a
City of Prince George
Municipal Fibre NetworkStantec & Technology Centre
Business Case April 2011
Municipal Fibre Network & Technology Centre 1 | Page Acknowledgments
The City of Prince George Stantec Consulting
Bill Johnson Enzo D’Agostini Manager; IT Services Senior Telecommunications Consultant, City of Prince George Buildings Engineering
Sandy Stibrany Barry Temple Manager Financial Services Principal, City of Prince George Strategic Management
Kathleen Soltis Amy Belliveau Director of Corporate Services Consultant, City of Prince George Strategic Management
Satwinder Singh Principal, Technology Architecture
John Steil Principal, Planning & Landscape Architecture
Municipal Fibre Network & Technology Centre 2 | Page CITY OF PRINCE GEORGE
TABLE OF CONTENTS
EXECUTIVE SUMMARY ...... 6
1 BRIEFLY DESCRIBE PROJECT SCOPE ...... 6
2 PROJECT DESCRIPTION ...... 15
2.1 WORK TO DATE ...... 15 2.1.1 PGANTF (a2b Fibre Inc.) Reports ...... 15 2.1.2 Deloitte & Touche Review ...... 16 2.2 CURRENT SITUATION ...... 16 2.3 PROBLEM ...... 16 2.4 OBJECTIVES ...... 17 2.5 CHALLENGES (RISKS) ...... 17 2.6 PROJECT SCOPE ...... 18 2.7 OUT OF SCOPE ...... 18 2.8 ANTICIPATED OUTCOMES ...... 19
3 DEVELOPMENT OF OPTIONS ...... 21
3.1 IDENTIFICATION OF OPTIONS ...... 21 3.2 EVALUATION OF OPTIONS ...... 22 3.2.1 Economic ...... 22 3.2.2 Environmental ...... 22 3.2.3 Social ...... 22 3.2.4 Operations ...... 22 3.2.5 Legal, Political and Regulatory ...... 22 3.3 EVALUATION RESULTS ...... 23 3.3.1 Economic ...... 23 3.3.2 Environmental ...... 23 3.3.3 Social ...... 23 3.3.4 Operations ...... 23 3.3.5 Legal, Political and Regulatory ...... 23 3.4 SERVICES MODEL ...... 24 3.5 TECHNOLOGY CENTRE ...... 25
4 STRATEGIC ALIGNMENT AND BENEFITS ...... 27
4.1 CITY OF PRINCE GEORGE ...... 27 4.1.1 City of Prince George Strategic Plan ...... 27 4.1.2 myPG (Integrated Community Sustainability Plan) ...... 27 4.2 CUSTOMERS – EXISTING AND POTENTIAL ...... 28 4.3 BC NET ...... 29 4.4 PROVINCIAL LEARNING NETWORK ...... 29
5 ENVIRONMENT ANALYSIS ...... 30
Municipal Fibre Network & Technology Centre 3 | Page 5.1 BUSINESS DEMOGRAPHICS ...... 31 5.2 DEMAND ...... 32 5.2.1 PGANTF Data ...... 32 5.2.2 Stantec Survey Data ...... 32 5.3 COMPETITION ...... 35 5.4 KEY STRATEGIES IN IMPLEMENTATION OF MUNICIPAL OPTICAL FIBRE NETWORKS ...... 35 5.4.1 City of Coquitlam ...... 36 5.5 LEGAL AND REGULATORY ...... 37 5.5.1 Regulatory and Licensing Considerations ...... 37 5.5.2 Services Classification and Licensing ...... 37 5.5.3 Other Legal and Regulatory Considerations ...... 38 5.5.4 Political Considerations ...... 39
6 NETWORK BUILD-OUT AND EXPANSION ...... 40 6.1.1 Downtown Core (Phase I) ...... 40 6.1.2 Carter Light Industrial (Phase II) ...... 40 6.1.3 Boundary Road Industrial (Phase III) ...... 41
7 BUSINESS AND OPERATIONAL IMPACTS ...... 44 7.1.1 Business and Operational Impacts ...... 44
8 FINANCIAL ANALYSIS ...... 46
8.1 CAPITAL COSTS ...... 46 8.1.1 Technology Centre Component ...... 46 8.2 CAPITAL FUNDING ...... 47 8.2.1 Private Sources ...... 47 8.2.2 Debt Financing ...... 48 8.3 OPERATING PROJECTIONS ...... 48 8.3.1 Sensitivity Analysis ...... 54 8.4 KEY ASSUMPTIONS ...... 59 8.4.1 Network Capture ...... 59 8.4.2 Business Demographics ...... 59 8.4.3 Customer Connections ...... 59 8.4.4 Penetration Rates (Service Take Rate): ...... 60 8.4.5 Model Period ...... 62 8.4.6 Revenues ...... 62 8.4.7 Expenses ...... 63
9 TECHNOLOGY CENTRE OPINION ...... 73
9.1 BACKGROUND ...... 73
10 PROJECT RISK ANALYSIS ...... 75
10.1 RISK IDENTIFICATION ...... 75 10.2 RISK MITIGATION ...... 76
11 PROPOSED IMPLEMENTATION STRATEGY ...... 79
11.1 MANAGEMENT AND GOVERNANCE STRUCTURE ...... 79 11.2 MONITORING AND CONTROL SYSTEMS ...... 79 11.3 KEY MILESTONES AND NEXT STEPS ...... 80
12 CONCLUSIONS AND RECOMMENDATIONS ...... 83
Municipal Fibre Network & Technology Centre 4 | Page 12.1 CONCLUSIONS ...... 83 12.2 RECOMMENDATIONS ...... 85
13 APPENDICES ...... 87
14 APPENDIX A – FINANCIAL MODEL ...... 88
15 APPENDIX B - DETAILED CAPITAL ASSUMPTIONS ...... 89
16 APPENDIX C - DETAILED OPERATIONAL ASSUMPTIONS ...... 90
17 APPENDIX D - DETAILED CONNECTION ASSUMPTIONS ...... 91
18 APPENDIX E - DETAILED SENSITIVITY ANALYSIS ...... 92
19 APPENDIX F – KEY COMPONENTS OF TECHNOLOGY CENTRE ...... 93
20 APPENDIX G – NETWORK MAP ...... 94
21 APPENDIX H – OPTION MATRIX REPORT...... 95
22 APPENDIX I – LEGAL AND REGULATORY REFERENCES ...... 96
Municipal Fibre Network & Technology Centre 5 | Page EXECUTIVE SUMMARY
1 BRIEFLY DESCRIBE PROJECT SCOPE
Project Scope This Business Case is a continuation of the evaluation and analysis of the feasibility and merit of constructing a municipally owned fibre-optic network and technology centre in the City of Prince George. The concept for the fibre network dates back to 2006 when the newly formed Prince George Advanced Networks Task Force (PGANTF) proposed to Prince George City Council that a feasibility study and business plan for a fibre network be prepared. PGANTF subsequently engaged a2b Fibre Inc. to prepare a feasibility study and develop a business plan for a fibre network. As part of the scope of this business case development, Stantec Consulting Ltd. was asked to review the “2008 Fibre Network Business Plan” to refine and update the key assumptions used. Specifically, the capital estimates to build the network, the operating costs to run the network, and the potential revenues from connecting customers to the network. Further, Stantec was asked to surface the best options for the City going forward. Specifically with respect to potential services to offer, ownership and operation of the network and ownership and operation of a Technology Centre if one is warranted. Once the best options were identified, the evaluation process and the scoring results were presented to the City for discussion, review, and approval in order to move forward with the detailed business case. A Technology Centre justification opinion was also required and completed as a deliverable of this project. Finally, a high level implementation plan was the final component in the project scope and deliverables. Overall Mandate and Purpose of Project The mandate and purpose of this project was to engage a qualified firm through an RFP process in order to analyze the City of Prince George with respect to the establishment and operation of a municipal fibre network and technology (data) centre. The deliverables would be delivered in three phases and encompass a business case, with several business models and a full business plan on the recommended model. It was later agreed that there would likely be two phases required to get to a finalized network design and business case with reasonable accuracy. The analysis, which is part of the scope of work in the formal RFP process, is intended to review the community as a whole, existing municipal infrastructure, an existing business plan on the fibre network, and the community charter. The objective of the analysis was to surface a detailed business case for a municipally owned fibre network and also provide an opinion on the need and/or viability of a Technology Centre component. Business Case Outcome The business case for the municipal fibre network is based on a 10 year financial cash flow and Income estimates model. The construction strategy includes creating three separate phases for the network build and cash flow modeling for each of these phases was done independently. This approach allows the City to target the key growth areas of the city business sectors to maximize the market capture for the investment required. A phased construction approach also improves the capital manageability and isolates the different cost structures associated with the different areas. For example, the downtown core
Municipal Fibre Network & Technology Centre 6 | Page Phase I, will require the highest construction unit cost, due to the high percentage of directional drilling that will be required to install the ducts, conduits. and fibre cables under cement sidewalks and roadways. Restoration costs will also be high in the downtown core. Phase III conversely, has the least construction unit cost due to the more rural nature of the environment where less expensive construction practices can be used. Restoration costs are also far less in a rural environment.
I_
T
Phase Ill
V Figure 1 – Proposed Network Phases
The final model is derived from base assumptions for revenues, operational expenses, construction capital as well as other relevant cash flow modeling components. The assumptions were all reviewed by the city project team and were deemed acceptable and reasonable for this high level business case effort. All of the key assumptions are detailed in the report and are estimated to be within a +/- 25% accuracy level. The cash flow and income model provides a 10 year cash flow outlook on the proposed municipal fibre network. The model includes a detailed analysis of the required capital to build the network; a detailed expense assessment; an operating philosophy in order to operate the fibre business entity; and a construction timing consideration to ensure a distributed capital expenditure profile over the 10 year period. Debt financing for the model is based on a 15 year payback period taking advantage of the extremely competitive rates from the Municipal Financing Authority of British Columbia.
Municipal Fibre Network & Technology Centre 7 | Page THE QTY OF PRINCE GEO RGE MUNICIPAL FIBRE NETWO RK & DAI A CENTRE INCOME AND CASH FLOW STATEM ENlfS Ten Year Cumulative Forec-as-t .(Nominal Dolfars) il!li!l,a,l J!J!WU .E!ll.!l:iU DOWNTOWN ,CARTER LIGHT TOTAL BOUMJ.ARY ROAD ,CORE INDUSTRIAL INCOME STATEMENT OPERAJl.NG REVENUES.: Dark fibre rental $31660,000 $2;022,000 $1,062,,000 $576,000 Customer drop fees $2,.509,200 $1,16'fi,040 S870,S40 $4n,3'20 1 ot.il revenues $£,169,200 $3,188,040 Sl ,932,S40 $1,o48,3'20
OPERA Mi ElCPEN'iE5: Eimer-gency mainrenance standby fees $320,000 '$320,000 $0 so Customer drop e,cperue $2,l a.2,606 $1;014,270 $757,493 $410,844 1 ot.il operating expe.ll5ll! $2,.502,606 $1,334,270 $757,493 $410,844 IHTIR-COMPANY ('INith City}: Dark fibre rental to City so $0 $0 so La bor a locations from City Managa-ia l $713,700 '$394,290 $207,090 $112,3'20 Mart,;eting Su;pport $244,000 '$134,800 $70,800 S,38,400 Admi11 support so $0 so so Netw-0rk admi nistralioo $439,200 '$242,640 $127,440 $69,120 Maintenanc e and repairs $305,000 '$168,,500 $88,500 S48,.000 Maintenance· supplies $61,000 $33,700 $17,700 $9,600 Occupancy costs frnm City $1 $0 $0 $1 NETWORK USAGE FEE paya' toCity $61,692 $31,880 $19,328, $10,48,3 Overhead a location from City $238,266 '$131,632 $69,136 $-37,498 Net inter-wmpan:v eiKpense $2,062,859 $1,137,443 $599,995 $325,422 EBITDA Amortization $741,774 '$330,124 $195,124 $216,526 Interest on interim fi nanci ng debt $141,6'95 $7S,625 $18,955 $44,115 Interest on long term debt $702,500 '$287,500 $112,500 $302,500 NET INCOME/(LOSS) $159,461 $98,704 $2!67,728 (S2.0e.;9n1
CASH FLOW STATEM ENT OPERATING ACTMUES: Net.income $159,461 $9S,704 $267,TIS (S206,9n) A Figure 2 – Ten Year Cumulative Income and Cash Flow Statements From the Cumulative Cash Flow and Income Statement above, it is clear that after a 10 year period, the cash position for this opportunity remains mostly negative. Specifically, Phases I and II have positive Net Income and Phase II has a positive net cash flow after 10 years, however Phase I and III have sizable negative net cash flow positions forcing an overall negative cash flow for the 10 year period. Municipal Fibre Network & Technology Centre 8 | Page Although the above model is based on a 10 year financial perspective, it is important to understand the longer term impact on cash flow as the debt financing strategy requires 15 years before the debt is fully retired. As the debt principal repayments decline over the remaining five years of the debt financing term, specifically years 11 through 15, the cash flow becomes increasingly more positive. It was agreed that the model should be mathematically projected out to 30 years in order to gauge the cash flow break even points for the three phases. It was also agreed that a sensitivity analysis should be included to understand the volatility of shortfalls in the revenue estimates. A 10% and 20% revenue shortfall was agreed to be sufficient for a valid sensitivity analysis for the project magnitude. The results of the projections are captured and presented in the following charts: S3,ooo,ooo ,------.======,------CUMULATIVE CASH FLOW {CONSO LIDATED) s2,ooo,ooo +------~ ------~~-- ~ Short Term l ong Term Financing so --Capital Investment Required 1 2 3 --Cumulative Ca,h Flow (BASE CASE) YEARS --Cumu lative Ca,h Flow (Revenue @·10%) --Cumulative Ca,h Flow (Revenue @-20%) 38 y rs -S3,ooo,ooo +-----+------ -S4,ooo,ooo ~------ Figure 3 – Cumulative Cash Flow Consolidated Sl ,500,000 ~------,_:-.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::.:::~---- CUMULATIVE CASH FLOW {P hase I) l ong Term Financing --capital Investment Required --Cu mulative Cash Flow (BAS E CASE) so --cumulative Cash Flow (Revenu e @-10%) - cumulative Cash Flow (Revenu e @·20%) ·Sl ,500,000 -'------ Figure 4 – Cumulative Cash Flow (Phase I) Municipal Fibre Network & Technology Centre 9 | Page $2,000,000 ~------CUMULATIVE CASH FLOW {Ph as e 11 ) s 1,soo,ooo ---=~e~rm= ;------~- Long Term Financing --Ca pital Investment Req uired --Cumulative Cash Flow (BASE CASE) --Cumulative Cash Flow (Revenu e @-10%) --c umulative Cash Flow (Revenu e @-20%) so YEARS -$500,000 ~------ Figure 5 – Cumulative Cash Flow (Phase II) $1,000,000 -,------,======,---- CUMULATIVE CASH FLOW Short (Phase Il l) 11 13 ~ 17 19 21 23 25 27 29 31 33 35 37 39 --Ca pital Investment Required --Cumulative Cas h Flow (BASE CASE) -$500,000 +---'---n----'------~------~------Cumulative Ca sh Flow (Revenue@-10%) --Cumulative Cas h Flow (Revenue @-20%) -$2,000,000 ~------ Figure 6 - Cumulative Cash Flow (Phase III) Municipal Fibre Network & Technology Centre 10 | Page Risks Identification Risk is inherent in any project regardless of size or type. Identifying the risks that are possible, as well as, the possible ramifications is absolutely critical prior to commencing any project, and should be given strong consideration even when determining whether to proceed or not proceed with this project. The following schedule lists the key risks that Stantec believes are relevant to this business case. Financial (Viability) Revenue Assumptions ( Customer connections, take rate, network capture, service offering, pricing, installation costs ) Operational Assumptions ( Manpower to operate, network administration, debt financing, service levels, Inflationary impacts ) Business Demographics ( number of large businesses, propensity to buy ) Construction Costs ( Labour costs, boring/drilling vs. trenching/plowing, restoration) Political (Backlash) Competitive landscape impact (Telus, Shaw, other providers ) Access to network (those not captured by the network) Long term payback using public funds ( should public funds be used for this type of opportunity) Need for an appropriate governance model and stakeholder communication plan Conclusions and Recommendations Conclusions – Fibre Network The results of our assessment indicate that the proposed municipal fibre network for the City of Prince George has viability in the longer term. Viability here is defined as adding substantial benefits to the community as a whole rather than having strong financial return on investment. The investment required is quite substantial in the order of $3M-$5M while the payback period is relatively long at much greater than 10 years. Specifically, the consolidated chart in Figure 3 shows that cumulative cash flow turns overall positive at year 22, while individual phases vary substantially. Phase I cumulative cash flow becomes positive at year 19, Phase II at year 1 and Phase III at year 44. The large discrepancy is due to the differences in construction costs, network size to serve the area, and the projected customer connections for the different areas. The Phase III network component also includes city wide fibre backbone construction and network redundancy loops and far more overall kilometers of fibre network to construct as compared to the others. As stated above, a sensitivity analysis was also completed which reduced revenue streams in the model by 10% and 20% respectively over a 30 year period. The result has a significant impact on the payback period required to achieve a positive cumulative cash flow position for the investment. Phases I and II of the network components provide much better cash flow positions over time as compared to the Phase III build. Unless there are strategic reasons to support the decision to proceed with the Phase III build the viability of this component is highly questionable. Municipal Fibre Network & Technology Centre 11 | Page From a pure business perspective, the ROI on our financial model would place this project in jeopardy as a solid business investment. Having said this, the municipal fibre network however brings substantial soft benefits to the community and surrounding areas. Prince George as an important service hub for northern British Columbia residents will benefit substantially from becoming a “Smart City” in today’s highly technological society. Some of these soft benefits include the following: Creating a better downtown Strengthening and diversifying the local economy Improving local health and safety Taking care of air, water, and land resources in the area Reducing carbon emissions and adapting to climate change Reducing waste Improving job diversity and accessibility Strengthening and supporting a vibrant economy Enhancing the City’s image as a modern, business-friendly community In discussions with the City project team, they have indicated that they are satisfied with the longer return on the required investment because of the substantial soft benefits to the community which is created by having this network. If the capital funding required is distributed across the first five to six years of the build, then the investment falls within acceptable guidelines as outlined by the City financial department and project team. As a public nonprofit corporation, the city appears not to be concerned with attaining an aggressive ROI target. It is more important to ensure that the proposed fibre network entity is a non competitive player and offers open access to businesses operating in the community. It must provide benefits to the majority of the business community and deliver on alignment with the City’s strategic plans and programs. It is important to state that the financial model which has been created in support of this business case has an estimated +/-25% accuracy as there are many key assumptions which have been used. These assumptions in our opinion will require validation through a detailed market analysis and the network design will require further refinement in order to reach an accuracy approaching a +/-10% confidence level. The business case assessment also revealed that the best ownership and operations model for the City is to own the fibre network and associated infrastructure as well provide the ongoing operations. This conclusion was reached through an extensive evaluation of the risks and rewards of various ownership and operations options. An evaluation of what service offerings should be offered over the fibre network was also included in this business case. Two scenarios were considered, a dark fibre model and a “managed services” option. As in the ownership and operations option evaluation, this evaluation also included assessing and scoring the risks and rewards associated with the two options from a city benefits perspective. The scoring results indicate that the dark fibre model has less overall risk to the City than a channelized or managed services model but has less reward as well. The higher reward is due mostly to the ability to attract greater number of customers to the network by offering services which can be priced at a lower point thus reducing the “barrier-to-entry” and extending reach to the smaller businesses. The drawback is that this model would carry much larger risk due to complexity, additional capital and potential to create greater direct competition among the existing providers. Essentially, this model would turn the resellers and existing providers into direct competitors of the City. Municipal Fibre Network & Technology Centre 12 | Page Conclusions – Technology Centre The last component of our options evaluation effort included an assessment of the ownership and operations options relating to a technology centre. Combining the results for all risk and reward criteria indicate that the City Owns and Operates Model is also the most preferred option for the City. This model provides the greatest reward by a significant margin and also exhibits the lowest risk scenario. Stantec was also asked to provide an opinion on the technology centre question of whether there is a business case to be made for the establishment of a Technology Centre component in support of the municipal fibre network. Our assessment indicates that there is not a case to be made if the criterion is solely to support the fibre network customers and associated area businesses. The Prince George market already has two commercial data centre facilities which have access to the municipal fibre network and we have been told that they have existing capacity and future scaling capabilities. The fibre network will require a fibre termination and customer co-location component and the existing location at City Hall is not able to scale to facilitate the growth expected during the network build out, therefore there is a need for a second facility probably best located in the Carter Light industrial area for network reliability and capital cost distribution reasoning. If other criteria are included for consideration, such as meeting the future needs of the City’s IT department and other strategic criteria such as support for the 2015 winter games, the merits of having a full data centre facility sway the assessment results. The city fibre network and a smaller scale data centre or technology centre facility could prove to be an invaluable City asset in preparation for a successful games event in 2015. We also believe that regional or provincial and possibly federal funding opportunities could be leveraged in support of a small footprint technology centre for the 2015 winter games. Looking out beyond 2015, the City may also want to examine opportunities for traffic control, strategically located street cameras, utility meter reading or other operational improvement possibilities which the fibre network infrastructure and technology centre can bring to the City. Given this larger and longer term perspective, as well as the limitations of the existing co-location site at City Hall, our opinion for a technology centre component becomes more positive. Recommendations After careful consideration of the results from Stantec’s assessment and business case