BROADBAND COMMUNITY FORUM wLakeIST?a October 1, 2019 Background • City operates over 330 miles of fiber • Fiber used by Polk County Schools, local libraries, public safety and substation monitoring • City leases fiber to local businesses like Lakeland Regional Health and other large users that require ultrahigh-speed internet • Is there a desire to leverage the City’s fiber backbone and develop residential broadband services? Magellan Advisors First project was to develop the Lakeland Strategic Broadband Plan • Contract signed in May 2015 • Final published plan July 2016 Broadband Business Plan • Contract signed November 2018 • Final plan published September 2019 Broadband Business Plan Project Timeline Feb 2019 Project Kick-Off Project ramp-up, goal-setting, milestones and project plan Governance Options to structure a broadband enterprise and how it would operate within the City organ" ation Market Research Residential business surveys, market dynamics and competitive environment Cost Estimates Cost estimation, funding and financial results for building and operating a broadband enterprise Final Business Plan CouncH Presentation of the Most Feasible Options for Deployment Business Strategy Deployment Options Financial Plans Operations Staffing Plans Magellan Deliverables • • • • • Deployment Options Key Assumptions Services & Pricing Financial Results Implementation & Buildout Strategies Fiberhoods Service available based on number of customers that sign-up in each area 3-5 Years Up to 20,000 Homes Businesses Service available to homes and businesses in the City limits 3-5 Years Up to 44,000 Homes Businesses Service available to homes and businesses in the City limits and County 3-7 Years Up to 112,000 Homes Businesses Key Assumptions • Deploy fiber to homes and businesses within the City limits = 44,000 total premises • Offer bundled packages with Internet, television and telephone services • 38% residential, 41% commercial take rate • Two-year build-out before first service is available • Pricing levels based on creating the most competitive packages at the lowest rates Servires Pat?kages Desti?iption Residential Services Pricing 100% Fiber Connection - Symmetrical with Extreme . . same upload and Glgablt Internet Power 400 Megabit download speeds! Internet Value 200 Megbit Starter 25 Megabit Premium 1 Gigabit Internet Premium Television OUbl?'Play Preferred 400 Megabit Internet Expanded Digital Television Value 200 Megabit Internet Basie Television Premium 1 Gigabit Internet Premium Television Home Phone Play Preferred 400 Megabit Internet Expanded Digital Television Home Phone Value 200 Megabit Internet Basic Television Home Phone Proposed Pricing* Residential Internet 1 Gigabit $99.99 400 Megabit $59.99 200 Megabit $49.99 25 Megabit $19.99 *Does not include fees & taxes Proposed Pricing* Residential Double Play 1 Gigabit + Premium TV $164.99 400 Megabit + Expanded TV $134.99 200 Megabit + Basic TV $ 74.99 *Does not include fees & taxes Proposed Pricing* Residential Triple Play 1 Gigabit + Premium TV + Phone $199.99 400 Megabit + Expanded TV + Phone $174.99 200 Megabit + Basic TV + Phone $119.99 *Does not include fees & taxes Funding R?qUIreantS (Effective Take Rate: 38% Residential, 41% Commercial) Funding Category Total Costs Service Area 44,000 Homes Businesses Fiber Feeder/ Distribution $53,308,812 Fiber Service Drops $15,713,504 Equipment Implementation $10,686,640 Building Improvements $800,000 Total Capital Costs $79,593,698 Working Capital 317,000,000 Total Investment Required $97,508,956 Implementation • Start with Engineering • 1st Year – Phase One Construction • 2nd Year – First Customers Connected • 3rd & 4th Year – Phase Two Construction • 5th & 6th Year – Phase Three Construction • 7th & 8th Year – Future Phase Construction Estimated Annual Profits $12,000,000 $10,000,000 Estimated Break-Even Year 11 $8,000,000 $6,000,000 $4,000,000 $2,000,000 40 20 39 20 38 20 37 20 36 20 35 20 34 20 33 20 32 20 31 20 30 20 29 20 28 20 27 20 26 20 25 20 24 20 23 20 22 20 20 2 1 $- Impact of Take Rates on Annual Revenues   20% 25% 30% Estimated Annual Revenues $(3.3) $(1.2) (millions) M M 35% 38% 40% 45% 50% $ $ 1.9M $ 4.6M $ 6.7M $ 7.2M $ 9.9M 12.6M                                                       Impact of Price Changes on Annual Revenues (Assumes 38% Take Rate)   Estimated Annual Revenues (millions) -30% $(2.5) M -20% -10% $ $ $ $ 3.7M $ 6.7M $ 9.2M 11.9M 14.7M - 0% 10% 20% 30% Possible Funding Alternatives Millage increase (Taxes) • If allowable per State Statute, a millage increase might be used to pay for the required working capital of $17M • The principal and interest payments on the $17M could be financed between 5 – 10 years, which would allow for a sunset of that millage increase • The principal and interest payments on the additional $80M required for the project would be paid in the first few years from the $17M in working capital. Once the take rate gets high Potential cost to borrow $17m for 5 years and pay with millage increase 17,000,000 Principal 3.25% Taxable rate max for 5 years 3,738,565 Annual Debt service for 5 years 5.4644 6.0396 Millage Rate 6,500,000,000 6,500,000,000 Est Taxable Value of entire City 35,518,600 39,257,400 Ad Valorem revenues 3,738,800 0.5752 Potential cost to borrow $17m for 10 years and pay with millage increase 17,000,000 Principal 3. 50% Taxable rate max for 10 years 2,044,103 Annual Debt service for 10 years 5.4644 5.7789 Millage Rate 6,500,000,000 25 6,500,000,000 Est Taxable Value of entire City 35,518,600 37,562,850 Ad Valorem revenues 2.044250 0.3145 Possible Funding Alternatives (con’t) Special Assessment • If a defined benefit is recognized for all homes and businesses within the City limits, a Special Assessment for the $17M Working Capital or for the entire $97M project may be possible • The estimated assessment on $17M for 44,000 businesses and homes would be approximately $386 • The estimated assessment on $97M for 44,000 businesses and homes would be approximately $2,205 Proposed Benefits • Increased Internet Speeds • Reduced Cost to Consumer • Enhanced Economic Development • Reduced Lead Time for Services • Better Customer Service • Digital Divide Solutions • Support Smart City Initiatives • Opportunity to Support 5G • Possible City Revenue Source Proposed Risks • • • • • • Start up Cost = $97M 10-Year Breakeven Point Possible Lawsuits State & Federal Rulings Buildout Cost Increases Competition Tactics • Network Upgrade • Reduce Prices • Increase Internet Speeds • Lock Customer Contracts • Missed Assumptions Public Comment