Terrence P. McGarty, Lisbon February 13, 2003 Broadband to the User: US Market Development and...

Terrence P. McGarty, Lisbon February 13, 2003

Broadband to the User:US Market Development and Options

Lisbon

February 13, 2003


Fiber Network Architecture


Fiber to the Home (FTTH)

“Home Run”

Separate fiber to each home from Head End or Central Office

Pros:• Ultimate performance• Highest flexibility• Minimal interoperability and upgradeability issues

Cons:• Extremely high cost• Incremental build-out expensive as well

“Active Star”

Fiber runs from Head End to remote hubs with switching equipment

Pros:• High performance• Diversity of services

Cons:• High equipment costs• Reliability issues: need for power at every remote• Aesthetics, real estate for remotes

Passive Optical Network (“PON”)

Single fiber runs from Head End to hubs with passive optical splitters

Pros:• Lowest life-cycle costs• Simplest design, minimal need for field electronics• Highest reliability

Cons:•Requires simultaneous upgrade of remotes and Head End• Shared resource: bottlenecks upstream, signal compatibility

Gigabit Ethernet (“GigE”)

Giga Bit Ethernet is a technology which uses “distributed” routers allowing direct 110 Base T or higher connections to the home.

Pros: • Simple Interface•High Data Rate

Cons:• Shared local connection•Increases complexity and management


Comparison of Internet Access

Residential

SOHO

SME

Large Enterprise

Dial-Up

DSL

Cable Modem

LMDS Fixed Wireless

Fiber to the Home

Data

500 Kbps

1 Mbps

5 Mbps

100 Mbps

56 Kbps

High Res. Video, Digital Services

Low Res. Video


Fiber Backbone

Ring 1

Ring 2 Ring 3

Ring N

HeadEnd

HeadEnd

HubHub SHSH


Technology and Cost Comparisons


Broadband Options

• FTTH – PON

• FTTH – Gigabit Ethernet

• HFC

• Wireless – LMDS, 802.11

• DSL

• Cable Modems


Technical Issues


Protocol LayersApplication The applications software, it is what the end user

sees and uses.

Presentation Provides for such things as security and security management.

Session Controls communications between applications, flow management, and creates sessions between applications at end user level.

Transport Ensures reliable end to end transport and flow control

Network Provides point to point and point to end point reliable links

Data Link Provides for reliable physical link transport; can be divided into LLC and MAC functions

Physical Provides physical connections and electrical connections, including modulation.


TCP/IP vs OSI

Application

Presentation

Session

Transport

Network

Data Link

Physical

Application

Transport: TCP

(host to host)

Internet: IP

Network Access

Physical


Network Convergence

ServiceServiceAdaptationAdaptation

L1L1

L2L2

F-T1F-T1 DS1 DS3DS1 DS3

SonetSonet

OC3 - OCnOC3 - OCn

Cam

pus

Cam

pus

802.N802.NFrameFrameRelayRelay

ATMATM

L3L3IPIP

PPPPPP

WA

NW

AN

IP


IPIP Header

0 31

160 bits per Header

20 O

ctet

s

Source Address

Destination Address

Version IHL Type of Service Total Length

Identification Flags Fragment Offset

Time to Live Protocol Header Checksum


TCP

Source Port Destination Port

TCP Header

Sequence Number

Acknowledgement Number

DataOffset Reserved URG etc Window

Check Sum Urgent Pointer

0 31

160 bits per Header

20 O

ctet

s


TCP and IP and ATM Headers

Data

ATM

IP

TCP


ATM

Information Fields

48 OctetsOr

384 bits

Flow Control VPI

VCI

Payload Type

Header Error Control


Ethernet MAC Frame 802.3

Preamble StartFrame

Destination Source Length Data Pad ErrorCheck

56 bits 8 bits 16 bits 16 bits


Architecture Elements


Ethernet Layer 2, 3 and ATMHomeHeadend Transport

ATM

TCP/IP

Layer 2

RouterIP Address

Layer 2 SwitchRouter

Router

Router

ATMSwitch

Layer 2ATM Switch


Fiber Rates ATM v GigE

ATMSwitch

Rates of OC 3, OC 48, OC 96, OC 192

PassiveOpticalSplitter



622 Mbps down155 Mbps Up

TDM DownTDMA Up

Max 10 MbpsShared

ATM

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Physical

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LLC/MAC

Physical

Application

Presentation

Session

TCP

IP

LLC/MAC

Telco Network

IP Network


Physical

Application

Presentation

Session

Transport

Network

Data link

Physical

Application

Presentation

Session

Transport

Network

Data link

Physical

Application

Presentation

Session

Transport

Network

Data link

Physical

Application

Presentation

Session

Transport

Network

Data link


Physical

Application

Presentation

Session

TCP

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LLC/MAC

Physical

IP

LLC/MAC

Physical

IP

LLC/MAC

Physical

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PON Passive Optical Networks


PON Options

• APON – ATM based PON

• EPON – Ethernet based PON


Flavors of PON: A / B / E / G / P

• Multiple ways of implementing PON

• APON - ATM PON

– first commercial product, used primarily for business applications

• BPON - Broadband PON

– expanded version of APON with added functionality to support robust video

services

• EPON - Ethernet PON

– PON using Ethernet for packet data - still evolving

• GPON - GigaPON

– evolving PON technology at gigabit rates

• Proprietary PON

– long term viability and support issues

• Alcatel uses BPON in 7340 FTTU


• 7340 H-ONT (Home Optical Network Terminal) - customer interfaces

• 7340 P-OLT (Packet Optical Line Terminal) - network interface for PONs

• 7340 V-OLT (Video Optical Line Terminal) - video distribution across PON

• 7340 AMS (Access Management System) - element management

7340 V-OLT

7340 P-OLT

7340H-ONT

Network Central Office or Fiber NID Home Network

Remote Terminal Distribution

7340 AMS

Voice

Data

Video

7340 FTTU System Elements


7340 BPON Technology

• Voice, data and video (bidirectonal) for 32 subscribers over a single fiber

• Coarse WDM supports three wavelengths — 1,490/1,310/1,550 nm

• 622/155 Mb/s packet rate via two wavelengths

• Dedicated wavelength for video — very high capacity (4 Gb/s Broadband Entertainment)

• 20 km (12.4 mi.) span

20 km (12.4 mi.)