development effort as represented in this report, the following key recommendations are put forward for consideration: It is recommended that the City adopt the risk mitigation strategies identified in the report in Section 9. Network Topology – Star configured network architecture is recommended, with longer term redundancy in the backbone. Network Ownership – Option matrix assessment surfaced the “City Owns and Operates” scenario as the best option for ownership of the fibre network assets. Network Operation – Option matrix assessment surfaced the “City Owns and Operates” scenario as the best option for operation of the municipal fibre network entity. Services to be Offered – Option matrix assessment surfaced the “Dark Fibre” lease option as the best alternative for services to be provided over the municipal fibre network. Construction Timing – recommendation is to spread capital cost of construction across 6 years. Prioritizing the construction and build out by Phases. Phase I carrying the highest priority, Phase II and a portion of Phase III to be a secondary priority and remaining sections of Phase III to carry third priority. Resellers and key customers should be part of strategic decision making for scaling out the municipal fibre network. Municipal Fibre Network & Technology Centre 13 | Page Effective communication plan required to educate and raise awareness for all stakeholders Technology Centre should not simply be a fibre termination and customer co-location site. There should be multiple co-location and fibre termination sites to reduce fibre counts in the backbone and also maintain a high reliability network. Considering the size of the Prince George market, the need for future expansion of the existing City IT infrastructure, the requirement for multiple fibre termination points in order to properly support the municipal fibre network as well as future opportunities and possibilities to improve City operations, it is deemed appropriate that the City embark on the creation of at least one (1) other fibre network termination point with sufficient capacity to provide: Co-location space for the fibre network customers Backbone redundancy for the fibre network Ability to scale the site to accommodate a small 800 -1000 ft² Tier III data centre facility to support City IT department expansion, business continuity coverage, Winter games data (digital audio and video) support as well as longer term City Operations improvements. Provide a potential to accommodate third party gateway or business critical data back-up facilities. The new Technology Centre facility is not recommended to be a full open access data centre, but rather open access for all network customers and resellers. The facility could be scaled in phases or ‘modules” to reduce capital spending requirements at the front end of the project and also provide a natural mechanism for scaling and segregating the users. Overall, although we believe the financial model assumptions are weighted more on the conservative side, the estimated accuracy of our model is approximately +/- 25% at this stage, which could have substantial viability impact over the expenditure life cycle. The sensitivity analysis indicates that a small 10%-20% reduction in revenue stream significantly magnifies the viability concerns. It is recommended that the City proceed to an assumption validation phase prior to making a final decision. We believe It is prudent to validate the critical key assumptions used in developing the financial model, specifically, the revenue projections and the capital and ongoing operating costs. Municipal Fibre Network & Technology Centre 14 | Page 2 PROJECT DESCRIPTION This Business Case is a continuation of the evaluation and analysis of the feasibility and merit of constructing a municipally owned fibre-optic network (fibre network) and technology centre in Prince George. The concept for the fibre network dates back to 2006 when the newly formed Prince George Advanced Networks Task Force (PGANTF) proposed to Prince George City Council that a feasibility study and business plan for a fibre network be prepared. PGANTF subsequently engaged A2B Fibre Inc. and Scott Consulting to prepare a feasibility study and develop a business plan for a fibre network that are summarized below. 2011 2006 2008 2009 2009 Deloitte & Stantec PGANTF presents concept PGANTF (A2B Fiber Inc. and Prince George Scott Consulting) Feasibility Touche to City Council Grant Request Business Study / Business Plan Review Case 2.1 Work to Date 2.1.1 PGANTF (a2b Fibre Inc.) Reports The PGANTF reports recommended a model which they termed “Participatory Fibre Optic Network”. Under this model a “for profit” company would be created to own and manage the fibre network. Key aspects of the proposed model included: Participation would be open to everyone, large or small, and the identity of all participants would be kept confidential (if desired). Participants would cost-share the capital cost of conduit, fibre etc. required to extend the existing network for their use and to link to the main network. Ownership of the network would be based on shares allocated to each participant representative of the capital contribution they made to constructing the system. The City of Prince George, and any other participant contributing existing fibre assets, would receive shares based on a valuation of the assets included in the fibre network. Management of the network would be set out in shareholder agreements and a governing charter. Operating costs for the system would be segmented and allocated according to the participant’s ownership/usage in each segment. Participants would be charged for dark fibre access at $500 per month with a percentage of sales revenue (33%) option available to smaller participants to be capped and accrued at $500 per month. The report included five year operating forecasts prepared using both ‘slow adoption’ and ‘rapid adoption’ scenarios. These forecasts predicted that the operations would become profitable in either Year 2 (rapid adoption) or Year 3 (slow adoption). PGANTF presented the reports to City Council on November 3, 2008. After receiving the reports for review, City Council requested that the City Administration prepare additional due diligence and report back to them with the following additional information: repot opinion on the options in the business plan prepare a validation of the business plan financial model, recommend an appropriate entity to manage the network; and Municipal Fibre Network & Technology Centre 15 | Page Incorporate planned expansion, within broader city planning, for economic and neighborhood development in target areas such as downtown. In February 2009, Deloitte & Touche, the City’s external auditor, were hired by the administration to review the PGANTF Business Plan and provide a report specifically addressing the information items requested by City Council. The Deloitte findings are summarized below. 2.1.2 Deloitte & Touche Review In contrast to the PGANTF proposal, Deloitte & Touche recommended to the City that they retain control (own and manage) the dark fibre assets, rather than transferring them to a shared-ownership entity as proposed by PGANTF. Alternatively, if a separate entity were chosen to manage the assets, Deloitte & Touche recommended that this entity lease the dark fibre assets from the City and the City maintain ownership. Other recommendations and conclusions of the Deloitte & Touche review included: the financial estimates were not capable of being certified without going through a much more detailed review, viability of the project is largely contingent on the level of capital investment required and ability to attract government grant funding, and municipalities that are able to offer affordable high-speed access to businesses will have competitive advantage in attracting new businesses compared to municipalities who are unable to offer these resources. Prince George Grant Request In April 2009, the City of Prince George IT Department produced a document titled “Community Fibre – Downtown Build Business Rationale” to be used as part of an application for federal grant funding under the ‘Building Canada Fund’. The report was a downsized version of the PGANTF business plan that focused on the downtown district in alignment with Prince George’s downtown revitalization strategy. The city-owned network, referred to as a “Community Fibre Utility”, was estimated to cost $2.2 Million to build. The assumptions used to forecast operations were more conservative than in the PGANTF business plan resulting in the operations not becoming profitable until Year 5. Unfortunately, no federal government grant funding was available in support of this proposal. 2.2 Current Situation In 2010, Prince George City Administration conducted a request for qualifications (RFQ) and request for proposal (RFP) process to select a qualified consultant to prepare an independent evaluation and business case for a municipally owned fibre network and offer an opinion on the need for a technology data centre. Stantec Consulting Ltd. (Stantec) was the successful consultant selected to prepare this analysis and business case. Details of the project scope are provided in Section 2.6 below. 2.3 Problem As confirmed in the Deloitte & Touche review, municipalities who are able to provide affordable access to high speed fibre optic resources have a distinct competitive advantage and will attract a greater share of investment and new business. Unfortunately, the availability of fibre optic resources in Prince George is limited and is very expensive. Already the cities of Kelowna, Kamloops, and Coquitlam have fibre networks well entrenched. As other municipalities in British Columbia expand their fibre optic network availability, Prince George will become less affordable, less competitive, and less attractive to new businesses searching for new locations to conduct their operations. To remedy this economic disadvantage, the City of Prince George must seriously consider constructing a fibre optic network that will be accessible and affordable to a broad number of businesses. Municipal Fibre Network & Technology Centre 16 | Page 2.4 Objectives The objective of a municipal fibre optic network and technology centre is ultimately to make Prince George a better city in which to live and do business. Some key expectations of the fibre optic network and technology centre that would help to accomplish this objective include: bring affordable high speed/high bandwidth resources to as many businesses as reasonably possible. stimulate new business growth and attract new businesses to Prince George. stimulate new development and assist in revitalization of the downtown core. 2.5 Challenges (Risks) There are many challenges associated with creating a fibre optic network that is accessible and affordable to most businesses. These challenges are risks to the project success and are instrumental in determining the most appropriate ownership and operating model to adopt. The key challenges (risks) that must be considered for the fibre optic network are as follows: i. Economic Constructing a fibre optic network is a capital intensive and expensive endeavour. With the primary goal of the fibre optic network being affordability for the greatest number of businesses, there is an obvious challenge in achieving this affordability while also operating the network so it remains economically viable. Other economic factors which must be considered are the potential impacts on Prince George franchise fees received from incumbent service providers as well as possible tax (tax-in-lieu) implications that may result. ii. Environmental Constructing a fibre optic network can be an invasive process on city lands and infrastructure. Depending on the level and location of network expansion activities, there can be challenges in constructing the network efficiently and cost-effectively while minimizing negative impacts on the surrounding environments. iii. Operations As with any new operation, there are inherent challenges in managing, operating and maintaining a fibre optic network. These challenges will largely be related to the ability to maintain a high level of customer service and fault response determined by existing and available experience and the size and complexity of the overall system. iv. Legal, Political, and Regulatory Fibre optic systems are an area where potential challenges exist regarding regulatory requirements from such agencies as the CRTC and Industry Canada. Depending on the size and extent of services provided, legal challenges of unfair market practices could also arise. Political challenges may also surface should the ownership/operating model be misaligned with city strategy or unpopular with the community at large. Municipal Fibre Network & Technology Centre 17 | Page 2.6 Project Scope The scope of the business case is to identify and evaluate viable service offering, ownership and operations options to address the potential establishment and operation of a municipal fibre optic network and technology (data) centre in Prince George. The business case will evaluate two service offering options, five fibre optic network options, and three technology centre options as depicted in the following tables: A. Service Offering B. Fibre Optic Network C. Technology Centre Option 1 Dark Fibre Only Owner Operator Owner Operator Option 2 Managed Services Option 1 Status quo Option 1 City City Option 2 City City Option 2 City Others Option 3 City Others Option 3 Others Others Option 4 Others City Option 5 Others Others A risk and reward analysis will be prepared to evaluate these options and select the preferred service offering, ownership option and operator option for the City of Prince George. Based on the preferred options, a business case will be prepared addressing the following areas: Strategic stakeholder alignment Environment analysis Alternatives analysis Business and operational impacts Cost benefit analysis, including identification of project costs possible funding sources project cash flows (10 years) sensitivity analysis High level implementation strategy Key assumptions 2.7 Out of Scope The Business Case will not evaluate or make recommendation on the following: Marketing strategy Master planning, programming, concept design options, concept drawings, tender documents, and other related construction documents. Environmental impact assessments. Detailed economic impact analysis. Accurate costing and detailed opinions of probable cost, which may be used to determine project viability. Municipal Fibre Network & Technology Centre 18 | Page 2.8 Anticipated Outcomes The Project stakeholders are a broad and diverse group in both the public and private sectors. As the following chart will depict, all of these stakeholders will benefit from the project. Stakeholders are categorized as follows: Internal (an interest group within the City’s control) External (an interest group outside of the City’s control) Primary (directly impacted and involved in the project) Secondary (impacted but not directly involved in the project) The following table provide a brief description of each stakeholder’s personal and/or business requirements relative to Project. # Stakeholder I or E P or S Personal / Business Requirements 1 City Stakeholders 1.1 Finance Department I P The Project will have a minimal negative impact on the City’s General Revenues. The Project will not change the City’s tax status. 1.2 Planning and Development I P Ability to provide planning and implementation Department support for the Project. 1.3 IT Department I P Ability to provide guidance and feedback on project planning and implementation based on experience building and administering existing network. 1.4 Initiative Prince George I P Economic/business growth in Prince George. 1.4 City Council I P Downtown revitalization, economic growth, maintain relationship with major service providers. 2 Local Competition 2.1 Re-sellers E P The Project will not increase competition for its existing services, re-sellers will be able to utilize the network to build on their offerings rather than cannibalize their existing offerings. 2.2 Major service providers (i.e. E S The Project operator will provide an opportunity to Shaw and Telus) participate in the network, allowing improved service offerings to existing and new customers. Municipal Fibre Network & Technology Centre 19 | Page # Stakeholder I or E P or S Personal / Business Requirements 3 Customers 3.1 Existing customers E P The Project will facilitate similar or enhanced bandwidth services at similar or better prices as current contracts. 3.2 New customers E S The project will provide new bandwidth options not offered by current providers 6 Provincial Government 6.1 Ministry of Education E S Greater access to education opportunities for students. 6.2 Ministry of Health Services E S Increased quality of healthcare 7 Developers 7.1 Developers E S Future developments will have greater marketability. Minimal incremental cost to extend network into new developments. 8 BC Net 8.1 BC Net E P Addition and enhancement to the overall fibre optic network in the province. 9 Provincial Learning Network 9.1 Provincial Learning Network E P Potential strengthening of the existing infrastructure. Municipal Fibre Network & Technology Centre 20 | Page 3 DEVELOPMENT OF OPTIONS 3.1 Identification of Options The City identified five alternatives, including Status Quo, as possible solutions to creating a city-wide fibre optic network. All five options are capable of expanding the existing network; however, the ownership and operator configuration differs between each. The following are the five options used for evaluation: 1. Status Quo 2. City Owns and Operates 3. City Owns and Other Operates 4. Others Own and City Operates 5. Others Own and Operate The Owner of the base fibre network and data centre refers strictly to legal ownership of the physical assets. The Owner will construct and be financially responsible for the initial capital cost and subsequent plant extension of the base fibre network and technology centre. The Owner would also construct fibre extensions from the base fibre network connection point to the business property line (drop point) for buildings connected to the fibre network and will be reimbursed by the Operator for these costs. The Owner will receive payment from the Operator for access to and use of the base fibre network/technology centre. The Operator of the fibre network/technology centre refers to the entity(s) who operate and maintain the fibre network/technology centre. The Operator is responsible for all operating and maintenance activities including the network administration and maintenance/repair, customer service, marketing, billing and other administrative back office requirements. The operator will pay a “usage fee” to the owner for access to the base network and will have sole discretion to determine rates for businesses access to all services provided through the fibre network. The operator will maintain the entire fibre network, including the base network/technology centre. The Operator will receive a fee from the Owner for maintenance of the base fibre network/technology centre and will be reimbursed by the Owner for any capital repairs to the base network/technology centre. The City should consider a strategy to retain a small number of fibre strands within the overall network for its sole use in carrying out its operations and internal data communications. These fibres would then not be available to the Operator at any time for use by potential customers and would not be considered as available capacity of the overall public network. Municipal Fibre Network & Technology Centre 21 | Page 3.2 Evaluation of Options Stantec, working with the City, developed an Options Selection Matrix. The selection matrix allowed for ranking of the various options using relevant rating criteria developed from key information, data and input received from the City. The objective was to surface the most viable option to be used as the foundation for this business case. The Key criteria which reflect pertinent and relevant rewards or risks to the City were added to form five key criteria sections and associated sub-sections. The criteria included the following: 3.2.1 Economic a) Capital investment level required by City of Prince George b) Impact on City of Prince George franchise fee revenues c) Affordability of service offering to Prince George businesses d) Impact of project profitability to the City e) Impact on new job creation through business expansion and attracting new business f) Impact on City of Prince George non-taxable status. 3.2.2 Environmental a) Impact of network construction approach on Prince George environment b) Impact on Prince George carbon footprint (e.g. enabling media rich services, video conferencing, telecommuting, medical records accessibility etc.) c) Impact on waste and/or recycling in Prince George due to digital media storage d) Ability to take advantage of ongoing City and Developer projects 3.2.3 Social a) Impact on Prince George resident's quality of life b) Impact on development and enhancement in downtown core c) Impact on the image of Prince George to others. d) Impact on social interaction in community e) Ability to scale the network to target residential offerings in the Future 3.2.4 Operations a) Impact on City of Prince George departments operating efficiencies b) Impact on customer service levels/network fault response c) Impact on network administration complexity d) Ease of future expansion (applications, permits etc) e) Level of existing network knowledge and experience 3.2.5 Legal, Political and Regulatory a) Impact on open access and fair market practices. b) Local market regulatory/legal implications c) Alignment with internal stakeholder strategies d) Community support for project Weightings of the different sections were scored an equal amount of 20% for each of the five categories. The full evaluation matrix can be found in Appendix H. Municipal Fibre Network & Technology Centre 22 | Page 3.3 Evaluation Results The following are the findings resulting from the multi-criteria evaluation of each option. 3.3.1 Economic Economic reward is highest for City Owns & Operates option due to greatest likelihood of being an affordable service available to most number of businesses, therefore greatest economic benefit. Economic risk is also highest for this option due to capital expenditure requirement and greatest likelihood that Franchise Fees and non-taxable status may be impacted. 3.3.2 Environmental Environment reward is highest for City Owns & Operates option due to greatest likelihood of being affordable/accessible to most businesses therefore providing greatest opportunity to reduce carbon footprint and waste as well as City ability to coordinate network construction with other City development projects. Environment risk is highest for P3 Network 2 (Others Own & Operate) option due to greatest likelihood of private party using most economical solutions and less ability to coordinate construction with other City development projects. 