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HomeMy WebLinkAboutMegabit Sub Committee Info April 1, 1999 MEGABIT LINE DEVELOPMENT SUBCOMMITTEE TO: Mark Cramer, Bob Jader, Jim Petersen, Frank Boyles and Don Rye FROM: Connie Carlson Planning Secretary Gentlemen, After talking to everyone, it looks like the best date for the megabit meeting will be Wednesday, April 14, 1999 at 3:00 p.m. (City Hall, Conference Room B). If you have any questions or concerns, please let me know. Thanks. ~ L:\99FILES\99EDA \MEGABI1\041499L T .DOC MEMO MEGABIT LINE DEVELOPMENT SUBCOMMITTEE TO: Mark Cramer Bob Jader Don Rye Jim Petersen Frank Boyles FROM: Connie Carlson Planning Secretary Mark you calendar / I just wanted to drop a line to let you know the ftrst meeting for the above, will be Wednesday, January 27, 1999 at 5:00 p.m. in Conference Room B, City Hall. Details will follow. L:\99FILES\99EDA \MEGABI1\Ol 0499L T.DOC MEGABIT LINE DEVELOPMENT SUBCOMMITTEE AGENDA WEDNESDAY, JANUARY 27,1999 5:00 P.M. CITY HALL - CONFERENCE ROOM B 1. Discuss and agree on subcommittee objective. 2. Establish a work plan and timeline. 3. Data Resources. 4. Scott-Rice and US West - plans and availability. 5. The Rochester Study. 6. Set next meeting. L:\99FILES\99EDA \MEGABIT\AGO 12799.DOC 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER MINUTES- MEGABIT DATALINE COMMITTEE MEETING 1/27/99 The meeting came to order at 5:00PM. Present were Bob Jader, Mark Cramer, Jim Petersen, Frank Boyles and Don Rye. It was decided that Bob Jader would chair the Committee with Mark Cramer available to assist as co-chair. Mark Cramer suggested three primary objectives which the committee should focus on. These were: 1. Conduct an assessment of the current availability of data access services in the City and determine the costs of such services. 2. Determine community needs and interests in such services including needs of the City, school district, businesses and residents. 3. Determine City role in meeting needs. The following action steps were agreed on: . Triax Cable and Scott-Rice Telephone will be invited to give a presentation on their plans and capabilities . Mark and Bob will develop a list of questions we need answered and ask the two companies to make their presentation as a response to those questions. The list would be completed by February 8 and the meeting would be scheduled after February 15. Bob volunteered to deliver the questions when they are ready. . Frank was to call Scott County to see where they are getting their Tl and 256K lines and what the costs were. He was also to call Savage and see where they are and what they see as their needs. . Mark was to contact the School district to determine future needs and plans. GO^- 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER Memorandum TO: FROM: DATE: RE: Megabit Development Subcommittee Jane Kansier, Planning COOrdinator~ January 20, 1999 City of Rochester Telecommunications Feasibility Study Attached is a copy ofthe Telecommunications Feasibility Study prepared by Stanley Consultants, Inc., for the City of Rochester. This study was commissioned by Rochester Public Utilities to identify and evaluate the potential costs and benefits associated with the development of a publicly-owned, broadband communications network. Upon review ofthis study, the Rochester City Council decided the development of this system is not feasible at this time. The decision is based primarily on the initial costs of establishing such a system, which ranged from $3 million to $32 million depending on the system plan. 16200 iji:\gWi~~g~li\mp~ijckake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER o Stanley Consultants INC. ,D rn@rno~@I~ 111\ DEC 2 81998 'u U A Stanley Group Company Engineering. ErNironmental an:! Com1l'lJction Se,.,,;ces. Worklwide October 20, 1998 Mr. Gary Neumann City of Rochester 201 - 4th Street SE Rochester, MN 55904 Mr. Larry Koshire Rochester Public Utilities 4000 East River Road NE Rochester, MN 55906-2813 Gentlemen: We are pleased to transmit the Telecommunications Feasibility Study prepared by Stanley Consultants, Inc., in accordance with your authorization. We appreciate the assistance provided by City and RPU staff, as well as other persons who were interviewed during the course of our investigations. The following report contains background information, conceptual plans, economic evaluation of those plans, and general recommendations resulting from study results. To receive maximum benefit from this study, RPU and the City of Rochester must continue to take an active role in telecommunications issues on behalf of their customers and residents. Hopefully, this report will support the next positive steps toward development of future telecommunications strategy. Thank you for this opportunity to provide professional services. We will continue to be available as needed to support future actions, negotiations, or strategy development. Sincerely, Stanley Consultants, Inc. J?::!;f1n~/LjoL Project Principal Enclosure jf1lfal:ia#8: 1389410 l......pd I , Stanley Building. 225 Iowa Avenue. Mu~catine.IA 52761-3764. phone 319.264.6600. fax 319.264.6658 am"i!' info@stanlevgroup.com . internet www.stanleygroup.com -. .... -... .- ~ -.. .. . -, Telecommunications Feasibility Study City of Rochester, Minnesota Rochester Public Utilities Final Report October 1998 I . ~ Stanley Consultants INC. A""c..., c..., .......~...~loortia. ....... estIIriey CclnIUtIInIlI, nc. 19Q8 ~ Executive Summary Introduction The City of Rochester (Rochester) and Rochester Public Utilities (RPU) authorized this Telecommunications Feasibility Study (study) to identify and evaluate the potential opportunities and benefits associated with development of a publicly-owned, broadband communications network. Stanley ConsultantS was selected to identify future needs, develop alternative approaches, and evaluate available options. The driving force behind this study is the premise that availability of a state-of-the-art communications infrastructure is fundamentally necessary, as Rochester seeks to attract and retain businesses and meet the individual needs of its citizens in the Information Age. While available implementation technology is constantly changing, a commitment to maintain a position of leadership will guide future policy decisions and implementation strategies. Options exist for either public or private ownership or public-private partnerships as organizational alternatives to accomplish intended results. Guiding criteria for the study include definition of study area, identification of potential telecom user groups, general assessments of future needs, and available data on existing facilities and service providers. Stanley Consultants provided technical recommendations relating to the agreed study scenarios. More specific market studies, point-ta-point needs assessments, and projections of specific revenue streams are deferred as possible future activities which could help to confirm this conceptual study. The support of both Rochester and RPU staff during preparation of the study is appreciated. jfl:jfl/raf:13894:13894rpt.001 STANLEY CONSULTANTS Conceptual Studies Conceptual design of a hybrid fiber-coaxial cable (HFC) network was developed as the basis for estimating initial construction costs and potential revenue streams. Agreed scenarios included: · Base System Plan. This plan considers a loop-radial fiber-optic backbone, as a "minimum" facility to serve RPU, Rochester, Olmsted County, University Center, and Public School District 535. Broadband network interconnections would potentially provide high-speed voice, data, and video services for a variety of user applications. · System Development Plan A. This plan is an extension of the Base Plan to make similar services available to some 75 potential "business" subscribers, representing a cross-section of commercial, financial, health care, manufacturing, and private utility organizations. · System Development Plan B. This plan builds on the same physical fiber layout by increasing the facilities to provide CATV services using an additional 140 optical nodes. A coaxial cable overbuild is included to allow a two-way communications link to every RPU customer, based on a "250 homes passed" design concept for a system operating in the 750 MHz to 1,000 MHz range. Evaluation of the study options was based upon a proprietary financial forecast model which Stanley Consultants has developed over recent years. Variation runs to each of the above plans provided reliable sensitivity information for use in interpreting study results. Financial evaluation "tools" including payback period, internal rate of return (IRR), net present value, and end-of-year cash flows are defined in Appendix B. In summary, the economic evaluations provide the following key results which may guide future telecommunications policy decisions and strategic plans: · Creation of a broadband fiber-optic backbone to support the Base Plan services to governmental offices, RPU, and educational units appears financially attractive. For the Base Plan, a capital investment of $3,003,700 (including vehicles, working capital, and interest during construction) requires a monthly revenue of $37,220 to produce a 9.8 year payback at a 6 percent IRR. End-of-year cash available and the resulting net present value are all positive. Reducing the monthly revenue to $29,450 results in a IS-year payback and a 0 percent IRR. Increasing the monthly revenue to $43,725 results in an 8-year payback and a 10.1 percent IRR. · For Plan A. modest increases in the fiber backbone and a doubling of data network costs result in a comparable capital investment of $4,315,800. Plan A anticipates monthly revenues of S37,220 from the base plan plus an additional $10,100 from added data subscribers, totaling $47,320 per month. Plan A reflects a "revenue neutral" scenario, with a 9.9 year payback and a 6 percent IRR. Reducing the base plan revenue to $29,450 and increasing the data revenue to $17,860 results in a 9.9- year payback and a 6 percent IRR. jfl:jfl/raf:13894:13894rpt.001 ii STANLEY CONSULTANTS . For Plan B, creation of a full-service HFC network results in a capital investment of $32,149,600. Plan B anticipates mqnthly revenues of $47,320 per month from public/private data customers and $308,970 from CATV operations based on matching current cable rates and an 18 percent initial year market penetration, moving up to 35 percent by the end of Year 5. This results in a 5.9-year payback and a 20 percent IRR. End-of-year cash and net present value are strongly positive. The same scenario with cable rates held constant (no escalation over the 15-year study period) results in a 6.6-year payback and a 14.8 percent IRR. Limiting maximum market penetration to 30 percent results in a 6.0-year payback and a 19.2 percent IRR. A 20 percent increase in capital cost for Plan B results in a 6.5-year payback and a 17.1 percent IRR. A 20 percent increase in proposed programming costs result in a 6.2-year payback and a 18.8 percent lRR. Conclusions Basically, the success of any future HFC network overbuild will depend on the amount of support available from the various user groupS and their ability to provide the revenue streams required to support construction and on-going operation of the communications network. Model runs provide useful information on the strategic options available to Rochester and RPU. They also provide a "yardstick" for evaluations of current or projected service rates of the incumbent providers. Although Plan B results appear very attractive, this plan involves the business and financial risks of entering a competitive marketplace in the explosive, high-technology telecommunications industry. Both the Base Plan and Plan A provide considerably les~ risk- exposure, but tbey would require validation of assumptions and commitment of expeered revenue streams. Selection of a "staged development," moving from the Base Plan, to Plan A, and potentially on to Plan B could provide a very logical migration path. Rochester and RPU could gain control of their own telecommunications future, while keeping options open for future expansion whenever the public interest is served. Creation of the Base Plan fiber network would identify Rochester and RJ;>U as communications service providers and as potential partners in future developments. Recommendations Review of this study by the various interested parties will likely identify some areas of strong mutual agreement and other areas where differing opinions need to be expressed. The concepts of "partnering" introduced in Section 8 should also be explored. The following general recommendations can be followed with more specific actions, as the Rochester telecommunications strategy continues to emerge: . RPU should continue to coordinate telecommunications strategy and implement telecommunications policy. RPU has existing infrastructure, proven service reliability, and financial resources to support policy implementation. Through its utility applications, RPU will need to be directly involved in any technologies which will improve its operations, automate its systems, or provide direct two-way communications with its customers. jfl:jfl/raf:13894:13894rpt.001 iii STANLEY CONSULTANTS · A RPU/City/County/Schools consortium already exists to deal with certain telecommunications issues. In addition, RPU should consider additional partnership opportunities in relation to the establishment of effective two-way communications with all customers. While this initiative could enable a number of additional customer services, it is driven by the competitive pressures which RPU would encounter in a de-regulated electric utility industry. · As a probable telecommunications strategy begins to emerge, other major players, such as Mayo Foundation, IDM, and others, should be kept informed. While they have provided for current needs, they will be interested in future options and may support any RPU development which serves either their core business or supports direct communications with their employees. · Any future telecommunications development will prove successful only if the needs and the wishes of the ultimate user are considered paramount. Customer service is becoming a byword for most businesses. For telecommunications of the future, this will mean selling the service that is desired, providing that service reliably over time, and measuring the quality of that service so that it can be reliably provided. By encouraging or directly providing competition in the delivery of telecom serVices, Rochester should serve as a catalyst, supporting delivery of state-of-the-art, full-, service telecommunications services to the community. · To move forward the City of Rochester and RPU should agree on their immediate objectives which would be satisfied .by constructing/accessing a fiber optic backbone network. Conceptual design options should be narrowed to focus on the decision to overbuild, lease, or through partnerships participate in the needed network. An updated financial feasibility run should then model the specific scenario considered for final implementation. To receive maximum benefit from this study, RPU and the City of Rochester must continue to take an active role in telecom issues on behalf of their customers and residents. Whether or not either entity elects to build infrastructure, the realistic willingness to build provides an on-going "yardstick" with which to measure options offered by incumbent service providers. A host of related issues including technology, legal, political, and competitive risks are also associated with any direct entry into the telecommunications business. These issues can only be addressed as the CitylRPU strategy begins to emerge. Hopefully, this report will Support the next positive steps toward that strategy. jfl:jfl/raf:13894:13894rpt.OOl iv STANLEY CONSULTANTS ~ .-.., Table of Contents Executive Summary ......................;........................... i Introduction .................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i Conceptual Studies ........ . . . . . . . . . . . . . . . . . . . . . . . ". . . . . . . . . . . . . . .. ii "Conclusions .................................................... iii Recommendations ............................................... iii Section 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1-1 Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1-1 Role of Municipal Utilities ........................................ 1-2 Decision Criteria ............................................... 1-3 Section 2 Existing Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1 Utility Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1 Voice Communications. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1 Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-2 Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-2 Wireless . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 2-3 Related Utility Facilities .......................................... 2-3 City Government Offices . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . .. . .. . . . . . . 2-3 City Public Works Traffic Engineering. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. 2-4 County Government Offices ....................................... 2-4 Rochester Independent School District ............................... 2-4 Section 3 Telecommunications Concepts ................................ 3-1 Understanding the Basics ......................................... 3-1 lIFC Concepts ................;................................. 3-2 Twisted Pair Concepts ........................................... 3-3 Wireless Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., 3-4 Utili ty Services .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .'. . . . . . . . . . . . . . . .. 3-4 Supervisory Control and Data Acquisition (SCADA) .................. 3-5 Automated Meter Reading (AMR) ............................... 3-5 STANLEY CONSULTANTS jfl:jfl/raf:13894:13894rpt.001 v Distribution AutomationJDistribution System Management (DAlDSM) . . . . . 3-5 Pilot Wire Relaying . . . . . . . . . . . . . . . . . . . . . . e.,' . . . . . . . . . . . . . . . . . . . 3-5 Direct Load Control .......................................... 3-6 Time-of-Day (TOD) Pricing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 3-6 Data Services .................................................. 3-6 Entertainment Services .............. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 3-7 Other Services ................................................. 3-8 Section 4 Telecommunications Service Options. . . . . . . . . . . . . . . . . . . . . . . . . . " 4-1 Needs Assessments . : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . " 4-1 Governmental Services ........................................... 4-2 RPU Utility Service Options ......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . " 4-2 Education Service Options ........................................ 4-3 Business Service Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4-3 Entertainment Service Options ..................................... 4-4 Section 5 Communications Technology Assessment. . . . . . . . . . . . . . . . . . . . . . . . . 5-1 Introduction " . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-1 Technology and Technology Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-1 Desired Services Driving the Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-1 User End Equipment and Applications Supporting Desired Services . . . . . . . . . . 5-2 Delivery Technology Supporting Desired Services. . . . . . . . . . . . . . . . . . . . . . . . 5-2 Competition Within the Community ................................. 5-3 Existing CATV Provider ....................................... 5-4 Phone Companies .............................. . . . . . . . . . . . . . . 5-5 xDSL Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-5 Fiber to the Home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-5 Digital Broadcast Satellite ...................... . . . . . . . . . . . . . . . . 5-6 Low Earth Orbit Satellite (LEO) and Medium Earth Orbit Satellite (MEO) Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . " 5-6 HFC Telephony ............................................. 5-7 Section 6 Conceptual Broadband Communications System ................... 6-1 General ...................................................... 6-1 Base System Plan ............................................... 6-2 System Development Plan A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . " 6-3 System Development Plan B .................................... . .. 6-4 Section 7 Economic Evaluation ....................................... 7-1 General ...................................................... 7-1 Financial Model ................................................ 7-1 Capital Costs .................................................. 7-2 Operating Costs ................................................ 7-4 Revenue/Cost Projections ......................................... 7-7 Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7-11 Section 8 Partnership Opportunities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . " 8-1 TCIlBresnan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 8-2 Seren ..................................................... 8-2 Midwest Wireless ............................................ 8-2 jfl:jfl/raf:13894:13894rpt.001 vi STANLEY CONSULTANTS Section 9 Conclusions .............................................. 9-1 General ...................................................... 9-1 Needs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-:. . . . 9-1 Recommendations .............................................. 9-2 TABLES Table 5-1 Typical Competitive Strengths and Weaknesses .................... 5-9 Table 7-1 Summary of Initial Capital Cost Estimates ........ . . . . . . . . . . . . . . ., 7-2 Table 7-2 Cumulative Capital Costs for Base System Plan and Plan A Base Case Conditions ($1,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 7-3 Table 7-3 Cumulative Plan B Capital Cost Requirements for Base Case Conditions ($1,000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., 7-3 Table 7-4 Program Cost ............................................. 7-4 Table 7-5 Total Year 1 Staff Salaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-5 Table 7-6 Staffing Criteria ........................................... 7-6 Table 7-7 Penetration Rates .......................................... 7-8 Table 7-8 Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., 7-10 Table 7-9 End of Year Cash ($)(1) .................................... 7-13 Table 7-10 Sensitivity Cases ......................................... 7-14 Table 7-11 Total Base System Plan S2 Initial Funds Breakdown . . . . . . . . . . . . . ., 7-16 Table I-I Municipal Communications System Implementation Plan ............. 1-4 APPENDICES Appendix A Data Speeds. . : . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. A-1 Appendix B Selected Telecom Definitions ............................... B-1 Appendix C potential Users of Fiber-Optic Network. . . . . . . . . . . . . . . . . . . . . . . . C-l Appendix D Conceptual Networks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., D-l Appendix E Conceptual Fiber Layouts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-l Appendix F Cost Estimates .......................................... F-1 Appendix G Internet Service Providers ................................ G-1 Appendix H TCI Channel Guide. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., H-1 Appendix I Typical Implementation Plan ................................ 