1,550 nm

622 Mb/s1,490 nm

1,310 nm

Splitters

7340 V-OLT

7340 P-OLT

7340 AMS

Central Office or Remote Terminal

FiberDistributio

n

PassiveOutside Plant

155 Mb/s

TDMA Up in ATM

Frames, TDM down

in ATM Frames

TDMA Up in ATM

Frames, TDM down

in ATM Frames


FTTU System Key Points• Optical Network Terminator (ONT)

– Optimized for residential service

– Environmentally hardened

– Locally powered with battery backup

• Optical Line Terminator (OLT)

– Shares common components with the ASAM 7300

– Supports residential and business services

– Architected for modularity, scalability and cost

– Low initial capital investment

• Partnering with best-in-class vendors for other elements

• Element Management

• FSAN/ITU standards compliant; Alcatel active participant

7340 H-ONT

7340 P-OLT


FTTU Service View• Supports bundled services — voice, data, video

– up to four POTS systems with lifeline support– very high speed data (10/100Base-T or HPNA interfaces)– video (Analog, Standard Definition Digital & High

Definition)• Flexible bandwidth use

– more than 20 Mb/s available per subscriber on average– higher bursting rates possible– supports service level agreements (SLAs)– efficiently carries IP and MPEG payloads

• Supports service requirements of tomorrow– easily accommodates emerging services– ONT upgradeable via software for new services– ONTs planned for several niche applications — SOHO,

MDU, MSE, MTU

ONT

RJ11

CoaxRJ45

POTS

POTS

POTS

POTS

10/100baseT

CATV

HPNA

UPS


Satellite

Cable TV

Local TVBroadcast

BroadcastVideo

Tx 1550nm

Central Office Home

7340 AMS

PSTN

Video Optical

Transmitter

Vid

eo

RF

Mu

x

VoD Server

GR-303/TR-08Voice

Gateway

VideoStorage

7670 RSP /OmniswitchATM Switch

BAS

Class 5 Switch

UPS

Tx 1490/Rx 1310 nm

Tx 1550nm

7340V-OLT

7340 P-OLT

WDM

Alcatel 6620 FTTU

Fiber and components in outside plant

7340 H-ONT

Intranet/Internet

FTTH Network Solution:

IP Video Return


HPNA 2.0 or Ethernet 10/100 Base-T VoD

PUMP

VideoApplication

Server

Tx 1490 /Rx 1310 nm

Satellite

Cable TV

Local TVBroadcast

BroadcastVideo

Mo

du

lato

rs

Tx 1490 nm Rx 1310 nm Tx 1550 nm

Video Optical

TxVoD/

XCATV/DBS

Tx 1550nm

Tx 1550nm

V-OLT

WDM

IP or ATM network

1:32

CATVBroadcast

75 Ohm Coax

IP Return

BPON 1550nm CATV Solution


1-24 25-48 49-72 73-9696 Homes Passed

Primary Flexibility Point

36 fiber Cable ~15 km

1:8

OLT

24 fiberCable

Greenfield 100%Homes passed are

Connected

Over BuildConnect as you add

subscribers

FP2

24

FP12

2424

FP3FP4

2424

24

FP5FP6

FP7

2424

24

FP8FP9

FP10

24

FP11

24 1152 Total Homes Passed

24 fiber Cable ~ 1 to 5 km

F11:4

Final DropPoint

FTTU Outside Plant Example• Tiered splitting strategy

• Minimize cost

• Allow flexibility for future with fiber rich last 1/2 mile


APON CostsElement Fixed Variable Capacity

Router

Cisco 12000

$250,000

7670 ATM Switch

7340 P OLT

Optical Switch

317 Remote

7340 H ONT

Home Units


Gigabit Ethernet


System Elements

3700Headend

1601,000 BTCarriers

3700Headend

1601,000 BTCarriers

410 HubConcentrator16 1,000 BT


317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

Cisco12000Router

Cisco12000Router

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs



317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs


GigE Architecture

RouterRouter

TCP/IPFrom RouterOut: Layer 3

TCP/IPFrom RouterOut: Layer 3

HubHub

HubHub

RemoteRemote

RemoteRemote

RemoteRemote

HeadendHeadend

Ethernet100 GbpsLayer 2

Ethernet100 GbpsLayer 2

Layer 2Switch

Ethernet toBackbone Layer 2

Layer 2Switch

Ethernet toBackbone Layer 2

TCP/IPLayer 3, 4

Contains TCP and IP address

TCP/IPLayer 3, 4

Contains TCP and IP address

Layer 1, 21 Gbps

Backbone

Layer 1, 21 Gbps

Backbone


Fiber Backbone

Ring 1

Ring 2 Ring 3

Ring N

HeadEnd

HeadEnd

HubHub SHSH


GigE CostsElement Fixed Variable Capacity

3700 Headend $190,000 $12,000 160 1 Gbps BT connections

410 Concentrator $6,995 16 Gbps BT Connections, 10 km range

317 Remote $7,695 4 Gbps, 24 100 Mbps port pairs, 10 km range

36 Access Portal $1,165 10/100 Mbps (8), POTS (2)


Design Issues

3700Headend

1601,000 BTCarriers

3700Headend

1601,000 BTCarriers



317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

Cisco12000Router

Cisco12000Router

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs



317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

317 HubRemotes

4 1,000 BT24 100 FX Pairs

If low load per HH, then can set 15 HH 317Per 410, and one 1 Gbps from 410

Back to 3700, with 1 Gbps on in and1 Gbps on out.