3.3.3 Social Social reward is highest for City Owns & Operates option due to greatest likelihood of being affordable/ accessible to most businesses therefore providing greatest positive impact to City image, quality of life, downtown redevelopment and community interaction. 3.3.4 Operations Operations reward is highest for City Owns & Operates due to City having greatest influence on operations and customer service therefore creating greatest likelihood of providing efficiencies to other City departments, and ease in planning, permitting etc. for expansions. The P3 Network 2 option has greatest Operations risk to the City primarily due to third party having control over operating activities that may impact City departments’ efficiency. 3.3.5 Legal, Political and Regulatory Legal, political & regulatory risk is highest for the Other Owns and Operates option due to greatest likelihood of private owner/operator restricting access (extending only to targeted business areas) and less likelihood of having community support and aligning with City and other stakeholder strategic objectives. The figure below provides the consolidated results. Municipal Fibre Network & Technology Centre 23 | Page FIBER NETWORK-OWNERSHIP/OPERATOR OPTIONS {ALL CRITERIA) 120.0% MAX li ne 100.0% Qj"' ;;,, QJ ...J 80.0% ~ a:C 60.0% ~ • REWARD a:UJ ~ • RISK C: Ill 40.0% ~ U'l ii: 20.0% M IN Li ne 0.0% Status Quo City Owns & City Owns & Others Own & Ot hers Own & Operates Others Operate City Operates Operate Figure 7– Fibre Network – Ownership / Operator Options Combining the results for all risk and reward criteria clearly indicates that the City Owns and Operates model is the most preferred option for the City. This model provides the greatest reward by a significant margin and is second only to the Status Quo model with respect to risk criteria. While the risk of the Status Quo model (44%) is lower than the City Owns & Operates model (61%), the increased reward possible from the City Owns & Operates model (96% vs. 58%) is so significant that it easily compensates for this added risk. The City Owns and Operates option is the most desirable given a thorough review of the risks and rewards to the City. For more detailed data on this result, please refer to the Option Matrix report included in Appendix H. 3.4 Services Model Stantec used the same evaluation methodology to determine the preferred service model option for the project. Two options were examined: the wholesale (dark fibre) model, and the retail (managed services) model. Wholesale services model refers to the provision of dark fibre only. Specifically, refers to two (2) physical unlit fibre strands with connectors but without any terminal equipment attached. The customer in this model is responsible to configure the raw fibre bandwidth using whatever technology they wish. Under this service model the dark fibre network is constructed with various connection points along the distribution network. The businesses/resellers will provide payment to the base network operator for access to the subscribed dark fibres over the network. Municipal Fibre Network & Technology Centre 24 | Page Retail or ‘managed services’ refers to provision of channelized bandwidth. Under this service model the dark fibre is provided and terminated directly in the business premises. Instead of providing raw access to the two (2) fibre strands, the dark fibre is lit and channelized (split up) using owner/operator terminal equipment to provide segmented bandwidth to a greater number of businesses. The results of our evaluation and scoring are captured in figure X below. FIBER NETWORK -SERVICES MODEL OPTIONS {ALL CRITERIA) 100.0% MAX Li ne 90.0% 80.0% ai"' "'Q) 70.0% -' ~ 60.0% a::Cl 50.0% ~ • REWARDS LLI a:: 40.0% "C • RISK C: ra 30.0% .,.,~ 1i:: 20.0% 10.0% MIN Li ne 0.0% DARK FIBRE MANAGED SERVICES Figure 8 – Fibre Network – Services Model Options The results indicate that the dark fibre model has less overall risk than a channelized or managed services model but has less reward as well. The higher reward is due mostly to the ability to attract greater number of customers to the network by offering services which can be priced at a lower point thus reducing the “barrier-to-entry” for the smaller businesses. The drawback is that this model would carry much larger risk due to complexity, additional capital and potential to create greater direct competition among the existing providers. Essentially, this model would turn the resellers and existing providers into direct competitors of the City. For these reasons, Stantec recommends that the best service model position is one that reduces the risk side in trade for more modest reward. 3.5 Technology Centre The ownership and operation of a technology centre was also evaluated against the same criteria as that used in the assessment of ownership and operation of the network. Three options were examined: a) City Owns and Operates b) City Owns and Others Operate c) Others Own and Operate Municipal Fibre Network & Technology Centre 25 | Page The results of our evaluation and scoring are captured in Figure 3 below. TECHNOLOGY CENTRE- OWNERSHIP/OPERATOR OPTIONS (ALL CRITERIA} 120.0% MAX Li ne 100.0% ai"' :,, C1J -' 80.0% ~ Cl c,:: 60.0% ; • REWARDS LLJc,:: "C • RISK C: cu 40.0% ~ Ill ii: 20.0% MIN Li ne 0.0% City Owns & Operat es City Owns & Others Operate Others Own & Operate Figure 9 – Technology Centre – Ownership and Operator Options Combining the results for all risk and reward criteria indicate that the City Owns and Operates Model is the most preferred option for the City. This model provides the greatest reward by a significant margin and also exhibits the lowest risk scenario. Municipal Fibre Network & Technology Centre 26 | Page 4 STRATEGIC ALIGNMENT AND BENEFITS This section reviews the business plans of all primary stakeholders and identifies goals and benefits that the Project will help achieve. It also identifies the level of impact the Project has on achieving the stated goals by scoring the impact high, medium, or low. 4.1 City of Prince George The City of Prince George has developed several plans and documents outlining the City’s strategic direction, identifying key projects, and articulating its action plan to achieve its goals. The Project supports various City plans as outlined below. 4.1.1 City of Prince George Strategic Plan Core Focus Area How The Project Supports The Focus Area Impact The availability of a fibre optic network in the downtown core will ensure that the area has the capability to attract and retain businesses, both existing and new. The Project Creating a Better Downtown High will create a foundation to ensure that the downtown remains an attractive and competitive location for years to come. The Project will create the infrastructure necessary for a Strengthening and Diversifying knowledge-based industry to thrive and reach customers High our Economy outside municipal boundaries. The Project will make tele-health services more Improving our Health and accessible, including remote doctor visits, remote medical Medium Safety analyses by specialists, and sharing of large data files among health professionals. Reduction of waste associated with paper filing and data Taking Care of our Air, Water, transfer, and reduction in pollution caused by commuting Medium and Land Resources would both be benefits associated with the Project. 4.1.2 myPG (Integrated Community Sustainability Plan) Goal How The Project Supports The Goal Impact The project will create the infrastructure necessary – the fibre network – to support economic growth in non- traditional sectors. The fibre network will allow smaller Diverse Economy local businesses to take advantage of several products High that offer low-cost solutions for their IT needs, including Software as a Service, virtualization, and data storage and backup. The creation of a fibre network in the City would Reduce Carbon Emissions and facilitate activities that would directly reduce carbon Medium Adapt to Climate Change emissions. Increased incidences of telecommuting, video Municipal Fibre Network & Technology Centre 27 | Page Goal How The Project Supports The Goal Impact conferencing, and electronic transfer of large volumes of information will be more likely with the implementation of a City-wide fibre network. A city-wide fibre network would make electronic data storage and transfer a viable alternative, therefore Reduced Waste Medium reducing the amount of waste generated by paper storage and transfer. A key requirement to ensuring diverse and accessible jobs is the ability of the workers to access upgrading or re-training opportunities throughout their career. The Job Diversity and Accessibility creation of a city-wide fibre network will allow for new Medium remote training programs or enhancement of existing programs, thus enabling more workers access to a higher quality of education. The project will enhance the City’s image as a modern, business-friendly community, and become a key Vibrant Economy Medium marketing tool in its efforts to promote Prince George as an attractive option to businesses. 4.2 Customers – Existing and Potential The following goals are derived from the interviews conducted with 19 target firms in the PGANTF’s report entitled “A Business Plan for the Development of Advanced Networks in Prince George”. How The Project Supports The Goal Goal Impact The Project would allow more businesses access to Higher bandwidth higher bandwidth and enhanced performance for their High existing IT applications. The Project would ensure that customers could participate Affordability in the network by keeping costs low relative to a privately High owned network. The Project will allow customers to connect to the network Open Access High using their own equipment. Municipal Fibre Network & Technology Centre 28 | Page 4.3 BC NET The following goals are derived from the BCNET website. 1 How The Project Supports The Goal Goal Impact A core member of BCNET, the University of Northern British Columbia (UNBC), has a campus located in Prince George. This campus already boasts connection to the fibre optic network, and would benefit from the network’s Provision of shared technology strengthening, ensuring its continued viability. services to help its research and higher education members The creation of a city-wide network would streamline and High decrease costs, reduce improve the level of technical support and maintenance technology duplication and for UNBC. improve efficiencies. The City’s other post-secondary institution, the College of New Caledonia, is not currently on the fibre optic network; however, it stands to benefit from the Project and is a potential customer. The City’s network enabled UNBC to be the first BCNET offers cost-effective university in North America to have fibre optic cable shared solutions that place its throughout the campus.2 The network has allowed for live members at the forefront of High lectures from off-site classrooms. Continued strengthening information and communication of the City’s network will directly benefit UNBC and by technology innovation. extension, BCNET. 4.4 Provincial Learning Network The following goals are derived from the Provincial Learning Network website.3 How The Project Supports The Goal Goal Impact Prince George’s School District 57 is a member of Provide reliable, robust and safe PLNet, and therefore any improvements to the network infrastructure enabling fibre optic network would indirectly benefit PLNet communications and the delivery of and its infrastructure. High educational content to schools and post-secondary institutions in British School District 93, although not currently a Columbia. member of PLNet, could benefit in the future from an improved municipal fibre optic network. 1 https://wiki.bc.net/atl-conf/pages/viewpage.action?pageId=37945368 2 http://www.unbc.ca/about/campus/index.html 3 http://www.bced.gov.bc.ca/plnet/ Municipal Fibre Network & Technology Centre 29 | Page 5 ENVIRONMENT ANALYSIS The City of Prince George is located in central British Columbia and acts as the service hub for northern British Columbia. Although the City itself is home to 83,225 residents, businesses have access to over 313,000 people in the trading area.4 Figure 4 illustrates Prince George’s location in relation to communities in northern BC, and its proximity to two major highways (Highway 97 and Highway 16). ..,______PRINICE.. A IR PGEORGEORT ~o Figure 10 – Map of Prince George Prince George’s economic base is founded on the forestry industry, with several sawmills and pulp mills in the city; growing industries include mining, energy, and transportation and logistics. Activities in the high technology, knowledge-based sector include software development, advanced manufacturing, engineering and GPS mapping and planning tools. Home to the Northern Health Authority, University of Northern British Columbia, and the College of New Caledonia, the public sector is a major employer in Prince George. 4 City of Prince George website, http://city2.princegeorge.ca/cityhall/AboutOurCity/Pages/Default.aspx Municipal Fibre Network & Technology Centre 30 | Page In addition to its existing strengths, the City has embarked on a downtown revitalization program, an ambitious plan that includes a strong ‘green’ component, development of non-market housing, and the launch of a marketing plan to attract more businesses to the core. 5.1 Business Demographics The majority of businesses in the City are smaller, as illustrated in Figure 5 below. BUSINESS LOCATIONS . Number of Firms by Employmnet Size Range Firms with no Emolovees I % Chanae Firms with Emolovees I % Chanae Prince Georae, CA fEmolovee Ratios, Prince Geor~e I BC I YrNr Prince Geor~e I BC I YrNr 1 -19 I % I 20 - 49 I % I 50 - 199 I % I 200 PLUS I % 30.Jun-05 2,628 I 185 ,879 I 3,387 I 175 ,003 I 2,919 186.2%1 322 I 9.5% I 11 8 I 3.5% I 28 I 0.8% 1.J ul -05 2,580 I 186,54 1 I -1. 9% 3,346 I 176, 124 1 -1.2% 2,885 I 86.2%I 325 I 9.7% I 107 I 3.2% I 29 I 0.9% 2010 (Jun e\ 2,485 I 184 ,510 I -3.8% 3,297 I 175,276 I -1.5% 2,849 I 86.4% 1 31 4 I 9.5% I 106 I 3.2% I 28 I 0.8% Source: Business Reoister, Statictics Canada. In some areas, boundarv chanoes/oeocodinQ chanoes mav cause laroe chanoes. Business Locations- Number of Firms by Employment Size Range Firms with em lo ees % chan e Prince Geo CA Prince Geo CA BC Prince Geo CA 1 to 19 20 to49 50-199 200 Plus 2008 2,628 185,879 3,387 175,003 2,919 322 118 28 2009 2,580 186,541 3,346 176,124 · 1.2 2,885 325 107 29 2010 J ,ne 2 485 184 510 3 297 175 276 · 1.5 2 849 314 106 28 Source: Business Register, Statistics Canada. fn some areas, boundary changes/geocoding changes may cause large changes. Figure 11 – Business Locations – Number of Firms by Employment Size Range From the tables above, it can be seen that the City accommodates approximately 3,300 businesses. These businesses range in size of employees from 1 to over 200. The employee size ratios from 2008 through to 2010 remain relatively consistent and are shown on the right table subsections. It’s quite clear from this table that the business demographics for the City for Prince George portrays a demographic profile suggesting a large number of small businesses with very few (<5%) of businesses having more than 50 employees. The following figure graphically demonstrates this profile. City of Prince George - Business Demographics Business Size Demogc,r=a,..p_h_ic______.. 90.0% 84.1% 80.0% 70.0% ii ~ 60.0% '$- 50.0% ., • Bu si ness Size N vi 40.0% .,"' C ·;;; :, 30.0% ca 20.0% 10.0% 0 .8% 0.0% 1-19 Employees 20-49 Employees 50-199 Employees >200 Employees Data Source: Bu siness Register, Statictics Canada. In some areas, bound arychanges/ geocodingchanges may cause large ch anges Figure 12 – Business Demographics Municipal Fibre Network & Technology Centre 31 | Page 5.2 Demand 5.2.1 PGANTF Data The demand for a fibre-optic network was researched by the Prince George Advanced Networks Task Force (PGANTF) during the development of its document, A Business Plan for the Development of Advanced Networks in Prince George. Detailed interviews were conducted with 19 firms and three ISP- oriented service providers. Responses consistently suggested that: Customers in the IT field would be very interested in the ability to utilize higher bandwidth networks in order to increase the performance of their existing applications. Large private sector firms would be interested in exploring the availability of further services. Interest is in enhanced performance rather than a reduction in cost. Demand for managed services is relatively low due to lack of awareness regarding the various options available. Consistent reliability is a highly desirable trait in a system. While service interruption is an inconvenience for most firms, it is a major obstacle faced by IT firms when developing and offering real-time, web-hosted products. 5.2.2 Stantec Survey Data To augment the data collected by PGANTF, Stantec attempted to contact 211 businesses in the city to gather information regarding their current level of internet access and the effects of the internet on their operations. Stantec made numerous attempts and was able to contact 42 businesses and their responses are provided below. Do you currently have internet service? Internet Se1rvice 1 20'% ~------ 100'% +---- 80'% +---- 60'% +---- • lniiernet Serv i,ce 40'% -+---- 20'% -+---- 0'% 0'% +---- Yes Figure 13 – Internet Services Municipal Fibre Network & Technology Centre 32 | Page What type of internet service do you currently have? Downtown 4 5% ~------40% -+------35% -+------30% 25% 20% 15% 10% 5% 0% CABLE DSL W IRELESS W IRE LESS+ W IRELESS+ MODEM DSL CABLE MODEM Figure 14 – Downtown Core Cai1rte1r Ught lndust1riaii 45% ~------40% 35% • 30% • 25% • 20'% • 15% - • • Ser ies! 10% • - -- 5% • - -- i . 0% • - -- CABLE- DSL --W IRELESS W IRELESS + W I RELEss+ MODEM DSL CABLE MODEM Figure 15 – Carter Light Industrial Area Municipal Fibre Network & Technology Centre 33 | Page Has access to the internet resulted in growth in your business? Business Growth 60% ~------ 50% +--- 40% +--- • Busi 11 ess Growth 30% -+--- 20% -+--- 10'% -+--- 0% +--- Yes ,o Figure 16 – Business Growth Has the internet reduced business costs? Reduced Costs '90% 7'9% 80% 70% 60% 50% 40% • Re duce d Co5ts 30% 20% 10% 0% Yes Nb Figure 17 – Reduced Costs Municipal Fibre Network & Technology Centre 34 | Page This last chart provides a perspective on the business size of the surveyed respondents. Business Size (Empl oyees) 70.0% 600% 50.0% • Business Size 40.0% 30 .0% 20.0% 10.0% 0 .0% 1-19 Employees 20-4 9 Emp loyees 50-199 Emp loyees >200 Employees Figure 18 – Business Size Based on the results of the survey, it is reasonable to assume that the internet is viewed as a positive tool for businesses and that there is a demand for internet access. The survey also asked the respondents as optional to provide information disclosing their costs for internet access today. The responses varied however the range was between $40 and $200 monthly. A few of the businesses admitted to paying greater than $200/month for their access. These businesses were all connected using wireless technologies. 5.3 Competition There are two suppliers of fibre optic cable networks in the City, Telus and Shaw. These companies provide accessible and affordable access to customers using bandwidths below dark fibre. However, their networks have the following drawbacks for their customers: a) The geographic footprint of their networks is limited. b) The companies charge a premium for access to their networks. In addition, the services they offer – are managed services – which are not comparable to the proposed dark fibre offering as such, there is currently no direct competition for these services. 5.4 Key Strategies in Implementation of Municipal Optical Fibre Networks Stantec conducted an environmental scan of jurisdictions and publications and compiled the following key findings regarding municipal fibre optic networks: A dark fibre only business model is more likely to avoid local competition issues. Public ownership does not preclude the possibility of selling the network to a private entity in the future. Addition of fibre capacity during municipal construction projects is a cost effective approach to expanding the network. Municipal Fibre Network & Technology Centre 35 | Page Providing choice is a key marketing driver, and should include choice for contract terms and options and built-in pricing flexibility. Broadband systems require not only large capital investments upfront, but ongoing high investments to keep pace with the pace of technology change. Municipalities have access to low cost capital via municipal bonds, enabling them to efficiently raise the capital required to build and maintain the network. High operating expenses are tied to promotion and marketing (in a competitive market), and debt servicing. Structure of payment for the ‘last mile’ infrastructure is key to the success of a fibre optic network. Market competition can result in new entrants under-pricing offerings to gain entry into the market or larger players reducing their prices to squeeze new players out of the market. Demand should be determined using clear metrics before expansion of the network is undertaken. Offerings should be ahead of other players in the market. Access provincial and/or federal grants to finance expansion of the network where possible. Leverage existing expertise and skill sets within municipal departments. Use of a procurement process to attract quality third-party operator(s). Use position as network owner to set pricing to ensure sufficient levels of revenues to pay back bonds. 5.4.1 City of Coquitlam The City of Coquitlam’s Municipal Optic Network (QNet) is owned and operated by the City. PGANTF’s business plan reviewed the network in detail; therefore, this business case will only review its financial statement. 