Bento J. Lobo, Ph. D., CFAFirst Tennessee Bank Distinguished

Professor of Finance

Bento-Lobo@utc.edu

THE REALIZED VALUE OF FIBER INFRASTRUCTURE

IN HAMILTON COUNTY, TN

2 May 2017

Broadband Communities SummitDallas, TX

1

Where in the world is Chattanooga?

Hamilton County: Profile

Pop: 350,000 ; Density: 568 / mile 8,838 establishments dominated by

Professional and business services Retail trade Education and health services Leisure and hospitality Financial services

Major Employers BlueCross BlueShield Hamilton County Department of Educ Erlanger Health System Tennessee Valley Authority Amazon Unum Volkswagen

Median income: $47,880 Median age: 39.4 years

Lobo, Novobilski & Ghosh (2006)

Provide an approach to quantifying the economic effects of current first generation broadband availability in Hamilton County

Findings:

FGB expenditures over the period 2001-2005 supported 548 jobs and contributed $109.8 million in income and taxes to Hamilton County.

A new SGB-FTTH project would cost $195.5 million over a ten year period, or $167 million in present value terms.

Net incremental benefits of SGB = $438 million + 2638 new jobs

Like standard public infrastructure such as good roads, schools, and hospitals, cutting-edge broadband infrastructure is crucial to economic development and to the quality of life in the county.

Gig Timeline

2008:

EPB issues $220 million revenue bonds to finance the $169 million cost of the fiber network and to finance other electric system improvements. Construction of fiber network begins.

2009:

EPB is awarded a federal stimulus grant in the amount of $111 Million from the Department of Energy. The grant accelerates the build-out of the fiber network.

2010:

In June, EPB offers the nation's only symmetrical 150 Mbps residential Internet service.

In September, EPB becomes the first community in the United States to make symmetrical 1,000 Mbps Internet available for all customers.

2011:

EPB completes the last of its fiber network.

2012:

EPB installs the final smart switch, creating the nation's most automated Smart Grid network.

6

2,275 2,295 2,332 2,444

12,714

31,465

41,560

52,379

63,448

73,612

84,000

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Fiber Customers

THE REALIZED VALUE OF FIBER INFRASTRUCTURE

IN HAMILTON COUNTY, TN

Lobo (2015)

Scope of the study

To discover the realized benefits of the fiber infrastructure built out in the EPB footprint

high-speed internet access (100 Mpbs and higher)

Smart grid

To compare the realized benefits to those forecasted in previous studies

Current values based on realized benefits from 2011 to 2015 – exploratory and data driven

Organized by: Household, Community, Business and Utility Effects

Organization of Effects

Community, Households, Businesses, Utility

Non mutually exclusive; Merely for expositional convenience

Household effects are those that can be attributed to bill savings of individual households

Community effects, by contrast, accrue to the community-at-large but cannot be directly linked to individual household bills

Business effects, however, overlap community and household effects since benefits to local businesses benefit the local economic landscape

Utility effects strongly overlap community effects because the utility is city owned

Household Net Benefits

Consumer Surplus

Based on work done on the value of the internet

Willingness to pay

Time Savings from Search

$29.3 to $76.2 million

Customer Savings

Lower power bills (may not be available everywhere)

Lower prices due to competition

$45.5 million

What competition does to products and pricing

June 2015: Comcast to offer 2 gigs @ $299.95 / mo

Oct 2015: EPB to offer 10 gigs @ $299 / mo

Community Benefits

Publicity/Media Coverage

Advertising-equivalency value = $24.3 million The Guardian – How One City’s Super-Fast Internet is Driving a Tech Boom

New York Times – Fast Internet is Chattanooga’s New Locomotive

CBS Morning News – Which City has the Fastest Internet in the Nation?

Al Jazeera English – New Technology to Protect US Grid

Thomas Friedman column in the New York Times - Obama’s Moment

CNBC – Rebooting Chattanooga’s Fortunes

Atlanta Journal Constitution – Technology Thriving

Wired – Where High Speed Internet Meets Smart Grid

Fast Company – A Small City with a Smarter Grid

GreenTech Media – Top 10 Utility Smart Grid Deployments in North America

The Economist – The need for speed

Wall Street Journal – Cities start own efforts to speed up Broadband

Wall Street Journal – Getting “Smart” on Outages

Forbes – The New Metropolis: The New Urban Pioneers

Community Benefits contd.