1-1 jfl:jfl/raf:13894:13894rpt.001 vii STANLEY CONSULTANTS ~..,. Section 1 Introduction Scope The Telecommunications Act of 1996 established a new direction for telecommunications in this country. This new direction, nurtured by the Federal Communications Commission (FCC) and Congress, is intended to create choices for customers and more opportunities for communications providers. It recognizes technology developments, the huge growth in consumer demand for telecommunications services, and the probability that increased demand will make room for new communication service providers while sustaining existing providers. The City of Rochester (Rochester) and Rochester Public Utilities (RPU) jointly commissioned this study to explore their common interest in building a Hybrid Fiber Coax (HFC) Municipal Broadband Communication System and to develop a Telecommunications Master Plan (Plan). The purpose of a municipal HFC system is to provide the communication infrastructure and services necessary for Rochester to attract and retain businesses, and to meet the needs of its citizens in the Information Age. The services could include digital telephony, an enhanced cable television (CATV) system; high-speed bidirectional communication services to homes and businesses; and communications support for various electric utility applications. Key actions in developing the Plan are identified below: . Investigate the range of services that could be provided over the HFC network. . Conduct interviews with major potential users of a Metropolitan Area Network (MAN). . Develop a conceptual network for providing the different services investigated and an estimate of the required capital costs. . Prepare annual revenue and cost projections for the various telecommunication service scenarios investigated and develop various economic feasibility indicators. . Provide a report summarizing the results of the study including an Action Plan. jfl:jfl/raf:13894:13894rpt.001 1-1 STANLEY CONSULTANTS Role of Municipal Utilities Interest in Rochester for providing municipal communication services is not without precedent. RPU has provided various municipal services since the earliest days of its founding, through the decision to establish a municipal electric utility. The RPU was created to provide electricity, the newest technology of that age, when others colild not, or would not, provide such services at reasonable cost. Hundreds of other communities made similar decisions and continue to reap the benefits of high-quality, low-cost electric service. The present situation in the communications industry is very similar to the advent of electric power at the turn of the century, which resulted in the creation of the "municipal utility" to serve the needs of the community. There is concern that communication services in smaller communities have not kept pace with those offered in larger communities. Many now regard availability of full-service communication networks as crucial to the economic well-being of a community; just as good electric service, highways, and other basic infrastructure has been in the past. The initiative to establish a municipal communication utility could enhance opportunities for local private enterprise through competitive access to advanced telecommunications services. The utility could also elect to partner with other communication providers to supply data services, Internet access, telephone service, or CATV programming. A municipally-owned utility creates the opportunity to serve widespread community needs and to provide services that might not currently be cost-effective, if obtained from private enterprise. Beyond quantifiable economic terms, local municipal ownership can provide significant benefits: · Attract and retain hi-tech businesses and service industries that rely on telecommunications. · Respond effectively to local government, education, and community needs. · Provide expanded high-quality service and 10ca.1 control. · Retain a greater portion of communication revenues in the local economy. · Generate competition for existing and potential communication providers, reducing overall community communication costs, and encouraging new service options. · Enhance competitiveness of the existing municipal electric utility by providing enhanced communications to support SCADA, time-of-day rates, remote metering, and other utility management systems. Another factor is the current emphasis on de-regulation of the electric power industry. Wide scale wholesale transmission wheeling has already come to pass, and there is continuing pressure by various groups to allow retail wheeling. The advent of retail wheeling will increase competition tremendously, resulting in the necessity for utilities to offer services the customer desires at an attractive price. Those utilities capable of two-way communications between the utility and its customers will increase the chances of retaining existing customers and attracting new customers. They may offer such services as real-time pricing, time-of-day rate, billing history, and other unique services of value to the customer. jfl:jfl/raf:13894:13894rpt.001 1-2 STANLEY CONSULTANTS A decision to enter into the competitive communications marketplace entails additional business risks. It is difficult to forecast the future winners among competing communications technologies. Existing communication providers will continue to reassess and improve their services. A decision to establish a municipal telecom utility also requires that the utility re-examine its management focus and become more marketing and customer-oriented. However, this re-orientation to market and customer perspective is also required if a municipal utility is to effectively compete in an era of electric power de-regulation. A municipal utility must build on its strengths; its image for 24-hour-a-day service; its local presence; its customer service; and its administrative, accounting, and management organizations. Decision Criteria Several key factors will influence RPU's decision to offer municipal communication services. These factors include: . Utility Internal Needs . Community Needs . Regulatory Environment . Competitive Risks and Technological Development . Economic Return Communication needs which have not been met in Rochester should be a major consideration in the decision to establish a municipal communication utility. The mix of communication services offered is crucial, since services offered must include at least some that can generate revenues to support the cost of outside cable plant and critical staff size necessary to support such a utility. Opportunities may also exist to partner with other service providers to reduce some costs (and revenues), and to reduce the need for highly specialized staff, to support individual services. CATV and its various related services has been, and will likely remain, the largest potential revenue source available to support a broadband HFC network. Incremental communication services can be added to the network at relatively modest cost, to improve utilization of the network, to add revenue streams, and to improve overall economic return. These applications may include cable modem Ethernet to the home to access community networks and the Internet; utility management, including AMR; and, potentially, telephony. Other uses of the backbone fiber include MAN, PBX telephone links for local government and schools, and upgrades of existing utility SCADA applications. The regulatory environment is changing rapidly for municipal communication systems. Recent congressional acts and FCC decisions have opened the local communication market to municipal utilities. There is significant interest among utilities nationwide. Many are evaluating options; and, some have already established communications utilities and deployed networks. jfl:jfl/raf:13894:13894rpt.001 1-3 STANLEY CONSULTANTS i i ~ RPU would face two types of competitive threats, but would also enjoy some strategic advantages. Existing communication providers could offer new and enhanced services, and could choose to compete at lower rates. While this could significantly benefit the citizens of 'Rochester, it could also erode the economic return for a newly-established municipal communication utility. RPU also faces technological innovation which could allow other new communication providers to enter the local market (i.e., digital satellite dishes, low orbit satellites, etc.). Conversely, RPU would also enjoy strategic advantages due to its local presence, and its local reputation for reliable service. RPU could also decide to apply leverage and partner with various potential competitors to improve services available in Rochester. Rochester and RPU wiU need to decide the basis it wiU use to evaluate the economics of a communication utility. From one perspective, investments must demonstrate a reasonable measure of financial performance. From another perspective, Rochester may view the investment as basic infrastructure, not unlike a street or highway improvement. An infrastructure viewpoint focuses on the welfare of the community, including the need to meet basic needs of its citizens, to attract and retain businesses, and the value of revenues retained in the local economy that would otherwise go to outside organizations. The degree to which either viewpoint is held is unique to each community. The window of opportunity for a particular plan is limited due to the competitive factors and evolving technologies. RPU must decide its direction relatively quickly and follow an aggressive implementation schedule to improve its opportunity for success if it chooses to offer telecommunications services. jfl:jfl/r8f:13894:13894rpt.001 1-4 STANLEY CONSULTANTS Section" 2 Existing Conditions Utility Operations Rochester Public Utilities (RPU) is a well respected and highly reputable municipal electric and water utility with over 100 years of operating experience. RPU provides electrical and water services to the City of Rochester. RPU's electrical utility was established in 1894 and serves approximately 37,000 customers. The electrical system is comprised of 40 miles of 161 kV and 115 kV transmission lines and 500 miles of 13.8 kV distribution lines. RPU has 146 MW of generation comprised of four steam units (108 MW), one gas turbine (35 MW), and two hydro units (3 MW). Wholesale electric energy is purchased from Southern Minnesota Municipal Power Agency. RPU's water utility serves approximately 27,000 customers. The water system is comprised of 357 miles of water main, 26 wells and 17 towers. RPU currently employs about 175 employees. Voice Communications US West is the incumbent local exchange carrier (ILEC) that maintains the public switched telephone network (PSTN), offering services from residential dial tone up to commercial applications, including integrated services digital network (ISDN). In 1994 US West installed an electronic switching system (#5 ESS), which allowed for the integration of digital technology. In 1997 US West announced plans to deploy digital subscriber line (DSL) technology in 1998. DSL technology allows residential telephone users to access the Internet at speeds of 128 Kbps to 8 Mbps over existing telephone lines. McLeod USA is a competitive local exchange carrier (CrnC). They offer the same array of services as US West. Both companies also offer point-ta-point data circuits, including T1 rate and frame relay services. jfl:raf:13894:13894rpt.001 2-1 STANLEY CONSULTANTS Data There are 52 Internet service providers (ISP) serving the (507) area code. Several are national providers such as America Online, AT&T Network Commerce Services, and MC!. There are also several local providers such as Infonet Inc., Rural Connections and Prairie Lakes Internet. See Appendix G for complete listing of providers, including dial up and dedicated services. Rochester City Government has established a private fiber-optic data network between City Hall, the Rochester Library, and the Mayo Civic Center. A combination of single-mode and multi-mode fiber is instalied to interconnect the desktop LAN networks at each site. In addition, TCI provides a separate coaxial cable I-Net system used by the public schools and city buildings for data and video informational services. The current baud rate for the data is at 19.2 Kbps. Rochester Public Schools is in the second year of a three year contract with TCI for increased data speeds between the 32 school sites, with a maximum baud rate of 10 Mbps. TCI has also proposed increasing the city's data transmission to the 10 Mbps speed level for a rate presently being negotiated. Television Cable television (CATV) services in the RPU service area are currently provided by TCI. The existing system was designed and constructed to meet 450 MHz HFC specifications. The system is comprised of 520 miles of coaxial cable of which 220 miles are located in the underground conduit structure throughout the city. In addition to the coaxial cable, TCI has 35 miles of fiber-optic cable serving as the backbone to the coaxial infrastructure. TCI currently delivers 60 analog video channels and has recently launched a digital compression tier delivering 35 digital video channels and 10 audio channels. The digital tier includes 17 special interest channels, 10 DMX audio-only channels, 8 premium level services, 9 pay-per-view channels and 1 pay-per-view informational barker channel. This digital tier requires the analog space requirements of three 6 MHz analog channels. Therefore, the total use able downstream video channel capacity of the system is at 95 percent of the 450 MHz system capacity. The remaining 5 percent is presumably being used for auxiliary data usages such as signal leakage detection. Appendix H has a complete listing of channels and pricing. TCI has recently announced an upgrade of their system to include an additional 100 miles of fiber-optic cables, as well as delivering an Internet service (presumably TCl's @HOME Internet service) sometime in the fourth quarter of 1998. TCl's upgrade and Internet service launch announcements are in conjunction with TCI's franchise renewal negotiation process with the City of Rochester. There are two mergers and acquISItIOns of interest to note. One between Bresnan Communications and TCI, in which both parties have signed letters of intent to give Bresnan the controlling interest of the system this fall. The other is the recent announcement of AT&T to acquire TCl. It is too early to predict the impact of either event on the cost or quality of CATV services available in Rochester. Direct broadcast satellite (DBS) services are available through local retail establishments offering digital television signals via 18- to 36-inch house-mounted antennas. There are four main programming distributors, Direct TV, PrimeS tar, EchoStar, and DishTV. Pricing for jfl:raf:13894:13894rpt.001 2-2 STANLEY CONSULTANTS programming, equipment, and installation vary. The major drawbacks are the equipment requirements for each television set, lack of two-way capabilities, inability to deliver local broadcast stations without a separate antenna, and initial installation and equipment cosH. The major advantage is the capability to deliver up to 200 channels of programming. Wireless Three of the larger providers of cellular and paging services include US West Cellular, AT&T Wireless Services and Midwest Wireless (Cellular 2000). US West and AT&T both offer the newest digital cellular technology called Personal Communication Systems (PCS). Cellular also offers digital services using less popular TDMA digital software, which is not compatible with the PCS telephones. Prices for services vary among the number of minutes purchased and telephone models desired. AT&T has established a lead among cellular companies in the wireless data arena by establishing a Wireless Data Division (WDD). Two forms of wireless data are available; wireless Packet Data Service, based upon cellular digital packet data (CDPD) technology, and wireless Circuit Data Service. CDPD allows data to be sent at speeds of 19.2 Kbps. National paging service is available through Sky tel Corporation, which recently acquired Mobile Telecommunications Technologies Corporation, known as MTEL Other significant paging service providers include Arch Communications (formerly WestLink) and Metro Call. Paging services are especially important in Rochester because of the concentration of health care providers. Most all of the paging providers concentrate on delivering numeric paging, alphanumeric messaging, voice mail, TrY messaging, and sending text messages to alphanumeric pagers. CS Wireless Systems is primarily owned by Heartland Wireless Communications, Inc., and CAI Wireless Systems, Inc. CS Wireless is one of the largest wireless cable television companies in the United States. They are currently operational in the Twin Cities area and have listed Rochester as a potential future location. Other significant wireless (PCS) service providers include US West Wireless and American Portable Telephone. Related Utility Facilities RPU leases several circuits from US West for a variety of applications. These applications cover electrical SCADA, water SCADA, special circuits, a radio circuit, primary relay circuits, telemetering circuits, dial-up billing, repair numbers and general administrative uses. The monthly combined telecommunication costs for RPU, excluding any long distance charges, average $59,000 per year. City Government Offices The City of Rochester annually spends approximately $50,000 on telephone service and approximately $5,000 per month on data lines. TCl's franchise allows for the city's use of a limited number of institutional network connections for video communications. TCI has made an offer to provide the City of Rochester with data services with speeds up to 10 Mbps. jfl:raf:13894:13894rpt.001 2-3 STANLEY CONSULTANTS I City Public Works Traffic Engineering Rochester presently operates an extensive traffic control system with over 100 independent or. interconnected traffic signals operating on Minnesota state highways, Olmsted County roads, and Rochester city streets. Interest has been expressed in future upgrade of the systems, based on signal interconnection using fiber-optic cable and two-way communications/control. Specific future signal locations and control functions should be identified as part of any RochesterlRPU fiber network design. County Government Offices The Olmsted County offices annually spend approximately $136,000 on telephone lines and approximately $4,000 on data lines. On June 6, 1997, US West proposed an 84 month contract to Olmsted County for a 16 Mbps fiber-optic transport service between two sites located at 151 4th Street Southeast and at 2122 Campus Drive Southeast. The cost was quoted at $800 and $600 respectively and $80 for interface redundancy. Both sites were to pay a non-recurring charge of $700 for the data link and an additional $175 for the interface redundancy. . Subsequently, Olmsted County entered into an agreement with RPU to provide a dedicated "dark fiber" fiber-optic link between the County Administration (4lh Street) and Campus Drive locations. RPU has installed a 1.8 mile section of 96-fiber, single-mode cable between the sites. Rochester Independent School District Rochester Public Schools annually spend approximately $121,000 on telephone lines and $67,500 on data lines. TCI is providing data services at speeds up to 10 Mbps for a cost of $220 per site, per month, for an annual cost of approximately $85,000. The schools are currently in the second year of a three year contract with TCI. jfl:r8f:13894:13894rpt.001 2-4 STAHLEY CONSULTAHTS ~., Secti n 3 Teleeommunieat ons Cone pts Understanding the Basics The term "telecommunications" is used to describe all enterprises that supply, provide, install, operate, and regulate voice, video, and data communications. Because of co verging technologies and the end-user's growing desire for "one-stop shopping," the bo ndaries between emerging communications systems and computerized information syst ms are becoming blurred. In the broadest sense, every individual and every corporate ent ty has a stake in the emerging systems and facilities which will provide voice and video info mation transfer as well as data transfer, manipulation, and storage. Historically, the public switched telephone network (PS1N) provided for the transm ssion of an electrical analog or digital signal, which represented information, from a sen er to a receiver who could understand the information provided. The resulting "twisted pairs" technology provided the electrical signals over small copper wires which physically nnected a telephone switch at each central office (CO) with each individual home or usiness. Technologies were developed to transmit volumes of information over large bundles of copper wires, microwave links, or radio-frequency broadcast channels. Today, tec nologies have grown to include the use of optical signals as well as electrical signals to transfer information. Communications services may be delivered over optical fibe , hybrid fiber/coaxial networks (HFC) , coaxial cables or twisted pair cables, or by dir ct radio frequency or microwave transmissions using off-air or earth-orbiting satellite ant nnas. As communications systems have evolved from analog to digital and from narr w band (voice) to broadband (voice, video, and data), a vast array of specific technologies ave been developed to meet growing user demands for capacity (bandwidth), speed (bits pe second) and competitive pricing (through free market competition). Compression technol gies and switching options make it possible to increase the capacity and speed of existi service delivery systems. Service reliability may be enhanced by redundancies in either th physical jfl:jfl/raf:13B94:13B94rpt.001 3-1 STANLEY ONSULTANTS communications path or in the electronics which provide service over a particular path or select between alternative routes. Service security draws on computer technologies to provide password protection, firewalls to protect the integrity of service equipment, and encryption to prevent unauthorized use of confidential information. Initially, all customer premises equipment (CPE) was owned and controlled by the telephone service provider. More recently end users wish to control the selection of CPE in order to interface with their proprietary local area network (LAN) or wide area network (WAN) equipment. This in turn requires that equipment providers meet common interface criteria (standards) and that common bandwidth allocations be provided for signaling and information transfer (protocols). Computer and communications technologies have become increasingly intertwined, as the telecommunications networks have evolved to carry digital signals and computers have emerged to provide network switching functions directly, rather than merely controlling a network switch. The difficulty many people experience in understanding the concepts and "buzz words" of either communications or information technologies is compounded as the technologies converge. Data speeds associated with various communication technologies are included in Appendix A. A listing of the most basic acronyms used in the various voice, data, video, and computer technologies is included in Appendix B. This information may help the reader to better understand telecommunications topics reported in the media or presented by communications service representatives. i _.i HFC Concepts Original cable television networks were constructed using only coaxial cable. Downstream video traffic was delivered from the community antenna "headend" over a trunk cable at a signal strength above 30 dB. Passive devices called "splitters" divided the signal at branching points to radial feeders covering the geographic service area. Because signal strength attenuates as a function of frequency and distance, the signals were boosted by amplifiers, connected in series along the feeder routes. Subscribers were connected to the feeders or trunks with the addition of a "drop cable" and a connector called a "tap." To cover a distant site, an amplifier might be set at a level which resulted in distortion at a nearby site, so a passive device called a "pad" was connected to adjust the signal level. The result was a tree and branch topology which could provide up to about 40 channels over a circuit length of 50 miles or more. However, this required an active amplifier approximately every 0.5 to 0.8 mile. While the coax system was competitive with the 10-12 channels available from an off-air antenna, the coax system cannot compete with direct broadcast satellite service (DBS) now available. Also, the coax system required considerable maintenance to keep amplifier settings in balance over time. Addition of new subscribers, addition of an additional amplifier, thermal changes, or even piracy of signal caused continual adjustments to maintain signal quality. Any problem with an in-line amplifier affected all downstream amplifiers as well. As the number of subscribers increased, the cost of delivering a uniform signal quality also increased. jfl:jfl/raf:13894:13894rpt.001 3-2 STANLEY CONSULTANTS . i . With the development of amplitude modulated fiber-optic transmission devices, th optical fiber in place of trunk cables became feasible. The fiber-optic cable provi downstream path from the headend to an optical node, where the amplitude mo ulated optical signal is converted to an amplitude modulated RF electrical signal for delivery to each subscriber over a much smaller coax network. The resulting combination of fiber a d coax cables (hence HFC) served to increase available bandwidth, provide greater redun aney in service delivery, and simplify greatly the maintenance of acceptable signal quality. The design criteria of "homes passed" is used to determine just how far the fiber-opti cables will be run before converting to the coax delivery system. Present day designs are based on 300-500 homes passed, with some systems