Capital Plant

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

Portal Capital $291,250 $582,500 $873,750 $1,165,000 $1,456,250 $1,747,500 $2,038,750 $2,330,000 $2,621,250 $2,912,500 $3,203,750 $3,495,000

Remote Capital $80,208 $160,417 $240,625 $320,833 $401,042 $481,250 $561,458 $641,667 $721,875 $802,083 $882,292 $962,500

Concentrator Capital $7,000 $14,000 $21,000 $28,000 $35,000 $42,000 $49,000 $56,000 $63,000 $70,000 $77,000 $84,000

HE Capital $247,081 $247,081 $247,081 $247,081 $247,081 $247,081 $247,081 $247,081 $247,081 $247,081 $247,081 $247,081

250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750 3,000


Per Sub CapitalNet Capital per Sub

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

Net Capital per Sub $1,752 $1,406 $1,290 $1,233 $1,198 $1,175 $1,159 $1,146 $1,137 $1,129 $1,123 $1,117

250 500 750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750 3,000


Cap per Sub LargeChart Title

$1,070

$1,080

$1,090

$1,100

$1,110

$1,120

$1,130

$1,140

$1,150

Net Capital per Sub $1,146 $1,117 $1,136 $1,121 $1,111 $1,103 $1,114 $1,108 $1,103 $1,099 $1,107 $1,103

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000


Municipal Broadband


What is Municipal Broadband?

• Optical fiber network owned by municipality (Town / Utility)

• Fiber connectivity to homes and commercial properties: 100 Mbps service, Fiber to the Home (FTTH)

• Integration of school, fire, police, public safety, healthcare

• Open access network allowing any service provider/ISP

• Municipality provides “bit” backbone only; service provider owns end-users

Headend

Open InterfaceInternet, Cable, Telco

MunicipalBroadbandNetwork


Network and ServicesNetwork and Services ISP Integrator & CarrierISP Integrator & Carrier

Municipal/Town BroadbandMunicipal/Town Broadband

Value Added PackagerValue Added Packager

Added Serviceswould be Video, VPNs,

Voice Over IPand other advanced

services.

Added Serviceswould be Video, VPNs,

Voice Over IPand other advanced

services.

Basic services wouldbe basic ISP andvalued added ISP

based servicesto end user

Basic services wouldbe basic ISP andvalued added ISP

based servicesto end user

Concept of Municipal Broadband


Opportunity Size

• Have budgeted 15 municipalities under definitive contract in 2003; already have 8 with preliminary agreements

• Anticipated over 300 towns by end of year 6, regional and national• Revenue goes to $100 million, NOI peaks at 61%• CCF requirements are $5 million, primarily for build out of NOCs and

working capital, use of proceeds can be throttled by demand• Capital can be throttled on buildout

Year 2003 2004 2005 2006 2007 2008

Number Towns Serviced 15 54 125 196 262 316Revenue ($000) $1,208 $9,520 $26,163 $49,220 $71,464 $93,453Cost of Service ($000) $0 $168 $782 $1,802 $2,788 $3,460% Gross Margin 100% 98% 97% 96% 96% 96%Net Operating Expenses ($000) $3,267 $10,061 $19,184 $27,210 $30,887 $32,732Net Operating Income ($000) ($2,059) ($709) $6,197 $20,208 $37,790 $57,261NOI Margin % -171% -7% 24% 41% 53% 61%Capital Expenditures ($000) $200 $1,018 $2,123 $3,365 $2,975 $2,671Net Free Cash Flow ($000) ($2,389) ($2,624) $1,735 $12,147 $27,156 $44,449Cumulative Cash Flow ($000) ($2,389) ($5,014) ($3,278) $8,868 $36,024 $80,473


Incumbent network provider “Owns” all of the local customers

High borrowing cost of capital Unbundling of broadband poses business risk to existing services Significant cuts in budget Politically complex

Local CATV presence “Owns” the CATV customer

Very bad cash position Need to upgrade cable plants to support two-way broadband in outlying areas

Some broadband in larger cities and towns Some backbone infrastructure

Limited to no financial capability Serious negative cash flow

MunicipalNetwork

Capable of raising financing at low cost of capital Capable of local and targeted deployment No local regulatory problems

No network operational skills, but can be easily outsourced No infrastructure support capabilities, but can be easily outsourced

Current Options for Broadband

Strengths Weaknesses


Municipal Broadband: “Win Win Win” Scenario

TownTown

ConsumerConsumerISP

ServiceProvider

ISPService

Provider

1. Increased Revenue Source2. Possible 2:1 or more

coverage3. Improved Town Facilities4. Integrated Municipal

Services



Services

1. Lower Cost of Services2. Improved Gross

Margins3. Added capabilities for

advanced services4. Better competitive

positioning

1. Lower Cost of Services2. Improved Gross

Margins3. Added capabilities for

advanced services4. Better competitive

positioning

1. Increased Service Offerings

2. Integrated Town Services3. Increased Property

Values4. Decreased Town Taxes


2. Integrated Town Services3. Increased Property

Values4. Decreased Town Taxes


Comparison of Internet Access

Residential

SOHO

SME

Large Enterprise

Dial-Up

Cable Modem

Fixed Wireless

DSL

Fiber to the Home

Data

500 Kbps

1 Mbps

5 Mbps

100 Mbps

56 Kbps

High Res. Video, Digital Services

Low Res. Video


Fiber-to-the-Home Services

Video Services: StandardAnd enhance video services

With HDTV digital TVentertainment

Telephone Services: AccessTo multiple telephone

services providers,offering choice

And cost savings

Broadband Internet Access: 100 Mbps or greater; A secure, ultra high speed network for family, municipal, medical, educational, public safety.