2008 was QNet’s first year of operations and resulted in a net loss of $318,942. This is not entirely unexpected as it only reflects the first few months of operations. Statements for 2009 and 2010 were not available to us in the public domain but we understand the results were much improved. Figure 19 below provides the Statement of Cash Flows for 2008 Statement of Cash Flows Pe riod from November 12, 2008 to December 31, 2008 Cash provided by (used in), Operations: Net loss $ (318,942) Amortization of network and equipment, item not invoMn g ca sh 11,186 Net changes in non-cash operat ing working capita l ba l,rnces, Accounts payable and accrued fiabilities 31,904 (27 5,852) Financing: Increase in due to City ofCoquit lam 808,738 lss ua nee of share ca pita I 1 808,739 Investments, Purchase of property and eq uipme11t (532,887) Change in cash pos itio:n, being cash position, emd of period $ Figure 19 – Statement of Cash Flows Municipal Fibre Network & Technology Centre 36 | Page 5.5 Legal and Regulatory 5.5.1 Regulatory and Licensing Considerations With respect to regulation of the services offered over the network, in Canada certain types of telecommunication services must be regulated and governed through the Canadian Radio, Television and Telecommunications Commission. Certain Networks which carry essential services also require licensing through Industry Canada. Our high level review suggests that there are three areas of consideration which apply: 1) Business Private Networks - Since the municipally owned fibre network operational strategy proposes to only provide a telecommunications conduit for businesses to configure their own private networks within the City of Prince George, this in itself does not constitute a requirement for services regulation under the Canadian Telecommunications Act. Also, since the network by itself is not considered a “Transmission facility” then Industry Canada licensing is also not required. Please refer to the Appendix I document entitled “Telecom Decision CRTC 2010-930”, as this specific question is addressed by the CRTC. 2) Resellers of Public Access – If the customers who wish to use the municipally owned fibre network are themselves private companies, Local Exchange carriers or Internet Providers who resell the fibre bandwidth or other telecommunications services to private companies, then there may be a services regulation impact to them under the Canadian Telecommunications Act depending on the specific services which they will provide, however as stated above, the network from which they will lease dark fibre to provision their services is not categorized as a ‘transmission facility” therefore it is not subject to licensing by Industry Canada. Please refer to the Appendix I document entitled “Telecom Decision CRTC 2010-930”, as this specific question is addressed by the CRTC. 3) The CRTC has also undertaken to define Telecommunications Common Carriers which generally provide essential services such a local and long distance telephone services. Common carriers are subject to services regulation tariffs and their networks subject to licensing. The Commission has specifically looked at the dark fibre leasing business scenario and has concluded “that a service provider that leases dark fibre to which it attaches optical equipment in order to provide telecommunications services to the public is not on that basis a “telecommunications common carrier” as defined in the Act”. This reinforces that the City of Prince George fibre business opportunity appropriately falls within the Non-Dominant carrier Status which it currently holds. Please refer to the Appendix I document entitled “Telecom Decision CRTC 2010-930”, as this specific question is addressed by the CRTC. 5.5.2 Services Classification and Licensing There are many different service classifications and regulation guidelines within CRTC jurisdiction and Industry Canada network licensing requirements and consequently, a full discussion of this subject matter is beyond the scope of this report. The following summary is provided to help clarify the potential licensing and regulatory impact on the services proposed. Some telecommunication services have simple reporting requirements while other classifications require detailed tariff filings and approval from the CRTC. Generally speaking, and relevant to this City of Prince George case are essential service classifications which pertain to wireline based local and long distance telephony and Cable television signal distribution which are impacted by regulation and licensing. The licensing categories are quite simple and include the following: Municipal Fibre Network & Technology Centre 37 | Page Sel'vices subject to licensing in Canada Sen-ices subject to licensing SerYices not subject to licensing International basic !elecommunic.ations services Domestic wireline telecommunica-tions services Domestic and international satellite and wireless teleconununica-tions services (does not include Wi-Fi). Source: Industry Canada. We have attached excerpts from a reference document in Appendix I which outlines in detail the various service subcomponents of the above categories. Generally speaking it is safe to say that networks which carry essential services are those that require licensing through Industry Canada and the CRTC. Providers who do not carry these services but own telecommunication facilities, are generally categorized as Non- Dominant carriers and as such are not subject to regulation or licensing. The Canadian Telecommunications Act remains as the governing legislation surrounding the use of any telecommunication network by others for compensation. Although, Stantec believes that the service being proposed is not subject to regulation, the municipal fibre network could still be subject to CRTC and Industry Canada rules covering Canadian Telecommunication Carriers. The City of Prince George is listed as a “Non-Dominant Carrier” and as such must adhere to the reporting and registration requirements under the Act for that category of carrier. Please refer to the Appendix I reference document entitled “CRTC and Industry Canada Services Licensing and Regulation Reference” which provides details of the reporting requirements. As indicated at the start of this section, clarity around regulation and licensing implications is a complex matter. Stantec recommends that beyond this high level view, the specific categorization for the network from the CRTC and Industry Canada perspective may have legal, licensing and regulatory implications which must be taken into account before a final decision is made to proceed with the network build. The City of Prince George should consult an appropriate legal counsel who is considered a subject matter expert in telecommunication law in Canada before making a decision to proceed with the proposed fibre network. 5.5.3 Other Legal and Regulatory Considerations There are a number of other considerations within the legal and regulatory framework of the Province of British Columbia some of which could lead to funding or investment opportunities while others could pose limitations or requirements which the City should investigate and satisfy itself that it fully understands the legal and regulatory impacts within the province. Any in depth discussion around these considerations is outside the scope of this report. The following provides a list of potential Provincial Acts which may have relevance to this project. a) BC Local Government Act (previous Municipal Act) The act and recent amendments can be found at http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/96323_03 b) BC University Act The act and recent amendments can be found at http://www.bclegislation.ca/?s=University+act. c) BC College and Institute Act The act and recent amendments can be found at http://www.bclegislation.ca/?s=University+act. Municipal Fibre Network & Technology Centre 38 | Page d) Northern Development Initiative Trust Act The act and recent amendments can be found at http://www.bclaws.ca/EPLibraries/bclaws_new/content?xsl=/templates/toc.xsl/group=A/lastsearch=/ e) University of Northern British Columbia Act The act and recent amendments can be found at http://www.bclaws.ca/EPLibraries/bclaws_new/content?xsl=/templates/toc.xsl/group=A/lastsearch=/ Overall, Stantec recommends that the city have either its internal council and/or select an appropriate external legal advisor which specializes in telecommunications law, to ensure that the legal risks associated with the start up and operation of a the municipal fibre network are well understood and mitigated accordingly. 5.5.4 Political Considerations There are a number of political considerations when proposing to build a municipal fibre network within a community such as Prince George. Impact of unfair competition claims - Potential negative impact due to push-back from existing network providers within the City who feel that the City has an unfair business advantages in making the network available to existing customers. There could be claims of cross subsidization and unfair business practice in the Engineering and construction costs and permitting and application processes within the City. There may also be business hardship claims against the City in cases where small wired and wireless resellers could lose customers to the fibre network if they are not be able to take advantage of the dark fibre opportunities and consequently lose their existing customers to other resellers over the network. Impact of Open Access - Clarity around the issue that the network will only be available to the largest clustered segment of businesses in Prince George and NOT to all businesses regardless of their location. This is due to geographic targeting in order to ensure business case viability in scaling out the network. Open Access also refers to the users of the network, suggesting that all community businesses can subscribe to the network if they wish. Ultimately, there will be challenges which must be met with timely and accurate information through an appropriate governance model and effective communication plan. The City council must be made aware of all possible challenges which could surface and have a clear understanding of all the stakeholders and the impact to them. Although a detailed communication strategy is beyond the scope of this document, Stantec recommends that the City develop a communications strategy which targets all the key stakeholders identified in this business case. Municipal Fibre Network & Technology Centre 39 | Page 6 NETWORK BUILD-OUT AND EXPANSION From discussions with the City, review of the PGGNAF Fibre Business Plan and from review of other documentation provided by the city, the areas which Stantec believes to have the highest concentrations of businesses and therefore would have the greatest opportunity for customer connections to the municipally owned Fibre network include the following: 6.1.1 Downtown Core (Phase I) The proposed network expansion into the downtown core provides excellent synergies and alignment with the City’s downtown revitalization strategy and is considered a high priority in the expansion of the network. The priority suggests that the network expansion should be facilitated fairly quickly and is therefore scheduled for completion within a two (2) year timeframe. The following graphic and table summarizes the Downtown Core network expansion impact to the City: DOWNTOWN CORE (PHASE I) YR2 16,898 0 11,601 16,898 5,297 5,297 11,174 5,877 5,297 16,898 11,601 16,898 Figure 20 – Proposed Downtown Core Network Expansion 6.1.2 Carter Light Industrial (Phase II) The proposed network expansion into the Carter light industrial provides excellent synergies as well as this region contains a sizable clustering of businesses in the educational, health care and government related sectors. The Carter Light Industrial area is considered a secondary priority for expansion of the network. The priority of this area suggests that the network expansion should be facilitated at a slower pace than the downtown core and is therefore scheduled for completion within a four (4) year timeframe. Municipal Fibre Network & Technology Centre 40 | Page The following graphic table summarizes the proposed Carter Light Industrial network expansion impact to the City: CARTER LIGHT INDUSTRIAL (PHASE II} TOTALS YR1 YR2 YR3 YR4 YRS YR6 YR 7 YRS YR9 YR10 Tot al Build Route (m) 10 ,728 4,204 6,323 8,323 10,323 10,728 10 ,728 Ex ist ing Conduit Only (m) 619 0 619 0 0 0 Ex i sti ng Fibre in Conduit (m) 4,204 4,204 4,204 6,323 8,323 10,323 10,728 New Conduit Req uired (m) 5,905 0 1,500 2,000 2,000 405 New Fibre Req uired (m) 6,524 0 2,119 2,000 2,000 405 Tot al CUM NETWORK Build: 10,728 4,204 6,323 8,323 10,323 10,728 10,728 Figure 21 – Proposed Carter Light Industrial Network Expansion 6.1.3 Boundary Road Industrial (Phase III) Another area of important network expansion is a proposed industrial park to be developed near the airport and boundary road. This business park could involve some fairly large logistics companies and Airport support service providers. This area also provides an excellent opportunity for long term utilization of the municipally owned fibre network. This new Industrial development is considered a longer term priority; however the City feels strongly that there are strategic benefits in establishing connectivity to this area early in the network expansion strategy; however the redundant components of the build, such as diverse paths, could be stretched out a few years to reduce the capitalization impact to the city. A second component to this build includes reaching the clustering of larger businesses along the river on the Southeastern shore line. Specifically, this portion of the build would target the mills and other industrial support businesses in that area just to the West between the river and highway 97 while also serving as a longer term redundant path for the boundary road business park customers. The overall priority of this build suggests that the network expansion should start and coincide with the Phase II schedule, however it’s completion facilitated at a slightly slower pace than the Municipal Fibre Network & Technology Centre 41 | Page downtown core or the Carter Light Industrial sections in order to spread out the capital costs. Therefore, scheduled for completion within a five (5) to six (6) year overall timeframe. The following graphics and table summarizes the Phase III Boundary Road expansion impact to the City BOUNDARY ROAD INDUSTRIAL -AIRPORT (PHASE Ill) TOTALS YR1 YR2 YR3 YR4 YRS YR6 YR 7 YRS YR9 YR10 Total Build Route (ml 22,188 0 6,000 12,000 18,000 21,930 22,188 22,188 Ex isting Conduit Only (ml 7,430 2,000 2,000 2,000 1,430 0 0 Existing Fibre in Conduit (ml 0 0 0 6,000 12,000 18,000 21,930 22,188 New Conduit Re qu ired (ml 14,758 0 4,000 4,000 4,000 2,500 258 New Fibre Re qu ired (ml 22 ,188 0 6,000 6,000 6,000 3,930 258 Total CUM NETWORK Build: 22,188 0 6,000 12,000 18,000 21,93 0 22,188 22,188 CITY WIDE TRANSPORT - BACKBONE TOTALS YR 1 YR2 YR3 YR4 YRS YR6 YR 7 YRS YR9 YR10 Total Build Route (ml 19,394 8,781 11,609 13,931 15,994 17,957 19 ,394 19,394 Ex isting Conduit Only (ml 6,563 2,000 2,000 0 563 563 1,437 Existing Fibre in Conduit (ml 6,149 6,149 8,781 11,609 13,931 15,994 17,957 19,394 New Conduit Re qu ired (ml 6,682 632 828 2,322 1,500 1,400 0 New Fibre Requ ired (ml 13,245 2,632 2,828 2,322 2,063 1,963 1,437 0 Total CUM NETWORK Build: 19,394 8,781 11,609 13,93 1 15,994 17,957 19,394 19,3 94 Figure 22 – Proposed Phase III Boundary Road Expansion Municipal Fibre Network & Technology Centre 42 | Page The overall build schedule is represented in the following Phase summary: 7 c:=:~ I / r+ .I T Phase Ill TOTAlS YR 1 YRZ YR3 YR4 YRS YR6 YR 7 YRS YR9 YR10 TOTAl CUM NElWORK SUMMARY (All AREAS) 69,208 24,586 40,830 51,152 61,215 67,513 69,208 69,208 0 0 0 EXISTING EMPTY CONDUIT (All AREAS) 15,192 2,580 4,619 2,000 2,563 1,993 1,437 0 0 0 0 TOTAlS NEW CONDUIT (All AREAS) 37,939 5,929 11,625 8,322 7,500 4,305 258 0 0 0 0 TOTAlS EXISTING FIBRE (All AREAS) 16,077 16,077 0 0 0 0 0 0 0 0 0 TOTAlS NEW FIBRE (All AREAS) 53,131 8,509 16,244 10,322 10,063 6,298 1,695 0 0 0 0 Figure 23 – Overall Build Summary Municipal Fibre Network & Technology Centre 43 | Page 7 BUSINESS AND OPERATIONAL IMPACTS 7.1.1 Business and Operational Impacts The network operations strategy for this project has been assumed to be a “City Owns and Operates” model. This approach is similar to that of other city owned entities and should allow this new entity to operationally scale in a linear fashion over time without the need for significant start up costs. The City IT department has been effectively operating the fibre network entity to this point and could take on the partial resource responsibilities of start up until the customer connections as sufficiently substantial and full time resources are required. The impact to the City is expected to be more favourable with this approach than one where a new greenfield operational entity is created and staffed appropriately. Due to the highly technical nature of the positions required, Stantec believes it will be difficult to source the appropriate resources on a part time basis. Overall, the existing IT department with some reshuffling of existing resources and augmenting of new resources could launch and support the new operations for a number of years until critical mass of the business is achieved at which time the resource model could be revisited. Of greater criticality is the project management requirement during the design and build cycle of the network. Stantec recommends that this component be outsourced with ongoing supervision from the existing IT department management. Obviously, there is a need to review this approach in detail with appropriate city department management and develop a resource strategy which is acceptable to the city. The details of the operating model should be refined in the next phase of this project prior to final commitments to proceed. The following table provides a view of the impact to the relevant City stakeholders as a result of taking on the new fibre network operations. For a detailed view of the operational cost estimates and respective assumptions, please refer to Appendix C. IMPACT ON OPERATIONS City Stakeholders Business/Operations Impact The Finance department will be required to conduct billing on behalf of the Finance Department fibre network entity. The Corporate overhead of 14% is expected to cover this work. Ability to provide planning and implementation support for the Project. They Planning and Development will treat requests from the fibre network entity as they would any other Department customer request. Short term general management of the network. Ability to provide guidance and feedback on project planning and implementation based on experience IT Department building and administering existing network. Also responsible to provide network administration and any network maintenance and field support resources during operational start up of the entity. Support for the Economic/business growth in Prince George. Ability to Initiative Prince George provide guidance and feedback on project planning and implementation. Municipal Fibre Network & Technology Centre 44 | Page IMPACT ON OPERATIONS City Stakeholders Business/Operations Impact Downtown revitalization, economic growth, maintains relationship with City Council major service providers. Ability to provide guidance and feedback on project planning and implementation. Municipal Fibre Network & Technology Centre 45 | Page 8 FINANCIAL ANALYSIS 8.1 Capital Costs The Capitalization of the Municipal Fibre network is based on a number of key assumptions. The financial model in its entirety is detailed in Appendix A however for clarity and completeness; the key categories and the assumptions which form the foundation for the capital model will be included here. The key components which have been considered in the development of the Capital model include the following: Business demographics for the City of Prince George Network Expansion and build based on targeted areas for optimum network coverage Timing and prioritization of the deployment and associated expenditures Customer Penetration projections The following chart provides a summary of the total capital funding required to complete the network expansion and facilitate the necessary building connections. These figures have been derived from many different assumptions which are discussed in detail in later sections of this report. The accuracy of this capital estimate is in the order of +/- 25%. A more detailed assessment of the Capital model and the associated funding requirements can be found in Appendix A and B. CAPITAL FUNDING ESTIMATE -City of PG Fibre Network YEAR 1 YEAR2 YEAR3 YEAR4 YEARS YEAR6 YEAR7 YEAR8 YEAR9 YEAR 10 PHASE I - Downtown Core Network Extensions $583,159 S583,159 so so so so so so so so Existing City Duct S12905 so so so so so so so so so Customer Building Connections S55,046 S88,074 S77,065 S33,028 $33,028 S33,028 533,028 S33,028 $33,028 S33,028 PHASE II - Carter Light Industrial Network Extensions so S142,816 $190,421 5190,421 $38,560 so so so so so Existi ng City Duct so $13,773 so so so so so so so so Customer Bu ilding Connections S57,126 $95,210 $95,210 $57,126 $57,126 S57,126 $57,126 $57,126 $57,126 S57,126 PHASE 111- Boundary Road Industrial+ City Wwie Transport Network Enemions $37,598 $287,21 7 $376,095 S327,194 $232,011 S15,348 so so so so Existi ng City Duct so 544,500 544,500 544,500 $31,818 so so so so so Customer Bu ilding Connections so $23,796 $47,592 S23,796 $23,796 $23, 796 $23,796 $23,796 523,796 $23,796 $745,834 $1,278,545 $830,883 $676,065 $416,338 $129,298 $113,950 $113,950 $113,950 $113,950 AN NUAL NEW CAPITAL REQUIRED: $745,834 $2,024,380 $2,855,263 $3,531,328 $3,947,666 $4,076,964 $4,l 8.1.1 Technology Centre Component The technology centre Capital component is being treated separately from the network capital requirements. This is a due to the some uncertainty around the technology centre function. Specifically, it is not clear as to whether the technology centre is simply a co-location point for network fibre termination and regional interconnects or gateways for the business customers and resellers. The technology centre could also consist of application hosting or business continuity support for the city wide business market in Prince George and surrounding areas. There are many questions including whether there is capacity for significant revenues to come from building a technology centre? Stantec was asked to provide an opinion on some of these questions. After discussions with the City as well as conversations with some of the existing customers of the network and the magnitude of the network being considered, the following perspectives are seen as relevant: Based on the star or point-to multi-point topology of the network, there is a need for a physical location where the individual network fibre cables can be terminated so as to provide flexibility for the customers to interconnect with bandwidth providers or to facilitate configuration and routing of their private network data paths. Municipal Fibre Network & Technology Centre 46 | Page Given that customer dark fibre circuit projections will approach 100 within the first 10 years, multiple fibre termination locations will likely be required. A decentralized fibre termination strategy will also provide the best overall network availability and capital cost distribution. If all customer connection fibres are terminated at the downtown co-location point, then this will force a requirement for additional fibre capacity within the interconnecting backbone of the network to ensure a highly reliable redundant configuration. The additional fibre circuit lengths increase the chances for a fibre hit thus negatively impacting network reliability and adding capital cost to the backbone build. Using the projected customer circuits (54 circuits) from Phase II and Phase III, there would be a need for an estimated additional 18 km total distance and 108 strands of additional fibre cable needed in the backbone. The need for this additional fibre distance adds almost ~$240k to the capital model. See capital estimate figure below: Phase Total Circuits Fibre Strands Needed Distance {Km) Capital Cost * Phase I 41 82 NIA N/A Phase II 34 68 8 $105,,379 Phase Ill 20 40 1-1) $131 ,724 Totals: 54 108 18 $237,103 * Note: Labour com onent assumed $5.85/m Fiber cable Figure 25 – Capital Estimate The distributed data centre or fibre termination topology approach provides a better longer term migration strategy for a network of this magnitude. The capital costs associated with building a distributed topology will depend on what performance level is required at each location, however if the centre is mainly a fibre termination and co-location site, then the white space costs become more manageable. Section 8 in this document provides more details on the Technology Centre component for this business case report. 