dropping to about 125 or less. Based on stomer service requirements and lower fiber construction costs (use of plastic for optical ca les and light-emitting diodes for optical transmitters), future delivery of digital signals over fi er may serve individual homes or businesses. Optical fiber is available as either single-mode or multi-mode configurations. The iameter of each individual fiber is much smaller in the single-mode cables, such that all phot ns take the same path down the center of the optical core. Multi-mode fiber has a larger d ameter, which permits photons to ricochet off the fiber wall causing some loss in energy a d some time difference (delay spread) due to different path lengths. Multi-mode fiber is Ii ited to about 1.5 miles before an optical repeater must be installed. However, the associate optical transmitters and fiber nodes are less expensive, since they are not held to th tighter tolerances of single-mode fiber. HFC networks can provide 80-100 video channels, and also provide bandwidth f r digital data transmission and digital telephony. As the television broadcasters move towa d digital television transmission, the use of broadband digital communications will become mplete. However, there will be transition problems, since interface standards and protoco s are not totally standardized. The end objective will be the delivery of high-quality voice, at a, and video digital signals over a reliable and cost effective network. Twisted Pair Concepts Plain old telephone service (POTS) uses twisted copper pairs to provide poin -to-point connectivity between individual subscribers and the local central office (CO) elephone switch. Various telephone services are currently available, ranging from voice servi (4 KHz maximum bandwidth) to ADSL service (more than 1 Ghz maximum). However, there are also distance limitations which come into play at the higher speed applications. In short, subscribers obtain services by connecting over twisted copper wires to the nearest O. Their distance from the CO dictates the cost of providing the service and in some case the type of service received. I In order to take advantage of their immense physical plants, historic telephone providers have tended toward the development of digital subscriber lines which can deliver roadband services over the same twisted pair network. Basically, in addition to the mov to digital technology, the DSL networks use fiber-optic cable between the CO and a ne ly-created remote terminal, where local loops to individual subscribers are terminated. Vario s versions of DSL technology, termed xDSL networks, are also discussed in Section 5. jfl:jfl/raf:13894:13894rpt.001 3-3 STANLEY CONSULTANTS One interesting issue is the question of future regulatory requirements, which have historically applied to those telcos who provide local loop service. While the 1996 Telecom Act requires "unbundling" ofsuch services, it is not clear whether the "unbundling language" also applies to broadband xDSL services. Unbundling of DSL services poses both financial and technical concerns for the existing telcos, if such action is upheld in the courts. Wireless Concepts In spite of the large installed capacity of twisted pair and rapid development of HFC networks, wireless applications have shown incredible acceptance in the marketplace. Broadcast television, cellular telephone, paging systems, and DBS television are all services currently in great demand. This is true despite the fact that wireless networks typically carry lower Mbps rates and are usually more costly than equivalent "wired" networking products. In principle, a content provider forwards programming or data streams to a wireless access node, which reformats data and modulates it for satellite or land-based microwave transmission. A receiving antenna at each subscriber's location receives the signal and forwards traffic to the associated terminal equipment ( set-top box or personal computer). For the return path, the same network may be used or a second access network may be required, depending on the technology. Various emerging wireless technologies are discussed in Section 5. The primary advantage to service providers is the speed with which a new subscriber can be brought onto the network, and their ability to avoid costly infrastructure which mayor may not be fully utilized. Disadvantages of wireless networks include the problems of delivery rates, RF interference due to weather conditions, difficulty in insertion of public service announcements or local programming, and in some cases lack of an upstream communications path. Utility Services The term "utility services" is used to describe the specific telecommunications needs which RPU must address, now or in the near future, to support its core business operations. Some of the needs which follow are currently met through "plain old telephone service" (POTS), leased telephone lines, and RF transmitting and receiving equipment. Additional needs are evolving as the electric utility industry moves toward de-regulation of rates and service territories. Still other needs are technology driven, as RPU is pushed to keep abreast of the increasingly competitive power delivery business. One basic decision required of RPU regarding future participation as a "communications utility" is whether it will establish a direct, two-way communication link with a suitable crn installed at each customer's premises. There are a number of competing technologies available to support such a communications network. There are a number of communications services in addition to those discussed below which could be provided, if such a link were established. Additional value-added revenue streams could result. There are also competing service providers who now provide or also have future opportunity to provide at least some of those services. jfl:jfl/raf:13894:13894rpt.001 3-4 STANLEY CONSULTANTS Supervisory Control and Data Acquisition (SCADA) RPU presently operates an iPdependent SCADA system for the electric and water utilities. The electric system SCADA system provides information transfer and emote equipment operation for the hydro, gas turbine, and coal fired power plants nd for major transmission and distribution substations. The water system SCADA P ovides similar functions for the municipal water wells and pumping stations. Future fu ctions will be similar in nature, though they may be expanded to reach additional emote terminal units (RTUs), offer enhanced data transfer capability, and provide in reased reliability as more control functions are addedto the utility systems. Use of de icated optical fibers will be evaluated, both to control future costs and improve future s rvices. Automated Meter Reading (AMR) Many electric utilities use some form of AMR to connect with major custom rs and obtain periodic or real-time access to load characteristics and service delivery co ditions at the customer's meter. A pilot project is being developed by RPU to exp ore the available features, economics, and customer acceptance of this technology. Feat res may include collection of consumption data, time-of-use reporting, and real-time rep rting of outages, service restorations, and delivered power quality. I The real significance for the future is not' the potential cost savings associated wi h meter reading, but rather the opportunity for RPU to enhance. service delivery and possibly generate additional "value added" revenue streams by establishing a o-way communications pathway to each customer's premises. Future commercial servi s might include rapid delivery of critical customer application events such as security alarms, maintenance dispatches, or text messaging. Distribution Automation/Distribution System Management (DAlDSM) Present electric industry trends are for utilities to provide higher levels of aut matic or remotely-controlled switching of distribution circuits outside of existing dis ribution substations. These trends are the result of increasing attention to the qu lity and continuity of energy services being provided to the customer. The resulting imp ovement in the quality of service (QoS) may become a significant factor affecting the pot ntial for customer retention in a de-regulated, competitive environment. For this s udy, the provision of fast, reliable, two-way communications with each distribution sub tation or major power load is assumed to support increased automation farther out on the RPU distribution system. ~~mre~~q I As the distance between protective devices is decreased, or as the levels of rotection require more precise coordination between protective relays on the transmissi n system and highly automated devices on associated distribution circuits, the use of ilot wire relaying becomes more necessary. While this option will not be needed in all ituations, the existence of dedicated point-to-point fiber communications links between s bstations and the RPU Service Center does have economic value to RPU. The abili to "time stamp" system events using high speed fiber links will assist in determining out ge causes, durations, and quality of service delivery. jfl:jfl/raf:13894:13894rpt.001 3-5 STANLEY CONSULTANTS Direct Load Control The pendulum of utility regulation seems to be swinging away from preoccupation with "integrated system planning" and the need for direct load control (demand side management) to eliminate the need for additional generating capacity. In a de-regulated marketplace, direct load control may still be applied when the ultimate customer perceives direct financial benefit by giving up control of his or her individual energy usage on a real-time basis. The availability of two-way communications between RPU and a customer interface unit (CIU) at each premises will permit future use of direct load control. ~> Time-of-Day (TO D) Pricing Time-of-day rates have been in existence for some time and take many forms. The overall concept is that the cost to a utility to produce and deliver electricity varies throughout the day and season. The simplest form for a time-of-day rate is a constant energy charge with separate demand charges for specified on- and off-peak periods. A more complicated rate form involves both on- and off-peak demand and energy charges which may vary between summer and winter seasons. Real time pricing (RTP) is a more recent development in rate making. This concept recognizes that the true cost of providing electric service varies incrementally on an hourly basis. With real time pricing, the customer is notified a short period of time in advance with regard to what the hour-by-hour cost of electricity is going to be for a following period of time, usually a day. The customer can then decide how it wants to meet/modify its electric energy requirements for that period of time. For example, a major industrial customer with self-generation can then decide if the generating facility should or should not be operated. In making this decision, the customer has to decide if the generating facilities will be base loaded or operated in a peak shaving mode of operation. With the availability of a high-speed, two-way communication system between RPU and its customers, the application of TOD and RTP rates will become possible to support future energy marketing strategies. Data Services The term "data services" is broadly defined as the analog or digital transmission of text, financial information, statistical data, and software over the broadband communications system. Most organizations which operate more than a single computer typically need to share data and software over a local area network (lAN). If an organization has staff and computers in several locations which are relatively close together, they may all be connected to the same LAN. Interconnections within the LAN may be hard-wired using simple twisted pairs as dedicated or dial-up links or using dedicated computer wiring over twisted pairs or coaxial cables. Data speeds vary from 4 Mbps to 10 Mbps or higher, depending on the selected carrier technology. If the same organization needs to connect facilities which are dispersed in separate locations over a relatively large geographic area, the same connectivity can be provided over a wide area network (WAN). Interconnections may be provided over dial-up modems on the PSlN, jfl:jfl/raf:13894:13894rpt.001 3-6 STANLEY CONSULTANTS leased telephone lines, dedicated fiber-optic strands, RF or microwave links, or even p-links to a satellite system. Data speeds may vary from 14.4 Kbps to 400 Kbps for homes an small businesses and a range of 56 Kbps to as high as '4>5 Mbps for large users. Appe dix A provides background information on the applications of various data rates and carrier technologies currently available to implement broadband communications networ . The most secure form of high-speed data transmission uses a direct connection over isted pair, coaxial, or fiber-optic cables to connect between a terminal controller (serv r) and multiple computers or computer work stations in a dedicated "point-to-point" data n twork. This approach avoids the capacity, security, and cost issues associated with acces ing the public switched telephone network (PSTN). RPU could support this type of netwo king by leasing dark fiber which it might install within the service territory. Lease costs wou d need to be competitive with PSTN charge rates for comparable services. Another family of needs for data communications services involves the public servi of governmental offices, schools, libraries, and public safety (police, fire, emergen Units of government are typically concerned with their communications with the eneral public and with each other. Shared data bases and GIS mapping are typical opportunities to improve services and share costs. As two-way data communications with in ividual residents becomes more available, many governmental functions, such as filing pro erty tax information, applying for permits, etc., will become available via network services. Public safety communications may include access to existing or planned W ANs involving a cess to police units or emergency preparedness agencies. Entertainment Services The most common service currently available to residential subscribers is cable te evision, frequently termed "CATV." Competitive services are now available in the form f direct broadcast satellite (DBS) reception over the subscriber's small dish antenna. Large evenue streams are associated with CATV and DBS services. Competition for market share is intense. Both pricing structures and delivery of competitive technologies are pa t of the marketing strategies available. Typical CATV services include: . Basic Service - which typically includes twelve to twenty channels which pro ide local "off-air" broadcast stations representing the major networks, public access nd local origination channels, and perhaps other independent programming. . Expanded Basic - which typically adds twenty to forty additional channels i cluding the most popular general programming. The subscriber must authorize bos.c service before expanded service becomes available. Channels are "programme " by the service provider to have broad appeal, and typically include news, weathe , sports, classic television, and classic movie offerings. I I I Premium Services - which are usually provided on a channel by chan~el basis, including options for full-length, uninterrupted movies, children's programmJng, adult channels, and perhaps digital music. I I . jfl:jfl/raf:13894:13894rpt.001 3-7 STAHLEY ONSULTANTS · Pay-Per- View - As the bandwidth capacity of CATV systems is increased, specific Ufirst run" movies can be ordered by return path or over the telephone, to be accessed at a particular time, or with video-on-demand (VOD) to be accessed when the subscriber wishes to view the program. Special pay-per-view events such as major sporting events are also available. For new service providers entering the marketplace, Uprogramming" is an important issue. The correct blend of program offerings may cause subscribers to move from an incumbent provider to the new entrant. Programming cost is an important factor of doing business. Some incumbents benefit from partial ownership of programming sources, which allows them some additional flexibility in setting service rates. Programming can also be a sensitive political issue in some communities. Other Services A key factor in offering other broadband telecom services is the availability of a "fast" communications connection to each subscriber. This may be provided by coaxial cable, as in the case of CATV or over an existing Utwisted pair" telephone line using digital subscriber line (xDSL) technology. Once the subscriber link is established, the return path potential allows a host of interactive communications services to become potentially available. The utility applications relating to automated meter reading (AMR) and time-of-day (TaD) rates are primary examples. Other services may include: · Dial tone telephony. · Home security. · Personal shopping. · Financial services. · Work-at-home data transfers. Wide-spread application of these services using digital technology will depend on the development of equipment and protocols to complete the high-speed, two-way connection with each subscriber. jfl:jfl/raf:13894:13894rpt.001 3-8 STANLEY CONSULTANTS ~ Section 4 Telecommunica ions Service Op ions Needs Assessments Telecommunications needs in the Rochester metropolitan area have been an on-g ing topic of discussion over the past several years. In 1996, the city engaged Moss and B rnett to conduct several focus group sessions with knowledgeable organizations to asse s future broadband cable communications needs of the community. As part of the T I Cable Franchise renewal process, these discussions provided useful information on future needs of the broader community, relating to voice, data, and video services. Specific sessi ns were conducted with the following: . City/County Governments . Electronics/Software/ Business Organizations . IBM . Mayo Foundation . Media Service Providers To update and amplify this information, Stanley Consultants developed a B oadband Telecommunications Survey questionnaire and joined RPU Staff in a series of potential user" interviews conducted on March 18 and 19, 1998. The organizations contacted included: . Western Digital . IBM . Mayo . City of Rochester . Olmsted County . PEMSTAR . Rochester Public Library jfl:jfl/raf:13894:13894rpt.001 4-1 I I I STANLEY tONSULTANTS J____ · Rochester Public Schools · University Center Rochester .. Rochester Public Utilities "", Based on information gathered to date, the following sections outline the perceived future telecommunications needs, which are addressed in this study. Governmental Services Available information reveals potential broadband telecommunications users within existing City of Rochester and Olmsted County units of government. There are also potential opportunities to support local units of State of Minnesota or federal government agencies with high-speed links to their external wide area networks. A listing of potential public users of an RPU fiber-optic network is included in Appendix C. Several types of telecommunications services are typically considered by units of government. There is a basic need for data communications within city and county governments which involves electronic interface with constituents, collection and retrieval of data, maintenance of records, and sharing of information. Network design for this conceptual study will be based on the following general concepts: · Governmental users are treated as one or more broadband fiber connections between the citylRPU network and existing "legacy" local area networks (LANs). Each LAN is equipped with a firewallso that the user organization retains control of its LAN, the integrity of data flowing into their IAN, and the access to data residing on the LAN by outside parties. . · Separate interconnection points are proposed for the City of Rochester, Olmsted County, and the Public Safety IAN which serves both city and county police, fire, and emergency services. Similar interconnections can be established with State of Minnesota facilities, if desired. · Investigation of potential data transfer and video conferencing uses by the Olmsted County District Court system, while outside the scope of this conceptual study, is desirable as future HFC network planning becomes more firm. In other areas of the country, there is considerable interest in the use of interactive voice/video to support the justice system. Benefits involve both positive impacts on schedules and costs, as well as the increased security associated with remote arraignment procedures. RPU Utility Service Options A primary use of broadband communications by RPU involves the replacement of leased telephone lines and other existing communications links, with optical fiber to each electrical substation and significant high-level water storage towers (those which support wireless communications antennas). RPU has just completed an upgrade of its supervisory control and data acquisition (SCADA) through installation of a new Valmet Automation system to address 19 electrical sites, and 40 water sites. A move to RPU's fiber network will support higher data transfer speeds and also the potential additional traffic associated with distribution automation of downstream devices from each substation. jfl:jfl/raf:13894:13894rpt.001 4-2 STANLEY CONSULTANTS "'-.., I I I I RPU is also investigating available equipment and equipment vendors associated t. ith the development of an automated meter reading (AMR) network in its service area. At the heart of such a system is the ability to establish a two-way data communications link etween RPU and each customer. Once established, that link can logically provide the op~ortunity for "value added" utility services such as outage reporting, time-of-use utility r tes, and customer-managed direct load control. The most flexible (and perhaps the mo~t costly) communication link is a direct connection to the HFC network. While other met~ods will be less costly for the single-purpose connections, future AMR might become an afditional use to support network construction. I Looking to the future, RPU has a need to communicate interactively with its cust mers, in order to achieve the quality of service needed to maintain its customer base in a future de-regulated electric utility industry. The "dollar value" of the existing RPU custo er base is not easily established. The benefits of future RPU programs to manage powe quality, automate the outage reporting and service restoration reporting, expand the use of ilot wire relay protection, and automate switching of feeders and devices on the electric dis ribution system are generally difficult to quantify. However, future costs for necessary two-way communications to support these programs can be identified conceptually. This wi I in turn, support the future decision process to implement a broadband telecommunication system. I Education Service Options I I In Rochester and around the country, local school districts are challenged to Brovide a quality education to their students, in spite of budgetary constraints and shifting demographics. New technologies are becoming available which may result in s gnificant changes in educational delivery systems. ISD 535 has moved forward through pgraded telecommunications links over leased coaxial cable. However, potential HFC network development by RPU could provide a necessary and cost effective "next step" t ard the telecommunications infrastructure of the 21s1 century. Convergence of information and communications technologies is as important in as in the business community. Improved information sharing through voice essaging, Interned access, and "dial-homework" applications must be available in every c assroom. Video eonferencing betwe~n educators, between classrooms, and with central resource libraries and museums will require high-speed, broadband, on-line access. Existing sand communications links should be viewed as simply the current step toward e ucational delivery systems of the future. Business Service Options While just a few businesses were interviewed during preparation of this concep al study, there is considerable opportunity for a variety of businesses to benefit from con ection to a broadband municipal area network (MAN). Primary uses are generally groupe into data transfer, voice and video teleconferencing, and Interned access to reach customer ,vendors, and service providers. jfl:jfl/raf:13894:13894rpt.001 4-3 STANLEY CONSULTANTS 1____ Entertainment Service Options The Rochester community has enjoyed reasonable ~'Jailability and generally reliable CA1V service from the incumbent provider. Cable franchise renewal discussions have been under way for well over a year, with specific issues still on the table. For the future there will be entertainment services desired in addition to CATV, including near video on demand. Entertainment over the Interned includes interactive video and a variety of gaming possibilities. While technology is moving to make additional bandwidth available, the sophisticated Generation X users of the future will demand faster speeds and broader service offerings. Competition for the delivery of entertainment services will occur, either from overbuild of HFC plant or from alternative wireless technologies. The potential revenue streams are too attractive to preserve the "single service provider" concept. J jfl:jfl/raf:13894:13894rpt.001 4-4 STANLEY CONSULTANTS ~> Section! 