“Win Win Win” Scenario

TownTown

ConsumerConsumerISP

ServiceProvider

ISPService

Provider



Services



Services

1. Lower Cost of Services

2. Improved Gross Margins

3. Added capabilities for advanced services

4. Better competitive positioning

1. Lower Cost of Services

2. Improved Gross Margins

3. Added capabilities for advanced services

4. Better competitive positioning


2. Integrated Town Services

3. Increased Property Values

4. Decreased Town Taxes


2. Integrated Town Services

3. Increased Property Values

4. Decreased Town Taxes


Financing “Public Works” Project

• Treat municipal broadband project as Public Works; like building town roads or sewers

• Local municipality finances, builds, owns and operates broadband infrastructure

• Financing: municipal revenue bonds (tax-exempt)

• Feasibility test: “Revenues sufficient to cover debt service and direct expenses?”

• Could be partially underwritten by anchor tenants (local businesses and other institutions/coops)


Target Markets


Target Market

• Residential: Single cable modem type interconnection, broadband access plus telephony.

• SOHO/SME: Upscaled cable modem access and multiple telephony connections. LAN support.

• Commercial: Multi Employee locations with LAN capabilities and server access.


Targeted Town Characteristics

• Not in strict Dillon Rule states (MO, NV, TN, TX, VA)• Little or no broadband infrastructure

– Old cable / telecom systems– Outside of RBOC/cable immediate interest

• Proximity to long haul fiber• 10,000 or more homes, upper 25% income demographic, 250 ft per

front home• Existing municipal power/water/sewer systems• Wealthy demographics; rich bedroom communities• High Internet penetration rate (AOL, AT&T)• Town not dependent for goods and services on State (RBOC lobbying

factor)• Political support


Key Demographic Factors

High Density per Mile

Good Demographics/High Internet Usage

Increased Seasonal Usage

Commercial BasePublic Services and Public Safety Usage

Limited Rural Access


NewEngland Target Towns

Town State LOI Hot List Follow Up

Acton MA 7,500

Amherst NH 3,590

Biddeford ME 8,616

Brunswick ME 5,849

Concord NH 16,281

Derry NH 12,327

Durham NH 2,882

Goffstown NH 5,641

Hanover NH 2,832

Hudson NH 8,034

Johnston RI 11,197

Keene NH 8,955

Laconia NH 6,724

Lebanon NH 5,500

Lewiston ME 15,291

Londonderry NH 7,623

Merrimack NH 8,832

Middleborough MA

Milford NH 5,201

Newport RI 11,566

Peabody MA

Saco ME 6,773

Salem NH 10,402

Sanford ME 8,262

Scarborough ME 6,471

South Portland ME 10,042

Walpole MA 8,000

Warwick RI 35,517

Wayland MA 4,700

Wellesley MA 8,600

Westford MA 6,800

Weston MA

Westwood MA 5,200

Total 41,882 83,252 140,074


US Target Market

Region Total States

Target States

Total Towns

Target Towns

Target Town %

Total Households

Target Households

Target Household %

New England NE 4 4 176 68 38.6% 3,665,000 653,343 17.8%

East E 11 5 5,990 94 1.6% 23,706,000 610,817 2.6%

Midwest MW 10 9 15,258 726 4.8% 23,736,000 4,218,897 17.8%

West W 8 8 3,992 427 10.7% 16,196,000 3,363,951 20.8%

South S 16 12 13,086 498 3.8% 33,124,000 2,744,947 8.3%

Other O 2 0 298 0 0.0% 616,000 0 0.0%

Totals 51 38 38,800 1,813 4.7% 101,043,000 11,591,955 11.5%

Source: U.S. Census Bureau; Merton Market Analysis


US Coverage

Total Towns

1 Dot = 60

Town Penetration0.46

Target Town %


Broadband Markets

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

Dec-99 Jun-00 Dec-00 Jun-01 Dec-01

Num

ber

Hig

h-Sp

eed

Lin

es

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Per

cent

Cha

nge

Satellite or Fixed Wireless 7,816 3,649 26,906 73,476 75,341

Fiber 307,315 301,143 376,197 455,549 486,483

Coaxial Cable 877,465 1,469,130 2,193,609 3,329,976 4,394,778

Other Wireline 609,909 758,594 1,021,291 1,088,066 1,078,597

ADSL 185,950 326,816 675,366 998,883 1,369,143

Percent Change 43.8% 50.2% 38.5% 24.5%

Dec-99 Jun-00 Dec-00 Jun-01 Dec-01

Source: FCC Broadband Report, July 2002


Case Study: LaGrange, Georgia

Basis Statistics

• Pop. 26,000

• 11,000 Households

• Rural Troupe County

• Avg. Income $26,000

• City Budget: $65 mil.

Telecom History

• In early 1990s, established (with ITC Holdings) a 4 mi. fiber network and multi-carrier PoP

• City provided local bandwidth and route diversity; ITC provided long-haul data carrier services

• Local fiber network is now 57 mi.; serves commercial customers

Local Broadband Project for Homes

• In 1998, Lagrange Dev. Authority partnered with Charter Communications to build 150 mi. hybrid fiber-coax cable network

• Financed with $9.2 million revenue bonds

• City, Authority financed, built and owned network

• Leased capacity to Charter for video services

• City currently providing broadband Internet, data, VPN and Voice over IP services; residential broadband + data priced at $40/month

• Connected all 21 schools and two large colleges in Troupe county for Internet, voice, video; attracted several new businesses to area

• 100% of households receiving cable TV; 70% signed up for cable Internet access (2001)

• Revenues grew from $67K in 1997 to $117K in 1998 to $571K in 1999 to over $1,000K in 2000.