8.2 Capital Funding Construction of the proposed fibre optic network will be funded from a combination of private sources (29.5% of total) and debt financing (70.5% of total) as described below: 8.2.1 Private Sources All of the capital construction related to “network extensions” will be funded by the network owner. Network extensions are defined as the portion of the fibre network that links the customer building drop point (property line) to the nearest fibre network connection point. The owner will incur the full cost of constructing this fibre link, and therefore it will become the property of the network owner. The building “drop” component from the property line to the building demarcation point will be funded by each customer as they wish to be connected to the network at the property line. The network owner will facilitate the construction of the drop for the customer using his construction contractors and recover the costs plus a nominal admin and handling fee from the customer. This treatment is similar to that used by many municipalities for certain underground infrastructure paid for by developers as part of property development. Municipal Fibre Network & Technology Centre 47 | Page 8.2.2 Debt Financing Based on current analysis there does not appear to be federal or provincial grant funding available for this project. Accordingly, it is proposed that all of the construction of the primary fibre optic network will be funded via debt financing from the Municipal Finance Authority of British Columbia (MFA-BC). To minimize financing charges for the project, the construction will be funded using interim financing for years one through five. Presently the MFA-BC offers municipalities a very attractive rate of 1.7% to interim finance capital projects during the construction phase. The interim financing, available to a maximum of five years, would subsequently be taken out and replaced with ten year long term debt provided by MFA- BC for years 6 through 15. 8.3 Operating Projections Operations for the project have been forecast by phase to provide an indication of the relative merits of each expansion. The forecasts for each phase encompasses the ten year period commencing with the initial construction of Phase I Following are forecast summaries of the operating results by phase and in total. The first table reflects the cumulative results for years 1 through 10 whereas the second table reflects the results for year 10 only. Municipal Fibre Network & Technology Centre 48 | Page THE CllY OF PRI NOE GEORGE MUNIIIOIPAL FIBRE NIETWORK .& DAI A fENITRE IN:OOME AND CASH FLOW STATEMENIIS Ten Yea r Omnulative For,eras,t (Nominal Dollars)' .l!llMU £1:lmU ~ OOWNfOWIN CARTER L!J GHT TOfAL IOOUM)A/RY ROAD CORE IN DUSTRIAL INCOME STATEMENT OPERATING REVENUES: Dar~ fi bl"e rantal $3,660,000 '$2.;0"2'2,000 $1,062)000 $576,000 CUsl:orne:r dl"qp, fees $'2,509,200 '$1,166,040 Sl>JI0,&40 $472,3'20 Total revenues $6,169,200 $3,188,M(ll $,1,932,&40 $1,0'18,3'20 OPERATING 0PENSES: Eim a-gency maint enance standDY fees $32.0,000 $320,000 so so CUsl:orner drqp, expense $2,182,606 '$1,014,270 $757,493 $410,844 Total operat i'-g expense $'2,502,606 '$1,334,'27() $757,493 $410,844 INTER-COMPANY ('With City): Darlk fibl"e rantal t o Oity so so so so laool" a IOG! t ioffi from City Managerial $713,700 '$394,290 $207,090 $112,3'20 Marleting Suppon $244,000 $134,800 $70,800 $38,400 Admiri su;ppon so so so so Nem\lJ~ admi nicStration $439,200 $242/640 $127,440 $69,12.() M airitenance and repai rs $305,000 $168,500 $!!8,500 $48,000 M ai111t E11 aoce Sl!Jl)plies S61,000 $33,700 $17,700 :$9,600 Occupancy costs fro m Cit y $1 so so $1 Nffi'IORK USAGE REiE paya to City S61,692 $31,~ '$19,3'2& S,10,4&3 Overhead a locati on from City $238,266 $131/632 $69,136 $37,498 Net tnter--oompan/1' •expense $2,062,8.59 $1,137,443 $99,9·95 $325,4 2.2 EBJTDA Amortirniori $741,774 $330,124 $195,124 $216,526 lntere.st:on interim financi ng debt $141,695, $78,625 $18,955 $44,115 Interest: Of! long t enm debt: $7>02,500 $2.87,500 $112,500 $302,500 NET INCOME/UOSSl $159,461 $98,704 $ 2'67,728 (S2.06..:9nl ·CASH FLOW SIAIEMENT OPERATING ACTMTI ES: Net income· $15,9,461 $98,704 $267,ns ($206,!m l Add: Amort'iza t iori $741,774 '$330,124 $195,124 $216,526 Cash {to!from ~rations $901,234 $428,.827 S462.,S53 $9 554 NVESTING ACTIVITIES: Capital e l Figure 26 – Ten Year Cumulative Forecast - Income and Cash Flow Statements Municipal Fibre Network & Technology Centre 49 | Page THIE CITY OIF IPRINCE GEORGE IMUNICIIP'AL FIIIBRE NETWORK & IDAlA CENITRIE I N·0O ME AINID CASH IFLOW STA TE MENTS Year 10 (Ncm-.inal Ooll1m j .El:Ul&1 ttUW.l. ~ IDOW1NTOWN CARTER llllGHIT TOTAl BOUNDA.ll.'I' RO A.O OORiE INDUs-TR AL INCOME STATE M ENT OPERATING REVENUES: Dari,; f ib re rental $ 600,000 $29 4/D00 $192,000 $114,000 c ustom er drop fees $442,600 $191,800 $157,440 $93,480 T,ot al r,evenues '$1.042.,!IOO $485 800 $,:!,49,440 $207,480 OP,EiAATING EXPENSES: Eimengency maintenaoce standby fees $i2,000 $ 32,000 $10 $0 Custa mer drop expense $3&5-,166 $166,90 5, $B6,9'48 $81,j13 Tot al ,a pe,ra t i ng eicpense $417,166 $198,90 5, $136,9'48 $81,j13 INIER-COMPA.NY (witlh cityJc Dark f ib re rental ta Cil1,' $0 $0 $0 $0 Labor allocations iirom oily M an.1gerial $ 117,000 $ 57, 3:l;O $37,440 $22,230 M arl,;etin,g Support $40,000 $19•,60 0 $12,600 $7,600 Admin su pp ort $0 $0 :$10 $0 Ne~vo rl administration $72,0 00 $ 35,280 $23,040 $13,680 M ai ntenaooe :a nd repa·rs $510,000 $24,50 0 $16,000 $9,500 Maintenan ce .sup pl ies $1!D,O0O $4,,9 00 $ 3,2.00 $1,900 oc,cu paocv costs fr,o m Oily $0 $0 :$10 $0 r~ EiWOR US AGE FEE payab e to Oily $ 1!D,426 $4,8 59• $ 3,494 $2/075 o verhead aUocatia n romcitv $:!-9,060 $19•,1.3-9 $12,499 $7,421 INe t i nter--00 mpany ,eicpense $338,4 88 $165,608 $1!0!1,474 $64,406 EiBITDA Am ortiiza~ian $101,161 $40,149 $2.9,36 7 $U1645 lnter,est ,o:n int erim finand ng d e'btt $0 $0 $10 $0 lnt er,est ,o,n I 011ig term debt $140,500 $ 57,500 $22 ,500 $60,5'00 NH IINCOME/fLOS5l $45.41!5, $23, 71.8 $.52.152 1$3113114! 1CASH FllOW SfATE M IENT OPERATINGACTI:vmes: Net income $45,485 $23,718 $52,H2 ($30,384) Add: Amortization $101_,161 $40,149 $29,367 $U/645 cash (t.o)from operation~ $ 146,646 $ 63,!167 $!11,5 19 $1,261 INVESTI 'G ACTIVITIES: c apital expe ndirures - n etworik e x.t,en S!ia n $0 $0 :$ID $0 c apital expe nditures - bui lding conn ections [$113,9501 [$33,.02!1) 1$ 57,1261 1$23,7!16) Cap ital expe nd·rrures - capita renewal 1$49•,961) [$ 19 ,.868) ISW,477) ($15,616) cash fto)fTa m iave51lin.i: 1$163 ,9111 [$52,.8'96) 1$ 71,6031 1$39• 412! A NAN0IN6 ACTMTIES: c ustom er financing !b uilding ,connect ions] $ 113,9·5-0 $ 33,028 $57, Ll6 $23,7 96 Interim financi11ig debt is,s,ued lr,epai dl $0 $0 $10 $0 Lan g term naocm,g is:sued $0 $0 :$ID $0 La 11ig term finaocmg l irep aid) [$234,0UI [$95,7 85) 1$ 37,4811 [$1!.00,71121 cash fto)fTom financing [$ll0,09lll [$62,7 57) $1.9,645 1$ 76,986) Opening Cash [$627 ,59•7 1 ($ 140,548) $44,229 [$531,2771 Cllosin..- Cash [$76495!11 1$ 19•2,334! $73,789 [$646A 14I NIT CASH INFllOW/(OUTIFLOWI [$51,786) $.291,561 &$1.1!.5_,1371 tsn7 ,363.I Figure 27 - Income and Cash Flow Statements- Year 10 Municipal Fibre Network & Technology Centre 50 | Page It is very apparent from the forecasts that both the downtown core (Phase I) and Boundary Road (Phase III) are in a negative Net Cash Flow situation after 10 years. The Carter Light Industrial (Phase II) build has a slightly positive Net Cash Flow position after 10 years. The Carter Light Industrial area has the smallest capital footprint and also the smallest expense profile in our model which contributes more positively to the Cash Flow outcome. The main reason for the negative positions in Phase I and Phase III are due to the large amount of capital required in both these Phases. The downtown core (Phase I) has the largest construction cost per meter component at $110/m while the Phase III build has the greatest kilometres of plant to construct. It’s construction costs per meter at $60/m is the lowest because of the rural nature of the build but the larger fibre distances cause substantive capital loading on the model. Although the model is based on a 10 yr financials perspective, it is important to understand the longer term impact on Cash Flow as the debt retirement strategy requires 15 years before the debt is fully retired. As the debt principal repayments decline over the remaining five years of the ten year term, years 11 through 15, the cash flow becomes increasingly more positive. Phases I and II, although not fully positive after 10 years, still appear to be potentially feasible over the longer term view. Although results in year 10 still have negative cash flow, upon retirement of the long term debt (in year 15) the absence of debt payments will swing all phases into a cash flow positive position. Although overall cash flow positive in year 16, the ending cash position does not turn positive until year 22. Unfortunately, Phase III has a heavy capital requirement and therefore due to its small potential customer base, it drags down the closing positions of the other two phases. If extrapolated out, Phase III by itself will not turn cash flow positive until year 44. This is a very long time and the outcome is based on many assumptions whose error rate increases with time. Given this scenario, we have serious concerns about the viability of proceeding with the Phase III component. The model snapshot for the projected Income and Cash Flow Statement is shown below. These are annual cash flow and net income views for years 16, 20, 25 and 30. Municipal Fibre Network & Technology Centre 51 | Page THE CITY OF PRIN CE GEORGE MUNICIPAL FIBRE NETW ORK & DATA CE NTRE IN COME AND CASH FLOW STATEMENTS Year 16 BASE MODEL - REFERE NCE {Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LI GHT TOTAL BOU NDARY ROAD CORE INDUSTRIAL IN COME STATEM ENT OPERATING REVENUES: Tot al revenues $600,000 $294,000 $192,000 $114,000 OPERATING EXPENSES: Tot al operating expense $32,000 $32,000 so so INTER-COMPANY {with City): Net inter- company e.xpen s.e $277,753 S141,34 5 $81,600 $54,808 EBITDA NET INCOME/ILOSS) S187,476 $80,093 $80,0 18 $27,365 CASH FLOW STATEMENT OPERATING ACTIVITIES: cash (to)from operations $290,247 $120,655 $110,400 $59,192 INVESTING ACTIVITIES: cash (to)from investing ($51,385) {$20,281) ($15,191) {$15,914) FINANCING ACTIVITIES: cash (to)from financing so so so so Opening cash ($1,443,390) {$456,888) $249,929 {$1,236,430) Closing cash ($1,204,528) ($356,514) $34 5,138 {$1, 193,15 1) NET CASH INFLOW/IOUTFLOWI $238,861 .$100,3 74 $95,209 $43,279 Figure 28 - Income and Cash Flow Statements-Year 16 THE CITY OF PRIN CE GEORGE MUNICIPAL FIBRE N ETW ORK & DATA CE NTRE IN COME AND CASH FLO W STATEMENTS Year 20 BASE MODEL - REFERE NCE {Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LI GHT TOTAL BOU NDARY ROAD CORE INDUSTRIAL IN COME STATEMENT OPERATING REVENUES: Tot al revenues $600,000 $294,000 $192,000 $114,000 OPERATING EXPENSES: Total operati ng expense $32,000 $32,000 so so INTER-COMPANY (with City): Net inte,r-oompany expense $277,753 S141,345 $81,600 $54,808 EBITDA NET INCOME/ILOSSl $187,476 $80,093 $80,0 18 $2 7,3 65 CASH FLO W STATEMENT OPERATING ACTIVITIES : Cash (to)from op,erations $290,247 S120,655 $110,400 $59,192 INVESTING ACTIVITIES: Cash (to)from investing 1S5 1,385) {$20,281) ($15,191) ($15,914) FINANCING ACTIVITIES: Cash (to)from financing so so so so Opening cash ($487,944) {$55,393) $630,764 ($1,063,315) Closing cash ($249,082) $44,981 $725,973 ($1,020,036) NET CASH INFLOW/(OUTFLOW) $238,861 $100,374 $95,209 $43,279 Figure 29 - Income and Cash Flow Statements -Year 20 Municipal Fibre Network & Technology Centre 52 | Page THE CITY OF PRIN CE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE IN COME AND CASH FLOW STATEMENTS Yea r 25 BASE M ODEL - RE FERENC E {Nominal Dollars} PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTE R LIGHT TOTAL BOUNDARY ROAD CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Total rev e.nu es S600,000 S294,000 S192,000 S114,000 OPERATING EXPENSES: Total ope rat ing ex l}ense $32,000 S32,000 so so INTER-COMPANY (with City): Net int er. company ex pen se 5277, 753 S141,345 $81,600 $54,808 EBITDA $290, 247 S120,655 S110,400 S59,192 NET INCOME/(LOSS) $187,476 $80,093 $80,018 527,365 CASH FLOW STATEMENT OPERATING ACTIVITIES: Cash (to)from operations $290,247 S120,655 S110,400 $59,192 INVESTING ACTIVITIES: Cash (to)from investing ($51,385) {$20,281) ($15,1911 ($15,914) FINANCING ACTIVITIES: Cash (to}from financing so so so so Opening Cash $706,364 $446,476 Sl,106,808 {$846,921) Closing Cash $945,225 $546,850 Sl,202,017 {$803,642) NET CASH INFLOW/(OUTFLOW) $238,861 $100,374 $95,209 $43,279 Figure 30 - Income and Cash Flow Statements -Year 25 THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE N ETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS Year 30 BAS E MO DEL - REFER ENCE (Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LIGHT TOTAL BOU NDARY ROAD CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Total revenues. $600,000 $294,000 $192,000 $114,000 OPERATING EXPENSES: Tot a I operat ing ex pe,n se $32,000 $3 2,000 so so INTER- COMPANY (with City): Net int er -com pany ex pen se $277,753 $141,345 $81,600 $54,SOS EBITDA NET INCOME/ILOSS) $187,476 $80,093 $80,01& $27,365 CASH FLOW STATEMENT OPERATING ACTIVITIES: Cash (to)from operations $290,247 $120,655 $110,400 $59,192 INVESTING ACTIVITIES: Cash (to)from inve,sting {$51,385) {$20,281) ($15,191) [$15,914) FINANCING ACTIVITIES: Cash (to)from financing so so so so Opening cash $1,900,671 $948,345 $1,582,853 [$&30,527) Closing cash $2,139,5,32 $1,048,719 $1,678,061 [$587,248) NET CASH INFLOW/[OUTFLOWI $23&,&61 $100,374 $95,209 $43,279 Figure 31 – Income and Cash Flow Statements -Year 30 Municipal Fibre Network & Technology Centre 53 | Page 8.3.1 Sensitivity Analysis Sensitivity of the model was discussed thoroughly with the City if Prince George. The following drivers were identified as parameters which could impact viability of the model if they should undergo material changes in value: Customer connections: It was discussed and agreed that the estimated customer connections could seriously impact the model if the margin of error is significant and connections fall significantly short of the projected quantities. Of greatest concern are the quantities estimated in Phase III as this phase has a large network footprint with large capital expenditures but with the smallest number of potential connections. Dark Fibre lease Pricing and estimated Revenues: The revenue component is a key driver in the model. The pricing model drives the revenue and therefore any significant deviation in timing or in size of the revenue will impact the model. Capital costs: This project has sizable capital components whereas any sizable deviation from the estimated capital costs of construction could dramatically impact the viability of the project. Cost of borrowing: It was discussed that although the cost of borrowing could change depending on the global economic recovery rate in Canada, it was felt that a very large increase in interest rates would need to be implemented for a material change in the model dynamics. It is also important to state that although we believe the financial model is weighted more towards the conservative side, the estimated accuracy of our model is +/- 25% which could have substantial viability impact over the expenditure life cycle and this sensitivity analysis. We also carefully reviewed the basic assumptions used in developing the model in both the Revenue and Expense sections. It was felt that the majority of the high impact parameters in the operational costs and capital costs used in the model were conservative in their assumptions and therefore we concluded the model already has a substantial amount of conservative margin built into the assumptions used. It was felt that by keeping the model sensitivity analysis simple, and the variable list small, it would be relatively easy to understand. As a result, it was agreed that the most significant driver which should be tested with respect to its sensitivity and which also encompasses the customer connection projections is the pricing which drives the forecasted model revenues. The following figures and charts provide details on the cumulative cash flow impact of a 10% and 20% reduction in the dark fibre lease pricing. This pricing reduction may need to be considered should the actual customer connections fail to reach the projected quantities. For more legible version of the following charts and figures, please refer to Appendix E. Municipal Fibre Network & Technology Centre 54 | Page $3,000,000 ,------,======,---- CUMULATIVE CASH FLOW {CO NSO LI DATED) $2,000,000 +------~ ------_,_ __.,._ _ Short Term Long Term Financing --c apit al Invest ment Required --Cumulat iv e Ca.sh Flow (BASE CASE) --cumulat iv e Cash Flow (Revenue @-10%) --cumulat iv e Cash Flow (Revenue @-20%) 38 y rs -$3,000,000 +------ -$4,000,000 .,______ Figure 32 – Cumulative Cash Flow - Consolidated $1,500,000 ,------;::======:::::;----- CUM ULA TlVE CASH FLOW (Phase I) $1,000,000 +------======--~- ShortTerm ! Long Term Financing --c apital Investment Required so --Cumu lative Ca.sh Flow (BASE CASE) --cumulat ive Cash Flow (Revenue @-10%) - cumulat ive Ca.sh Flow (Revenue @-20%) -$1,500,000 ~------ Figure 33 – Cumulative Cash Flow (Phase I) Municipal Fibre Network & Technology Centre 55 | Page $2,000,000 ~------CUMULATIVE CASH FLOW (Phase 11) Long Te rm Financing --Ca pital Investment Req uired --cumulative Ca,sh Flow (BASE CASE) --cumulative Cash Flow (Re venu e @-10%) --cumulative Cash Flow (Re venu e @-20%) so YEARS -$500,000 ~------ Figure 34 – Cumulative Cash Flow (Phase II) $1,000,000 ,------,======,----- CUMULATIVE CASH FLOW Short (Phase 111) Long Term so ~...... ~:;::;:;~'i"i"im"i"i"'i"i"i'"i"i"'i"i"i"'i"i"'i"i"ii"i"i'"i"i"'i"i"i'"i"i"'i"i"l!~'i"i"ii"i"i'"i"i"'i"i"i'.....,;.,rn 7 9 1113 ~ 17 19 21 23 25 27 29 31 33 35 37 39 --Capital Investment Required YEARS I --Cu mulative Cash Flow (BAS E CASE) -$500,000 -t------,---n ---~ ------,-,c------...... ,_ --Cumulative Cash Flow (Revenue @-10%) --Cumulative Cash Flow (Revenue@-20%) -$2,000,000 ~------ Figure 35 – Cumulative Cash Flow (Phase III) Municipal Fibre Network & Technology Centre 56 | Page THE CITY OF PAINCf GEORGE SENSITIVITY ANALYS IS MUNICIPAL FIBRE NTIWORK& DATA CENTRf INCO MI AND CASH HOW STA TEMBITT Tm Year Cun:11.1h1tt\le f«ecm BASE MODEL· REFER ENCE REVENUES@ -10% REVEIWES@ -20% (M>tft·ttm oo.JtNt1 ...... , ...... , ...... ,-hM£1 .....,, ...... OOWffT"'"''OW li CA5II FLOW STATEMENT OPSlATING AalVtTIE5 Cmli4tD}lftlmGpant.brd $"'1,23' ~,.,.,, $0,!S4 ~:18, litk $.11 ..... ~1,71:S Q47.,t1QI $11',554 $21,411 $>5>.57l ($,10<,<"I INl45TIHG ACTIVTT1E5: e.64tD)lr,;,m l"""'-I t><.&<>,,lSl l}:l,.l' Figure 36 – Sensitivity Analysis-Ten Year Cumulative Forecast nt:E CITY OF PAINCf GEORGE MUNIC PAL FIBRE NETWORK& DATA CENTRf INCOMI AND CASH FLOW STATEMENTS 'l'ear 10 BAS E MO DEL· REFER ENCE REVENUES @ -10'l6 REVENUES @ -l0% 'Nomlrtaf Do.lan'I .!II.IOl..l !tlO>U bW.1..1 !tWlJ. .!IW,U !!Im.I tlll,SU !tWU .!IW,I...I D0¥1i'efT OW N CMTDt UCi HJ OOWNTOWN C.WUW!T DOW NTOWN CMTD UGHJ TOT.Al 9(U,IDM'f III OAD TOlM IOUl'liDAAVIIIOAO TOT.AL aoti!ilDAJl'f lll OAD 1!1Du5.TIW INDUSlbU. JfD~ lRW.. INCOME STATEMENJ ""'' ""'' ""' (MIOJi'JlH6lf\l~UB.. f llillill NV.-...lli s... ,.., $201,480 $!112,..xl $456,,0> µ»,140 $i~ UIO $0,,_ $< '7,(IIO $31].0IO ~ ..... $45.... s- MQAJNJONNSB:. - Tii:ti!l ~ ..:p.rm• $-4111,ili!i I- S"'-"' SIU'-' ~11;Wi $ ...... ~ ... ~ )&1.31' $417, ili!i 1"'-"' $ii,30 "flD-t~ ..llhOtv}; Nrt ln!• '~ rr,a,..... $131ii.,48' $i£516ul $1.llB,,tl'A ~- NETINCDME/ttms) $2l.7ilii S..S2,J5.l 1Ull.Z4l IW,tl) ·-$l3,144 [S,4i ,6701 1$1.3,ll.5) 1$""'1 $1,U!li IS>,._..l CA5II FLOW STATEMENT On.RA'IING "'cnvmES . -· Oiilim.llriimti-ltinii Stili.646 1 ~51.! 1 215.i m" !.14 ,71ii S0.51.i &t0.,Q2§1 <0503 rs.:t1.J:u \ INVESIW'«iiAcnvmE.5: ' C.... Jaei,)lr'iim l~ CSUiUUt ~•uo.i !S.1i.6Cl.H [$3j.,412l [S,iU,9'111 fS!U"' r.sn,,tilllJ 4$l9,4U] CS-H-J.,!1111, =...i fS"-'"'l ($311.Atl!I flNAHCll'f6.ACIIYrTIB: ,_ .... , ..- 1.. ..., CS!i.S.715) 1$11,AtO ~,,.,,,.,. fS,~,o,tliil ~ -1~ CSJ?.A81] [S,~,U) ~ [S,J.7,Alii:ij, ~7ill ~ lm-)lriim ~,.,._.,,,: ts6.:t,7!iJ) $19.,645 1$1'-'"'l 4S,tl0,(r]lf] [$U..757t :51Uli S ~7U-"il ts12t),&!l.llo ~,.1,m Sl>MS fSJUM-) OpniiftfC:H h ~-·CS62J,59'71 ~"' CSili.lm 4519)),5.37] f$l.U,6M.1 tS·U,9011 fSID~1SJ U:t.1H,,t71] ,tS-,182.,i!l!I CSU8,ll:bl csru.rui $?3.78!! 4$.i.4a9,6J~ (5.S!il.,E.9((1- Clmlnf:C:Hh CSJ64..9Sd• "5-.ttl~~-l ="• CSUJ7.J!tl [$392,SU• CS31.:M!il ~-) CSU1i.Alii7• CS-161\46.Jl il!ETCASII INROW,(OlRflOWl l$ilU lil~ t,SJi,1116) ,.,.,,., C,115.,i!:l) t~H-,115:11 f~Ut $-il),S:U ~$,1H,,4ll] [$~6~ ll,lw_,.ij [S,1.n,11it) -•! Figure 37 - Income and Cash Flow Statements-Year 10 Tt!E CITY OFPAI NCf GEO RGE SENSITIVITY ANALYSIS MUNICIPAL FIBRE NTIWORK& DATA CENTRf INCO MI AND CASH HOW STATEMENTS Year 16 BAS E MO DEL· REFER ENCE REVENUES@ -10% RfVEIW ES@ -20% , ...,..., ,, P,~[1 ...... , ...... """'' -.; '""""""'"°""'' Dl'.M'MT OWlll OOWNIOWN ,..,..OOH DOW NTOWN TOTAi aotNDM'l! IIIOA D TOfAI. IIOUNDAIIYIIQAD TOT.AL aot:MIDAR'l! IIIOA D """"""""'iol~TIW. IMDUSTti,U """""lhOL6lllW."""' INCOME STATEMENT ""'' ""'' """ --·""'"'"'-Tflrlii l NV..ua .,. .... §ij4.i'JM ""'-000 i]J.flYI ~ill mo ... .,,,.. ~l1521X! ,15 ,= til!XI o,,Q:AiJW6,fXNf6[!; " upa!G• ;>l,000 1"-"" so 5D ;».ool ;,,,,., $0 5D S,,,000 $~1;000 so 5D WTU-t.OilltiWJl""I'"'" ..llh Olv'); s,,,.,. 5,Hl),757 ..Nct ,_ln!a~ rr,apn:H $-211.7§.1 h4t,l,IS $11.,600 $!-i~rut $217,153 $141.,uSI ssu.. $-211:i.,553 $tl..,2i6 S><.SOO NET INCDME / UKS, Sil-1,.4 76 s..... , $17, lliS $tll,011i s,.,,., Sli i.010 $1 ..... Stil.,£76 5>1.W S Figure 38 - Sensitivity Analysis-Year 16 Municipal Fibre Network & Technology Centre 57 | Page Tt!E CITY OF PRltfCf GEORGE MUNICIPAL FIBRE N£TWORK& DATA CEmRE INCOMIANDCASH FLOW STATEMENTS 'l'ear 20 BAS E MOOEL- REFER EN CE REVENU ES@ -10% REVENUES@ -2096 / Notrt,'naf Do.Joni !ll6il..l -.i -.a -... !lllllLI, .!llliU.l tllillU .llllllU -.i DOw!ITOWN (Ml(Jlli(jHf ICIOWNJOWN <.WDOO!T r,,()111,iNfr;,,;i'il Tt!E CITY OF PRltKE GEORGE SENSITIVITY ANALYSIS MUNICIPAL FIBRE NETWORK& DATA CENTRE INCO MI AND CASH FLOW STATEMENTS Year 25 BASE MODEL - _,,,REFERENC E REVENUES@ -10% REVEIWES @ -2096 (l\\1fflitk1f 0o.laff/ "' ... ' P,1-Witi oow,m,.,• OOWNTOW"""' -N """" DOWlff~ N CMTEl:"""''U6tff """'' TOTAL CAaIDI """' ~(Ml'tflO,i,Q, l OJ~ IMM.lfCIAll 'l' JIOA.0 TOTAL 80Ui40AJIY f10,i, Q, l!IDUS'TJfW -· COO[ """"'"''IN-·DU5ll:'.M " 1~ 1:15.l"~ INCOME STAT™Etff ""'' """ M£&AINW51:tVDtJJB,; ,_1_,, .... .,. .... ,.,.._,,., §ti4JXO SIJlblO S:10 tiOO <15 "ti JOO 0H:MIW6(l{HNSB: "' ""'""' "'""" r«iil~..