5 Communications Technology Assessment Introduction The interrelated issues of technology assessment and competitive service provider analysis are complex in the rapidly changing communication environment. Communication suppliers in each community have installed infrastructure which provides them with both advantages and disadvantages. This section presents an overview of selected key technologies and issues. It then presents a brief analysis of potential competition from existing communication providers and their installed technologies. Technology and Technology Issues The technology issues are divided into three major categories for discussion purposes: . Desired services driving the technology. . User equipment and applications supporting desired services. . Delivery technology supporting desired services. Desired Services Driving the Technology Desired communication services are being driven by changing home lives and business operations in a number of ways. . Internet service is a rapidly expanding service that was barely in the public eye five years ago. Projections by communication analysts predict Internet access in 50 percent of American homes by the year 2000. They also predict that a significant portion of consumer buying, banking, news gathering, and video entertainment services will shift to the Internet in the coming years. These services, combined with digital home video and video-game markets, are driving the rapidly expanding residential service sector. jfl:jfl/raf:13894:13894rpt.001 5-1 STANLEY CONSULTANTS · Corporate needs to interface with more diverse and rapidly shifting work forces are bringing~,<ideo conferencing and video telephony into the list of needed or desirable services. Potential "work at home" opportunities are enabled by access to a broadband data network. · Any where to any where communication is being introduced via Low Earth Orbit satellites(LEOs). Motorola already has an installed two-way phone system which allows climbers on Mount Everest to phone Washington, D.C. Several major corporations are backing video-phone capable LEO systems planned for operation by year 2002, including Bill Gate's Teledesic in partnership with AT&T and Boeing. The above services reveal some of the major factors driving expanding communication systems. Although it is not a complete list, it is indicative of the communication trends which are in turn driving the need for upgraded delivery infrastructure. User End Equipment and Applications Supporting Desired Services The above services are both driving and being driven by lower-cost higher-capability computer and telecommunication end equipment. Video capable personal computers are now being sold by compute~ retailers in price ranges as low as $2,500. Emerging modem, networking, cellular and PCS (personal communication service) technologies are approaching price points and capability which support the graphics intensive and upcoming video services. Software and hardware prices for quality Geographic Information Services, Global Positioning Systems, Computer Aided Design, graphic arts, photo imaging, and numerous other applications have plummeted in the past five years. All of these changes are now driving the need for mass-market high-speed communication systems. Delivery Technology Supporting Desired Services Existing communication delivery services can be divided into three categories, each with different modalities. These categories in turn drive the technologies being developed. Service categories include the type of communication interaction, number of entities interacting, and the media of interaction. Modalities are listed in each category below in the order of increasing complexity needed to accomplish them: · Type of Interaction One- Way Two-Way · Number of Entities Interacting One-to-One One-to-Many Many-to-One Many-to-Many jfl:jfl/raf:13894:13894rpt.001 5-2 STANLEY CONSULTANTS . Media of Interaction WrittenlE-mail Communication Voice Communication or Voice-at-a-Distance Graphics Communication or Pictures-at-a-Distance Video Communication or Motion Pictures-at-a-Distance In the past and in most. communities today, each modality uses a different delivery infrastructure. Conventional television uses coaxial cable or broadcast radio waves to provide the following modalities; one-way, one-to-many, and video. Conventional telephone uses twisted copper wire for two-way, one-to-one, and voice modalities. E-mail uses a mixed infrastructure for the following modalities; one-way, one-to-one or one-to-many, and written. And finally, video conferencing with white board capabilities uses a broader range of technologies to support a broader range of complex modalities; two-way, all categories of numerical interaction from one-to-one through many-to-many, and all categories of media interaction from voice through video and graphics. As the mix and number of modalities becomes more varied, the complexity of the delivery technology increases. Communications technologies are rapidly moving to support the more complex modalities required for video conferencing. Present and proposed future technologies are focused on merging the above services onto Full Service Networks (FSNs) supplying the full combination of services and modalities which end-users require. Competition Within the Community The size of the Rochester market presents significant challenges and offers substantial opportunities for current and future communication services providers. The construction and operation of a stand-alone broadband system requires significant capital and operational support. This expense must be absorbed and distributed over the market base by establishing an attractive mix of services at retail rates that will provide acceptable return on investment. Incumbent providers also face significant system upgrade costs and potential rate increases. Any new service provider would face strong competition in the various telecommunications services market niches. The incumbent Cable TV operator, TCIlBresnan could provide direct competition for CATV and other services. Direct Broadcast Satellite (DBS) providers will also offer competition. Other potential competitors include various Local Exchange Carriers, Competitive Local Exchange Carriers, Competitive Access Providers, and Inter-' Exchange Carriers. Low Earth Orbit Satellites (LEOs) and new terrestrial broadcast technologies offer a prospect of additional competition within the next five years. Further clouding the issue is the fact that no two "experts" agree on which technologies will dominate. A principal service for new and existing communication providers is the link to the small office and the home to support high-speed Internet services, interactive video, and enhanced CATV services over a single network. Several major communication technologies are emerging that can provide this broadband access "last mile connection to home." . Cabled Infrastructure Distribution Digital Subscriber Line Technologies (xDSL) Hybrid Fiber Coax (HFC) which Combines Fiber and Copper Cabling Systems jfl:jfl/raf:13894:13a94rpt.001 5-3 STAHLEY COHSULTAHTS Fiber To The Home (FITH) Combination Wired/Wireless Systems (Specifically for AMR) · Satellite Distribution Direct Broadcast Satellite (DBS) Low Earth Orbit Satellites (LEOs) · Microwave Distribution Multichannel Multipoint Distribution Systems (MMDS) Local Multipoint Distribution Systems (LMDS) Pros and cons for the various service providers and technologies are summarized In Table 5-1. Existing CATV Provider Both TCI and Bresnan are seasoned MSO operators who are major players in the CA1V industry. Although TCI tends to allocate capital dollars (earned in the local community) to system upgrades in their larger markets, threat of local competition may prompt continuing upgrades for Rochester. Digital compression technology is presently available which can provide digital services over existing coaxial cable infrastructures. This level of upgrade will provide new digital capability and an enhanced channel line-up to the home. Until TCIlBresnan completes upgrades to a 750 MHz HFC system, it may not provide the desired range of digital services. In a letter dated May 20,1998, to the City of Rochester, TCIlBresnan has offered a full upgrade to.a 750 MHz or higher HFC network. Construction work to install additional fiber-optic cable and convert active and passive devices is apparently in progress. No completion date for the system upgrade has been promised. No schedules of enhanced services available or formulation of new service rates have been provided. The impending merger ofTCI and AT&T could bring a new "telephony dimension" into the. picture. At this time, the City and RPU may continue to view TCIlBresnan as the incumbent CA1V provider who could provide enhanced services, partnership opportunities, aggressive competition for other service provider or direct opposition to any competitive provider overbuild. A new service provider which offers the full range of digital services implied by a Full Service Network operation may be able to capture a significant data and video market share by providing broader and better entertainment value and high-speed two-way data and video connections between subscribers, institutions and private business. Competitive advantage can be gained by offering the same services at a lower price, offering more services for the same price, or offering the same services for the same price but with improved reception, reliability, and service. A significant market share may be gained simply from consumers exercising their new-found ability to choose a service provider. The combination of more services for the same price, improved reception, improved reliability, and improved service will likely expand the total market and capture a major market share. jfl:jfl/raf:13894:13894rpt.001 5-4 STANLEY CONSULTANTS Phone Companies The local phone companies and long distat1~ providers have a keen interest in enhancing their existing phone/data services with high-speed data and video entertainment services. They see the cable providers encroaching on their telephone revenues; they also see CATV services as a potential source of new revenue if they upgrade their technology to provide Full-Service Network (FSN) capabilities. LECs/IXCs are considering several technologies including HFC, FITH, MMDSILMDS, and xDSL. Of these, xDSL offers the greatest potential for near term competition, based on continued use of their massive outside plant. MMDSILMDS and FITH offer excellent competition possibilities two to ten years out. xDSL Technology - "With high-speed Internet access as the latest Holy Grail in the telecom industry, digital subscriber line technology (xDSL) appears to be Telco's clearest path to the promised land." Coming Full Circle, page 48, Telephony, March 2, 1998. The xDSL technologies use existing telephone cabling to provide high-speed Internet access and telephone services, often over a single twisted pair telephone line. Of the many xDSL technologies, Asymmetrical Digital Subscriber Lines (ADSL) and Rate Adaptive Digital Subscriber Line (RADSL) are in the fore front. ADSL technology uses existing copper pairs to the home, supported by enhanced switching nodes in a backbone network, to deliver 1.5 Mbps to 6 Mbps downstream channel capacity (Internet to home) with a smaller upstream channel capacity (home to Internet). This allows high-speed Internet downloads as well as video programming over existing phone cables. The home owner will select one video channel at a time for transmission to the home from a neighborhood node. Disadvantages of ADSL technology include a present 18,000 foot limitation from the home to the Central Office (CO). Other disadvantages include limited CO space for required ADSL equipment additions, existing copper line conditioning issues, and a 6 Mbps bandwidth limitation. The RBOCs (Regional Bell Operating Companies) have xDSL test market roll outs planned for several metropolitan areas in 1998. US West is planning to install RADSL in communities like Rochester, this year. They are bypassing the xDSL distance limitation by installing fiber from the CO to copper distribution points in areas which are further than 18,000 feet from the CO. Fiber to the Home - FI11I is still very expensive and, therefore, not considered feasible by most communication suppliers. However, "a number of FITH concepts using Dense Wave Division Multiplexing (DWDM), which combine several wavelengths over a single fiber, are on the drawing boards....(but, in order to be feasible)... suppliers must be pushed into making low-cost components readily available." CED, page 106, March, 1997. Both RBOCs and cable operators who have already deployed HFC are watching carefully the FITH technologies. Others are installing mc (Fiber to the Curb) or extra FITN (Fiber to the Node) to overcome existingxDSL technology distance limitations and prepare a migration path to predicted lower cost FITH technologies of the future. In summary, the present detriments to immediate FITH deployment, are the lack of low cost fiber technologies for fiber distribution systems and customer equipment interfaces. Technology advancements and cost reductions will likely make FITH feasible in the foreseeable future. jfl:jfl/raf:13894:13894rpt.001 5-5 STANLEY CONSULTANTS MMDSILMDS technology can best be described as an over-the-air cable TV system and high-speed data deliv~_ry system. During recent auctions, the LMDS License covering the Rochester area was awarded to Midwest Wireless Communications. Rapid advancements in the technology have resulted in improved reception, expanded channel offerings, and improved programming quality. The technology requires line-of-site distribution and is best suited for markets with flat open terrain. This is a growing technology now backed by Regional Bell Operating Company (RBOC) capital and ownership. Past tests in East Coast high-rise metropolitan areas resulted in penetration levels too low to support roll-out as of 1997. However, 80 percent penetration levels on similar west coast test sites did approach economic feasibility. The technical journal CED summarized the issues well in their March 1998 edition when they said MMDS is "a limited technical option in regions less ideally suited for wireless propagation than Los Angeles, where flatness of the terrain and minimal building congestion are big pluses." Competitive Access Providers (CAPs), such as McLeod USA, potentially provide some of the data services which RPU may offer. These organizations represent opportunities for partnerships to provide long-distance access, joint use of fiber, and other telephony services not provided by the RBOCs. While some of the above technologies are entering the high-end metropolitan markets now, LEC/IXC strategies and financial considerations are similar to the CATV providers. They too are interested in pursuing the larger markets where the substantial infrastructure costs can be recaptured by the large market share potentials. Also, LECslIXCs have been somewhat slow to deploy new technology in the less attractive markets. Digital Broadcast Satellite DBS providers such as Primes tar and Direct TV initially targeted rural areas where CATV service was not available. Their second-phase growth is focused on cable TV markets like Rochester that have less than full channel capacity. DBS providers can presently deliver over 100 channels including Near-Video-On-Demand. National marketing efforts are expanding customer bases, which are expected to increase by over 150 percent annually over the next seven years. DBS providers need not make large investments beyond advertising and partneringwith local sales outlets. The disadvantage of DBS services is that they are normally for a single license which limits reception to one channel at a time. They do not provide the high-capacity reverse bandwidth required by many of the emerging two-way video applications. DBS services only provide local off-air channels for the larger markets. Finally, transmissions delays (unnoticed in one- way television transmission over DBS) are unacceptable for two-way real-time voice, video, and multimedia services. Low Earth Orbit Satellite (LEO) and Medium Earth Orbit Satellite (MEO) Systems LEO/MEO systems provide low-delay two-way communication. They differ from DBSs in several aspects: they are 30 to 50 times closer to earth than DBSs which are 23,500 miles out; they require much less power to transmit and receive signals; and finally, their transmission delay is small enough to allow effective two-way communication. LEOs operate on the principal that one satellite is always in the vicinity of communication users on earth. As a satellite moves out of range, it hands off communication to another one moving in range. Presently, one major narrow-band systems is in operation (Motorola's jfl:jfl/raf:13894:13894rpt.001 5-6 STANLEY CONSULTANTS ..".,.~ Iridium) using approximately 60 satellites and another system is scheduled for operation in 1999 (Globalstar). Both are designed for global telephone communication and are incapable of supporting broadband (video and high-speed data) networks. In the next ten years, "conservative estimates suggest that some 500 broadband satellites will be available. ... Four efforts alone - Lockheed Martin's Astrolink, Motorola-Matra Marconi Space's Celestri, Hughes' Spaceway, and Craig MaCaw and Bill Gates' Teledesic plan to launch 405 satellites at a cost in excess of $37 billion. Together these constellations call for an aggregate bandwidth of about 3 terabits per second, or the equivalent of about 2 million Tllines."l Teledesic, with support from Microsoft, Boeing, and AT&T plans to deploy 288 satellites, making it the largest of the planned LEO systems. LEOs will use low power transmission technology, capable of supporting numerous two-way communication channels with capacities ranging from 2 to 64 Mbps. Although th~se systems are in the planning stage with regulatory, technical and financial challenges, initial deployment for Teledesic and Celestri is planned for 2002 and post 2003 respectively. "Gartner Group and Pioneer Consulting both predict that up to 15 percent of all business bandwidth will eventually come from broadband satellites, with these high-flying birds taking on 7 percent by 2005."2 The disadvantages of these systems include relatively low capacity as compared to a fiber- optic infrastructure and relatively high cost to upgrade capacity with technology advancements. Industry experts see these systems more as an augmentation to existing fiber infrastructure, by providing a low cost communications system globally to mobile users and areas without fiber. Thus, they will likely act as an extension to fiber based infrastructure in developed areas, as opposed to competition with that infrastructure. All that being said, in the next five to seven years these systems may radically effect the whole telecommunication field. HFC Telephony Various telecommunications providers have deployed HFC telephony equipment and systems for testing, trials, and development. Available telephony equipment can support a variety of services from Plain Old Telephone Service (POTS) to ISDN, videophone, high-speed data, inter-networking, and future "bandwidth on demand" applications. Basic equipment requirements include: . A side-of-the-home unit, which connects to the coaxial drop cables and interfaces with the conventional telephone cable in the home. . A modem for IBM or MacIntosh PC connection to the HFC for very high-speed data communications. . A network "concentrator" (head-end) for integration of telephony, data services, and CATV signals. . A cable router (head-end) for cablelbandwidth management. INetworking in the 2r Century, Network Computing, Volume 9, No.5, March 15, 1998. 2ibid. jfl:jfl/raf:13894:13894rpt.001 5-7 STANLEY CONSULTANTS At present, this technology is only offered by a select few manufacturers and has not undergone an extensive trial period. Also, it has not reached a point where it is economically attractive. There are also a host of regulatory issues which must be dealt with, if Public Telephone Services are offered. Therefore, cable-based telephony has not been further considered in this report. jfl:Jfl/raf:13894:13894rpt.001 5-8 STANLEY CONSULTANTS ~ Section 6 Conceptual Broadband Communications System General A conceptual design of a hybrid fiber-coaxial cable (HFC) network was developed as the basis for estimating the initial construction costs and resulting revenue streams for such a system. The conceptual design is generated as a function of the broadband telecommunications services, which were identified in Section 4, after considering the emerging technologies of Section 5. The following design criteria have been used in developing a conceptual RPU/City of Rochester broadband telecommunications network: . An integrated voice, data, video broadband network is assumed to provide multiple telecommunications services to various potential user groups. A fiber-optic backbone loop is developed to potentially connect RPU, governmental, educational, business, and residential users. . An equipment "headend" is assumed in the approximate location of the former RPU Building near Silver Lake Power Plant. From this headend, one or more fiber loops will serve utility, government, and school locations in the "Base Case" configuration. shown on Figure 1. Because of close proximity to the governmental center in downtown Rochester, the specific location of a "downtown loop" does not significantly change conceptual costs. . While an A1M network is initially assumed, the backbone will remain flexible to accept other existing and emerging technologies to meet final user interface requirements. A dedicated full-time connection to the Internet is assumed through a router connected to RPU's A1M switch. A dedicated connection to a point-of- presence (POP) on the public switched telephone network is also assumed. . A looped fiber access network is established to connect digital transport hubs serving each major type of subscriber. From each hub, which mayor may not initially require an A1M switch, various subscribers are served over an HFC radial network using high-speed data connections to main distribution frames, intermediate distribution frames, and various types of customer interface units. jfl:jlf/raf:13894:13894rpt.001 6-1 STANLEY CONSULTANTS ~ · As a possible extension of the HFC network, a broadband/narrowband network is expanded conceptually to include deployment of telephony, Internet, local area networking, CATV, video conferencing, and a host of related services. This system is capable of providing virtual connections to every residential, business, governmental, educational, medical, financial, and utility subscriber. · Design criteria include development of a 750 MHz bi-directional broadband network (capable of future expansion to 1.0 GHz), based on a fiber loop topology connecting to an HFC access network. An open architecture is planned so that current protocols and equipment standards may be utilized, while allowing for orderly migration to future technologies as they emerge. For the CATV design option, a system of 140 optical nodes is assumed, resulting in a two-way HFC system based on approximately 250 homes passed. · Initial services to city, county, and federal or State of Minnesota governmental offices and service facilities include the provision of broadband data transfer and interactive video capability. For this conceptual study, either optical fiber or coaxial cable links are assumed for each major governmental facility. The cost of these backbone connections is included in the resulting financial scenarios. The future revenue streams needed to justify governmental connections are not specifically identified, but the level of "offset revenue" needed to result in a IS-year payback is estimated. Base System Plan A loop-radial fiber backbone is presented as a minimum fiber network to serve RPU, City of Rochester, Olmsted County, University Center, and Public School District 535. This assumes that, as a minimum, a publicly-owned fiber communications link will interconnect