Local Broadband NetworksAlabama: Lincoln, Opp, Foley, Scottsboro

Alaska: Angoon, Kake, Kiana, Kotlik

Arkansas: Conway, Lockesburg, Paragould

California: Anaheim, Alameda, Burbank, Los Angeles, Palo Alto, San Bruno, Santa Rosa

Colorado: Center, Copper Mountain, Longmont

Florida: Gainesville, Key West, Lakeland, Leesburg, Newberry, Ocala, Valparaiso

Georgia: LaGrange, Fairburn, Marietta, Newnan, Thomasville

Iowa: Akron, Algona, Alta, Bancroft, Cedar Falls, Coon Rapids, Danbury, Dayton, Denison, Grundy Center, Harlan, Hartley, Hawarden, Hull, Independence, Indianola,

Lake View, Laurens, Lenox, Manilla, Manning, Mount Pleasant, Muscatine, New London, Orange City, Primghar, Rock Rapids, Sac City, Sanborn, Sibley, Spencer,

Tipton, Wall Lake, Waterloo, Westwood

Kansas: Altamont, Baxter, Cawker, Columbus, Courtland

Kentucky: Bardstown, Barbourville, Bowling Green, Frankfort, Glasgow, Williamstown

Maryland: Easton

Massachusetts: Braintree, Chicopee, Holyoke, Shrewsbury, Westfield

Michigan: Clearwater, Coldwater, Crystal Falls, Hillsdale, Holland, Lowell, Negaunee, Norway, Wyandotte

Minnesota: Bagley, Coleraine, Elbow Lake, Fosston, Jackson, Marble, Westbrook, Windom

Missouri: Newburg, Springfield, Unionville

Nebraska: Lincoln

North Carolina: Morganton

New Hampshire: Keane

Ohio: Archbold, Butler County, Celina, Cuyahoga Falls, Hamilton, Lebanon, Niles, Wadsworth

Oregon: Cascade Locks, Eugene, Lexington, Lincoln County Public Utility District, Springfield

Pennsylvania: New Wilmington, Pitcairn

South Dakota: Beresford

Virginia: Blacksburg, Leesburg, Lynchburg

Washington: North Bonneville, Sumas, Tacoma

West Virginia: Phillipi

Wisconsin: Oconto Falls, Two Creeks

Wyoming: Lusk, Bailroil

Source: 1998, Muni-Telecom list server, Center for Civic Networking


Benefits of Municipal Broadband

• Ubiquitous Coverage – mission driven

• Lower buildout costs - Rights of way, RFP process

• Enhanced Services – digital media, interactive TV

• Economic Development – attracts new businesses

• Community Asset – property values and taxes

• Competition – forces high QoS from private providers

• Efficiency – leverage existing infrastructure (utilities, etc)

• Fewer Upgrades –open access, ample bandwidth

• Improved Government IT – integration, E-government

• Security – integrated communications infrastructure


Risks of Municipal Broadband

• Financing Risks – experience, credit rating, balance sheet

• Technology Risks – compatibility and interoperability

• Revenue Risks –customer demand, private sector interest

• Operating Risks – experience, regulatory, QoS

• Political Risks – project approval process, regulatory

• Regulatory Risk – ILEC, namely Verizon, litigation and delay tactics


Target Market – U.S.

• Initial region of focus is New England: strength of relationships, familiarity, vicinity and demographic factors

Region Total States Target States Total Towns Target Towns Target Town % Total Households Target HouseholdsTarget Household

%

New England NE 4 4 204 95 46.6% 3,665,000 957,218 26.1%East E 11 5 5,990 94 1.6% 23,706,000 610,817 2.6%Midwest MW 10 9 15,258 726 4.8% 23,736,000 4,218,897 17.8%West W 8 8 3,992 427 10.7% 16,196,000 3,363,951 20.8%South S 16 12 13,086 498 3.8% 33,124,000 2,744,947 8.3%Other O 2 0 298 0 0.0% 616,000 0 0.0%

Totals 51 38 38,828 1,840 4.7% 101,043,000 11,895,830 11.8%

Source: U.S. Census 2000; Merton Market Analysis


•Not in strict Dillon Rule states (MO, NV, TN, TX, VA)•Little or no broadband infrastructure

–Old cable / telecom systems–Outside of RBOC/cable immediate interest

•Medium to high population density•Critical size of population and number households•Wealthy demographics•High Internet penetration rate (AOL, MSN, etc)•Political, regulatory support

•Not in strict Dillon Rule states (MO, NV, TN, TX, VA)•Little or no broadband infrastructure

–Old cable / telecom systems–Outside of RBOC/cable immediate interest

•Medium to high population density•Critical size of population and number households•Wealthy demographics•High Internet penetration rate (AOL, MSN, etc)•Political, regulatory support

Target Coverage

Total Towns

1 Dot = 60

Town Penetration0.46

Target Town %


Market Penetration 2003-2008

0

50

100

150

200

250

300

350

Num

ber

To

wn

s

-

5

10

15

20

25

30

35

40

45

50

Num

ber

Re

gio

ns

Number Towns Serviced 2 5 8 15 22 31 40 54 69 88 106 125 143 162 180 196 212 229 245 262 277 291 306 316

Number Regions 1 1 1 2 2 3 3 4 4 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 Q19 Q20 Q21 Q22 Q23 Q24


