Demand AggregationFor Attracting a Private Partner or

Cost Justifying Your Own Fiber Build

BBC Summit - Austin, TX - April 6, 2014

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Your Panel• Mike Smeltzer

• Urbana-Champaign Big Broadband - UC2B

• University of Illinois at Urbana-Champaign

• Joanne Hovis

• CTC Technology and Energy & NATOA

• Will Aycock

• Greenlight Community Broadband, - Wilson, NC

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What Do You Want To Do?• Meet your community’s telecommunications

needs for today and tomorrow

• Promote a competitive telecommunications environment in your community

• Next generation infrastructure

• Fiber to the Premise - FTTP

• Businesses, Anchor Institutions & Homes

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How do you get there?• Incumbent providers competing?

• A competitive provider introducing competition?

• A municipal investment in infrastructure?

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The Utopian Scenario• Two or more incumbent service providers

• Well-managed and well-funded service providers

• Willing to invest in Fiber-to-the-Premise infrastructure

• Not a reality in most communities

• Other than Austin…..

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The Next Best Scenario

• A single competitive service provider

• Willing and able to invest in fiber

• Willing and able to compete with the incumbents

• Willing to work collaboratively with your community

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The Municipal Scenario

• A municipally-financed fiber build

• Could be operated as a municipal utility

• Greenlight is totally publicly owned and operated

• Works best when you already have municipal utilities - especially electric

• Could be publicly owned infrastructure that is privately operated

• UC2B is headed this direction

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The Money for Scenarios 2 & 3• Either your City Council or a Private Partner

will want to know

• How to pay the one-time fiber construction costs

• How fund the fiber maintenance and operations

• The planning exercise is similar for both scenarios

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Some Planning Questions• How many networks will you build and operate?

• Who will operate the network(s)?

• How will you aggregate demand?

• How and where will you over-subscribe?

• How will you get Internet bandwidth to your community?

• How will you address competition and “open access” on your network(s)?

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How many networks?• One big centrally managed network that

serves everybody

• Lots of smaller networks that are locally managed by the organizations they serve

• Both can be effective - depending on your circumstances

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One Big Network• Central Management

• More efficient use of fiber and personnel and more cost effective to operate

• Questions you need to answer:

• Does your networking staff have the right skill set?

• Do your potential customers trust your networking staff with their networking and their data?

• Are you willing to ramp up to operate a 24-hour, 365-days-a-year network operations center?

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Examples of One Big Network• DCnet - District of Columbia

• Greenlight - Wilson, NC

• LUSFIBER - Lafayette, LA

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Aggregating Demand• Two types of demand

• Intranet Demand

• Data traffic within your community

• Internet Demand

• Data traffic that leaves your community

• How you handle Intranet aggregation affects Internet aggregation

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Aggregating Intranet Demand• Connect all of your municipal locations to

each other at gigabit speeds with fiber

• Just one or two Internet connections that are shared by all public safety and municipal locations

• Connect all of your schools to each other at gigabit speeds with fiber

• Just one or two Internet connections that are shared by all public and private school locations

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Aggregating Intranet Demand - 2

• Connect all of your local banks’ locations to each other at gigabit speeds with fiber

• Just one or two Internet connections that are shared by all of a given bank’s locations

• Connect all of a major landlord’s MDU locations to each other at gigabit speeds with fiber

• Just one or two Internet connections that are shared by all of that landlord’s tenants at multiple locations

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Aggregating Intranet Demand - 3

• Also works for medical organizations, park districts, insurance companies, cell phone towers and many more.

• Allow any organization that has multiple locations in your community to use the fiber to link their locations to each other.

• It allows those organizations to aggregate their Internet demand, and helps them cost justify the one-time and recurring costs of using the fiber.

• Provide this as a service or lease dark fiber to them.

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Aggregating Internet Demand• Basic Internet Economics

• Buy one or two large Internet pipes at a low cost per unit of bandwidth

• Sell lots of smaller Internet pipes at a higher cost per unit of bandwidth

• Use “Statistical Multiplexing” to rationally over-subscribe your bandwidth

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Over-Subscription• It is nothing new, but it explains a lot

• Airlines do it

• Health Clubs and Gyms do it

• Traditional Telephone Companies do it

• Internet Service Providers do it

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Airline Over-Subscription• The simplest form of over-subscription

• Fixed number of passenger seats going from Chicago to Austin from 1:00 to 3:00 PM

• Statistically, we know that some percentage of ticket buyers will not show up

• Last minute changes of plans

• Missed or delayed connecting flights

• Makes sense to oversell a few seats

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Health Clubs & Gyms• Hundreds of members, but only 10 treadmills

• More complicated over-subscription

• The times of day change

• The length of visit per member is variable

• Still possible to predict usage

• Equip and staff to meet almost peak demand

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Traditional Phone Companies• Traditional long distance trunk lines

• More local customers than long distance wire pairs

• “Erlang” formula can compute needs

• Based on average number of calls/hour

• Based on average length of calls

• Worked well except for 2 days a year

• Mother’s Day

• Father’s Day

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Internet Service Providers

• More complex than any other example

• The time of day and length of use both change

• The actual bandwidth used over time changes

• The number of connected devices per customer varies

• Yet massive over-subscription still works

• Hard to predict

• You must be able to add bandwidth easily and quickly

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Over-Subscription Basics• The larger the pool of customers the better