the existing facilities to provide future broadband services. Existing contractual commitments to leased telephone pairs or coaxial cable links have not been considered for this conceptual study. The loop-radial fiber backbone shown on Figure 1 provides a conceptual routing for the initial network. Fiber required to interconnect RPU and governmental units initially is shown in red. Additional radial fiber required initially to connect schools and colleges is shown in magenta. Although some radials require only two fibers initially, a minimum fiber count of 12 is provided wherever sites are connected to the broadband network. Allowing for redundancy, fiber counts as high as 144 are included in the most congested sections near the headend. Two potential fiber loops are considered in the Base Plan cost estimates. A "utility loop" extends from the headend to the RPU Service Center, generally following North Broadway, then west and south, finally returning to the headend. A much smaller "government loop" extends from the headend south to the City/County Administration Building, then returning northerly along Broadway and back to the headend. These loops provide fiber capacity for ethernet, ATM, or A1M over SONET technologies depending on user needs and resulting revenue streams. Specific fiber routes have not been shown for connections to various RPU water pumping and water storage facilities. Fiber has been priced in the financial model for those elevated water storage tanks which support wireless radio, cellular telephone, or paging system antennas. A 12-count fiber run has been priced to connect the Rochester Municipal Airport. jfl:jlf/raf:13894:13894rpt.OOl 6-2 STANLEY CONSULTANTS System Development Plan 8 This s'+,nario builds on the same physical fiber layout of Plan A by again increasing the fiber count in various parts of the network. The major service addition involves the assumption that CATV service could be added through the addition of video headend equipment, some 140 additional optical nodes, and an extensive coaxial cable build out from those nodes. The resulting conceptual design is based on approximately 250 homes passed, and taps are costed to serve any subscriber. Revenue assumptions for the alternative are based on current prevailing CATV rates and charges. Sensitivity runs are used to test possible variations in the charge rates. Since CATV is a highly-competitive business, various market penetration rates are also assumed. Any decision to compete in this market would require serious marketing studies and a subscriber mandate in support of RPU entering the entertainment business. Only in Plan B does RPU approach the desirable end position of achieving a two-way communications link to every subscriber. This objective could be met to satisfy broadband requirements of an Internet Service Provider (ISP), ultimate build out of a comprehensive AMR network, entrance into the competitive CATV market, or some combination of those services. It could be achieved through a public ownership initiative, or through partnering with incumbent service providers. The real objective is to find a sustainable competitive advantage in the non-regulated electric utility industry by providing excellent customer services including value-added services which an electric customer may also desire. jfl:jlf/rlf:13894:13894rpt.001 6-4 STANLEY CONSULTANTS ....,.., Section 7 Economic Evaluation General An economic analy$is was conducted to determine the financial basis for constructing a broadband communication system to provide a municipal area data network (MAN) and other communication services in the City of Rochester. Annual costs and revenues were projected for a 15-y~ar period of full service operation. These projections, along with the estimated capital cOsts, were used to compute the net present value, internal rate of return (IRR), payback perlod, and year end cash available resulting from the project. Sensitivity analyses examined i the effects of changes in assumptions for penetration, capital and operating costs, and other factors. Three different plans were evaluated as defined below: . Base System Plan - Public Network (City, County, RPU and Schools) . System Development Plan A (Plan A) - Public and Business Networks . System Development Plan B (Plan B) - CATV, Cable Moderns, Public and Business Networks Financial Model A proprietary computer model was used in projecting the annual revenues and costs. The financial analysis includes both debt and equity financing for annual capital additions. For debt financing, principal and interest payments were projected over the study period based on a 15-year financing period and a 5.3 percent interest rate. Year 1 of the I5-year analysis is defined as the first full year of commercial operation of the respective plans. A construction period of 12 to 24 months prior to Year 1 would require funds for final design, construction, customer connections, staffing, and programming. However, this transition period is not judged significant to the selection of a conceptual development plan. jfl:jfl/raf:13894:13894rpt.OOl 7-1 STANLEY CONSULTANTS The major parameters included in the study consist of service cost per customer, revenue per customer, debt ratio, debt interest rate, financing period, depreciation multiplier?, penetration rates, growth rate multipliers, capital cost requirements, operation and maintenance expense, and other expenses. Income tax rates are not applicable. The values for debt ratio and other financing parameters were provided by RPU. The values for the other parameters were developed by Stanley Consultants and RPU. Capital Costs Detailed capital costs were developed for the MAN Base System Plan, Plan A, and Plan B for the headend equipment, fiber additions, outside coax plant, and MAN requirements and are summarized in Appendix F. These costs were based on discussions with equipment vendors, contractors, and Stanley Consultants' knowledge of municipals recently installing communication systems. A summary of the initial capital cost estimates appears in Table 7-1. Plan Table 7-1 Summary of Initial Capital Cost Estimates Description Capital Cost $ 2,797,400 $ 4,056,600 $28,121,500 Public Network Public and Business Networks CATV, Cable Modems, Public and Business Networks Source: Stanley Consultants Base System Plan Plan A Plan B Annual capital costs for the Base System Plan - Public Network and for Plan A _ Public Business Network, include anticipated vehicle upgrades every five years and major technology upgrades in the sixth and twelfth full years of operation. A summary of the capital costs for the Base System Plan and Plan A is shown in Table 7-2. Annual capital cost requirements for CATV customers and modem additions in Plan Bare computed in the model for the projected additions based on the foHowing per customer costs. CATV Service Drop and Electronics Modem Cost Per Customer $225 $280 Modem costs assume that prices will fall from current Midwestern prices of approximately $380, as production volumes grow, and as forecasted in the industry. A summary of the capital cost for Plan B Base Case conditions is shown in Table 7-3 on the foHowing page: jfl:jfl/raf:13894:13894rpt.001 7-2 STANLEY CONSULTANTS Table 7-2 Cumulative Capital Costs for Base System Plan and I . Plan A Base Case Conditions (51,000) > Item Year 1 Year 6 Year 11 Year 15 Headend, MAN and Outside Plant Base Plan 2,797 2,797 2,797 2,797 Plan A 4,057 4,057 4,057 4,057 Vehicles 41 88 142 142 Non-Routine Additions (1) 250 250 750 Total - Base Plan 2,838 3,135 3,189 3,689 Total Plan A 4,098 4,395 4,449 4,949 (1) Non-routine additions include $250,000 in Year 6 and $500,000 in Year 12 Source: Stanley Consultants Table 7-3 Cumulative Plan B Capital Cost Requirements for Base Case Conditions (51,000) Item Year 1 Year 4 Year 12 Year 15 Plan B - Headend, MAN, and 28,122 28,122 28,122 28,122 Outside Plant CATV Customers 1,407 2,375 2,847 2,847 Modems 571 2,443 4,012 4,012 Vehicles 223 281 971 1,090 Non-Routine Additions(l) ............ 500 1.000 Total 30,323 33,221 36,452 37,071 (1) Non-routine additions include 500,000 in Year 6 and 500,000 in Year 12 Source: Stanley Consultants Non-routine additions have been arbitrarily added as an allowance to cover system upgrades that may be required for changing technology. Initial capital costs of $40,500 (Base System Plan and Plan A) and $222,500 (Plan B) are included for vehicles based on one fully-equipped van per technician plus a vehicle for the manager. The vehicles are assumed to be replaced after five years of operation. jfl:jfl/raf:13894:13894rpt.001 7-3 STANLEY CONSULTANTS The outside plant cost in Plan B provides sufficient facilities to "pass" all potential residential and commercial customers included in the study. ~~> The capital costs include escalation based on an annual increase of 3 percent starting in Year 2. The analysis assumes that the initial equipment required for full-scale operation in Year 1 is financed 20 percent by equity or $5,000,000 in equity funds, whichever is less, with the remaining amount financed by long-term debt. The capital requirements in the other years are assumed to be provided by internally-generated funds. The initial financing package includes both the bond issuance cost and interest during construction. Bond issuance cost is estimated at 1.5 percent of the financing package. Operating Costs The major operating expenses consist of technical, marketing, programming, general and administrative. For Plan B, programming costs are summarized in Table 7-4 and are based on a potential channel line-up of 27 basic, 43 enhanced, and 8 premium channels. As indicated previously, the system is capable of providing up to 78 analog channels. Services Basic Table 7-4 Program Cost Program Costs ($/month!customer) $ 1.35 $ 8.37 $11.11 $ 2.17 Basic Plus Premium Pay-Per-View Source: Stanley Consultants These costs are representative costs that other municipal systems have had to pay for programmIng. The following criteria was used in the Base System Plan and Plan A: · One and a half MAN technicians were assumed. One full-time technician would be required. A shared cross-trained electric technician or contracted MAN technician would also be required for coverage. The total staff salaries for Year 1 for all phases is shown in Table 7-5. jfl:jfl/raf:13894:13894rpt.001 7-4 STANLEY CONSULTANTS Table 7-5 Total Year 1 Staff Salaries Plan B Description Public Network Public and Business Networks CATV, Cable Modems, Public and Business Networks Source: Stanley Consultants Salary $ 83,850 $ 83,850 $ 604,500 Plan Base System Plan Plan A Table 7-6 shows how staffing costs are developed for Plan B. The staffing costs, included in Table 7-6, are credited in the computer model projections after Year 1 for the labor associated with CATV and modem hookups since this cost is capitalized, and RPU plans to use its own staff for installation. The credit is based on two hours per installation assuming that the technicians can spend up to 80 percent of their time on installations. Other costs included in the project are: Marketing Technical G&A Direct Mail Sales Commission Creative Services Advertising Materials Vehicles Pole Rental Plant R&M Legal Fees DP Support Billing Expense Payment in Ueu ofTa:xes Property Insurance jfl:jfl/raf:13894:13894rpt.001 7-5 STANLEY CONSULTANTS ctI .i: co,s I .~ ""'u ~en .g .s ....:::: ctI - en en ... III cu ...>- III cu >- c lC"'" III ... _ III encu >- ... III cu >- E ~ It'l ,.... It'l o cD ..., co It'l N" ,.... ,.... ,.... ,.... ,.... ,.... It) It'l It) It) It) It) jfl:jfl/raf:13894:13894rpt.001 :a cu >- "1' ,.... It'l o cD ..., co It'l N ... III cu >- ..., .... ... III cu >- ,.... It'l o cD ..., co It) .... N N .... ... III cu >- ,.... It) o cD M co It'l .... N .... .... .... ... III cu >- ,.... It) o cD M co It) .... N .... o ,.... It) o cD M co It) N .... :a cu >- ,.... It'l o cD M co It'l N .... ,.... It'l o cD ..., co It'l .... N ,.... It'l o cD M co It'l N <0 ... III cu >- ,.... It'l o cD M co It'l .... N .... 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E cu '0 o :E ~ <: g ..J ~ o .... ..,. en co CO) .... STANLEY CONSULTANTS These costs are based on projections from previous studies and operating experience of other similar municipal communications systems. ..,...,> Revenue/Cost Projections Annual revenue/cost projections were made, using the computer model discussed previously, for the Base System Plan and Plans A and B. Projections were first made for "base case" conditions and then for sensitivity cases. The base cases are used as reference cases with parameter values which are deemed most likely to occur or represent a good "starting point" value. The sensitivity cases show the impact on the base case results for changes in the values of key parameters. Major assumptions that were used in the base case projections are outlined below: . The project was evaluated: 1) by computing the internal rate of return (IRR), payback period, and net present value, assuming 100 percent equity financing, and 2) by determining ending year unrestricted cash available under actual debt financing conditions. The 100 percent equity financing scenario assumes that all the funds needed to build the project are already available (therefore, there are no principal and interest payments), and the annual cash savings after all cash expenses are paid (including the annual capital additions for new consumers) are estimated and used to compute the IRR, payback period and net present value. The IRR and payback periods are the most commonly used economic indicators and are convenient ways to evaluate different types of projects with respect to the initial up front required capital funds. The payback period is the length of time necessary for the cumulative annual cash savings to recover the initial capital requirements. The IRR is a measure of the amount of cash savings generated during the IS-year period over and above the initial capital requirements. For example, a zero percent IRR indicates that just the initial capital was recovered over the IS-year period (15- year payback), and there is no additional return. A negative IRR indicates that the initial capital is not recovered over the IS-year period. A positive IRR indicates that the initial capital is recovered in less than 15 years, and the amount of cash savings greater than the initial capital requirements is the "return." The higher the IRR, the lower the payback period. . While the IRR and payback method described above provide a convenient approach for measuring the economic benefit of the initial project capital costs, it does not show cash funds available for actual anticipated operations. The ending year unrestricted cash funds available are determined based on an actual cash flow analysis considering the debt financing arrangement that RPU will most likely undertake along with projected cash expenses and revenues. These funds represent the estimated "bottom line" dollars available to RPU under actual operating conditions. . The penetration rates used in the study are shown in Table 7-7. The penetration rates were developed from marketing information used on other similar projects. Sensitivity cases were done to test the impact of changes to the base case penetration rates. jfl:jfl/raf:13894:13894rpt.001 7-7 STANLEY CONSULTANTS ~> Table 7-7 Penetration Rates CATV Subscribers Year 1 Year 2 Year 3 Year 4 Year 5 Year 15 Residential: Basic (1) 18.0% 21.3% 25.1% 29.6% 35.0% 35.0% Expanded (1) (3) 17.1% 20.2% 23.8% 28.2% 33.3% 33.3% Commercial: Basic (2) 11.0% 13.0% 15.3% 18.1% 21.4% 21.4% Expanded (2) (3) 10.5% 12.3% 14.6% 17.2% 20.3% 20.3% Premium Channels (4) 58.0% 58.0% 58.0% 58.0% 58.0% 58.0% Pay-Per-View (4) 36.0% 36.0% 36.0% 36.0% 36.0% 36.0% Services (4) 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% New Installations (5) 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Reconnections (4) 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Cable Modems: Residential (1) 5.0% 8.1% 13.2% 21.5% 35.0% 35.0% Commercial (2) 12.0% 17.5% 25.5% 37.1% 54.0% 54.0% NOTES: (1) Percent of 32,663 existing utility residential customers. (2) Percent of 3.394 existing utility commercial and other customers. (3) Represents 95% of basic subscribers. (4) Represents percent of total residential and commercial basic subscribers. (5) Percentage of new subscribers each year charged for connection. jfl:jfl/raf:13894:13894rpt.001 7-8 STANLEY CONSULTANTS . The revenue and program costs for Plan B CATV service for a 78-channel program line-up is shown below: $ Per Customer Per Month Revenue(l) Program Cost Basic Base Plus Premium 12.85 18.65 20.00 1.35 8.37 11.11 (1) Does not include sales tax and franchise fee. These rates are the same being offered by TCI this time. . In evaluating MAN (the Public and Business Networks), it was assumed that the revenue from the Public Network (City, RPU, and Schools) will equal the amount needed for a 6.0 percent IRR of the initial investment in the Base System Plan. The Business Network is assumed to provide enough additional revenue to achieve a 6 percent IRR in Plan A. Plan B uses the same Public and Business Network revenues developed in the Base System Plan and Plan A. . Additional sources of income, beyond CATV, Cable Modem, and MAN revenues, include advertising and field transactions (subscriber repairs and interior changes), data services, and home shopping. Advertising and other revenue are estimated at $200,000 and $7,500 per year, respectively, in Year 1. Interest income is computed using 5 percent of restricted and unrestricted cash funds. When unrestricted cash funds are negative, a 5 percent interest rate is used to reflect that the system will be borrowing the deficient amount. . A monthly charge of $35.00 per customer was assumed for Internet and other communications services. . Revenues were assumed to escalate at 3.5 percent per year while expenses were assumed to escalate at 3 percent per year. . The ending year unrestricted cash available is determined based on an actual cash flow analysis considering the debt financing arrangement that-RPU will most likely undertake. These funds represents the estimated "bottom line" dollars available to RPU under actual operating conditions. . Working capital is included as part of the initial project costs for two purposes. One purpose is to provide sufficient funds to cover 45 days of operating expenses. The other purpose is to provide sufficient funds to have positive year end cash available in the critical initial years when needed. The above assumptions represent base case conditions for the respective Plans. The sensitivity cases were run for changes in the assumed revenue from services, penetration rates, capital costs, and operation and maintenance expenses. These parameters are generally the ones which have the greatest impact on financial results. A description of the sensitivity cases appears in Table 7-8. jfl:jfl/raf:13894:13894rpt.001. 7-9 STANLEY CONSULTANTS Penetration rates are important because they provide estimates of the number of potential revenue providers. About 93 percent of the initial capital cost requirements are independent of the number of acttial customers connected to the system. However, revenue received is directly proportional to the number of customers connected to the system. The B-Sl (CATV) and B-S5 (Modems) sensitivity cases were run to determine the amount by which the IRR, payback and end-of-year cash would change for different penetration rates. The assumed penetration rates were taken from information used by Stanley Consultants on other similar projects. The base case proposed CATV rates are the same as the incumbent provider. The B-S2 cases were run to test the financial impact for reducing the base case rates by 10 and 20 percent. Reducing the rates enhances the chances of achieving the assumed market penetration rates. Capital cost estimates prepared during a study are not based on actual bid prices and are subject to variation. Therefore, a 10 and 20 percent increase in capital cost was investigated in B-S3. Programming costs represent the largest single cost item. Therefore, the B-S4 cases were run to test the impact for 10 and 20 percent increases in the starting point programming costs. The B-S5 cases test different penetration rates for cable modem service. Results Base case printouts for the revenue/cost projections and the sensitivity cases are available- as a separate bound volume. Tables 7-9 and 7-10 summarize the results for all of the cases. The following summary comments are provided regarding the results of the economic evaluation: · A total monthly revenue of approximately $37,200 is required from all customers in the Base System Plan (Base Case) to provide a 6.0 percent IRR. Ending year cash available is positive in all years beginning at $89,100 in Year 1 and increasing to $1,359,300 by Year 15. A total monthly revenue of $29,500 from all customers is required to provide a 15 year payback (Base System Plan SI). However, ending year cash is negative in all years except the first year. · In Base System Plan S2, a total monthly revenue of $43,725 is required from all customers to provide an eight year payback and 10 percent IRR. Ending year cash available is positive in all years beginning at $163,512 in Year 1 and increasing to $3,353,039 by Year 15. · A total of approximately $47,300 is required each month from all consumers in Plan A to provide a 6.0 perCent IRR and 9.9 year payback. Two cases were run (Plan A- Base Case and Plan A-Sl) to determine the amount of money required from all the commercial businesses depending upon the charge used for the Base System Plan customers ($37,200 for 6.0 percent IRR or $29,500 per month for 15 year payback). In total the commercial businesses will be required to provide revenue each month of either $10,100 or $17,900, respectively, depending upon whether the 6.0 percent IRR or IS-year payback charge is used for the Base System Plan customers. Plan A jfl:jfl/raf:13894:13894rpt.001 7-11 STANLEY CONSULTANTS 9 sh ($)(1) cing (2) PLANS BS2a BS2b BS2c BS3a BS3b BS4a BS4b BS5a BS5b I 89.952 (224,636) 404.195 95,290 I, (213.944) 291,133 178,071 411,057 388,610 (167,390) (879,510) 363.271 (92.863) (730.421) 268.047 (7,099) 566,479 468,404 608,970 (605,909) 1,161.201 840.038 (143,026) 1,341,489 862,503 1,943,617 1,528.350 2.914.204 1.068,899 3.121.851 3.412.237 2,066.463 4.021.061 3,287,091 5,178,080 3.862.415 7.424,511 4,791.598 6,627.023 8.328.502 6,601,155 9,001.190 7,949,666 11,218,351 7,793,259 13,763,505 10,278,647 11,484.487 15,117,725 12,988.742 15,849,698 14,455,983 19.696.130 12,720.606 21.551,761 17,146,496 17,263.327 23,403.559 20.851,833 24.189,767 22.427,713 29,800,010 18.975,434 30,064,701 24,666,203 23,196.473 32,464,695 29,468.020 33.299.586 31,141.443 40.816,795 25,825.217 39,385,504 32,916.328 29.321.902 42,387.773 38,922.790 43.265,261 40,681.593 52.841,711 33,344,721 49,569,011 41.946.828 35.646.386 53,231.306 49,273.440 54,144.734 51,104.321 65.942.346 41,579,881 60.403,882 51.541,197 41.907.487 64,787.843 60.311.244 65.729,949 62,199.686 79.920,844 50,309,935 72,002,366 61,806,218 48,163.149 77.173,753 72.151.228 78,136,628 74,081,426 94,903.718 59,637,156 85.098.025 73,469,677 55,089.240 91,126,966 85,529.908 92,102.015 87.484.682 111,639,620 70,284,559 99,308,584 86,143,188 62.242.202 106.269.828 100,068,146 107,247.726 102.028,857 129.762.227 81,858,704 114,707.200 99.893.451 69,630,123 122.680.393 115,842.433 123.651.037 117,788,889 149,361.569 94,420.945 07 -oct-98 Table End of Year With Debt FiI BASE SYSTEM PLANA Base 51 52 Base 51 Base B51a B51b BS1c Year 1 89,128 280 163,512 92.520 92.406 404,195 440.144 394,073 452,46 Year2 141.101 (43.314) 295,438 149,725 149,488 543,182 686.889 483,731 765.56 Year 3 206.435 (81,720) 447.456 224,433 224,063 1,820.453 2,502,550 1,603,113 2.602.44 Year 4 286,201 (114,374) 621,078 318,064 317,550 4.755.007 6,579,846 4,305,327 6,343,56 Year 5 381.544 (140,674) 817,905 432,130 . 431,459 10,052.690 13,801.717 9,186,304 12.130,59 Year 6 189,113 (465,005) 735.077 263,674 262,835 17,243,387 23.797,959 15.795.333 19.428,51 Year 7 303,712 (493,214) 967,915 407.918 406,897 25.951,795 35,521,920' 23,871,607 28.216,58- , Year 8 436,968 (513,890) 1,228,592 576,935 - 575,718 - 35,457,700 48.333,970 32,691,552 37.839,30 , 'fear 9 590,301 (526,287) 1,519.107 772,616 771,189 45,848,898 62.272,480 42.374,482 48,353,30 'fear 10 765.221 (529,607) 1,841,580 996,975 995,321 57,185,115 77,447,527 52.907,987 59.854,751 , fear 11 907,506 (578,907) 2,142,437 1,196,325 1,194,426 69,260,177 93,709,170 64,115,271 72.067,360 (ear 12 614,825 (1,078,106) 2.020,033 968,902 966,741 82,191,796 111,122.742 76,109,814 85,105.291 ; (ear 13 835,223 (1.080.002) 2.423,132 1.263,352. 