Competition

• Merton is s service integrator: not in highly competitive business of construction, optical technology or consulting

• Focused on niche market with high demand: public sector

• Targeted towns below radar of RBOCs and Cable for fiber broadband; private sector weakened financially

• Only one other known service integrator providing similar functions: DynamicCity out of Provo, UT


Competitive Factors

• Operational, technical and financial experience

• Operations support capability

• Credibility in industry and in Washington

• Regulatory successes

• Established track record as a team for years

• Minimal risk strategy to municipal broadband

• Bankable team


Risks

Risk Explanation Mitigation

Market Risk Towns not prepared to take on MBN projects

Market is large and there is known demand

Timeline / Sales Cycle Risk Time to revenues on any given project is high

Diversity of town portfolio; Co-Op approach reduces lead time

Regulatory / Political Risk State or Federal regulation, or ILEC supportive laws might prohibit MBN

Below radar of ILECs; Merton lobbying both Federal and state legislators

Vendor Risk Long-term viability of vendors

Careful selection of vendors; due-diligence

Town Financing Risk Towns may not be able to raise required capital

Track record of infrastructure projects funded by municipal bonds


MBN Details


Fiber to the Home (FTTH)

Head EndSwitch, and Data

BroadbandFacility

Head EndSwitch, and Data

BroadbandFacility

TownLocalHub

TownLocalHub

TownLocalHub

TownLocalHub

SubHub

SubHub

SubHub

SubHub

SubHub

SubHub

SubHub

SubHub

OpticalSplitters / Ethernet Switches





Capital Costs Estimates

Capital Cost Assumption Result

• Fiber Installation, New Trenching: $50,000 per mile

• Fiber Installation, Existing Conduits/ Aerial: $20,000 per mile

10%-90% split between new trenching and existing conduits/aerial

$23,000 per mile

Fiber Cost: $150 per mile per strand 48 strands on backbone

2 strands per home drop

$7,800 per mile

Optical equipment and buried installations: $7,000 per mile

Gigabit Ethernet Network architecture

$7,000 per mile

FTTH drop and home electronics: $900 per home

• Home has 100 foot frontage, or 60 homes per mile

• 30% penetration of homes, or 18 homes per mile serviced

$16,200 per mile

TOTAL $54,000 per mile

TOTAL per Home 18 homes per mile serviced $3,000 per Home


Town Revenue Model

Town Owned and Operated

BroadbandNetwork

Town Owned and Operated

BroadbandNetwork

ISPISP

Customers(Residential, SOHO/SME, Commercial

)

Customers(Residential, SOHO/SME, Commercial

)

CATV / LECCATV / LEC

Network Access Fees

Network Access Fees

Service Fees

Service Fees

Installation / Access Fees


Revenue Sources: “Starting Point”

AOL50%

Other ISP 20%

No Internet Access30%

Sample Internet Statistics

Two Lines60%

One Line40%

Number Telephone Lines (% of HH with AOL)

Number Households (HH) 10,000

Number HH with AOL 5,000

Number HH with Second Line 3,000

Effective Conversion Rate 30%

Second Line Fee / Month $25

Revenue to Town (Annual) $900,000

Municipal Broadband Network


“Back of the Envelope”

HeadEnd

HeadEnd

HubHub SHSH

3,000 HH$25.00 per month12 months/year

=$900,000Per year

3,000 HH$3,000 per HH=$9,000,000

For plant

Payback Ratio

000,900$

000,000,9$ = 10 years

Bond Interest Coverage = 185% (after Operating Expenses)


Beyond Starting Point

• Starting Point is one “if” scenario: Only homes with second telephone lines moved to Municipal Broadband Network

• Higher home penetration likely

• Commercial / public utility provide incremental revenues

• All other revenues are costless:

– Higher fee for 100 Mbps services

– Value added services: video, telephone, HD TV


Financing “Public Works” Project

• Treat municipal broadband project as Public Works; mission driven, not profit driven


• Financing: municipal bonds (tax-exempt/taxable)


• Could be partially underwritten by anchor tenants (local businesses and other institutions/coops)


Bond Coverage Example

EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Bond Interest Bond Principal EBITDA


Key FactorsYear 1 2 3 4 5 6

Total Large Users (Large Users ) 200 200 200 200 200 200 Total Medium Users (Medium Users) 2,000 2,000 2,000 2,000 2,000 2,000 Total Small Users (Small Users ) 8,000 8,040 8,080 8,121 8,161 8,202

Total Users 10,200 10,240 10,280 10,321 10,361 10,402

Penetration EOY Large Users # # 20.00% 30.00% 33.00% 36.30% 39.93% 43.92%Penetration EOY Medium Users # # 20.00% 25.00% 30.00% 33.60% 37.63% 42.15%Penetration EOY Small Users # # 15.00% 20.00% 25.00% 30.00% 33.60% 37.63%

EOY Large Users 40 60 66 73 80 88EOY Medium Users 400 500 600 672 753 843EOY Small Users 1,200 1,608 2,020 2,436 2,742 3,087

Total EOY Users 1,640 2,168 2,686 3,181 3,575 4,017

Avg Number End-Users Large Users 140 350 441 485 534 587Avg Number End-Users Medium Users 600 1,350 1,650 1,908 2,137 2,393Avg Number End-Users Small Users 600 1,404 1,814 2,228 2,589 2,914

Total Avg Number End-Users 1,340 3,104 3,905 4,621 5,260 5,895Avg Penetration End-Users 8.70% 20.10% 25.23% 29.77% 33.80% 37.78%

Internet/Network Access

Installation Charge Large User $500 $500 $500 $500 $500 $500Installation Charge Medium User $250 $250 $250 $250 $250 $250Installation Charge Small User $100 $100 $100 $100 $100 $100