-.ro• $,U,000 $ll,CIOO $0 $0 S.,>,ool ~>,000 $0 $0 $12,000 $!U,OOU $0 $0 WfU..(c.wJN f.lth Ory}; l'ktkil•~ ff'lla-,- $211,153 S,.Ml,3,lS- l Tt!E CITY OF PRltKE GEORGE MUN ICIPAL FIBRE NETWORK& DATA CENTRE IUCO MC AND CASH FLOW STATEMENTS Year 30 BASE MODEL -REFER EN CE REVENU ES @ -10 % REVEN UES@ -2096 INomi'ttm Oo.bsl .!IIW.l -.i l!llollil.l 1111W. tlWoU .!llliU.l tllillU ~ -.i Cl(MWT O',tl,; Jrll DOv{rffOV{N ,..,.._, DOwJrllTO',tl,; Jrll ,..,..LIGHT TOTAL IOI.NOM'l'' fl OAD TOTAl IIOUNDAR YIICIAD TOTAL flCNM OAR'r RM O "'""""""'IHDOSIJI W COO[ INOUS-111,1,1. INllJS.TMAL. INCOME ST~Ta.!Etff """' """ M£.l.til!Nii! IHVEMUB..c TDibi l -,,...,a ,.,...CllO $1'>,00> $U.._oo:) $5"'-0lO 5,,IJl,JOO $i!ll,li00 ,..,_ 5,ll!i,100 $1',._ Stt,100 OK&IIITINI IEXNN58. , , •..-...m• Cl::6 flflo)tfflml~ l~~l £$~}ill,} 45,l ~l!Uj f$:l!i..ti4l I»,...,] 1$.20.J fl iJ, C$,J5,,1Jl] 6,1!1,,1,0 1)$. !il~l _,.,, f5,~~!UI £$1!1,i.4} flHANOH6 JC.JHrTIES: Ontli !~)fram,.__. $0 $0 $0 So $0 $0 $0 $0 So $0 $0 $0 ~ Clish $~,..,,.,.,_ _,.., ;t.542,a,, CSliJO..§m $4(1t,J.l1 $1',.,.. $1,tl ...... {S001,!dSJ 4$1.,0111,lO'l) ,t$,551,o.1!"11 _,,, •"-11~ SJ.,il"t,532 $1,l)ill,.7~ $,UJl,Cllii CSY7..24-1J $500.1'2 $l66.,412i $:l.:i!2.71il {~,!di) !'.$~1,,1.,W, ,t$,Si5,;111) $101,M,5 •S.-.i!i2.1.3&1 ~ET CASII INRIJIM/roum..ov., °''' S,i°"'lJ.4 ~...,.,, 5,I.M,4ioi1 I'..,.. JJt.,Ml. ~,..., $,.,.,... $-42,iU $51,iU $20,101 -· - Figure 41 - Income and Cash Flow Statements -Year 30 Municipal Fibre Network & Technology Centre 58 | Page 8.4 Key Assumptions This section is intended to provide an overview of the key assumptions which have been used in the development of the Business Case model. Stantec agreed to review the Fibre Business Plan which was developed for the Prince George Advanced Networks Task Force (PGANTF) back in June of 2008. The key assumptions which drove the PGANTL financial model are listed in the Table below. These have been reviewed for their validity and applicability in today’s City of Prince George environment. Stantec’s financial model uses some of the same assumptions however some have been updated and/or reworked based on discussions with the City and Stantec’s knowledge and experience in the telecom sector. 8.4.1 Network Capture This refers to the number of businesses as percentage of total business market size that the fibre network captures. The Network build is assumed to occur in three phases over a six (6) year construction period based on their priority as discussed and agreed with the City. The network capture is a model variable which can be easily adjusted to reflect more or less aggressive network deployment. Please refer to Figure 2, 3, and 4 in the Capital Cost section of this report for more detail on the proposed phases and network capture area. 8.4.2 Business Demographics The business profile for the City of Prince George leads to an environment where there are a large number of small businesses and a small number of large businesses. In fact, the Statistics Canada Business register, June 2010 report1 shows a distribution of 95.9% of businesses in Prince George have less than 50 employees. Only 4.1% are businesses with greater than 50 employees. See refer to Table 1 in the Capital Cost section of this report for more detail. 8.4.3 Customer Connections In our model, we have defined “Primary” and “Secondary” customer connections to the network. “Primary” connections come from direct subscribers to the network, such as resellers or larger companies who can justify dark fibre connection fees. “Secondary” connections are derived from smaller businesses that utilize the network for their BW needs but subscribe through a reseller on the network. This is an important distinction as the model treats the two connection types very differently. Based on Stantec’s knowledge and experience in the Telecom Sector, it was felt that the highest probability for connections of the “Primary” type will come from businesses with greater than 50 employees or from Telecommunication service providers or resellers. “Secondary” connection types will come from the smaller business demographic, specifically those businesses with less than 50 employees. Business growth in the community is assumed at 1% per year over the next 10 years. This assumption is somewhat aggressive since there has been negative growth over the last few years, however this lines up with the global economic downturn and the expectations for a turnaround in Canada over the next few years. A "Secondary Subscriber" connection Ratio of 1:10 will be used to establish additional dark fibre requirements for the resellers. This assumption is based on resellers requiring additional dark fibre connections for every 10 customers who buy services from them. Municipal Fibre Network & Technology Centre 59 | Page The database for "Primary" customer connections will be derived from all businesses that have > 50 employees. Stantec has assumed through its validation process that businesses who have smaller than 50 employees are paying well under $500/month for bandwidth. The majority, greater than 70% are paying less than $200/month therefore we have concluded that the likelihood of these businesses subscribing to dark fibre bandwidth for $500/month is virtually zero. It is most likely that these customers are excellent candidates for managed services offered through resellers on the network. The database for "Secondary" customers will be derived from all businesses who have < 50 employees. As noted in the Primary customer assumption above, businesses with less than 50 employees are most likely to buy services from the resellers and not from the city directly. The three target areas of the Downtown Core, Carter Light Industrial and Boundary Road Industrial make up approximately 50% of total businesses in Prince George. This assumption should be validated through a proper market study at a future date. There are a few other assumptions which have been used to estimate the customer connections in each of the three phases. Please refer to Appendix C for further details 8.4.4 Penetration Rates (Service Take Rate): “Primary” and “Secondary” Connections The penetration rates for “Primary” customer connections is assumed to be more aggressive in the first 3 years at a 10% service take rate and then reduced to 5% per year over the following 7 years of the model. This assumption is in alignment with that used in the 2008 PGANTF Fibre Business Plan. The penetration rate for “Primary” customer connections is a model variable that can be easily changed. The penetration rates for “Secondary” customer connections is assumed to be more aggressive in the first 3 years at a 3% service take rate and then reduced to 1% per year over the following 7 years of the model. This assumption was arrived at as a reasonable approach given that potential customers have existing services today and that resellers on the network would need to lure these customers away from their existing providers. The penetration rate for “Secondary” customer connections is a model variable that can be easily changed. “Secondary” to “Primary” connection conversion rates: This assumption is used to drive the network connection quantities from Resellers requiring more network fibres in order to service their “Secondary” customers. The conversion rate assumes that the resellers will require an additional fibre circuit for every 10 secondary customers they are able to attract to the network. This conversion rate is a model variable which can be easily changed. "Primary" and "Secondary" customer connection penetration rates and number of business quantity assumptions for each area are included below. Please refer to Appendix D for an expanded view of the Figures below. Municipal Fibre Network & Technology Centre 60 | Page Customer Connection Assumptions: I "Primary" custom er connection s are base d on direct subscri be rship to th e network ·seco nda ry" customer co nn ections are based on co nnections throug h a Rese ll er A ·secondary Subscriber" co nn ection Ra ti o of 1:10 wi ll be used to establish add iti onal dark fi bre req uirem ents for the rese ll ers. 4 The database fo r "Primary" customer co nn ections will be derived fro m all busin esses who have > 50 employees. 5 The databas e for ·seco ndary" customers will be derived from all businesses who have< 50 employees. 6 -Prim ary" and ·secondary" customer conn ection penetration rates and number of business quantities fo r each area are included below. 7 Th e three target area s of th e Downtown Co re, Cart er Ught Ind ustrial and Boun dary Road In dustri al make up app roximate ly 60 % of total busin esses in Prince George DOWNTOWN CORE (PHASE I) - CUSTOMER Assumption Work Sheet ~ Tot al Business es In PG Market (100%) Tota l Business Customer Base· 3,297 60% ofTotal Base· 1,979 c:::w:::::::J % with >50 Employess 4.1% Captured by Network in Phase % with <50 Employees: 95.9% DOWNTOWN CO RE (PHASE 1) - (Portion of 50%): 50.0% -PRIMARY Customer PENETRATION Rate (30% afler 3 )TS): 10.0% r-----,, c:::ill:J "S ECON DARY Customer PENETRATI ON Rate (9% afler 3 )TS): 3.0% 96% (of 60%) Customer Projections YR1 YR2 YR3 YR4 YR5 YR6 YR7 YRS YR9 YR10 Annual Business Growth Rate: 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1. 0% 1.0% 1.0% Total Potential Downtown Core (Phase I) Customer Ba se: 999 986 96 1 937 934 932 929 926 923 92 1 Total Potential PRIMARY Customer Ba se: 41 41 40 39 38 38 38 38 38 38 Total Potential SECOtJOARY Customer Ba se: 959 947 923 899 897 894 89 2 889 886 884 "PRl!,ARY "Customer PEtlETRATION Rate: 10.0% 10.0% 10.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% " SECOllOARY" Customer PENETRATION Rate: 3.0% 3.0% 3.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Primary Customer Connections(Derate by 50% in YR1 ): 3 5 4 2 2 2 2 2 2 2 Secondary Customer Connections (Derate by 50% in Yr1 ): 2 3 3 1 1 1 1 1 1 1 I Total Customer Connections: 5 8 7 3 3 3 3 3 3 3 I CUMULATrvE Customer Connections: 5 13 20 23 26 29 32 35 38 41 I PENETRATION RATE o f Tot;ii l Busine-ss B ;iise-: 2.3¾ 3.5¾ 3.5¾ 1.3¾ 1.3¾ 1. 3¾ 1. 3¾ 1.3¾ 1. 3¾ 1. 3¾ 2.3¾ 5.9¾ 9.6¾ 11.1¾ 12.4¾ 13.7¾ 15.1¾ 16.4¾ 17.8¾ 19.1 % Figure 42 – Customer Connection Assumptions – Phase I Customer Connection Assumptions: I 1 •Primary" customer co nn ections are based on direct subscri bers hi p to th e network 2 •secondary" customer conn ections are based on co nn ections th rough a Res ell er 3 A · secondary Subscriber"' co nnection Rati o of 1:1 o will be used to establish additi onal dark fi bre requirements for th e resell ers . 4 The database for ·Pri mary" custom er co nnecti ons will be de rived from all businesses who have > 50 employees. 5 The database for •s eco ndary" custom ers will be derived from all bus in esses w ho have < 50 employees. 6 · p ri mary" and · secondary" customer co nnection penetra ti on rates and number of business quantities for each area are included below. 7 The three target areas of th e Downtown Core, Carter Light Industrial and Boun dary Road In dustrial m ake up approximately 60% of total businesses in Pri nce George CARTER LIGHT INDUSTRIAL (PHASE II ) - CUSTOMER Assumption Work Sheet 3,297 I Tot al Busine sses in PG M arket (100%) Total Business Customer Base: 3,297 60% of Total Base: 1,979 600 % with >50 Employess: 4.1% Captur ed by Network in Phase % with <50 Employees: 95.9% DOWNTOWN CORE (PHASE I) - (Portion of 50%): 30.0% "PRIMARY Customer PE NETRATION Rate (30% afler 3 yrs): 10.0% 575 "SECO NDARY Custo mer PENETRATI ON Rate (9% afler 3 )TS): 3.0% 96% (of 60%) Customer Projections YR1 YR 2 YR3 YR4 YRS YR9 YR10 Annual Business Growth Rate: 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Total Potential College Di strict (Phase II ) Customer Base: 600 594 577 559 553 546 540 533 527 520 Total Potential PRI MARY Customer Base: 25 25 24 23 23 23 22 22 22 22 Total Potential SECONDARY Customer Ba se: 576 570 554 537 531 525 518 512 506 499 " PRIMARY "Customer PrnETRATION Rate: 10.0% 100% 10.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% "SECotlDARY" Customer PrnETRATl otl Rate: 3.0% 3.0% 3.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Primary Customer Connections(Derate by 50'% in YR1 ): 2 3 3 2 2 2 2 2 2 2 Secondary Customer Connections (Derate by 50% in Yr1 ): 1 2 2 1 1 1 1 1 1 1 I Total Customer Connections: 3 5 5 3 3 3 3 3 3 3 I CUMULATIVE Customer Connections: 3 8 13 16 19 22 25 28 31 34 I P ENE TRATION RATE of T o l ;iil Busine-ss B ue-: 2.0¾ 3.9¾ 4.0¾ 2.1¾ 2.2 X 2.2¾ 2.2¾ 2.3¾ 2.3¾ 2.3¾ 2.0¾ 5.9¾ 10.1¾ 12.5¾ 14.8¾ 17.2¾ "·'" 22.1¾ 24.7¾ 27.3% Figure 43 - Customer Connection Assumptions-Phase II Municipal Fibre Network & Technology Centre 61 | Page Customer Con nect ion Assumptions: I 1 "'Pri mary"' customer conn ections are base d on direct sub scri bership to th e network 2 "' Se co ndary"' customer conn ections are bas ed on co nn ections through a Rese ll er 3 A "Secondary Subscri ber" connection Rati o of 1:10 will be used to estab lish additi onal da rk fi bre requirements for th e resell ers. 4 Th e data base for "'Prim ary"' customer co nnections wi ll be de rived fr om all busin ess es who have > 50 employee s 5 Th e database for ·secondary" customers will be de rived from all busin es ses who have ~ 50 empl oyees. 6 "Prim ary" and "Seco ndary" customer co nn ection penetrati on rates and nu m ber of business quantities for ea ch area are in clu ded below 7 Th e three target area s of th e Downtown Co re, Carte r Li ght Ind ustri al and Bou ndary Road In dustri al make up approxim ately 60% of total busin esses in Prin ce George BOUN DARY ROAD IN DUSTRIAL (PHASE Ill) - CUSTOMER Assumpt ion Work Sheet 3,297 1 Total Businesse s in PG M arket (100%) Total Bu si ness Custom er Bas e· 3,297 60 % ofTotal Bas e: 1,979 400 % with >50 Employess: 4.1% Captured by Network in Pha.s e % with <50 Employees· 95.9% BOUNDARY ROAD INDUSTRIAL (PHASE 11I ) - (Portion of 70%) 20.0% "PRIMARY Customer- PE NETRATI ON Rate (30% aner 3 yrs): 10.0% 384 "SECO NDARY Customer- PENETRATI ON Rate (9% aner 3 yrs): 3.0% 96% (of 60%) Customer Projections YR1 YR2 YR3 YR4 YR8 YR9 YR10 Annual Business Growth Ra te: 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Total Potential Boundary Rd Industrial (Phase Ill} Customer Base : 400 404 397 379 372 364 357 349 342 334 Total Potenti al PRIMARY Customer Base: 17 17 17 16 16 15 15 15 14 14 Total Potenti al SECotmARY Customer Base : 384 388 381 364 357 350 343 336 329 321 " PRIMARY "Customer PEN ETRATI OtJ Rate: 10.0% 10.0% 10.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% "SECONDARY" Customer PrnETRATlotl Rate: 3.0% 3.0% 3.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Primary Customer Connections(Derate by 50% in YR2 ,100% in YR1 }: 0 1 2 1 1 1 1 1 1 1 Secondary Customer Connections (Derate by 50% in Yr2,100% in YR1): 0 1 2 1 1 1 1 1 1 1 I Total Customer Connections: 0 2 4 2 2 2 2 2 2 2 I CUMULATIVE Customer Connections: 0 2 6 8 10 12 14 16 18 20 I PENE TRATION RATE o f Toul B usin•ss B ils• : 0.01/. 2.7% 5.5% 2.9% 3.01/. 3. 0% 3.11/. 3.11/. 3.2% 3.3% 0.0¾ 2.7¾ 8.3¾ 11.6¾ 14.8X 18.IX 21.6¾ 2'5 .2¾ 28.9X 32.9% Figure 44 - Customer Connection Assumptions-Phase III 8.4.5 Model Period a. The forecasts for each phase encompass the ten year period commencing with the initial construction of phase I. 8.4.6 Revenues a. Dark Fibre Rental Revenue i. The financial projections are based on an operations model where access to the network dark fibre is provided to customers for a monthly fee similar to what is currently taking place. The overall revenue is impacted solely by the rate charged and the number of dark fibre connections provided. Stantec has assumed that each “customer connection” will consist of two fibres at the current rate charged at $500 per month ($6,000 annually). The number of customer connections each year is derived by an estimate of “primary” customers and “secondary” customers defined previously in Section 7.4.3. For purposes of calculating revenue, Stantec assumed that new customer connections would be brought on evenly throughout the year therefore only one-half of new customer connections were included in the revenue forecast. The following table depicts the number of full equivalent connections used to estimate dark fibre rental revenue by year and phase of project. Municipal Fibre Network & Technology Centre 62 | Page Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year S Year 9 Year 10 Number of Customer Connections 10 YRS (cumulative) 2011 Existing cust om er co nnections 10 10 10 10 10 10 10 10 10 10 Ph ase 1 - New cust omer co nnections 2 9 16 21 24 27 30 33 36 39 Tot al Ph ase 1 12 19 26 31 34 37 40 43 46 49 Phase 2 - New cu st omer co nnections 1 5 10 14 17 20 23 26 29 32 Ph ase 3 - New cust omer co nnections 0 1 4 7 9 11 13 15 17 19 Gra nd Total 13 25 40 52 60 68 76 84 92 100 Re ntal rate = S per month/ drop Figure 45 – Number of Customer Connections Assumptions 8.4.7 Expenses a. Emergency Maintenance Standby Fee i. The emergency maintenance and repair standby fee was assumed to be $32,000 per year consistent with the previous PGANTF Report (page 51). The entire fee is being absorbed in Phase I on the basis that the standby services are required regardless if Phase II and Phase III proceed and that the fee is unchanged by these additional phases. b. Labour Allocations From City i. It is assumed that operation of the fibre optic network will be performed by Prince George City employees initially until the customer level justifies full positions. To forecast the main operations requirements Stantec approximated the full time equivalent (FTE) person years per every fifty customer connections for managerial, administrative support, network administrator and maintenance and repair technician. These factors were applied to the forecast customer connections each year to determine salary and benefits. Other non-labor operational costs such as occupancy costs and administrative overhead (for supplies, computer, telephone etc.) were similarly extrapolated using FTE each year. c. Duct Right of Way Rental From City i. The fibre optic network will primarily be expanded via the city of Prince George underground infrastructure ducts as is presently the case. For right of way access to the City duct infrastructure, it is assumed that the City of Prince George will receive a 1% of gross revenues annual payment from the fibre entity for access and use of all existing conduits with fibre and all new expansion conduits placed in City ducts. d. Financing Charges i. As noted earlier in this report, construction of the primary fibre optic network will be funded with debt from the Municipal Finance Authority of British Columbia using interim construction financing in years 1 through 5 followed by ten year debt Municipal Fibre Network & Technology Centre 63 | Page thereafter. It is assumed that financing costs in years 1 through 5 will be interest only. During years 6 through 15 regular principal repayments will be made in addition to interest charges therefore decreasing cash flow performance. The table below has been developed to provide a view of the relative ratings (Aggressive or Conservative) and level of impact (low, medium or high) that each assumption has on the financial model. ASSUMPTIONS RISK DRIVER SOURCE RATING IMPACT NETWORK DESIGN Future-proof the Network will use Single network. Ability to Best Practices and Conservative High Mode Fibre Technology scale fibre bandwidth Stantec Experience in the future. Future-proof the Network will use 4 inch network. Ability to add City of prince (100mm Conduit) additional fibre cables Conservative Medium George practices everywhere in the future at low cost. Network topology is Ensure simple point to “star” configuration with point bandwidth Best Practices, home run fibres back to configuration for Stantec Experience the termination points. customers with Conservative Medium and City of Prince Closed ring for main improved long term George practices fibre backbone planned reliability through a as long term objective. ring architecture. Network will be supported by Fibre Additional capital will Best Practices, Termination and customer be required to create a Stantec Experience co-location sites. 