1.260,911 96,719.311 130.523,799 89,626,480 99,782,89: (ear 14 1,082.742 (1.070,729) 2,866,544 1.594,360 1,591,618 112.466,556 151,481,821 104,325,024 115,687,91: " (ear 15 1,359,344 (1,049.264) 3.353.039 1.964,567 1,961.502 129,513,144 174,137,894 120,200.792 132.942.25~ 1) From Line,157 on page 2 of the computer output for each case. 2) Includes 20% or $5,000,000 equity financing, whichever is less, in the first year. c. jfl:jfl/raf:13S94:13S94rpt.001 7-13 STANLEY CONSULTANTS CIl CI) CIl o III ";'0 ,...~ .c~ "> :w Illiii t- c CI) en .. 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Ul .0 o o '" ..... o co ... lD ~ u o ,:. o o o '" ... o co ... en co <xi .... N .., ... o o ..... '" - N .., ... if. o 00 '" #. o 00 on if. o on .., if. o on .., ,e o o 00 - '# o 00 - o o ci ('oj ... o o ci '" ... '" co 00 .. It) co cD ;;; '" lD ... ... It) lD ... ;;; CI) W I- C2 Z 0'# -.., 1-.... C2'O 1-6 w= z~ WI> o.~ =:0.. wE O~ 00 ::E~ '" w= ..J~ CO:2 <:: 01%: zE -" Cl)S wlll C)::o z. <~ :!:Ul Um #. N '0 c: .2 e 'ii c: ., a.. E .. -g ::0 ]j C I> :2 .. I> I%: E " E x '" ::0 . ... It) Ul .0 It) CI) en ... en lD ~ STANLEY CONSULTANTS · Plan B results in a 20.0 percent IRR and a 5.9 year payback. Ending year cash available is positive in all years beginning at $404,200 in Year 1 and increasing to $129,513,100 in Year 15. Revenue in Plan B base case includes the revenues from the Plan A customers plus revenue from projected CATV subscribers at the current TCI rate. Revenue is also included from proposed cable modem subscribers based on a monthly charge of $35. All revenues are escalated at 3.5 percent per year. · The most attractive financial results for Plan B are for changes in the maximum assumed penetration rates for CATV (Case B-Sla) and cable modems (Case B-S5a). Case B-Sla results in an IRR of 23.4 percent with a 5.4 year payback. The average ending year cash for the 15 year period is $62.2 million compared to $46.0 million in the Base Case. Case B-S5a has an 21.5 percent IRR and 5.7 year payback. The average ending year cash available is $52.9 million compared to $46.0 million in the Base Case. · The least attractive results for Plan B are for changes which reduce revenue from CATV subscribers (Cases B-S2b and B-S2c) or decrease the ma"cimum assumed \ penetration rate for cable modems (Case B-S5b). Case B-S2b represents a 20 percent reduction in the starting value of the CATV rates and results in an IRR of 16.9 percent and a 6.6 year payback. The average ending year cash savings are $33.6 million. These results are virtually the same for Case B-S5b. . Case B-S2c includes the annual escalation rate of 3.5 percent for revenue per subscriber, and the initial rates are held constant throughout the study period. The IRR is 14.8 percent with a 6.6 year payback. The average ending year cash is $27.0 million. · No working capital over the amount required to provide for 45 days of operating expense was required for the Plan B Base Case to provide positive ending year cash in all years. For comparative purposes with the sensitivity cases, this component of working capital was held at zero. Table 7-9 indicates that the majority of the sensitivity cases have positive ending year cash in all years. The major exceptions are for a 20 percent reduction in the initial CATV rates (Case B-S2b) and a 20 percent increase in the initial capital costs (Case B-S3b) which result in negative ending year cash in the first three years. In summary, the economic evaluation provides the following key results regarding the establishment of a new telecommunications utility. · The total initial funds required to establish the communication network for the Base" System Plan S2 is approximately $3.0 million. A total amount of $43,725 is required each month from all subscribers to provide an eight year payback and 10 percent IRR over the 15-year study period. The average ending year cash available over the study period is estimated at $1,429,500. A breakdown of the total initial funds required for the Base System Plan S2 is summarized in Table 7-11. · The total initial funds required for the Plan A Public and Business Networks is $4.3 million. A total amount of $47,300 is required each month from all subscribers to yield a 6.0 percent IRR. The average ending year cash available is $748,200. · The total initial funds for the Plan B communication network is $32.1 million. The IRR and payback period for base case conditions are 20 percent and 5.9 years payback respectively. The average ending year cash available over the study period is $46 million. A breakdown of the total initial funds required is shown below: jfl:jfl/raf:13894:13894rpt.001 7-15 STANLEY CONSULTANTS Table 7-11 Total Base System Plan S2 Initial Funds Breakdown Fund Amount Headend and Outside Plant $ 2,069,850 MAN Network $ 727,550 Vehicles $ 40,500 Interest During Construction $ 79,460 Working Capital (Operating Costs) $ 51,510 Issuance Cost $ 35,630 Total $ 3,004,500 Source: Stanley Consultants . A relatively wide range of sensitivity cases were investigated for Plan B, and the financial results are attractive in that the IRR varied between 15 and 23 percent and the payback between 5.4 and 6.6 years. Assumed values for price of services , provided and penetration rates have the greatest impact on the financial results. These results demonstrate the importance of a community mandate and an aggressive marketing program at the beginn.ing of the project. 1 ~ jfl:jfl/raf:13894:13894rpt.001 7-16 STANLEY CONSULTANTS Section" 8 Partnership Opportunities The basis for successful "partnering" is the identification of a mutual interest by two or more separate organizations in exploring future business relationships. Successful negotiations require an "openness" to discuss future objectives of each organization which might be met through some form of joint action. Potential telecommunications partners include incumbent service providers in the RPU area. They could include major businesses who take corporate responsibility for providing services they require or who offer technical support as part of their equipment offerings. Other possibilities include competitive access providers who are seeking to develop business in the area, or organizations who have developed successful telecommunications operations elsewhere, who might become interested in developing similar arrangements in the Rochester area. Several partnering options could be explored by RPU, to support development of future telecommunications policy. Additional discussions could be scheduled with any of the following organizations, based on current topics which need further resolution: . TCI/Bresnan . Seren . US West . IBM . Northern Telecom . Midwest Wireless Communications . McLeod USA Exploratory discussions have already been initiated with TCI/Bresnan, Seren, and Midwest Wireless. Results to date are summarized as follows: jfl:jfl/raf:13894:13894rpt.001 8-1 STANLEY CONSULTANTS TCI/Bresnan Initial talks with Rochester and RPU have focused on issues of CATV franchise renewal, assignment of franchise from TCI to Bresnan Communications, and statements of intent to rebuild the existing CATV system in Rochester. Rochester has received the general commitment of top management to create a state-of-the-art, full service telecommunications network. However, discussions to date appear to reinforce their status as sole-source CATV provider. Possible areas of mutual interest or mutual benefit have not yet been explored. Seren Seren has expressed interest in becoming an alternative CATV service provider in the Rochester area, similar to announced plans to overbuild the existing cable system in St. Cloud. Further discussion of future needs and mutual interests has been deferred pending completion of this conceptual feasibility report. Midwest Wireless As winner of the recent FCC auction for LMDS bandwidth allocations, Midwest Wireless has expressed interest in market planning, system installation, and provision of competitive broadband wireless access network services in Rochester. Further discussion ' of future needs and mutual interests has been deferred pending completion of this conceptual feasibility report. Examples of partnering opportunities developed by others are interesting, but do not necessarily offer a course of action for the RPU service area. The following case. studies provide some insight into what others are currently doing: · In Northwestern Iowa, a partnership has been announced to bring advanced telephony services to a number of the smaller communities by a partnership called Pioneer Technologies, Inc. The partners include: MCI Communications - a major IEC provider who offers the points-of-presence to provide long distance telephone and Internet access services. Northwest Iowa Power Cooperative - an area generation and transmission cooperative, who provides fiber-optic "dark fibers" installed in overhead ground wires on their existing transmission lines, to provide communications links between communities. Long Lines Telephone Company - which is a consortium of small local telephone providers (LECs) who provide dialtone (POTS) service to local residents. This group brings together experienced operators of both LATA and IEC systems with small LECs who now have a competitive alternative to the RBOC. Only limited additional plant investment is required, due to the significant use of existing overhead transmission right-of-way and facilities. Within the Pioneer service area, communities enjoy direct dial access to other communities without incurring long distance toll charges. LECs will be able to provide broadband services over existing local drops, as xDSL technology is deployed. jfl:jfl/raf:13894:13894rpt.OOl 8-2 STANLEY CONSULTANTS . In South Sioux City, Nebraska (population 12,000), Jones Intercable Inc., is currently exploring a public-private partnership with the municipality, to provide cable television service upgrades, while limiting the capital investment and the possibility of an "overbuild" competitor. The South Sioux City Electric Department is considering an 8-mile fiber-optic loop to be constructed around the community for utility and municipal uses. Fiber connections are contemplated with HFC nodes to be installed on the CATV system. This partnership potentially provides Jones with broadband two-way capability and the city with communications access to every CATV subscriber. . Issues under consideration include: Will the city provide fiber-optic services to a competing CATV service provider? Can the city access individual subscribers for utility services without interfering with CATV services being offered concurrently? Who owns, operates, and maintains various pieces of the common network.(1) . In LaGrange, Georgia (population 27,000), Charter Communications Inc. and the City of LaGrange are finalizing a partnership relationship which puts the City into the CATV business as an "owner" but leases the network to Charter as the current "ope rator. II As presently discussed, LaGrange will acquire Charter's network, will upgrade it to a 750 MHz system, and will lease a majority of the bandwidth back to Charter, on terms which will repay a $9.0 million (taxable) revenue bond issue. LaGrange will reserve a small bandwidth for monitoring electric, water, and gas usage; remote meter-reading; and home security services. The partners will share the costs and profits associated with leasing the remaining 12 percent of the total bandwidth to other service providers, who might offer telephony or Internet access. 3 i . This report provides useful information to all participants in future "partnering" negotiations. The variety of needs for voice, data, and utility services which form the basis for the telec.ommunications service options discussed in Section 4, provides a broad view of the variety of telecommunications needs of Rochester residents and businesses. Focus should be maintained on a broadband network serving all future needs rather than a single-purpose Internet or CATV application. The services and costs offered by incumbent providers can be tested against comparable services provided over a public broadband network. The quality of services offered by various providers can be measured against the conceptual standard. Rochester and RPU will benefit from the study effort, whether or not they elect to operate a telecommunications system. 3 Joe Estrella, "Cable and Towns Forge Partnerships," Multichannel News, (4 May 1998), 38-42. jfl:jfl/raf:13894:13894rpt.001 8-3 STANLEY CONSULTANTS -, -, Section 9 Conclusions General This study compiles factual data, provides technical background, and offers financial comparisons relating to the delivery of broadband telecommunications services in Rochester, Minnesota. The study objective is to assist both the City of Rochester and Rochester Public Utilities in defining available telecommunications options and developing future telecommunications strategy. Potential development of a fiber-optic backbone network by RPU is the primary study focus. A Base System Plan is defined to provide broadband fiber links between utility facilities, units of both city and county government, and the Rochester Independent School District. System Development Plan A broadens this concept to include both area health care facilities and a variety of private business users. System Development Plan B superimposes a hybrid fiber coax (HFC) overbuild in order to reach every home or business with CATV, utility AMR, and related bi-directional broadband services including Internet and possibly telephone. Study assumptions include potential revenue streams, probable costs, and anticipated customer saturation rates. The assumption of a minimum 6 percent internal rate of return on MAN investments assures a favorable payback and acceptable cash flows. The value of the financial fUns is not to prove feasibility, but rather to define probable costs and show the magnitude of revenues or offset savings needed to cost-justify a telecommunications system investment. Alternatively, the cost stream maybe viewed as the infrastructure cost required to provide the benefits of broadband telecommunications infrastructure in the Rochester area. Needs The Rochester area supports a diverse group of advanced telecommunications users and a well-educated population which tends to be technologically sophisticated. The strong influence of major employers such as Mayo Foundation and IBM has resulted in relatively advanced communications systems and a talent pool to help manage public resources. Major un-met needs for the future include: . jfl:jfl/raf:13894:13894rpt.001 9-1 ST~NLEY CONSULTANTS I · A flexible and reliable data network which can assure dedicated bandwidth and secure data transmission capability. ~> · A synergy among various telecommunications service providers which would allow each to deliver their core competencies in a competitive environment. · An area-wide management capabili ty for developing telecommunications technologies which can encourage competition in service delivery while avoiding needless duplication of effort and financial resources. Recommendations Review of this study by the various interested parties will likely identify some areas of strong mutual agreement and other areas where differing opinions need to be expressed. The concepts of "partnering" introduced in Section 8 should also be explored. The following general recommendations can be followed with more specific actions, as the Rochester telecommunications strategy continues to emerge: · RPU should continue to coordinate telecommunications strategy and implement telecommunications policy. RPU has existing infrastructure, proven service reliability, . ' and financial resources to support policy implementation. Through its utility applications, RPU will need to be directly involved in any technologies which will improve its operations, automate its systems, or provide direct two-way communications with its customers. · A RPU/City/County/Schools consortium already exists to deal with certain telecommunications issues. In addition, RPU should consider additional partnership opportunities in relation to the establishment of effective two-way communications with all customers. While this initiative could enable a number of additional customer services, it is driven by the competitive pressures which RPU would encounter in a de-regulated electric utility industry. · As a probable telecommunications strategy begins to emerge, other major players, such as Mayo Foundation, IBM, and others, should be kept informed. While they have provided for current needs, they will be interested in future options and may support any RPU development which serves either their core business or supports direct communications with their employees. · Any future telecommunications development will prove successful only if the needs and the wishes of the ultimate user are considered paramount. Customer service is becoming a byword for most businesses. For telecommunications of the future, this will mean selling the service that is desired, providing that service reliably over time, and measuring the quality of that service so that it can be reliably provided. . By encouraging or directly providing competition in the delivery of telecom services, Rochester should serve as a catalyst, supporting delivery of state-of-the-art, full- service telecommunications services to the community.. · To move forward the City of Rochester and RPU should agree on their immediate objectives which would be satisfied by constructing/accessing a fiber optic backbone network. Conceptual design options should be narrowed to focus on the decision to overbuild, lease, or through partnerships participate in the needed network. An updated financial feasibility run should then model the specific scenario considered for final implementation. jfl:jfl/raf:13894:13894rpt.001 9-2 STANLEY CONSULTANTS To receive maximum benefit from this study, RPU and the City of Rochester must continue to take,,an active role in telecom issues on behalf of their customers and residents. Whether or not either entity elects to build infrastructure, the realistic willingness to build provides an on-going ''yardstick'' with which to measure options offered by incumbent service providers. A host of related issues including technology, legal, political, and competitive risks are also associated with any direct entry into the telecommunications business. These issues can only be addressed as the CitylRPU strategy begins to emerge. Hopefully, this report will support the next positive steps toward that strategy. jfL:jfL/raf:13894:13894rpt.001 9-3 STANLEY CONSULTANTS .....,., Data Speeds Carrier Speed Physicall\Jedium Application Technology Regular telephone 14.4 to 56 Kbps Twisted-pair Home and small service copper wire business access (POTS) Dedicated 56 Kbps 56 Kbps Various Business e-mail on Frame Relay with fairly large .. file attaclunents ISDN BRI: 64 Kbps to Two-pair BRI: Faster home 128 Kbps twisted copper and small business PRI: 23 assignable access 64-Kbps channels PRI: Medium and plus control large enterprise channel: up to access /.544 Mbps Telephone & network IDSL 128 Kbps Twisted-pair Faster home and small business access Digital satellite 400 Kbps Airwaves Faster home and (DirecPC) small enterprise access Frame relay 56 Kbps to 45 Twisted-pair or Large company Mbps coaxial cable Telephone & network ISP to Internet i D frasllUcture T-I (DSI) 1.544 Mbps Twisted-pair or Large company optical tiber tolSP ISP to Internet infrastructure T-IC(DSIC) 3.152Mbps Twisted-pair or Large company optical fiber to ISP ISP to Internet infrastrucnJre T-2 (DS2) 6.3 I 2 Mbps Twisted-pair or Large company optical tiber toISP ISP to Internet infrastructure ....,...."'"...., ......".",.......... y... ". ..',,"--.' Twisted-pair (used Home,small as a digital. business. and broadband enterprise access medium) using existing copper lines. ~"> Data Speeds Carrier Technology Cable modem Ethernet Fast Ethernet T-3 (OS3) OC-I Speed 512 Kbps to 52 Mbps ,lOMbps 100 Mbps 45 Mbps 51.84 Mbps T-30 (OS30) . . :;.~..,.::;:, ;'l".:,,,:,~::::;.~~.,,,: ;~. ,. .'. . .....cc.,_....,_ .. , ~~_'.. ,. . OC-3/STM-l ....,.., OC-I2ISTM-4 lOOMbps 135 Mbps -':~:O::"'::~","'~'~::" ..-. ....--.--.. . ... .. .... , ': ~55.;52,Mbps ... . 622.08 Mbps Physical ~Iedium Coaxial cable (usually uses Ethernet): in some systems. telephone used for upstream requests 10BASE-T (twisted-pair); IOBASE-20r-5 (coaxial cable); , lOBASE-F (optical fiber) lOOBASE-T4 (twisted 4-pair); I OOBASE- TX (twisted 2-pair); lOOBASE-FX (optical fiber) Coaxial cable Optical fiber , Optical fiber . Optical fiber Optical fiber Application Home. business. school access Most popular business local area network (LAN) Workstations with 100 Mbps Ethernet cards can plug into a Fast Ethernet LAN ISP to Internet in frastructure Internal Internet links Telephone network ISP to Internet infrastructure Smaller links within Internet infrastructure Large. wide-range LAN usually in a large company or alargerlSP IS? to Internet infrastructure Smaller links within Internet infrastructure ... -.- . . .-. . ", Large'company 'backboneln~et backbone ' Telephone & network Internet backbone Telephone & network c-"._> -: Data Speeds Carrier Speed Physical Medium Application Technology Gigabit I Gbps Optical fiber Data Center or Ethernet (and "copper" Server Farm up to 25 meters) applications -......4....__....,_ -- . - -- Optical fiber OC-24 1.244 Gbps Internet backbone . :~ ',;; !., ~ , '. Telephone & network ."!(.'-.:.>. ;.;. ...,..~. .,.'. i;~=-.>':.~ .,,;...,...,;.. ":..._-,_ ~ .