Avg Fee/ Month/ End-User Large Users $60.00 $60.00 $60.00 $60.00 $60.00 $60.00Avg Fee/ Month/ End-User Medium Users $40.00 $40.00 $40.00 $40.00 $40.00 $40.00Avg Fee/ Month/ End-User Small Users $25.00 $25.00 $25.00 $25.00 $25.00 $25.00


User Growth

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

Avg Number End-Users Large Users 140 350 441 485 534 587 646 710 781 859 945 1,040 1,105 1,120 1,120 1,120 1,120 1,120 1,120 1,120

Avg Number End-Users Medium Users 600 1,350 1,650 1,908 2,137 2,393 2,681 3,002 3,363 3,766 4,218 4,478 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500

Avg Number End-Users Small Users 600 1,404 1,814 2,228 2,589 2,914 3,280 3,692 4,156 4,678 5,266 5,927 6,324 6,386 6,418 6,450 6,482 6,515 6,547 6,580

Avg Penetration End-Users 8.7% 20.1% 25.2% 29.8% 33.8% 37.8% 42.2% 47.2% 52.8% 59.0% 66.0% 72.2% 75.1% 75.3% 75.3% 75.3% 75.3% 75.3% 75.3% 75.3%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20


Revenue

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

($00

0)

Netw ork/Internet Access $809 $1,397 $1,723 $1,996 $2,241 $2,507 $2,804 $3,137 $3,510 $3,927 $4,393 $4,757 $4,864 $4,885 $4,895 $4,905 $4,914 $4,924 $4,934 $4,944

Video $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Telephony $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20


OPEX

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

($00

0)

Network Operations Center (NOC) $50 $117 $147 $174 $198 $222 $249 $279 $313 $350 $393 $431 $449 $452 $453 $455 $456 $457 $458 $460

Maintenance - Electronics $94 $123 $150 $176 $196 $226 $253 $284 $318 $356 $399 $438 $443 $446 $448 $449 $451 $453 $454 $456

Maintenance - Backbone Network $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25

Lease Expenses $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Administration $47 $80 $99 $115 $129 $144 $161 $180 $202 $226 $253 $274 $280 $281 $281 $282 $283 $283 $284 $284

IEC Operations $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Network Operations $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Billing & Collections $60 $60 $60 $60 $60 $60 $60 $60 $60 $60 $60 $60 $60 $60 $60 $60 $60 $60 $60 $60

Customer Service $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Sales & Marketing $8 $14 $17 $20 $22 $25 $28 $31 $35 $39 $44 $48 $49 $49 $49 $49 $49 $49 $49 $49

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20


CAPEX

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

($00

0)

Fiber Installation Capital $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429 $12,429

GigE Equipment Capital $2,357 $3,066 $3,741 $4,393 $4,911 $5,660 $6,325 $7,091 $7,947 $8,908 $9,977 $10,960 $11,084 $11,149 $11,195 $11,233 $11,272 $11,318 $11,358 $11,404

Netw ork Capital $124 $124 $124 $124 $124 $124 $124 $124 $124 $124 $124 $124 $124 $124 $124 $124 $124 $124 $124 $124

Other Capital $150 $150 $150 $150 $150 $150 $150 $150 $150 $150 $150 $150 $150 $150 $150 $150 $150 $150 $150 $150

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20


CAPEX per Sub

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Fiber Installation Capital $4,638 $3,523 $2,902 $2,506 $2,236 $1,995 $1,780 $1,588 $1,417 $1,264 $1,127 $1,047 $1,037 $1,034 $1,031 $1,028 $1,026 $1,023 $1,020 $1,017

GigE Equipment Capital $879 $869 $874 $886 $883 $908 $906 $906 $906 $906 $905 $924 $924 $927 $929 $929 $930 $931 $932 $933

Netw ork Capital $46 $35 $29 $25 $22 $20 $18 $16 $14 $13 $11 $10 $10 $10 $10 $10 $10 $10 $10 $10

Other Capital $56 $43 $35 $30 $27 $24 $21 $19 $17 $15 $14 $13 $13 $12 $12 $12 $12 $12 $12 $12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20


Financing Options


Municipal Project

• Town invokes State Constitutional Authority to initiate public works project



• Public works project: mission driven, not profit driven

• Partially underwritten by anchor tenants (local businesses)


Alternative Approach

• Use optimal combination of alternatives to achieve highest quality, lowest lead-time, most cost-effective establishment of local broadband infrastructure and services

• Example

– Town finances 80% of network installation; sells 20% shares to interested parties (co-ops, businesses)

– Town issues municipal bonds to finance project

– Town builds, owns and operates network; sells unbundled network access to ISPs and IAPs

– ISPs, IAPs provide voice, data and video services


Financing Options – Municipal Bonds

• Revenue Bonds– Tax-exempt municipal debt secured by revenues from projects

• General Obligation Bonds– Tax-exempt municipal debt secured by tax assessments and project

earnings– Voter approval required

• Assessment Bonds– Municipal debt secured by special tax assessments on property

forming collateral on bonds• Mello-Roos Bonds

– Municipal debt secured by tailored special tax assessments on assets forming collateral on bonds; greater flexibility

• Certificates of Participation (COPs)– Revenue COPs or Lease COPs (secured by district’s general fund)– No votes, property assessment required; greatest flexibility


Financials


Market Growth

-

50

100

150

200

250

300

350

400

450

Num

ber

Tow

ns

-

5

10

15

20

25

30

35

40

45

50

Num

ber

Reg

ions

Total Number Towns 3 7 10 19 28 39 50 68 86 110 133 156 179 203 224 245 265 286 307 327 346 364 383 395

Number Regions 1 1 1 2 2 3 3 4 4 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5