2nd fibre termination Conservative High and City of Prince Specifically there will be and customer co- George two (2) sites considered in location site. the business case. Higher capital costs Network assumed to be City of Prince will be required to Conservative High 100% underground. George practices support this strategy NETWORK SERVICES This approach reduces PGANTF 2008 Network Services model the impact on report, Stantec supports a “Dark Fibre” Conservative High competition. Least risk Options Selection lease strategy scenario for the City. Matrix outcome. Municipal Fibre Network & Technology Centre 64 | Page ASSUMPTIONS RISK DRIVER SOURCE RATING IMPACT Dark Fibre lease pricing will be based on $500/mo/fibre segment. A fibre PGANTF 2008 segment is defined as Fibre lease pricing is report, Industry Best two fibre strands consistent with other Practices, Stantec Conservative High connected between the municipal networks in Experience and City customer premises Canada. of Prince George demarcation point and practices the nearest fibre termination point in co-lo site. OPERATIONS STRATEGY Fibre Network entity will This approach reduces PGANTF 2008 be owned and operated the impact on report, Stantec Conservative High by the City of Prince competition. Least risk Options Selection George scenario for the City. Matrix outcome. This approach reduces Management of the Best Practices, the need for full time Entity will come from Stantec Experience resources until Conservative High City IT department and City of Prince sufficient momentum resources George practices exists to justify it Marketing support, This approach reduces Network administration Best Practices, the need for full time and network Stantec Experience resources until Conservative High maintenance and repair and City of Prince sufficient momentum support will come from George practices exists to justify it existing City resources. City will charge a 14% corporate overhead This approach reduces amount to provide the start up costs for Best Practices, support services for, the operation and Stantec Experience occupancy, facilities, Conservative Medium aligns with other city and City of Prince HR, council, financial owned and operated George practices reporting and general entities office expenses for the fibre network entity A maintenance Standby This is considered a fee of $32k per year is cost of doing business Best Practices, assumed to be required item and is needed to Stantec Experience in support of corrective ensure a competitive Conservative Medium and City of Prince maintenance response level of network George practices on fibre cuts. This reliability exists for the expense will be assigned customers Municipal Fibre Network & Technology Centre 65 | Page ASSUMPTIONS RISK DRIVER SOURCE RATING IMPACT to Phase I operations. Customer connections are a sizable expense and will have a negative impact on customers. Installation Customer drop costs are costs are typical in assumed to be an providing data operating expense. services, however the These costs will be Best Practices, costs involved to Conservative High passed on to the Stantec Experience complete connections customers at actual in a 100% construction costs plus a “Greenfield” 15% admin fee. underground construction environment is considerably higher than normal. A $100/year/customer There will be costs connection material associated with expense will be required ongoing maintenance Best Practices, Conservative Low in support of the of the network Stantec Experience maintenance of the customers for moves, network. adds and repairs. A Network Usage Fee of Costs associated with 1% of total gross use of City owned revenues will be charged facilities, right of ways by the City to cover and fibre cables is infrastructure use by the Best Practices, typical in the industry Conservative Low fibre network entity. The Stantec Experience and needs to be City will retain considered to ensure a ownership of the fibre min level of ducts and fibre cables competitive backlash. used by the entity. Financial Rates assumed Since there are many to drive the operations perspectives and model include the opinions on which cost Stantec Experience following: items have material and City of Prince Conservative Low inflationary impacts George discussions Inflation rates: 0.0% (No and which do not, it inflation adjustments was decided to simply have been made in the ignore inflation in all Municipal Fibre Network & Technology Centre 66 | Page ASSUMPTIONS RISK DRIVER SOURCE RATING IMPACT model) revenue and expense line items Long term debt interest rate: The financial model The “sinking fund” will use the City amortization schedule provided amortization City of Prince provides great Conservative High “sinking fund” schedule George financial benefits for for long term debt the City repayment calculations Amortization rate: 2.5% The amortization rate Best Practices, (implies the useful life of was chosen from Stantec Experience the assets to be 40 Industry practices Conservative Medium and City of Prince years) regarding assets of this George discussions type Interim finance rate: 1.7% (Interim financing will be used in years 1-5 Interim Financing rate of the model. Only the and term selected to City of Prince Conservative Medium interest component will align with existing City George be paid back in the five practices. years.) Debt term: 15 years (5 years of interim Debt financing term financing and then 10 City of Prince selected to align with Conservative High years of long term George existing City practices. financing) The Capital renewal Capital maintenance: rate was chosen from Best Practices, 1.25% ( Capital renewal Industry practices Stantec Experience support for the network. regarding assets of this Conservative High and City of Prince (first 5 yrs at 0%) type. No capital George discussions renewal expected in the 1st five years. NETWORK CONSTRUCTION Capital Costs: Labour $ cost/meter assumed to contain many subcomponents. The costs were customized for each of the three phases based on type of construction most likely required for each of the areas. Municipal Fibre Network & Technology Centre 67 | Page ASSUMPTIONS RISK DRIVER SOURCE RATING IMPACT Future-proof the Capital Costs: Materials network. Ability to Contractor Pricing, assumed to include 72 ensure sufficient Stantec Experience count fibre cables Conservative High capacity and fibre and City of Prince throughout the network bandwidth in the George backbone. future. The Downtown core construction will require the highest cost of construction due to The downtown core the large percentage construction was of concrete assumed to require infrastructure. To Contractor Pricing, 100% directionally minimize restoration Stantec Experience bored or drilled conduit costs and complete the Conservative High and City of Prince installation due to the work with minimal George high percentage of disruption to the concrete infrastructure existing sidewalks and downtown. road infrastructure, directional boring construction practices will need to be deployed. The Carter Light Industrial construction will require a medium cost of construction The Carter Industrial due to the lower area construction was percentages of assumed to be 70% concrete infrastructure. Contractor Pricing, directionally bored, 20% To minimize Stantec Experience trenched and 10% restoration costs and Conservative High and City of Prince ploughed due to the complete the work with George lower percentage of minimal disruption to concrete infrastructure in the existing sidewalks the area. and road infrastructure, a blended construction strategy will need to be deployed. The Boundary Road The Boundary Road Contractor Pricing, Industrial area Industrial Phase Stantec Experience Conservative High construction was construction will and City of Prince assumed to be 5% require the lowest cost George Municipal Fibre Network & Technology Centre 68 | Page ASSUMPTIONS RISK DRIVER SOURCE RATING IMPACT directionally bored, 20% of construction due to trenched and 75% the rural nature of the ploughed due to the proposed fibre larger percentage of network build. rural infrastructure. Network Build-out Assumptions based on The network build out Stantec Experience discussions with the City strategy involves a and City of Prince Conservative High of Prince George three phase approach George regarding their scaling to the construction. plans for the network. Phase I supports the downtown core re- Phase I refers to the vitalization strategy Downtown core build- and will be completed out. A total of 10.6km of within a 2 year Stantec Experience new build will be added timeframe. This phase and City of Prince Conservative High to the existing network of has the highest cost George 6.3km for a total of 16.9 /meter to build but km when completed. also has a sizable customer connections opportunity. Phase II will be completed over a four Phase II refers to the year strategy starting Carter Light Industrial in year 2. This phase build-out. A total of contains a reasonable Stantec Experience 5.9km of new build will number of customer and City of Prince Conservative High be added to the existing connection George network of 4.8km for a opportunities and has total of 10.7 km when a reasonably small completed. build-out footprint, therefore has the lowest risk scenario. Phase III refers to the Phase III will be Boundary Road Industrial completed over a 6 build-out and the year strategy and completion of the city involves completing a Stantec Experience wide transport. A total of portion of the main city and City of Prince Aggressive High 21.4km of new build will wide backbone to George be added to the existing create redundancy network of 20.1km for a and high network total of 41.5 km when reliability. There are a completed. small number of Municipal Fibre Network & Technology Centre 69 | Page ASSUMPTIONS RISK DRIVER SOURCE RATING IMPACT customer connection opportunities in this phase and a large amount of km to build therefore this phase contains the highest risk and largest capital component. CUSTOMER CONNECTIONS The business data suggests that the Customer connection demographic profile Assumptions are based for businesses on business operating in the City of demographic data from June 2010, Prince George is that the June 2010 Business Business Register, Conservative High of small businesses Register at Statistics Statistics Canada with less than 50 Canada. The data employees. Greater comes from the June than 95% of 2010 report businesses contain less than 50 employees Customer Connection estimates have been determined for each There are Phase of the network approximately 3300 build-out. Network businesses within the coverage has been City of Prince George estimated as a % of total municipal boundary. Stantec Experience businesses in Prince We have assumed that and City of Prince Conservative High George. The three 60% of those would George target areas of the be reachable and will Downtown Core, be within 300 meters Carter Light Industrial of the proposed fibre and Boundary Road network. Industrial make up approximately 60% of total businesses in Prince Only businesses who The database for Stantec business have large employee "Primary" customer survey results and bases and connections will be experience as well consequently large Conservative High derived from all as discussions with telecom budgets will businesses who have > the City of Prince be interested in 50 employees. George connecting to the fibre Municipal Fibre Network & Technology Centre 70 | Page ASSUMPTIONS RISK DRIVER SOURCE RATING IMPACT network. The smaller businesses will not be able to afford a $500/mo service since they pay <$200/mo today. The smaller businesses will therefore only be Stantec business The database for able to take survey results and "Secondary" customers advantage of the experience as well will be derived from all Municipal fibre Conservative High as discussions with businesses who have < network through the City of Prince 50 employees. purchasing BW from George an existing reseller on the network. Primary customer connections are assumed to come from larger businesses or resellers in the area. "Primary" customer Phase I @ 5% for yr 1, Stantec Experience connections are based 10%/yr for yrs 2-3 and City of Prince Conservative High on direct subscribership and 5% thereafter. George to the network Phase II @ 5% for yr 1, 10%/yr for yrs 2-3 and 5% thereafter. Phase III @ 0% for yr1, 5% in yr 2, 10% in yr 3 and 5% thereafter. Secondary customer connections are assumed to come from Primary customers or resellers already on "Secondary" customer the network. Phase I @ connections are based 1.5% for yr 1, 3%/yr Stantec Experience on connections through a for yrs 2-3 and 1% and City of Prince Conservative High Reseller already on the thereafter. George network. Phase II @ 1.5% for yr 1, 3%/yr for yrs 2-3 and 1% thereafter. Phase III @ 0% for yr1, 1.5% in yr 2, 3% in yr 3 and 1% thereafter. Municipal Fibre Network & Technology Centre 71 | Page ASSUMPTIONS RISK DRIVER SOURCE RATING IMPACT A "Secondary Subscriber" connection Resellers will require 1 Ratio of 1:10 will be Stantec Experience new fibre circuit for used to establish and City of Prince Conservative High every 10 customers additional dark fibre George they connect. requirements for the resellers. To summarize the key assumptions, our view is that some of the assumptions from the 2008 business plan remain valid and have been adopted in our model. Others, have been modified, reworked or require further validation through detailed market and environmental studies to improve their accuracy. Municipal Fibre Network & Technology Centre 72 | Page 9 TECHNOLOGY CENTRE OPINION 9.1 Background Stantec has been asked to provide an opinion on whether there is a business case to be made to add a Technology centre component as part of the overall municipally owned fibre network strategy in the City of Prince George. It is also important to state at this time that the future IT needs of the City of Prince George are not to be considered as key drivers for this opinion. Stantec was asked to evaluate the need for a Technology Centre on its own merit without consideration for opportunities to scale future City IT Department needs. As indicated in the previous Capital costing section, there are a number of different considerations which should be understood before a definitive argument can be made for or against the need for a Technology centre. As a starting position, it is clear to us that a single fibre termination point located in a downtown location will not effectively serve a network as diverse and spread out as that being contemplated by the City of Prince George. There are a few good reasons for this, specifically: The existing downtown location cannot support any more physical weight in the co-location room; Bill Johnson, the City IT Manager has stated that there is a weight bearing limitation in the existing location. Also that there is not sufficient cooling to add more active hardware in the room. Bringing fibres back from the furthest reaches of the proposed network will add considerable cost to the fibre backbone in terms of additional fibre strands needed. The additional Capital cost is estimated at ~$240k. The additional fibre distances will add to the probability of a fibre cut or damage and will therefore reduce the network availability and overall reliability. As a further consideration, if additional fibre termination and customer co-location sites are required for improved reliability, network topology balancing and fibre circuit routing, then it may be appropriate to consider scaling one of the additional sites into a full data centre facility. Considering the data market environment in the City of Prince George, it is apparent from the business demographic profile that there are a very small number of large companies in the Prince George business sector. Granted that the educational, health care and public/government sectors are large data users and all have needs for data centre support for their sizable IT operations, it is also true that these larger data players already have their own data centre facilities or have access to commercial facilities elsewhere within the City of Prince George or within the province. As well there are at least 3 other data centre facility providers in the Prince George market. Telus, Shaw and ABC all have potential to offer data Centre facilities to area business customers as does the University and possibly others. Further, we are not sure what the driving forces would be for Resellers like ABC Communications for example, who already have capacity in their data Centre facility to spend additional capital on equipment to be located at a new municipal Technology Centre. It’s simpler and more reliable to just interconnect their existing data centre to the Municipal fibre termination and co-location site through simple fibre optic interconnects. We are not able to find sufficient argument to spend $1500-$2000/sq-ft in additional Capital for a stand alone Tier III data centre facility when it seems that excellent data centre facility coverage within the Prince George market already exists for the Municipal Fibre Network customers. Municipal Fibre Network & Technology Centre 73 | Page Therefore evaluated on its own merit, against existing data centre facilities in the market place, a strong argument cannot be made in our opinion for the construction of a new facility to solely support the proposed network customers and other area businesses. However, Stantec feels that the future needs of the IT department cannot be completely dismissed in this decision, and that the strategic nature of City IT operations requires that a City owned and operated Data Centre facility of sufficient capacity and robustness be considered. There are other strategic reasons why such consideration is warranted. The 2015 winter games will have a very high profile across Canada’s broadcast industry and as such fibre connectivity to local venues, flexibility in signal routing and data aggregation will be a local requirement that will need to be met by an Industry player. The city fibre network and a smaller scale data centre could prove to be an invaluable asset to the broadcasters in preparation for a successful games event. We also believe that funding opportunities can be leveraged in support of a small footprint data centre to support the 2015 winter games. Looking out beyond 2015, the City may also want to examine opportunities for traffic control, strategically located street cameras, utility meter reading or other operational improvements which the fibre network infrastructure can bring to the community. These applications will all require active equipment and data collection and processing server technologies which normally reside in a data centre environment. Given the larger longer term perspective, and the limitations of the existing co-location site at City Hall, Stantec proposes the following recommendations: Considering the size of the Prince George market, the need for future expansion of the existing City IT infrastructure, the requirement for multiple fibre termination points in order to properly support the Municipal fibre network as well as future opportunities and possibilities to improve City operations, it seems appropriate that the City embark on the creation of at least one (1) other fibre network termination point with sufficient capacity to provide: Co-location space for the fibre network customers, Backbone redundancy for the fibre network Ability to scale the site to accommodate a small 800 -1000 sq-ft Tier III data centre facility to support City IT department expansion, business continuity coverage, Winter games data (digital Audio and Video) support as well as longer term City Operations improvements. Provide a potential to accommodate third party gateway or business critical data back-up facilities. This facility is not recommended to be a full Open Access data centre, but rather open access for all network customers and resellers. The facility could be scaled in phases or ‘modules” to reduce capital spending requirements at the front end of the project and also provide a natural mechanism for scaling and segregating the users. Although this new scenario was not a deliverable of this scope, Stantec have included a short Technology Centre reference document in Appendix F which highlights options which the City could consider. There are a number of key decision criteria which are pertinent in developing a Data Centre Strategy and these are presented in this reference material. If the City wishes to have a detailed assessment and Technology Centre design completed with this new scenario in mind, then Stantec would be happy to do this as a change order to this project or as a new project undertaking. Municipal Fibre Network & Technology Centre 74 | Page 10 PROJECT RISK ANALYSIS 10.1 Risk Identification Risk is inherent in any project regardless of size or type. Identifying the risks that are possible as well as the possible ramifications is absolutely critical prior to commencing any project, and should be given strong consideration even when determining whether to proceed or not proceed with a project. The following schedule lists the key risks that are common to construction projects and the ensuing operational activities. Each risk has been evaluated to determine the applicability to this project, probability of the risk occurring, likely impact of such a risk, and whether the risk would be borne solely by the City or others (i.e. partners) or shared between the two. PROB – IMPACT WHO WILL ABILITY OF OF ASSUME OCCURING RISK THIS RISK? SPECIFICS RISK Applicability or who assumes the risk City, Other, H/M/L H/M/L or Shared POLITICAL/LEGAL RISKS Change in related government/regulatory See mitigation policy or legislation, legal challenge and Low High City strategies political backlash SITE RISKS Appeal of legal ownership of the site or Low Medium City Applicable only if rights of way overhead lines used DESIGN RISKS Scope creep—wrongly specified Dependent on who Low Medium City, Other requirements or design misinterpretation designs system Applicable only to Default of consultants. Low Medium Shared external contractors CONSTRUCTION RISKS Higher material and labour costs due to See mitigation Medium High City inflation strategies Primarily City labor Construction delays, labor strikes or used, scheduling is shortage, weather scheduling, safety Low Low City not intensive or violations, delay in receipt of material critical Construction takes longer than expected City has prior (due to poor understanding of construction Low Low City experience process. Applicable only to Default of contractor risk Low Low City external contractors Subcontractor risk—associated with a default by a subcontractor—will need to Minimal construction Low Low City make emergency provisions and additional to be sub-contracted costs in finding replacement Higher-than-market construction costs Low Low City City to do majority of Municipal Fibre Network & Technology Centre 75 | Page PROB – IMPACT WHO WILL ABILITY OF OF ASSUME OCCURING RISK THIS RISK? SPECIFICS RISK Applicability or who assumes the risk City, Other, H/M/L H/M/L or Shared construction LIABILITY RISKS Minimal construction Legal general liability of ownership Low Medium City requirement reduces liability OPERATIONS RISKS Higher-than-projected operating costs—due See mitigation Medium High City to error in estimates used in pro forma strategies Higher operating costs due to inflation— See mitigation Medium High City utility and maintenance strategies Demand risk—“take rate” lower than See mitigation Medium High City forecast strategies Disruption of use due to unforeseen Excellent track circumstances—force majeure, equipment Low Low City record to date failure or utility stoppage Competition risk – existing or new market See mitigation competitors revise strategies to provide Medium High City strategies greater competition Periodic maintenance not performed Minimal maintenance increasing the probability that the facility Low Low City requirements under performs and depreciates quicker Overlooked design, construction and System design not manufacturing defects or design elements Low Low City likely to create cause unexpected operating problems operating problems Higher corporate, capital or other taxes or Low High City See mitigation entity becomes subject to taxes strategies TECHNOLOGY RISKS City to provide dark System technology becomes outdated Low Low City fibre only therefore prematurely very low risk INVESTMENT RISKS Financial structure risk. City required to Low High City See mitigation contribute greater equity to project. strategies 10.2 Risk Mitigation The following risks have been identified as having a high probability of occurring and/or a high impact on the City of Prince George if they occur. For each of these risks, one or more possible action strategies is identified to help mitigate the likelihood of the risk occurring and/or the impact of the risk if it occurs. Municipal Fibre Network & Technology Centre 76 | Page RISK ASSESSMENT PROBABILITY IMPACT Risk #1: Political/Legal Possibility that a regulatory policy may change due to legal challenge Low High requiring the City to revise or discontinue service. Also possibility for political backlash from