-.. . -- OC-36/STM-12 1.866 Gbps Optical fiber Internet backbone Telephone & network OC-481STM-I6 2.488 Gbps Optical fiber Internet backbone Telephone & network OC-196 10.161 Gbps Optical fiber Telephone & network OC-256 13.271 Gbps Optical fiber Telephone & network AQJ)endix B Selected Telecom Definitions jfl:jfl/raf:13894:13894rpt.001 8-1 STANLEY CONSULTANTS ACCESS CHANNELS - Channels set aside by the cable operator for use by the public, educational institutions, municipal government. or for lease on a nondiscriminatory basis. ADDRESSABLE - Control of the delivery of programs or services to a customers' home from the CATV headend. ASYMMETRICAL DIGITAL SUBSCRIBER LINE (ADSL) - A technology which allows video to be sent over an existing "twisted pair" e proportion of the electromagnetic spectrum.. line. ADSL supports a low data rate return channel and concurrent unimpaired phone use while receiving a video signal. AERIAL PLANT - Cable that is suspended in the air on telephone or electric utility poles. ALTERNATIVE ACCESS PROVIDER - A telecommunications provider, other than the local telephone company, that provides a connection between a customer's premises (usually a large business customer) to the point of presence of the long distance carrier, or portions thereof. AMPLIFIER - A device that boosts the strength of an electronic signal. In a cable system, amplifiers are spaced at regular intervals throughout the system to keep signals picture-perfect no matter where you live. ASYNCHRONOUS TRANSFER MODE (A TM) - A packet-based data transmission system that can accommodate any type of encoded digital data, including video, voice, or computer data. Packets can be switched for transmis- sion to any location at any time because each packet is self addressed. BANDWIDTH - The range between the lowest and highest frequencies used to transmit a signal from one site to another. (See Figure 2) Cross- over ~ MHz....5 40 51 I ~ 7SO ~ 550 1.0 GHz I UI Interactive Services (Reverse Signal) Analog Video Digital Video Future Expansion ~ BROADBAND - A general term used to describe wide bandwidth equipment or systems which can carry a large proportion of the electromagnetic spectrum. A broadband communications system can deliver multiple channels and other services. ~> CABLE-READY - A television set or a VCR that has the following attributes: an improved tuner that is more resistant to interference than traditional tuners, the ability to tune cable channels according to an FCC- approved channel plan, and a special connector known as a "decoder interface connector" that allows the seamless connection of cable service to the cable-ready set without the use of a traditional set~top box. If a device has all three of the above, it may be marketed as a "Cable-Ready" device. CABLE TELEVISION (CATV) - Communications system that distributes broadcast and non-broadcast signals, as well as a multiplicity of satellite signals, original programming, and other signals by means of a coaxial cable and/or optical fiber. CARS (CABLE TELEVISION RELAY SERVICES) ~ Terrestrial microwave frequency band used to relay television, FM radio, cablecasting, and other band signals from the original reception site to the headend terminal for distribution over cable. CENTRAL OFFICE (CO) - The local telephone facility where subscriber loops are switched. It generally represents a IO,OOO-line service area. CHARACTER GENERATOR (CG) - Device which electronically displays letters and numbers on the television screen. CHANNEL CAPACITY - Maximum number of channels that a cable system can carry simultaneously. COAXIAL CABLE (COAX) - A single- conductor cable with a concentric ground (shield) wire which can carry a wide range of frequencies to deliver telephone, data, or television signals. (See Figure 3) COMMUNICATIONS COMMON CARRIER - General name for any medium which carries messages prepared by others for a fee and is required by law to offer its services on a Dielectric Layer Outer Jacket i Center Conductor Shield ~ nondiscriminatory basis. Common carriers are regulated by federal and state agencies and exercise no control over the message content carried. COMPETITIVE ACCESS PROVIDER (CAP) - An entity offering telecommu- nications services to bypass the local telephone company and tie directly into a long distance carrier. h> CONVERTER - Device that is auached between the television set and the cable system that can increase the number of channels available on the TV set, enabling it to accommodate the multiplicity of channels offered by cable TV. CUSTOMER PREMISES EQUIPMENT (CPE) - Any devise connected to the local telephone loop that resides in the customer's facility and is not owned by the local exchange carrier. DATA SPEEDS - See APPENDIX A. DIRECT BROADCAST SATELLITE (DBS) - The "wireless" technology used to transmit signals directly from a satellite to a small aperture (dish) antenna mounted on the customer's facility. DEMOGRAPHICS - Breakdown of television viewers by such factors as age, sex, income levels, education, and race. These figures are used in selling advertising time. DESCRAMBLER - Electronic circuit that restores a scrambled video signal to its standard form. DIALING PARITY - The offering to all telecommunications providers the capability (0 provide service that includes the dialing by their Customers of the same number of digits to complete calls. DIGITAL COMPRESSION - A technique for converting a cable television signal into a digital format which may then be processed so as to require a smaller portion of spectrum for its transmission. It allows many channels to be carried in the capacity currently needed for one signal. DISTANT SIGNALS - Television channel from another market imported and carried locally by a cable television system. DISTRIBUTION SYSTEM - Part of a cable system consisting of trunk and feeder cables used to carry signals from headend to customer tenninals. DOWNSTREAM - Flow of signals from the cable system headend through the distribution network to the customer. DROP CABLE - The last piece of cable that connects the customer's home to the cable system. DUAL CABLE - Two independent distribution systems operating side-by-side providing double the channel capacity of a single cable. EARTH STATION - Structure, referred to as a "dish antenna" used for receiving and/or transmitting electromagnetic signals coming from or going to a satellite. EQUAL ACCESS - The offering of access to local exchange facilities on a nondiscriminatory basis. EXCLUSIVITY - Contractual right to the sole exhibition of a program in a particular area during a particular time. FEEDER LINE - Cable distribution lines that connect the main trunk line or cable to the smaller drop cable. FIBER DISTRIBUTED DATA INTERFACE (FDDl) - A high-speed (over 100 Mbps) protocol used to distribute signals within a local area network. FIBER OPTICS (FO) - A communications system that uses optical glass fiber and a beam of light for the transmission of information. (Figure 4). FM CABLE SERVICE - FM radio signals offered by a cable system (the cable must be connected to the customer's FM stereo receiver). ",<' 'I~:";~ ".' '. '. . . . . -;;..~ r "':' ...{(.. ,,,,:'. J' . ~'* . -. :'~.I.- Plastic Coating Glass Core Glass Cladding FRAME RELAY - A type of fast packet switching technology with simplified error detection capability. ~ FRANCHISE - Contractual agreement between a cable operator and a governmental body which defines the rights and responsibilities of each in the construction and operation of a cable system within a specified geographic area. Under the Cable Act, a cable operation may not provide cable service without a franchise. FRANCHISING AUTHORITY - Governmental body responsible for awarding a franchise, specifying the terms of a franchise, and regulating its operation, While the franchise authority is usually local city or county body, some areas are regulated exclusively on the state level. FREQUENCY DIVISION MULTIPLEXING (FDM) - A form of multiplexing where multiple users occupy a single communications facility by sharing the bandwidth, with each user is assigned a specific f:equency passband. GA TEW A Y - A computer system that can transfer data between two normally incompatible applications or networks. A gateway reformats data so that it is readable by the other network or applications. In a functional sense, a gateway might convert data carried over a cable TV network to a format readable by the worldwide telephone net~'ork, or translate between data on an Ethernet local area network and the Internet. GOVERNMENTAL CABLECASTING - An opportunity for government officials to disseminate information to their constituents via cable television. This can be achieved for example, by the official periodically submitting 3/4 inch. videocassettes to the cable operator, sending abridged newsletters for display on a system's alphanumeric channel or participating in interview programs on access channels. HARDWARE - Equipment involved in production, storage, distribution, or reception of electronic signals such as the headend, the coaxial cable network, amplifiers, the television receiver, and production equipment like cameras and videotape recorders. HIGH DEFINITION TELEVISION (HDTV) - A television signal with greater detail and fidelity than the current (NTSC) signal. HDTV provides a picture with twice the visual resolution as NTSC as well as CD-quality audio. Cur- rently a limited number of broadcast stations are planning to offer this service. J HEADEND - The electronic control center located at the start of a cable television system, usually including antennas, earth stations, preamplifiers, frequency converters, demodulators, modulators, and related equipment. HOMES PASSED - Total number of homes which have the potential for being hooked up to the cable system. HUBS - Local distribution centers where signals are taken from a master feed and transmitted over cable to customers. INDEPENDENT - Individually owned and operated cable television system not affiliated with a multiple system operator (MSO). INSTITUTIONAL NETWORK - A network which is operated in conjunction with a cable TV system, which is designed to satisfy the needs of schools, businesses, or government. INTEGRATED SERVICES DIGITAL NETWORK (ISDN) - A digital network that provides a wide variety of communications services, a standard set of user- network messages, and integrated access to the network. B-ISDN refers to - - ."> Broadband ISDN which is required to provide such services as video and image transfer, high-speed data transfer, and video- conferencing which require channel rates greater than those offered by the 1.544 Mbps ISDN primary rate interface. INTERACTIVE - Services which involve the active participation of the use in directing the flow of a computer or video program. A system which exchanges information with the viewer, processing the viewer's input in order to generate the appropriate response within the context of the program. INTERCONNECT - Connection of two or more cable systems by microwave, fiber, coaxial cable, or satellite, so that programming or advertising may be exchanged, shared, or simultaneously viewed. INTERDICTION - A method of receiving TV signals by jamming unautho- rized signals but having all other signals received in the clear, where jamming is accomplished outside the .home and does not require a set-top terminal in the home. INTEREXCHANGE CARRIER (IEC) - A long distance carrier between serving areas of LA T As. INTER-LATA - The provision of telecommunications services between LA T As. Pursuant to the AT&T Consent Decree, the RBOCs are prohibited from providing telecommunications services between LA T As. INTRA-LATA - The area within aLA T A in which, pursuant to the AT&T Consent Decree, the RBOCs are permitted to offer local telephone service. INTERNAL RATE OF RETURN (IRR) - A financial tool for analyzing alternative investment decisions, where the rate of return on a proposed invest- ment is calculated for the condition when the present value of projected net cash flows resulting from the proposed investment exactly equals the amount of the proposed investment. LAST MILE - The final connection to the customer's home or business. Historically this has been the copper "twisted pair" owned by the local tele- phone company. It is the last section of the local loop. LATA - Local Access and Transport Area. LEASED CHANNELS - Any channels made available by the operator to potential programmers for a fee. -> LOCAL AREA NETWORK (LAN) - Network within a building or office complex. LOCAL EXCHANGE CARRIER (LEC) - A local telephone company within a serving area or LATA, who provides local phone service and connection to long distance carriers. LOCAL LOOP - The set of facilities used by a telephone company to transport signals between a central office, roughly similar to a cable TV headend, and a customer location. The local loop, using twisted pair copper wire, typically stretches a maximum of 18,000 feet between company and customer premises. LOCAL ORIGINATION PROGRAMMING - Programming developed by an individual cable television system specifically for the community it serves. METROPOLITAN AREA NETWORK (MAN) - A publically-owned or privately-owned wide area network which delivers broadband telecommunica- tions services within a metropolitan area. MMDS (Multi-Channel/Multi-Point Distribution System) - Private service utilizing a very high frequency (2 GHz) to transmit multiple television signals over relatively small distances. (also called wireless cable). (See figure 5) ,,~ ~\ \ ~~ J ~" ~~ Programming uplink facility I Operator headend I Subscriber home ~ MICROW A VE - One method of interconnecting a cable system with a series of high frequency receive and transmit antennas mounted on towers spaced up to 50 miles apart. MPEG 2 - Upcoming standard for compression of progressively scanned and interlaced video signals over a large range of compression rates with a range of 'bit rates from 1.5 to 100 Mbps. MSO (Multiple System Operation) - Company that owns and operates more than one cable television system. MULTIPLEXING - The potential transmission of several feeds of the same cable network with the same programming available at different times of the day. This is seen as one possible use of the additional channel capacity that may be made available by digital compression. Multiplexing is also used by some cable networks to mean transmitting several slightly different versions of the network; for example, several MTV channels carrying different genres of music. NARROWCASTING - Delivery of programming that addresses a specific need or highly focused audience. NCT A (National Cable Television Association) - The major trade association for the cable television industry. Also used to refer to the current North American broadcast scanning standard for television of 525 lines per frame and 30 frames per second. NEAR VIDEO ON DEMAND - An entertainment and information service that "broadcasts" a common set of programs to customers on a scheduled basis. NVOD typically features a schedule of popular movies and events, offered on a staggered-start basis (every 15 to 30 minutes, for example). NET PRESENT VALUE (NPV) - A financial tool for analyzing alternative investment decisions, where the NPV is defined as the difference between the present value of projected net cash flows, calculated at the desired rate of return (discount rate or hurdle rate) and the amount of the proposed investment. A positive NPV suggests that the proposed project may be financially acceptable.. NON-DUPLICA nON RULES - Restrictions placed on cable television systems prohibiting them from importing distant programming that is simultaneously available locally. NUMBER PORTABILITY - A capability thatpermits telecommunications users to maintain the same telephone access number when they change telecommunications suppliers. ORDINANCE - Enabling legislation passed by a local government to establish guidelines for the franchising process. PACKET SWITCHING - A type of data communications in which small defined blocks of data, called packets, are independently transmitted from point to point between source and destination, and reassembled into proper sequence at the destination. PA YBACK PERIOD - A financial tool for roughly comparing alternative investments where the payback period is calculated as the number of years required for the cumulative annual cash savings is equal to the amount of the proposed investment This method is valid only if the alrernative projects have roughly the same economic life expectancy. Favorable projects must have a payback period which is shorter than the anticipated economic life of the project PA Y-PER- VIEW - Cable programming for which customers pay on a one-time basis (e.g., for prize fights, Broadway shows, and movie premieres). PA Y PROGRAMMING - A useage-based fee structure in which movies, sports, and made-for-cable specials are made available to the cable customer for a charge in addition to the basic fee. PENETRATION - Ratio of the number of cable customers (or pay-TV customers) to the total number of households passed by the system. PCS (PERSONAL COMMUNICATIONS SERVICES) - A new wireless communications service that allows users to communicate through the use of miniature handheld devices transmitted over radio waves. The technology uses a network of transmission towers or "mini-cells" to relay the signal from one point to another. P.O.P. (POINT OF PRESENCE) - The place at which, pursuant to the AT&T consent decree, a long distance carrier interconnects with a local telephone company. POLE A IT ACHMENT - Cable television hook-ups to telephone or electric utility poles. POTS - Plain old telephone service. RBOC - Regional Bell Operating Company RETURN PATH - Interactive services require a path to return signals from the consumer. Return path can be a telephone line, upstream RF spectrum in a . cable system, or a wireless link. RADIO FREQUENCY (RF) - Frequencies at which coherent electromagnetic radiation of energy is used to provide communications services. The frequency spectrum above 30 kHz and below infrared. SATELLITE (Domestic Communications) - Device located in geostationary orbit above the earth which receives tn).nsmissions from separate points and retransmits them to cable systems, DBS, and others over a wide area. (See Figure 6) ~ SATELLITE MASTER ANTENNA TELEVISION SYSTEM (SMA TV) - Systems that serve a concentration of TV sets such as an apartment building, hotel, etc., utilizing one central antenna to pick up broadcast and/or satellite signals. SCRAMBLING - A signal security technique for rendering a TV picture unviewable, while permitting full restoration with a properly authorized decoder or descrambler. ~ SHOP-AT-HOME - Programs allowing customers to view products and/or order them by cable television, including catalogues, shopping shows, etc. SMDS - Switched multi-megabit data services. A high speed (1.544 and 45 Mbps) public packet switched service that can provide LAN-like service over a metropolitan area. SONET - Synchronous Optical Network. A digital carrier hierarchy for high speed communications systems, based on use of optical fiber and a base . increment of 51.84 Mbps (referred to as Optical Carrier 1 (OC-I). SUBSCRIBER - Customer paying a monthly fee to cable system operators for the capability of receiving a diversity or programs and services. SYNDICATED EXCLUSIVITY - Requirement by which cable systems must black out significant portions of their distant signals in order to protect syndicated programming which local television broadcasters had under an exclusive contract. The FCC eliminated this requirement in 1980 and reim- posed it in 1990. TCPIIP - The protocol suite employed over the Internet and the most common nonproprietary protocol suite in use currently for connection to the world wide web evvww). TELETEXT - One-way system of storing and displaying printed and graphic material on the home television screen. TIERED PROGRAMMING - A group of programs for which the customer is charged a fee. For example, most cable systems offer a satellite progranuning tier. TIME DIVISION MULTIPLEX (TDM) - A multiplexing scheme where users share a communications facility by splitting the time on the channel rather than splitting the frequency. For a synchronous TOM, each user is assigned a specific time SIOL For an asynchronous TOM, users transmit when ready and their transmissions are sent whenever time is available on the channel. TRANSLATOR - Relay system that picks up distant television signals, converts the signals to another channel to avoid interference, and retransmits them into areas the original television station could not reach. TRANSPONDER - The part of a satellite that receives and transmits a signal. TRUNKING - Transporting signals from one point (an antenna site for instance) to another point (such as a headend), usually without serving customers directly. Trunking can be accomplished using coaxial cable, fiber optics or microwave radio. SET-TOP BOX - Any of several different electronic devices that may by used in a customer's home to enable services to be on that customer's television set. If the "set-top" device is for extended use of channels only, it is called a CONVERTER. If it restores scrambled or otherwise protected signals, it is a DESCRAMBLER. UNBUNDLING - The separation and discrete offering of the components of the local telephone service. Unbundling of network components facilitates the provision of "pieces" of the local network, such as local switching and transport, by telephone company competitors. UNDERGROUND INST ALLA nON - Method of installing cable underground as opposed to aerial suspension of cable on poles. UPSTREAM - Flow of any information from the customer, through the cable system, to the headend. VIDEO DIAL TONE - A means by which telephone companies may provide transmission facilities and for on-telco video programming as well as certain enhanced services to third party. programmers. 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'6 CD en N Q) ~ Qj en .0 ell :::> u:: 0:: Cii I- :I 0:: .D 0:: u:: ---~ I -~ C1lX ~~~~ FiberPr~__ 5 C1l ~ -- 0::(1) r~r----------- 1 ct 1 I Ciil I,9L ____ __ a.....: 1 LL - ___ --- Ciil...:r 1'( ~i ___(}-- I'-L __ 1 LL ___ _ 1 .r-- ---- __J ctl .81 --.u::L____ I 1 1 "':1 ':1 :; 0:1 ~I 21 ~< II u::~ ~~ ~ 5C1l~ 1 Fiber Pr ~-- 0:: CI) L______ ~--~ -~ -~ -~ - "0 C1l C1l ~g~-g C1lell_C1l ..c:-ou c.!!! _ ~ ~"O~ o ~ c C1l ..c:"O:=ia III ~.9... l!?C1l"O~ cnmec :::;ECC'ClC1l Gl~U :::>.0 o III I- ....c 0:: ~ !! .9 Q) 0 'e iii ~=:=Qj ~~ ~ C1lX ~o~ SE~ :::>~en C1lx ~o~ :;;E~ :::>~i:i5 C1lX ~o~ :;;E~ :::> C1l._ O::CI) C1lX ~o~. :;;E~ :::> C1l._ 0::(1) '4) x ~o~ :;;E~ :::> C1l._ 0::(1) C1lX ~o~ :;;E~ :::> C1l._ 0::(1) -~ elll3en "0 .- III C III C ell~o ~0.16 -c: a:s ~ co .S 8- .~ c: 0 ~~.?;- -a~s Ill:::> C'ClC1l .S (ij~ "01Il~ C1lC1l_ tj~.- ~~~ c,g.Q a; 8 I;: 2- o COla Z ~.S-;, ~.~ .S IIlE.= C1l C1l C'Cl (ij 0:: 6 u :>. 13 "0 Cl C CO,2 C'Cl(5 C'Cl m 8-"0 <~~ III c- ~~ ~ (l)C'Cl0 OC:(5 -00. mt$g ,95(ij u..--u; HYBRID FIBER COAX (HFCl NETWORK CONCEPTS Municipal Communication Network OIl-Air Broadcast Channels SateUrte CnaMels CATV Head End DO ~~ IS......:; Stalus Monitoring Interdiclion Of Sel-top Control Local Orignation & Ads Emergency Alert Syslem Substation Relaying o ~ Backbone Fiber CATV ATM Backbone MAN Ethem<tl Llf1l<s Transfor Tnp Relaying SCAOA Other o SCADA Master Substation Relaying ~ \;' A TM MAN Switch Broadband Coax ~SCADA RTU LeQend +---t> 1m FiberlCoax (F/C) Node lIl1d Coax Amps ATM (Async:hrcnous Transfer Mode) NelWOrk Swrt:t1 ~ 10BaseT or To.en Rrnil NelWOtlt '-~ . . . CSUIOSU . . Fnwall Maa & Name WWN Domam Server Server Broadband Coax [>- FIC Node Am~s Remote pes or LANs via Ethernet SCAOA RTU (Remote Termmal Unrt) CATV Etnemet Data @4mb. lOme. 'If n'g"e, Utillly Mete,,"; and Control TelepMny (fUlure) . o ~ Transfe' Tnp Relay,ng mRl between elednC br.a~.rs ~> AQPendixE Conceptual Fiber Layouts .' jfl:jfl/raf:13894:13894rpt.001 E-1 STANLEY CONSULTANTS AQPendix F Cost Estimates jfl:jfl/raf:13894:13894rpt.001 F-1 STANLEY CONSULTANTS BASE SYSTEM PLAN - GOVT, & SCHOOLS FOR ROCHESTER PUBLIC UTILITIES w/o Subscriber Drops or Modems -, j SUMMARY OF COSTS Estimated Item No. Description Cost 1 CATV Headend $0 2 Headend Buildings $33.200 3 Fiber $1.069.000 4 Coax $0 0 Overhead Plant Accessories $266.670 0 Underground Plant Accessories $385,250 Subtotal - Fiber Optic Network $1,754,121 7 Modem Server $0 Subtotal. Fiber Optic Plant & Modems $1,754,121 . 8 MAN Network Equipment $616.570 Subtotal - Fiber Optics, Modems, and MAN $2,370,691 9 elephony $0 Subtotal - Fiber Optics, Modems, MAN, and Telephony $2,370.691 Engineering, Legal & Overhead (iil 18% $426,709 Total - HFC Broadband Project $2,797,400 13894 Page 1 of 1 06-Aug-98 DEVELOPMENT PLAN A - GOVT, SCHOOLS, BUSINESS, HEAL THCARE FOR ROCHESTER PUBLIC UTILITIES wlo Subscriber Drops or Modems ~:> SUMMARY OF COSTS Estimated Item No. Descriotlon Cost 1 CATV Headend SO 2 Headend Buildinos $33,200 3 Fiber $1,473,371 4 Coax SO :> Overhead Plant Accessories $287,769 b Underqround Plant Accessories $468,391 Subtotal - Fiber Optic Network $2,262,731 7 Modem Server SO Subtotal - Fiber Optic Plant & Modems $2,262,731 8 MAN Network Equipment $1,264,733 Subtotal - Fiber Optics, Modems, and MAN $3,527,464 9 elephonv $0 Subtotal - Fiber Optics, Modems, MAN, and Telephonv $3,527.464 Enoineerino, Leaal & Overhead (Cil 15% $529,136 Total - HFC Broadband Project $4,056,600 13894 Page 1 of 1 06-Aug-98 DEVELOPMENT PLAN B - GOVT,SCHOOLS,BUSINESS,HEAL TH,CA TV/AMR FOR ROCHESTER PUBLIC UTILITIES w/o Subscriber Drops or Modems ""'> SUMMARY OF COSTS Estimated Item No. Description Cost 1 Headend S1,514.560 2 Headend Buildinqs S175.500 3 Fiber $4.307.802 - 4 Coax $8,860.650 5 Overhead Plant Accessories $2.449.608 0 Underqround Plant Accessories S5.834,614 Subtotal - CATV Only $23,142,734 I Modem Server $46.000 Subtotal - CATV and Modems $23,188,734 8 MAN S 1,264. 733 Subtotal- CATV, Modems, and MAN $24,453,467 9 Telephony SO Subtotal- CATV, Modems, MAN, and Telephony $24.453.467 Engineering, legal & Overhead @ 15% $3,668,032 Total - HFC Broadband Project $28,121,500 13894 Page 1 ot 1 06-Aug-98 .,..,." AQ.Pendix G I nternet Service Providers jfl:jfl/raf:13894:13894rpt.001 G-1 STANLEY CONSULTANTS The List I Sc:arch I Area Code ~ ~'" list Page 1 of5 . Y.:II You work ~>n the Net. .~ AREA CeDE I' . C i' DIal Up ampan\' , , S . . : I en'lces I, /- . .. )6K AmerIca OnlIne I (56Kflex) AT&T Network Commerce 11II 28.8, 56K Ser\"ices I (X2) , i , , j i BllIc [al1h Vallc\'/,' 28.8, 56K COl1lmllnicmil) I: (56Kflex) II , ' Cabk & \\'ir~kss Pan:1rna Ii 28.8, 33.6 l i I, I' , I Ii Dcsktop \.Ii::dia 1128.8, ISDN , I , , ; I ?8 8 56K !t _ . , Di!.!ilal EnlCnuinl1lClll Inc,,! (56Kflex), !i ISDN I' II' 28.8, 33.6, , 56K X2 E,clle. Inc. 56K( ), I (56Kflex) , I Fiberlink Communications Ii 28.8,33.6, Corp, i i ISDN I' I Ii 28.8, 33.6, f . C' '. 1,1 56K 'WIHIt'r omnlUI1ICatlons i (56Kf1ex), IIISDN 1B\1lnlcrncl COI~ncc~ionll ~~f~~)6, Scn'lccs II ISDN' Inf():\et. Inc. ! 28.8, ISDN http://thelist.intemet.comlareacode/S07 .html Ii Dedicated 'S . I i en-Ices I; I/S6K I, /1 56K, FracTI, I I TI, FracT3, T3, I i I Frame Relay! ! 156K. FracTI, ! i TI, Frame I' : i Relay Ii 56K, FracTl, I Tl, Frame ,Relay I 56K, FracTl, I TI, Frame II Relay i! 56K, FracTl. ! i Tl, FracT3, T3, ! I. Frame Relav ; , I - i " ,1156K 1 Ii 56K, FracTl, I ! I TI, FracT3, T3, i i i Frame Relay! ,I I 1/56K, TI, T3, Frame Relay : I 'I II I' I! i 56K 7/23/98 The List I Search I Area Code I I I lnfopm!~ S~r\"ict:s t I I Internet Connt:ctions ! I Inter?\et Resource ?\etworks ! I i i I I I I1tcrNetwork Services 1 I I .,. I ~I I , Local Link. Inc. I i :vlankato Citizens T dephone Company I ~1C1 i I mcil -I I MEANS I I I Micro-Net Online Ser\"il:es I I MicroAssisl. ]nc.1 Miuco~et/Midco~tinent I Meum. Inc. , I ~.linnesota Online 28.8, 33.6, 56K i (56Kflex), iISDN ; i i 28.8, 56K I (X2), ISDN I 1?88 ...... 6 i - . , ,:),:). , ,ISDN ! 128.8, 33.6, ! 56K(X2), 56K (56Kflex), ISDN ~ I I I i 28.8,33.6, i 56K(X. 2), ISDN \28.8,33.6, 56K 'I (56Kflex), ISDN i 28.8 : 28.8, USR, ISDN, Cable Fl I I 128.8, ISDN I i 128.8, Rockwell I 133.6, Cable I 156K I (56Kflex), lISDN I http://thelist.intemet.comlareacode/507 .html Page 2 of5 56K, FracTl, I I Tl, FracT3, T3, ! Frame Relay i i : 56K, FracTl, i I I TI, FracT3, I I Frame Relay ! 