Revenue

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

($00

0)

Feasibility Studies $150 $489 $1,038 $1,220 $1,293 $1,205

Sales & Marketing $0 $15 $468 $3,078 $11,907 $24,655

Financial Advisory $793 $3,740 $8,306 $10,954 $9,885 $9,328

Installation Management $264 $5,180 $14,471 $25,862 $26,249 $24,185

Operations Support $0 $96 $1,881 $8,107 $22,131 $34,080

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6


Cash Flow

($10,000)

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

Cumulative Cash Flow ($2,389) ($5,014) ($3,278) $8,868 $36,024 $80,473

Net Free Cash Flow ($2,389) ($2,624) $1,735 $12,147 $27,156 $44,449

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6


Head Count

0

20

40

60

80

100

120

140

160

180

200

Installation Management 0 0 0 3 7 10 17 23 32 34 43 51 65 70 75 75 75 75 75 75 75 75 75 75

Operations (NOC) Support 0 0 0 0 0 0 16 16 16 16 16 32 32 32 32 48 48 48 48 48 48 48 48 48

Executives 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 9 9 10 10 10 10

Business Development 1 1 2 4 4 6 6 8 12 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15

Sales & Marketing 2 4 4 6 6 8 8 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10

Engineering and Operations 1 2 2 4 6 9 9 12 12 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15

Accounting & Finance 0 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 6 6 6 6



Competitive Analysis

• Some 50 municipal fiber installations in the U.S. and about 200 municipal broadband projects overall

– Technology and operations is commodity

– Financing, politics and regulatory issues are key barriers

• Most existing projects financed by internal cash of municipalities, cumbersome bank loans and some bonds

• Initial financing + full service support (political, legal, finance, technology, operations) is unique concept and key to successful implementation (Merton)


Key Business Projections

Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Number Tow ns Serviced 15 54 125 196 262 316Revenue $1,208 $9,520 $26,163 $49,220 $71,464 $93,453Cost of Service $0 $168 $782 $1,802 $2,788 $3,460% Gross Margin 100% 98% 97% 96% 96% 96%Net Operating Expenses $3,267 $10,061 $19,184 $27,210 $30,887 $32,732Net Operating Income ($2,059) ($709) $6,197 $20,208 $37,790 $57,261NOI Margin % -171% -7% 24% 41% 53% 61%Capital Expenditures $200 $1,018 $2,123 $3,365 $2,975 $2,671Net Free Cash Flow ($2,389) ($2,624) $1,735 $12,147 $27,156 $44,449Cumulative Cash Flow ($2,389) ($5,014) ($3,278) $8,868 $36,024 $80,473


Fund Sources and UsesYear Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

SourcesBeginning Cash $0 ($2,389) ($5,014) ($3,278) $8,868 $36,024Net Operating Income ($2,059) ($709) $6,197 $20,208 $37,790 $57,261Total Sources ($2,059) ($3,098) $1,183 $16,930 $46,658 $93,285

UsesCapital Expenditures $200 $1,018 $2,123 $3,365 $2,975 $2,671Interest $0 $0 $0 $0 $0 $0Taxes $0 $3 $864 $2,880 $5,412 $8,248Change in Working Capital - Cash $130 $895 $1,474 $1,816 $2,247 $1,894Total Uses $330 $1,916 $4,462 $8,062 $10,634 $12,812

Ending Cash ($2,389) ($5,014) ($3,278) $8,868 $36,024 $80,473

Net Free Cash Flow ($2,389) ($2,624) $1,735 $12,147 $27,156 $44,449Cumulative Cash Flow ($2,389) ($5,014) ($3,278) $8,868 $36,024 $80,473

Net Revenue ($2,259) ($1,729) $3,210 $13,963 $29,403 $46,342Cumulative Net Revenue ($2,259) ($3,988) ($779) $13,184 $42,587 $88,929

NPV $38,861CoM 40%Terminal Value 286,305$ EBITDA Multiple 5IRR 119%


Pro Forma Income StatementYear Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Revenue $1,208 $9,520 $26,163 $49,220 $71,464 $93,453

Feasibility Studies $150 $489 $1,038 $1,220 $1,293 $1,205

Sales & Marketing $0 $15 $468 $3,078 $11,907 $24,655

Financial Advisory $793 $3,740 $8,306 $10,954 $9,885 $9,328



Cost of Service $0 $168 $782 $1,802 $2,788 $3,460

Gross Margin $1,208 $9,352 $25,381 $47,418 $68,676 $89,993% Gross Margin 100% 98% 97% 96% 96% 96%

Net Operating Expenses $3,267 $10,061 $19,184 $27,210 $30,887 $32,732

Feasibility Study $70 $185 $330 $333 $308 $256



P ersonnel and G&A $3,109 $7,227 $11,743 $14,165 $15,997 $17,894

EBITDA ($2,059) ($709) $6,197 $20,208 $37,790 $57,261EBITDA Margin % -171% -7% 24% 41% 53% 61%

Leases $0 $0 $0 $0 $0 $0

Net Operating Income ($2,059) ($709) $6,197 $20,208 $37,790 $57,261NOI Margin % -171% -7% 24% 41% 53% 61%


PCNCF Sensitivity

($20,000)

($18,000)

($16,000)

($14,000)

($12,000)

($10,000)

($8,000)

($6,000)

($4,000)

($2,000)

$0

0.70% 0.80% 0.90% 1.00% 1.10% 1.20%

Financial Advisory Fee %

Pea

k C

um

ula

tive

Neg

ativ

e C

ash

Flo

w

1.00% 1.50% 2.00% 2.50% 3.00% 3.50%

Terrence P. McGarty, Lisbon February 13, 2003 Broadband to the User: US Market Development and...

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