DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND City of Lakeland Broadband Business Plan Presentation to City Council August 5, 2019 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Broadband Business Plan Project Timeline Feb 2019 Governance Cost Estimates Final Business Plan Options to structure a broadband enterprise and how it would operate within the City organization Cost estimation, funding and financial results for building and operating a broadband enterprise Council Presentation of the Most Feasible Options for Deployment Mar 2019 Apr 2019 July 10th July 22nd August 5th Project Kick-Off Market Research Business Strategy Project ramp-up, goal-setting, milestones and project plan Residential & business surveys, market dynamics and competitive environment Deployment Options Financial Plans Operations & Staffing Plans DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Deployment Options Fiberhoods 1 Citywide 2 Service available based on number of customers that sign-up in each area Service available to homes and businesses in the City limits • 3-5 Years • Up to 20,000 Homes & Businesses • 3-5 Years • Up to 44,000 Homes & Businesses Citywide + County 3 Service available to homes and businesses in the City limits and County • 3-7 Years • Up to 112,000 Homes & Businesses 1 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Key Assumptions in Each Option • • • • • • • • • • • • • FIOS overbuild is optional in all models Triple-play services offered in all models 38% residential take rate, 41% commercial take rate Year 1: Engineering, funding, organizational structure, key hires Year 2: Construction, building operations, main hiring End of Year 2: First services available Years 3 – Beyond: Additional construction phases, operational scaling Standard pricing based on market research O&M costs estimated with annual escalators Staffing costs using industry standard rates, plus a 35% overhead (Lakeland’s rate) Renewal and replacement – 7, 10, 20 and 25 year cycles based on asset lifetime Financing: 20 year, annual payment of P&I, 4% rate, 1% cost of issue Reserves: Operating reserves set as a percent of revenue 2 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Key Assumptions in Each Option Operations General Management Insource Outsource ✓ Engineering ✓ Project & Construction Management ✓ Call Center ✓ Customer Service ✓ Billing ✓ Finance & Accounting ✓ Sales & Marketing ✓ ✓ Plant & Equipment Maintenance ✓ Warehousing & Inventory Management ✓ Customer Installations ✓ 3 DRAFT INFORMATION ONLY Services & Pricing CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND (38% Expected Take Rate, Triple-Play Services) Services Monthly Price Internet Only 25 Megabit 200 Megabit 400 Megabit 1 Gigabit $19.99 $49.99 $59.99 $99.99 Double-Play Premium (1 Gigabit Internet + Premium Television) $74.99 $134.99 $164.99 Triple-Play Value (200 Megabit Internet + Basic Television + Home Phone) $119.99 Triple-Play Standard (400 Megabit Internet + Expanded Digital Favorites Television + Home Phone) $174.99 $199.99 Double-Play Value (200 Megabit Internet + Basic Television) Double-Play Preferred (400 Megabit Internet + Expanded Digital Favorites Television) Triple-Play Premium (1 Gigabit Internet + Premium Television + Home Phone) Excludes taxes & fees. Taxes and fees for City broadband services will be at the same levels as what the competition passes through to customers today 4 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Financial Results – Comparing the Three Options (38% Expected Take Rate, Triple-Play Services) Financial Metrics Total Investment Revenues Exceed Expenses Annual New Revenue to the City Fiberhoods Within the City (No FIOS) Within the City Entire Service (With FIOS) Area $51,257,896 $89,500,000 $96,844,759 $226,556,691 4-7 Years 4-6 Years 4-7 Years 9-10 Years $1,500,000 $6,700,000 $10,500,000 $18,900,000 5 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Sensitivity Analysis – Take Rate Adjustments Sentitivity Analysis Impact of Take Rates on Annual Revenues Fiberhoods Revenue in Millions $30 Within the City Entire Service Area $25 $20 $15 $10 $5 $0 -$5 -$10 Fiberhoods Within the City Entire Service Area Take Rate 20% $(4.20) $(3.30) $(7.80) 25% $(3.00) $(1.20) $(3.60) 30% $(1.85) $1.90 $5.40 35% $(0.67) $4.60 $16.40 38% $1.50 $6.70 $19.60 40% $1.80 $7.20 $21.70 45% $2.69 $9.90 $24.30 50% $3.10 $12.60 $26.10 6 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Sensitivity Analysis – Price Adjustment Sentitivity Analysis Impact of Price Changes on Annual Revenue Fiberhoods Annual Revenue in Millions $50 Within the City Entire Service Area $40 $30 $20 $10 $0 -$10 Pricing Increase/Decrease -$20 Fiberhoods Within the City Entire Service Area -30% $(3.0) $(2.5) $(15.8) -20% $(2.2) $$(7.4) -10% $(0.8) $3.7 $1.8 0% $1.5 $6.7 $19.6 10% $2.1 $9.2 $25.5 20% $3.5 $11.9 $33.1 30% $4.9 $14.7 $43.1 7 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Financial Results – Other Options To Consider • • • Could the City offer other options? 