility Works and Services, Section 16462,
Acquisition, construction, and operation of utility works and services which states the following:
“A district may acquire, construct, own, operate, control, or use,
within or without or partly within and partly without the district,
works for supplying its inhabitants with light, water, power, heat,
transportation, telephone service, or other means of
communication, or means for the disposition of garbage, sewage,
or refuse matter, and may do all things necessary or convenient to
the full exercise of the powers granted in this article.”
*emphasis added by author
Appendix B includes a copy of Articles 1, 2, and 3 in their entirety.
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Appendix A
Projected Revenue and Expenditures
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Appendix B
District Enabling Legislation
13