56K, ISDN, I DSL, FraeTl, ! Tl, Frame ! Relay I I i ! 56K, ISDN, I FracT!, n, Frame Relay I , I 56K, FracTl, i Tl, FracT3, T3, i Frame Relay I I 56K, ISDN, FracTl, Tl, Frame Relay I 56K, ISDN, FracTl, Tl, i Frame Relav ! . i \ - I , i 56K, FracTl, I ! Tl, FracT3, T3, I Frame Relay 56K, FracTl, Tl, FracT3, T3, Frame Relay i 56K, FracTl, I i Tl, FracT3, T3, I i Frame Relay I 56K, FracTl I ,56K, TI, Frame I Relay I I 56K, FracTI, TI, FracT3, Frame Relay 7/23/98 The List I Search I Area Code , i I \ 1 i nn~sota R~~il)nall I :\~t\\(lrk I I I i \Iirade: ~~t I I ~~t :\SS~l. LtC ~e:tCOI1l Cunada !\ETCO!\'10n-Linc Coml11unication Scrvices, Inc. I 1\ETI im it<d! I !\~tPointl :'\IGHTHA \\"K CO\:lMU\'ICA TIO:\S CORP. \:Orli!.!ht/ Tclecol11munications I i 08A<,:0111 Orbis Internet Senoices. Inc. Prairie: Lak~s Internet Prcmier Acccss PressEnte:r! . 56K. FracTl, , Tl. FracI3. : Frame Relay i. 56K. FracIl. iiII,Frame ' i: Relav :: ., 128.8 I I I i 28.8, ISDN I I I ;1 56K, FracII, I; II, FracI3, I3, i; Frame Relay i; 56K, ISDN, i ' F rac II, I I , :: FracI3, I3 I! 56K, ISDN, ! FracII, II, I FracT3, I3, i Frame Relay ;: 56K, FracII, :: II, I3, Frame Ii Relay ;; 56K, II " 28.8, 33.6, 56K(X2), ISDN 28.8, 33.6, 56K(X2), ISDN ISDN /28.8 28.8, USR, ISDN Ii I! FracII, II, I! FracI3, I3 ~ ; n:: 56K, FracII, I - ',: II, FracI3, I3, ! , : Frame Relay; i: 56K, ISDN, I : F rac I I, I I , Ii FracI3, I3, l Frame Relay I /11 56K, FracIl, ISDN, Cable I II, FracT3, It Frame Relay I -6K F II : 28.8, USR, I i I,) I F' raIc.. T'.. i ISDN I!' rac .J, .J, i ,i Frame Relay I I t I EJ I 56K, FracII, 28.8 II, Frame Relay 28.8, 33.6, 1!56K, ISDN, 56K I DSL, FracII, (56Kflex), I TI, FracT3, T3, I ISDN, DSL ! Frame Relay I I l I http://thelist.intemet.com/areacode/507.html Page 3 of5 .."., 7/23/98 The List I Search I Area Code 'i '88 ...... 6 i i - . , ,),). , . I' 56K(X2) Prodl!.!' Int~rn~t I! 56K ' ! I (%Kflex) I i '8 8 USR Rural Connt:ctions I! ISDN ' I I 56K(X2), SO~lI1d Choice I nt(,rI1('t I' ~ff~flex), IIISDN 28.8,33.6, SouthNet T eIeComm 56K Services. Inc. (56Kflex), ISDN 133.6, 56K SPRY\:FT (X2),56K .. (56Kflex), I ISDN I I TEl( Il1teracti,-e Group. Il1c.128.8 I TheOnRump Group. Inc. 1133.6, ISDN TumhleWeed Internet '88 L t Hub.LLC -., ucen II L:UNET Tcchnolo!.!i('s I. 28.8, ISDN I 28.8, 33.6, VilE ~ational Internet and ;~~(X2), Roami1H! (56Kflex), ISDN \H~ET I ~~~~Jf' 28.8, 33.6, 56K(X2), VPM Enterprises 56K (56Kflex), ISDN localo http://thelist.intemet.com/areacode/507.html II Ii.. 56K, FracTl, Tl, Frame i I Relay ,I I i 56K, ISDN, I FracTl, Tl, II Frame Relay 1,' . I I I 56K, FracTl, I Tl, FracT3, T3, I Frame Relay ! ! II ,I I' , I i i 'I ' II 56K, FracTl, i Ii Tl, Fra. cT3, T3, i I Frame Relay I , ' , I II \!56K, FracTl, I i Tl, FracT3, T3, ! i! 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The plan recognizes the importance of prioritizing services offered. The Plan also recognizes the importance of underlying steps that must be taken to support the effort. This study has identified CATV and its associated outside cable plant and cable modems as the services offering the greatest potential for generating economic returns. However, there appears to be strong interest in the use of a MAN, and it is recommended that any action taken regarding establishing a system include a MAN as a top priority. Implementation Stages Establishing and operating a communication-based business segment will require additional financial and human resources. Significant economies of scale can be attained by utilizing existing organizational resources. These economies translate into efficient operation and positive contributions to operating margins. However, it must be understood that this is a new market segment in which RPUhas no experience or market presence. There will be an increase in workload within some related areas -- accounting, as an example. It is important to understand that the operation will go through four stages: . Decision . Pre-Launch . Launch . Post-Launch Each of these stages requires specialized and differentiated levels of expertise. Many of the required resources can be outsourced or contracted. The support and expertise needed varies significantly depending on the particular operational stage. jfl:jfl/raf:13894:13894rpt.OOl 1-1 STANLEY CONSULTANTS ~> Decision Stage The decision stage involves the period leading up to a decision to proceed, and involves both legal and bond attorney review. The results of this study should be reviewed with the City Finance Director and RPU's bond attorney to determine appropriate means of financing the project. RPU should review the pros and cons of creating a separate communication utility with legal counsel. Creating a separate business entity facilitates business performance monitoring and responding to potential legal challenges. It is important to consider the relationship between all other city entities and the communication utility for funding, revenue streams, operating expenses, regulatory issues, and legal issues. Pre--Launch Stage The Pre-Launch stage is primarily a planning phase. It includes strategic planning, operational planning, organizational evaluation, detailed design development, construction activities, training, and marketing planning. Fiber backbone and headend construction should be completed at this time. It requires expertise in engineering. design, construction planning, strategic business and marketing planning, legal evaluation; bid preparation, and project management. The Pre-Launch stage may require RPU to outsource many of the resources which require specific expertise not required for ongoing operation of a communications business. RPU can successfully complete the Pre-Launch stage with minimal staff additions through outsourcing the very specific requirements associated with the development of: · Engineering Designs · Physical Plant Construction · Legal Plan .. Marketing Plan · Advertising Plan To successfully roll-out this business segment, RPU will have to develop the internal management and staffing structures for initial operation. During this stage, RPU personnel must aggressively proceed with development of: · Market-driven channel line-ups. · Programming negotiations. · Image (quality) and value-based advertising campaign. · Subscription drive planning. It is crucial early in this stage to utilize staff experience and thus build staff ownership in the venture. The communications utility manager and a market coordinator should. be hired (or assigned) early in this stage. The technical supervisor should be added prior to final engineering design and the award of an equipment procurement or construction contract. jfl:jfl/raf:13894:13894rpt.001 1-2 STANLEY CONSULTANTS Launch Stage The Launch stage is the roll-out of the marketing, advertising, subscription, construction, and customer-activation plans. The system will be constructed and customers activated during this phase. It requires strong operational management and supervision. Customer sales, installation, and transactions will be at their highest during this 12- to 18-month period. Marketing and sales activity is heavily concentrated in this phase. It is anticipated that a large percentage of the ultimate penetration of the available markets, homes passed by deployed plant, will be achieved during this period. The Launch stage will require the phased addition of the remaining support staff. During this phase, outsourcing of staff can be effectively utilized to supplement permanent staff personnel in handling: · Customer Service Calls · Subscription Processing · Customer Connections Post-Launch The Post-Launch stage is the normal steady-state operational and maintenance mode associated with ongoing system operations. Customer transaction activity will fall into a pattern similar to existing utility operations. Outsourcing of resources should be restricted during this stage. At this point, RPU will have a customer base to protect. Customer support and quality standards are more effectively maintained through the use of internal staff. ~ I The preceding activities are summarized in Table 8-1. Staffing Requirements The operation of the communications segment will require additional staffing in the areas of customer service, technical support, and management. The potential also exists for incremental support in data processing, marketing, administration, engineering, and construction. It is critical to integrate existing utility operations with the new requirements of the communications business segment. Operational efficiency must be obtained, but not at the expense of operational effectiveness. It is imperative to recognize the need for adequate and qualified resources. Inadequate technical or customer service, especially in the beginning, could be devastating to the program. One option in obtaining staff is to hire the necessary personnel with experience in the communications industry, starting with the manager. The other option is to hire an outside consultant or a communications management firm for an initial period of time (two to five years) to allow RPU to gain experience in managing the utility and hire and train its own staff. jfl:jfl/raf:13894:13894rpt.001 1-3 STANLEY CONSULTANTS Table 1-1 Municipal Communications System Implementation Plan ~ ' 1. Decision Stage a. Utility Management Review. b. Public Referendum to grant Hamilton authority to establish a Municipal Communications System (if required). c. Explore potential partnerships and funding approaches to improve financial prospects. d. Financing approach (equity, bond, or partnership), and bond attorney review. e. Legal review to identify specific applicable regulations and certificates. f. Board action. Pre-Launch Stage a. Develop business plan (confirm priority of services to be offered initially (i.e., CAlV, Broadband Modems, MAN, etc.), organization, degree of participation in construction versus contracted services, staff level and sharing, marketing, legal, partnerships, etc.). b. Outside fiber and coax cable plant design. c. Establish community programming committee. d. Fill positions for technical supervisor and communications manager. e. Secure financing. f. Headend soils investigation. g. Signal reception analysis. h. Prepare bid documents: i. Outside fiber plant. u. Outside coax plant. w. Headend equipment (also evaluate shared use of tower for other utility communication equipment). IV. Headend building. v. MAN equipment contract. I. Bid and award contracts. J. Arrange programming contracts for satellite and off-air channels. k. Accounting/billing system design. Launch Stage a. Construction activity and construction management services. b. Outside plant installation field survey (Contractor walk through to confirm routes and resolve clearance conflicts). c. Accounting/billing system integration. d. Advertising. e. Subscriber sign-up campaign. f. Training. g. Headend commissioning and acceptance. h. Coax sweep for FCC compliance and acceptance tests. 1. Connect subscribers. j. Record drawing submittals and contract closeouts. Post-Launch Stage a. Customer service. b. Accounting/billing system activation. c. Continuous marketing and performance monitoring. d. Evaluate additional services, and develop deployment plans for selected services: I. Utility metering and control as required to support operating objectives in a de-regulated electric industry. 11. Telephony. 2. 3. 4. jfl:jfl/raf:13894:13894rpt.001 1-4 STANLEY CONSULTANTS The first consideration is to appoint or hire a communications manager. This can be in the form of a project manager. It is recommended that RPU find someone with CATV ili'dustry experience, preferably in operations management. A sound technical understanding is also recommended. The responsibility for the establishment and operation of new business should not be distributed over a committee or team. One individual should be responsible and accountable for overall planning and execution. A technical support team is also required. This will include a technical supervisor and field communications technicians. The supervisor will support the maintenance and operation of the electronic headend facility, the ongoing maintenance of the distribution plant, and coordinate the field activity of the communications technicians. The communications technicians will handle all system maintenance, service repair calls, and new customer connections after the launch stage. To provide the level of support which existing RPU customers now expect, a technician for every 2,000 subscribers is projected. One customer service representative will be required for every 3,000 customers. This is a recognized cable industry standard. Requirements for customer service during the Launch stage will exceed the level anticipated for normal operations. The use of outsourcing or contract personnel for this additional level of support will allow the large call volume associated with a start-up operational mode to be effectively handled. Contracting Support The first area of expertise to consider is marketing analysis and planning. A marketing plan will be required for the launch and ongoing support of the new utility. Product and pricing development will also be required. Additional support following the Launch stage can be contracted on an as-needed basis. Legal expertise in federal communications law will be a necessity. The regulatory landscape is continually changing and becoming more complicated. Legal counsel with FCC expertise is highly recommended. The engineering and construction of the outside cable plant, both fiber and coax, along with the design and installation of the electronic headend equipment, need to be accomplished in a time frame which can most successfully be supported through contracting means. A substantial number of crews will also be required for customer home installations during the Launch stage. The communication technicians can handle the home installation backlog following this phase. A new billing package mustbe established and integrated into RPU's existing accounting system. CATV specific packages are available, but programming support may be necessary to integrate the package into RPU's current billing system. An option to develop a custom, stand-alone system by RPU or a contract programming service, exists. Competing effectively will require effective billing and database management. Existing organizational resources need to be evaluated. Internal Staffing Recommended staff additions and projected compensation levels are listed in Table 7-4. Other costs for outside services such as consulting, legal, and market planning are incorporated in the economics cash flow projections. Construction materials and labor are included in the capital cost projections. jfl:jfl/raf:13894:13894rpt.001 1-5 STANLEY CONSULTANTS Other operating expenses inc1udingvehicles, Internet expenses, advertising, etc., are listed on Page 6 of each analysis case. Assumptions include vehicles for field technicians. However, it was also assumed that existing major equipment such as large bucket trucks, digger trucks, and miscellaneous pole line maintenance equipment can be shared within the utilities, with appropriate cost accounting. Training Requirements Training must address all aspects of the operation, and not just the new technology. Suggested training areas include: · System Design and Construction · RF Theory and Applications · Headend Operation, Diagnostics, and Maintenance · Billing Package and Data Processing Applications · Product, Pricing, and Customer Transactions · Home Installations and Service · FCC Accounting Practices · Sales · Customer Service Support · Customer Service Trouble Calls and Repair · General Cable Industry Standards and Practices · Marketing and Competitive Orientation Training will be required throughout all phases of the operation. It is recommended that the management staff develop and implement a strategic planning process. jfl:jfl/raf:13894:13894rpt.001 1-6 STAHLEY CONSULTANTS LETTER OF INTENT February 3, 1999 Mr. Tom Bordwell Triax Cablevision Re: City of Prior Lake, Minnesota I Cable Television Franchise Renewal Dear Mr. Bordwell: Although the cable television franchise held by Trtax does not expire for several years (12/31/02), in 1998 Triax submitted an "informal" proposal to renew its cabie teievision franchise in the City. In essence, the proposal called for Triax to immediately upgrade the cabie system in return for a renewed franchise of sufficient length so Triax could recoup its capital costs incurred. The City has considered this issue and has been reviewing steps undertaken by surrounding communities served by Triax. After reviewing all of the options available to the City, the City proposes that informai negotiations commence between T riax and the City in an attempt to arrive at mutually acceptable franchise documents executed no later than December 1999. However, to ensure that neither Triax nor the City spends valuabie time negotiating and drafting franchise documentation without ultimately being able to agree on the major issues, the City proposes that this Letter of Intent be executed between the parties to clarify each party's position on the salient provisions of an agreement. The issues of greatest importance to the City include the following: 1) An upgrade of the cable teievision system to 750 MHz capacity, f!E-er-Qptic backbone, two- way addressable, computer driven system with tliQh-speed megabit data capability in operation within 12 months of franchise execution. 2) Dedication of three channels for PEG access programmin9 and sufficient technical support for each. 3) Full financial responsibility for PEG access equipment and programming, including but not limited to immediate company purchase and installation of state-of-the-art studio and mobile PEG equipment in accordance with City requirements as well as maintenance and replacement of such equipment based upon criteria to be agreed upon. 4) Strong customer service standards consistent with those of the Federal Communications Commission at 47 C.F.R. ~76.309. i: \frank\letters\99\triaxltr .doc 16200 Eagle Creek Ave. 5. E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447 -4230 / Fax (612) 447 -4245 AN EQUAL OPPORTl JNITY EMPLOYER T. Bordwell 2/3/99 Page 2 of 2 5) Effective and immediate penalties for non-compliance with customer service standards. 6) Strong standards for signal strength, system down time and outages. 7) 5% franchise fee or the maximum allowed by law for the iength of the franchise. 8) Execution of a new franchise agreement no later than 12/31/99. We believe issues of greatest importance to Triax include the following: 1) A franchise term of 15 years. 2) A level piaying field requirement which mandates that any other franchise granted will be on termS and conditions no more favorabie or less burdensome than those imposed on Triax. 3) City support for Triax right-of-way use, cable plant reconstruction/maintenance, and head end upgrading. We iook forward to working with T riax to address the needs and interests of cable television subscribers in the City of Prior Lake, Minnesota. If you agree to commit to the above requirements on the condition that other provisions of a cabie television franchise can be agreed upon, please execute below, and return to me within 10 days of receipt. If you would like to discuss further issues to be addressed in this Letter of Intent, piease feel free to contact me at (612) 447-9801. On behalf of the CITY OF PRIOR LAKE Frank Boyles, City Manager On behalf of TRIAX CABLEVISION Jane Bremer Tom Bordwell i :\frank\Ietters\99\triaxltr .doc r& A Subsidiary of Triax Telecommunication Service Pricing Dial-up Residential Base Service $14.95/mo . 56kbps Modem Access . Four (4) "Free" E-mail Accounts . Unlimited 7x24 "Free" Telephone Technical Support . Personal Web space - 5Mb Residential Cable Modem Service $29.95/mo . 512kbps Downstream Data Rate . 64kbps Upstream Data Rate . Four (4) "Free" E-mail Accounts . 1 Gb data Transfer per Month . Always on Service . One Comput~r IP Address per Account . Unlimited 7x24 "Free" Telephone Technical Support . Personal Web space - 5Mb . Additional Computer IP address @ $5.00/mo per. *Ifhigher speeds, greater data transfer, more E-mail accounts, are needed the customer must convert to a business account Standard Business Cable Modem Service $49.95/mo . 512kbps Downstream Data Rate . 64kbps Upstream Data Rate . Ten (10) "Free" E-mail Accounts . 1 Gb data Transfer per Month . Always on Service . Five (5) Computer IP Address per Account . Unlimited 7x24 "Free" Telephone Technical Support . Virtual domain hoslrng (email@yourcomany.com) Medium Business Cable Modem Service $99.95/mo . 1 Mpbs Downstream Data Rate . 128kbps Upstream Data Rate . 15 "Free" E-mail Accounts . 2Gb data Transfer per Month . Always on Service . Ten (10) Computer IP Address per Account . Unlimited 7x24 "Free" Telephone Technical Support . Virtual domain ho~ng (emai1@yourcomany.com) Large Business Cable Modem Service $199.95/mo . 1.5 Mpbs Downstream Data Rate . 256kbps Upstream Data Rate . 30 "Free" E-mail Accounts . 3Gb data Transfer per Month . Always on Service . 20 Computer IP Address per Account . Unlimited 7x24 "Free" Telephone Technical Support . Virtual domain hoi1ng (email@yourcomany.com) For higher speeds, greater _ tranSfer. more E-mail accounts. the costomers needs ref_d to. Tri-Speed Business Account Representative for a custom quote. . ~.~\O ., .....N CITY OF PRIOR LAKE 16200 EAGLE CREE K AVENUE SE, PRIOR LAKE MN , 55372 - r -I Date: _ 1Ulhd1 ~ 9'1 Number of pages includin.. 1- g cover sheet: L- To: ~.~ !fMy; From: Connie Carlson Phone: Fax phone: CC: City of Prior Lake ;h~-7~ Phone: Fax phone: (612)447'-9810 (612)447-4245 REMARKS: o For your review o Reply ASAP o Please comment o Urgent fhr~ J c/am~ }p r~ ID f?L~ ~~;dzu. (j)f/ldA IJ~ k tUJpu/;tMe 'u)~ ~ 17~;)ti~ ~3;~? fJ~.fi/ ~ ~ rJ ~~ &~ /UV?tZ ~ ~. ~ . March 8, 1999 MEGABIT LINE DEVELOPMENT SUBCOMMITTEE TO: Mark Cramer, Bob Jader, Jim Petersen, Frank Boyles and Don Rye Rick Finch, Triax Cablevision Paavo Pyykkonen, Scott Rice Telephone FROM: Connie Carlson Planning Secretary Gentlemen, I have talked to most of you and it looks like Wednesday, March 24, 1999 works out the best for presentations by Triax Cablevision and Scott Rice Telephone. The meeting will be held at City Hall in Conference Room B beginning at 3:00 p.m. Mr. Mike Finch from Triax Cablevision will begin the presentation followed by Mr. Paavo Pyykkonen from Scott Rice Telephone at 4:00 p.m. If you have any questions or concerns, please let me know. L:\99FILES\99EDA \MEGABIT\030499L T.DOC 16200 Eagle Creek Ave. S.E., Prior Lake, Minnesota 55372-1714 / Ph. (612) 447-4230 / Fax (612) 447-4245 AN EQUAL OPPORTUNITY EMPLOYER ,'" ,,\.~ I ", ,,' ,.., ...,", ,.,. ,." - ~..,.,~",:~',.,. , ,. \'"', \ ' ..' ~/91 ... /Jt;r7v ~ - RrF ,18~ ~ . /UI!- f'C/0 ~ hA'Vl ~ . a;f2,t jld5t#t df'~ ~c:3~.U) ./~ Cl--- ~ f}tu/;&d7 ~ $7F-~ . M' at ~ #zu:V;n;. .- . M- L/; Of) k . -tV ~ n_~_ '''-''''~ .. -.... .~-,'.- - MegabitlHigb Speed Data Access for Prior Lake Below is a preliminarY list of questions to current/potential providers of megabitJbigh speed data access to Prior Lake businesses and residents. This list of questions is intended to provide the City of Prior Lake with an ~ of_ !be City can eocowage _ and resi~ to locate within !be city of Prior Lake bosed upon the data services available within the City. 1. Does your company plan to offer or currently offer megabitJbigh speed data services to Prior Lake businesses and/or residents? (If you answer this question with "no" you do not need to address any further questions.) 2. What type of data .access does your company currently offer and to whom? 3. Does your company have a rough timeline as to when new/additional services will be available? '. 4. What type of data services does your company anticipate offering? (i.e. xDSL, ISDN, n, T3, ...) 5. To whom do you anticipate offering these data services to? (ResidentiaL business or both.) 6. Does your company offer megabitlhigh speed _ serviceS in other areas outside Prior Lake? If so, where and what is being offered? 7. Is you your company (or does your company plan to be) affiliated with a national/global private network so your company can provide secure private data access? (i.e. mM Global Net, MCI OneNet) 8. What cbaoges oeed to be made to your 00_' s _ mfrnsttuctore within !be city of Prior Lake to enable it to meet future data access needs? (i.e. xDSL, Megabit access, ISDN, n, T3, others) ~(/Y"7 ~~ 1SZf-~7() ~ ------------ ....- ,-' -:'- '- ' .....J.....~,.,;,...-,~.......".....-...'-"".,-~_._;:_, .,',... TRIAX CABLEVISION 2381 WILSHIRE BLVD. MOUND. MN 55364 6121472-5033 6121472.7153 FAX Rick Finch Director of Marketing ~aMJ {) p~ ~ k:-~~ Lfif1 - N~ ~Cb-vr~~ to.