• Hundreds, or thousands of customers support higher over-subscription ratios

• The farther from the customer the over-subscription happens the better

• This is where the broadband technology deployed makes a difference

• This is where fiber cables beat copper cables

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Fiber Over-Subscription

• Fiber can move the over-subscription point far from the customer

• Copper cables have distance limits that force neighborhood over-subscription, fiber does not

• A community of 150,000 can be aggregated over fiber in just 1 or 2 core locations

• The connection from the customer to the aggregation point at the network core can support 1 Gbps - “Gigabit” connectivity

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The Cost of Internet

• Cost of Upstream Transit Bandwidth

• Cost of getting from a Transit point (Chicago, Dallas, Atlanta, etc..) to you

• Cost of local distribution infrastructure

• Cost of Support and Operations

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Upstream Transit Bandwidth• Getting less expensive all the time

• One 1 Gbps connection - $2,500 a month

• 500 customers - $50 a month each

• 1,000 customers - $25 a month each

• 5,000 customers - $5 a month each

• One 10 Gbps Connection - $10,000 a month

• 5,000 customers - $2 a month each

• 10,000 customers - $1 a month each

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Transport to the Big City• This can cost more than the bandwidth

• Having access to “your own” fiber helps greatly

• Regional non-profit networks help reduce costs

• ICN in Illinois

• MERIT in Michigan

• KINBER in Pennsylvania

• Many others…

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Local Distribution• Fiber is your only obsolete-proof option

• Fiber is distance insensitive

• You can always put faster electronics on either end of the fiber

• The electronics only last 7-10 years anyway

• The fiber could be good for 40+ years

• Your grandchildren can always pull new fiber into the conduits you bury today

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Lots of Smaller Networks• Requires more fiber strands

• Requires more high-level networking staff

• Requires less trust of other networking staffs

• Moves responsibility to the connected organizations

• Less threatening to the existing IT staffs at the connected organizations

• This was the UC2B model

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UC2B’s Many Networks Model• UC2B has eleven organizations that lease dark

fiber on UC2B’s rings to provide services

• Some are ISP’s - Some are public entities

• They all help pay to maintain the fiber

• UC2B’s only responsibility to them is to keep the fiber operational

• Each organization operates its own network

• Some hire local networking firms to do that

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Leasing Dark Fiber• Lease dark fiber to all of those organizations with

multiple locations in your community

• Indefeasible Rights of Use (IRU) Contracts

• A complex 20-year lease that can be capitalized by the lessee - this is important to organizations that pay taxes

• Significant one-time charges that help pay for construction

• Recurring fiber maintenance charges that will help pay for fiber maintenance

• Not threatening to the IT staffs of those organizations - they control their own networks

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Lease Dark Fiber - 2• “Short term” dark fiber leases

• Cannot be capitalized by lessee

• Recurring fiber usage charges

• Recurring fiber maintenance charges

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IRU Math• One-time IRU costs are charged by the

“strand-mile”

• Depending on your fiber architecture and the network design of the organization:

• An organization might want from 1 to 4 strands on a ringed architecture to reach its locations

• An organization might want from 1 to 4 strands from a central hub to each remote location on a hub and spoke architecture

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IRU Math - 2• The strand miles can add up quickly

• For a 20-year IRU, the one-time charges:

• $750 per strand mile in rural areas where it is inexpensive to build

• $3,000 or more per strand mile in urban areas where it is very expensive to build

• UC2B’s rate was $1,500 per strand mile

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IRU Math - 3• There is a cost trade-off between fiber strand counts

and the electronics that connect to the fiber.

• The least expensive electronics use one strand to send and one strand to receive - two strands per location.

• More IRU strand-miles, but easier to trouble-shoot

• More expensive electronics can both send and receive on a single strand of fiber using different colors of light.

• Fewer IRU strand miles, but you need to be able to test multiple colors of light and it is harder to trouble-shoot.

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IRU Math - 4• Fiber maintenance is typically charged by the

route mile

• $200 to $400 per-route-mile per-year is typical

• Additional strands do not typically increase the maintenance charge on a given segment

• Sometimes every 6 strands leased triggers a new maintenance charge on a segment

• Discourages hoarding and reselling

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UC2B’s IRU Experience• UC2B raised close to 20% of the cost of its

fiber backbone by pre-selling IRU’s

• That was in just a 45-day window

• With more time, we could have come closer to 40% or 50% - based on the organizations who have since moved their Intranets to UC2B fiber.

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Now Sell Them Internet• Once an organization has connected all of its

locations with your fiber to aggregate their Internet demand, selling them a big Internet connection is simple and cost effective.

• Even if you have to bid on the connection, you will be optimally situated to provide the service inexpensively.

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Competition & Open Access• Do you provide enough competition?

• Will you lease dark fiber to competitors?

• Will you provide wholesale services to competitors?

• Do you need to start thinking like incumbents?

• To be sustainable you may have to - at least a little

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Are you ready to aggregate?

• Do you have GIS-based maps?

• Can you work with someone locally to create them?

• Locate all your multi-location potential customers in the GIS system.

• Get someone with a fiber networking experience to design a fiber plant, based on the locations you want to connect. Diversity and rings are good.

• Get the fiber lengths from the GIS system and do the construction and the revenue math.

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The Greenlight Model• Will Aycock

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Other CommunitiesJoanne Hovis

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Questions

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