1. Internet and phone only, no television 2. Aggressively priced gigabit internet and phone only Why? • Some communities provide only internet and phone without television • Pros: less complex, lower operational costs • Cons: lower take rates, incomplete packages Another alternative • Some communities provide low priced gigabit internet and phone • Pros: drives higher take rates, promotes digital equity • Cons: Higher take rates must offset lower prices to be sustainable 8 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Financial Results – Other Options Financial Metrics Expected Take Rate Total Investment Revenues Exceed Expenses Annual New Revenue to the City Within the City (No FIOS) ORIGINAL Internet & Voice Gigabit Founding Only Member (No Television) (Longmont Model) 38.07% 30% 60% $89,500,000 $95,000,000 $95,000,000 4-6 Years 4-7 Years 8-9 Years $13,000,000 $5,500,000 $5,500,000 9 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Financial Results – Comparing the Three Options (38% Expected Take Rate) Investment Category Service Area Fiber Feeder/Distribution Fiberhoods 20,000 Homes & Businesses Within the City Within the City Entire Service (No FIOS) (Adding FIOS) Area 35,000 Homes & Businesses 44,000 Homes & Businesses 96,000 Homes & Businesses $25,961,711 $47,440,153 $53,308,812 $135,030,623 Fiber Service Drops $5,213,824 $14,607,806 $14,607,806 $42,781,288 Equipment & Implementation $5,281,300 $10,400,980 $10,877,080 $23,944,780 $550,000 $800,000 $800,000 $800,000 $37,006,835 $73,248,939 $79,593,698 $202,556,691 $14,251,061 $16,251,061 $17,251,061 $24,000,000 $51,257,896 $89,500,000 $96,844,759 Building Improvements Total Capital Costs Working Capital Total Investment Required $226,556,691 10 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Simple Implementation Roadmap (Sample Only) Phase 1 Construction Begins Oct 2019 Engineering Begins Oct 2020 Phase 2 Construction Oct 2021 First Customers Connected 2022-2023 Future Phase Construction Begins 2024-2025 2026-2027 Phase 3 Construction 11 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Detailed Implementation Roadmap 2019 – 2020 • • • • • • • • • • • • • Project Mgmt Year 1 Engineering Construction Procurement Equipment Procurement Installation Procurement Content Procurement Construction Accounting First Wave of New Hires NCTC (Video Programming) Cable Franchise Enterprise Fund Structure Regulatory Filings Funding Acquisition 2020 – 2021 • • • • • • • • • • • • • Project Mgmt – Year 2 Construction Phase 1 Data Center Installation Office Space Lease Data Center Installation Second Wave of New Hires Construction Accounting Business Processes Operations, Policies & Procedures Call Center Installation Establish Sales Office Branding & Advertising First Customers Connected 2021 – 2022 • • • • • Project Mgmt – Year 3 Construction Phase 2 Closeout Phase 1 Contracts Operational Scaling Third Wave of New Hires 2022 – 2023 • • • • • Project Mgmt – Year 4 Construction Phase 3 Closeout Phase 2 Contracts Operational Scaling Fourth Wave of New Hires 12 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Overview of the Options • Option 1: Fiberhood Deployment • • • • • • • • • City segmented into 20+ geographic fiber zones Costs, number of customers and payback are known for every fiberhood City solicits signups in each fiberhood When a fiberhood reaches the signup rate, the City builds Each zone can have a different signup rate, based on costs Buildout could be limited to a certain amount each year, controlled by City For example: • The City needs 2,000 out of 8,000 households to signup to generate enough revenue to pay back the investment Estimated 3 zones per year over 4 years, 50% of the City deployed The deployment could be lower or higher, based on demand • • This creates uncertainty for deployment If every zone meets the signup rate, how does the City buildout? 13 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Overview of the Options • Option 2: Citywide Deployment • • • • • • • • • Covers the entire City 9,000 homes/businesses are in FIOS territory 35,000 homes/businesses are not in FIOS territory City could choose whether to build to these premises now or later Perhaps build to them after the other areas have been deployed Magellan has modeled it both ways First year includes startup activities and engineering Years 2-5 include construction for non-FIOS zones Years 6-7 include construction for FIOS zones (optional) 14 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND Overview of the Options • Option 3: Citywide & County Deployment • • • Covers City and portions of the County • Fiber within the City • Fiber in denser areas of the County • Wireless in less dense areas of the County City can select whether to deploy in FIOS areas • For both the City and County Wireless would not be deployed where FIOS exists • Not a competitive service with FIOS 15 DRAFT INFORMATION ONLY FIOS – Should the City Overbuild? • • Map illustrates FiOS service areas • Red shaded areas show FiOS according to FCC • Black dots with numbers show actual FiOS customers and their speeds from market survey • FiOS covers a good portion of the LE service area • 40,634 total customers • 9,011 in the City • 31,623 in the County • Risky for City to buildout in areas where FiOS is already entrenched • Very few cases of multiple competing FTTH networks in a single market • Frontier could reduce its prices since it’s plant is already partly depreciated • Result is lower uptake for Lakeland Uncertain future for the FiOS network. Will Frontier sell, invest or maintain it? CONFIDENTIAL & PROPRIETARY PROPERTYPink OFShaded THE CITY Area: OF FiOSLAKELAND Service Area Red Area: City Only Fiber Zones Yellow Area: City/Outside City Zones Green Area: Outside CityService Zones Area Pink Shaded Area: FiOS Black Dashed Limits Red Area: CityLine: OnlyCity Fiber Zones Blue Dashed Line: LE Service Yellow Area: City/Outside CityArea Zones Green Area: Outside City Zones Black Dashed Line: City Limits Blue Dashed Line: LE Service Area 16 DRAFT INFORMATION ONLY CONFIDENTIAL & PROPRIETARY PROPERTY OF THE CITY OF LAKELAND City of Lakeland Broadband Business Plan Questions 17