New Investments and Jobs (2009-2014)

Chamber data on announced investments and jobs

Assumed Realized = 10% in year 1, 20% in year 2, etc

New tech jobs ≈ 1024 (≥ 91 startups)

Realized (upper): $461 million and 5200 jobs

Realized (lower): $198 million and 2800 jobs

Taxes

In-lieu of taxes contributed by EPB Fiber Optics

Evolution of an Entrepreneurial Ecosystem

Venture Capital in the city: $46.1 to $53.6 million

Community contd.

Telecommuting

Travel time savings

Travel cost savings

Reduction in congestion

$11 million

Telemedicine: ROC Case Study

Table 12. ROC Telemedicine Summary

Number of patients tele-consulted Savings

Site Distance

(miles)†

2009 -

2012

2013 2014 2015 Total

Hours

Time

Savings

Avoided

Miles

Miles

Savings

Other 82.79 5,822 NA NA NA 20,736 $311,449 964,007 $530,204

Blairsville,

GA

100.1 NA 264 396 94 3,208 $48,177 150,951 $83,023

Blue Ridge,

GA

80.5 NA 373 541 130 3,623 $54,413 168,084 $92,446

Calhoun,

GA

51.3 NA 534 396 142 2,468 $37,066 109,987 $60,493

Cartersville,

GA

75.7 NA 733 564 48 4,409 $66,222 203,633 $111,998

Cleveland,

TN

31.6 NA 212 396 7 931 $13,985 38,868 $21,377

Cookeville,

TN

101 NA 555 403 131 4,672 $70,171 219,978 $120,988

Jellico,

TN

166.4 NA 95 128 15 1,644 $24,687 79,206 $43,564

McMinnville,

TN

74.1 NA 947 1023 260 7,167 $107,652 330,486 $181,767

Winchester,

TN

64.4 NA 396 275 103 2,187 $32,854 99,691 $54,830

TOTAL 5,822 4,109 4,122 930 51,044 $766,675 2,364,891 $1,300,690

Community Benefits contd.

Education

Teacher productivity: 1 hr per day per FTE

Hardware upgrades avoided due to cloud storage

UTC re-keying benefit

HC after-school literacy program savings (Lexia)

$9.9 million

Civic Services

Intelligent Traffic System

No benefit attributed here yet

Business Benefits

Efficiency gains: 5% per day per firm

Disaster Recovery Services

Consumer Surplus

Bandwidth cost savings

VLAN cost savings

$237 - $274 million

Smell TestIs this

economically plausible?

Utility Benefits

Smart Grid BenefitsChart code

Annual Average

2012-2015Total

Reduced operating and maintenance costs O&M $1,600,000 $4,800,000

Avoided manual switching costs AMI $40,000 $120,000

Automated switching: Fuel and Labor cost savings AMI $1,800,000 $5,400,000

Reduced outage minutes Outage $43,500,000 $130,500,000

Major events (1 per year) MajEvt $23,209,664 $69,628,991

Reduced peak demand (DSM) DSM $2,285,340 $9,190,688

Reduced theft Theft $5,419,990 $16,259,970

Reduced Greenhouse Gas and Criteria Pollutant Emissions Pollution $455,324 $1,821,295

TOTAL $78,310,317 $237,720,943

Utility Benefits

Benefit Contribution

Realized benefits (March 2015)

❖ Jobs ≈ 2800 - 5200

❖ Income ≈ $865- $1,321 million

Realized benefits set to exceed projected net benefits and at a quicker pace

Realized-to-Projected Net Economic & Social Benefits: 127% – 194%

Realized-to-Projected Jobs: 100% – 180%

Consumer Surplus

5%Customer

Savings4%

New Investments

30%

Taxes4%Publicity

2%

Venture Funds

5%Telecommuting1%

Healthcare2%

Education1%

Business Efficiency

24%

Smart Grid22%

Ongoing Research

High speed broadband – nascent (my focus)

Impact on employment, productivity, # of establishments

Poverty

Digital Divide

Healthcare, Civic Services

Entrepreneurial ecosystems

Consumer Surplus