community due to access limitations etc. Mitigation Strategies: Establish an independent Board of Directors comprised of affected stakeholders including community, private sector/competitors, government Ensure an open communications strategy prior to project implementation specifically including government and competitors Open and non-discriminatory participation strategy to ensure all existing competitors and new market entrants treated openly, equally and fairly. Restriction on services to providing dark fibre only to avoid regulatory requirements and interventions Risk #2: Construction Risk - Inflation Possibility that construction materials and labor may be higher than Medium High budgeted due to inflation. Mitigation Strategies: Ensure that reasonable inflation is forecast and disclosed in any construction tendering Use fixed price and/or Include strict escalation allowances in contracts Consider pre-purchase of fibre material as hedging strategy dependant on commodity forecasts Provide a contingency in capital budget Risk #3: Operations Risk - Forecasting Possibility that operating costs are higher than forecast due to error in Medium High estimates used in pro forma Mitigation Strategies: Formulate final estimates conservatively with contingency allowances (operating reserve) Prepare benchmarks from similar operations and adjust forecasts accordingly Conduct rigorous research to support sensitive assumptions Prepare regression/simulation modelling (e.g. Monte Carlo) to finalize sensitivity analysis Risk #4: Operations Risk - Inflation Possibility that operating costs are higher than forecast due to inflation, Medium High especially utilities and maintenance Mitigation Strategies: Ensure that reasonable inflation rate is used in forecasts and updated regularly Establish an operating reserve to allow for unexpected deviations in inflation Risk #5: Operations Risk - Demand Possibility that customer “take rate” (demand for services) is lower than Medium High forecast. Mitigation Strategies: Prepare aggressive marketing/advertising campaign as part of open communications strategy Engage related authorities, non-profit organizations and business to promote high bandwidth benefits Elicit community support to drive end user demand for greater bandwidth Establish operating reserve to allow for unexpected deviations in demand Involve Network customers as “guidance” in network expansion planning to increase chances of success. Establish an independent Board of Directors comprised of affected stakeholders including community, private sector/competitors, government Municipal Fibre Network & Technology Centre 77 | Page RISK ASSESSMENT PROBABILITY IMPACT Risk #6: Operations Risk - Competition Competition risk – existing or new market competitors revise strategies to Medium High provide greater competition Mitigation Strategies: Prepare comprehensive market survey and research to establish baseline for competitor activity in other similar jurisdictions Prepare aggressive marketing/advertising campaign as part of open communications strategy Encourage competitors to utilize City network to competitive advantage rather than competing via their own networks Risk # 7: Operations Risk - Taxation Possibility that City/ entity becomes subject to taxation, or ‘in-lieu-of-tax’ due Low High to regulatory policy Mitigation Strategies: See Risk #1 Risk #8: - Capital Structure Risk Possibility that customers may not be financially able to contribute required Low High capital for customer drops resulting in City having to contribute greater equity to project. Mitigation Strategies: Prepare comprehensive market survey and research to establish baseline for customer capital contributions other similar jurisdictions Prepare capital financing strategies to utilize grant funding (e.g. Winter Games) to subsidize infrastructure costs where possible Prepare alternative financing programs for consideration to offer to customers if required and establish a capital reserve to fund program Municipal Fibre Network & Technology Centre 78 | Page 11 PROPOSED IMPLEMENTATION STRATEGY 11.1 Management and Governance Structure Any capital project of the magnitude and complexity of the City of Prince George Fibre network requires a formal approach to management and governance. The size of the investment, the number of stakeholders involved, and the risks inherent in the project call for a formalized and coordinated effort on the parts of the City of Prince George. This business case, prepared by Stantec, demonstrates that the proposed project is aligned with the City of Prince George’s plans to revitalize the downtown core and attract new businesses to the City of Prince George. We are confident that both Phase I and Phase II components of the fibre network expansion as presented in the financial model meet the business case viability criteria of the city. Through various discussions and financial model reviews, the city has stated that they are satisfied with the model’s projected cash flow and net income positions for this proposed project. The Phase III component of the model however requires substantial capital investment while returning a relatively small revenue stream and long term cash position. It is our view that the Phase III component should be reconsidered as it’s viability is questionable if evaluated under normal business performance benchmarks. The return on the required investment is far too long requiring 44 years before a positive cumulative cash flow in returned. Stantec anticipates the following process steps as necessary for an effective project implementation: Detailed Business Plan including detailed market and environmental analysis Financial Borrowing strategy developed Appointment of the project Steering Committee Selection of the Project Manager, Prime Consultant and Construction Manager Public calls – Expression of Interest Requests for Proposal (RFP) are requested from the short-listed firms Steering Committee interviews short-listed firms and provide recommendations Project Manager and Prime Consultant review the list of sub-contractors and approve the ‘design team.’ Selection of Construction Procurement Option Development of Schematic Design Development of Detailed Design Working Drawings and Tender Documents Construction Tenders Construction Project oversight 11.2 Monitoring and Control Systems A dedicated project management team is recommended to provide the experience, reporting systems, and discipline to manage the implementation of this project. The British Columbia Capital Asset Management Framework offers the following project management guidelines (p 89) which Stantec supports. Municipal Fibre Network & Technology Centre 79 | Page Project management staff should have the following capabilities: Have the appropriate contract management expertise and the requisite delegation of responsibility and accountability Carry out regular, detailed reviews to ensure that the project remains on track and performance targets are met; this includes monitoring the contractor’s performance against pre-determined measures (e.g. quality, quantity) and ensuring that progress billings (if any) bear a proper relationship to the work performed to date; Identify the cost and time impacts of possible contract amendments necessitated by any unexpected findings Maintain open and professional lines of communication with the contractor’s authorized representatives Ensure all public reporting requirements are met Ensure that all financial guarantees and insurance coverage remain in place during the contract term Take appropriate and timely corrective action where necessary 11.3 Key Milestones and Next Steps As was discussed in our kick-off meeting of Nov 26th, Stantec believes that there is a need for an additional step before a final go-no-go decision is made to proceed with the municipal fibre network. As indicated in the figure below, a ‘Gate 3” effort to improve the accuracy of the business case through development of a final detailed design validating exactly what construction methods are required in each of the phases, the number of kilometres required and a detailed final business case which validates the key business assumptions such as pricing, potential market size and customer propensity to pay. Further, a detailed Work Breakdown Structure (WBS) for the project is required to determine more accurate project timing and capital funding sizing and spending profile. Specifically, we recommend the following Tasks should be included in the Phase II work. Proposed Scope Greater refinement of all the key assumptions in order to create a finalized business model External outsourced Market Survey to better calibrate the revenue and operational risks Risk Workshop to calibrate and develop mitigation strategy Detailed Implementation strategy with Work Breakdown Structure and schedule Finalized Network Design, Network Specifications and Construction Strategy Technology Centre detailed Assessment and Design Municipal Fibre Network & Technology Centre 80 | Page PHASE I - Project Roadmap “Fi nal Idea Generation Planning / Design Go/No Go” Implementation Evaluation r------7 r------7 1------, Increasing Scope Definition I I I I I I I I I I I I I I I Commis sion I I Project I I f" ------. .------, Project r------I I I and I I Evaluation and I I Idea I I Preliminary I I Fi na l I I Implementation I I I I I I I I De sig n/ I I De sig n/ I I I I Start-up I I C los e-o ut I I va lida ti on I I I I I I I I I I I I1 ______JI Ia______Eng ine eri ng I I1 ______Engi ne eri ng I I I I I I I L ------J 11, ______-J '------I GATE 1 GATE 2 GATE 3 GATE 4 I GATE 5 GATE 6 I END END - CUR REN T J l - - i PHASE ~ PHASE STA TUS 1 ~ 2 ~ Sc op in g st u dy Pr elim Final Design/ Procurement !::ii - ~ 11', ,I/ Design/Eng ' Specs Prelim Business Sp ecs C&SU Le ssons lear ned Cas e • - Plan Pe rform anc e Updated Final Business ev aluation Cl os e-ou t Prelim Execution/ Business C ase Case Red line re port Busine ss Pla n dr awin gs Updated Final Financial Prelim Work Execution/ Exec utio n/ Mo ni tori ng a nd Cl os e-ou t Break down Business Plan Busines s Plan Contr ol (WBS) Prelim WBS Fi nal W BS Cl ass V Class IV Class III Cla ss II +50% to -30% +35% to -20% +20% to -15% +10% to -7% “C onc eptual” “Pre-Feasibility” “ Feasibility” “Control Target” ~Stantec Figure 46 – Project Roadmap The following table provides a high level view of the expected key milestones recommended in a proposed implementation of this project: KEY MILESTONES AND NEXT STEPS Milestone Objective and Timing Detailed Business Plan including detailed market and environmental analysis. This should be completed in the next phase prior to final decision to proceed. It is crucial to understand the market potential, the acceptable price Detailed Business Plan points for the service s offered and the potential customer propensity to pay. Objective is to validate all key business assumptions and contain the risk elements within a +/- 10% accuracy. Financial Borrowing A detailed financial borrowing strategy is required to ensure an appropriate Strategy developed City approved funding source is secured for this project. A detailed network design is required to provide greater accuracy (+/-10%) Detailed Network Design in the estimated capital costs for this project. The objective is to understand exactly what construction methods are required in each of the phases, the Municipal Fibre Network & Technology Centre 81 | Page KEY MILESTONES AND NEXT STEPS Milestone Objective and Timing number of kilometers required, the network topology and architecture as well as the best approach in overall timing. Final specifications for the network build are required in order to understand the construction costs associated with the required build. Objective is to Final Specs Developed validate all key construction assumptions and contain the risk within a +/- 10% accuracy. An important element which has been identified in our Risk mitigation Communications Strategy section, recommends a communications strategy which addresses all of the project’s key stakeholders. marketing/advertising campaign This effort will finalize the operating structure of the new Fibre entity in terms of its legal establishment, reporting structure, organizational configuration as Final Business entity well as identification of the operating management and the support Structure resources, their roles and responsibilities and respective authorities and accountabilities. A final decision to proceed with this project will be made by council once the above details are finalized. This of course will depend on the council’s Council Approval risk tolerance requirements. Stantec has assumed that a +/-10 accuracy is a reasonable risk position requirement before a decision to proceed can be made. A marketing/advertising campaign or strategy should be developed with Marketing Strategy elements of the communications strategy included as appropriate to raise the awareness of the business community and other stakeholders. A public tendering and subsequent procurement effort should be undertaken to select the best contractors and/or consultants to complete the construction Procurement Phase of the fibre network and the co-location/technology centre components. Issued for construction (IFC) working drawings and tender documents would be required for this effort. The construction of the network begins with a finalized WBS and schedule. Construction Phase and City project team and steering committee would provide the project oversight Project Oversight throughout the build cycle. An internal or external project manager could be used to manage the project budget and deliverables. In summary, the proposed fibre network expansion has substantial complexity and a sizable capital investment for the City of Prince George. As such our recommendation is for the city to consider the recommended next steps above and make an appropriate decision regarding how to proceed from this point forward. Municipal Fibre Network & Technology Centre 82 | Page 12 CONCLUSIONS AND RECOMMENDATIONS 12.1 Conclusions The results of our assessment indicate that the proposed municipal fibre network for the City of Prince George has viability in the longer term. Viability here is defined as adding substantial benefits to the community as a whole rather than having strong financial viability. The investment required is quite substantial in the order of $3M-$5M while the payback period is relatively long at much greater than 10 years. Specifically, the model shows that cumulative cash flow positions from a consolidated perspective turn positive at year 22, while individual phases vary substantially. Phase I cumulative cash flow turns positive at year 19, Phase II at year 1 and Phase III at year 44. The large discrepancy is due to the differences in construction costs, network size to serve the area and the projected customer connections for the different areas. The Phase III network component also includes city wide fibre backbone construction and network redundancy loops and far more overall kilometers of fibre network to construct as compared to the others. A sensitivity analysis was also completed which reduced revenue streams in the model by 10% and 20% respectively over a 30 year period. The result has significant impact on the payback period required to achieve a positive cumulative cash flow position for the investment. Phases I and II of the network components provide much better cash flow positions over time as compared to the Phase III build. Unless there are strategic reasons to support the decision to proceed with the Phase III build the viability of this component is questionable. From a pure business perspective, the ROI on our financial model would place this project in jeopardy as a solid business investment. Having said this, the municipal fibre network however brings substantial soft benefits to the community and surrounding areas. Prince George as an important service hub city for northern British Columbia residents will benefit substantially from becoming a “Smart City” in today’s highly technological society. Some of these soft benefits include the following: Creating a Better Downtown Strengthening and Diversifying the local Economy Improving local Health and Safety Taking Care of Air, Water, and Land Resources in the area Reducing Carbon Emissions and Adapting to Climate Change Reducing Waste Improving Job Diversity and Accessibility Strengthening and supporting a Vibrant Economy Enhancing the City’s image as a modern, business-friendly community In discussions with the City project team, they have indicated that they are satisfied with the longer return on the required investment because of the substantial soft benefits to the community which are created by having the network. If the capital funding required is distributed across the first 5 to six years of the build, then the investment falls within acceptable guidelines as outlined by the City financial department. As a public nonprofit corporation, the city appears not to be concerned with reaching an aggressive ROI target. It is more important to ensure that the proposed fibre network entity is a non competitive player and offers open access to businesses operating in the community. It must provide benefits to the majority of the business community and deliver on alignment with the City’s strategic plans and programs. Municipal Fibre Network & Technology Centre 83 | Page It is important to state that the financial model which has been created in support of this business case has an estimated +/-25% accuracy as there are many key assumptions which have been used. These assumptions in our opinion will require validation through a detailed market analysis and the network design will require further refinement in order to reach an accuracy approaching a +/-10% confidence level. The Business case assessment also revealed that the best ownership and operations model for the City is to own the fibre network and associated infrastructure as well provide the ongoing operations. This conclusion was reached through an extensive evaluation of the Risks and Rewards of various ownership and operations options. This model provides the greatest reward by a significant margin and is second only to the Status Quo model with respect to risk criteria. While the risk of the Status Quo model (44%) is lower than the City Owns & Operates model (61%), the increased reward possible from the City Owns & Operates model (96% vs. 58%) is so significant that it easily compensates for this added risk. The City Owns and Operates option is the most desirable given a thorough review of the risks and rewards to the City. An evaluation of what service offerings should be offered over the fibre network was also included in this business case. Two scenarios were considered, a dark fibre model and a “managed Services” option. As in the ownership and operations option evaluation, this evaluation also included assessing and scoring the Risks and Rewards associated with the two options from a city benefits perspective. The scoring results indicate that the dark fibre model has less overall risk to the City than a channelized or managed services model but has less reward as well. The higher reward is due mostly to the ability to attract greater number of customers to the network by offering services which can be priced at a lower point thus reducing the “barrier-to-entry” and extending reach to the smaller businesses. The drawback is that this model would carry much larger risk due to complexity, additional capital and potential to create greater direct competition among the existing providers. Essentially, this model would turn the resellers and existing providers into direct competitors of the City. The last component of our options evaluation effort included an assessment of the ownership and operations options relating to a technology centre. Combining the results for all risk and reward criteria indicate that the City Owns and Operates Model is also the most preferred option for the City. This model provides the greatest reward by a significant margin and also exhibits the lowest risk scenario. Stantec was also asked to provide an opinion on the technology centre question of whether there is a business case to be made for the establishment of a technology centre component in support of the municipal fibre network. Our assessment indicates that there is not a case to be made if the criteria is solely to support the fibre network customers and associated area businesses. The Prince George market already has two commercial data centre facilities which have access to the municipal fibre network and we have been told that they have existing capacity and future scaling capabilities. The fibre network will require a fibre termination and customer co-location component and the existing location at City hall is not able to scale to facilitate the growth expected during the network build out, therefore there is a need for a second facility probably best located in the Carter Light Industrial area for network reliability and capital cost distribution reasoning. If other criteria are included for consideration, such as meeting the future needs of the City’s IT department and other strategic criteria such as support for the 2015 winter games, the merits of having a full data centre facility sway the assessment results. The city fibre network and a smaller scale data centre or technology centre facility could prove to be an invaluable City asset in preparation for a successful Municipal Fibre Network & Technology Centre 84 | Page games event in 2015. We also believe that regional or provincial and possibly federal funding opportunities could be leveraged in support of a small footprint technology centre for the 2015 winter games. Looking out beyond 2015, the City may also want to examine opportunities for traffic control, strategically located street cameras, utility meter reading or other operational improvement possibilities which the fibre network infrastructure and technology centre can bring to the City. Given this larger and longer term perspective, as well as the limitations of the existing co-location site at City Hall, our opinion for a technology centre component becomes more positive. 12.2 Recommendations After careful consideration of the results from Stantec’s business case development effort as represented in this report, the following recommendations are put forward for consideration: It is recommended that the City adopt the risk mitigation strategies identified in this report in section 9. Network Topology – A Star configured network architecture is recommended, with longer term redundancy in the backbone Network Ownership – Option matrix assessment surfaced the “City Owns and Operates” scenario as the best option for ownership of the network assets Network Operation – Option matrix assessment surfaced the “City Owns and Operates” scenario as the best option for operation of the municipal fibre network. Services to be Offered – Option matrix assessment surfaced the “ Dark Fibre” lease option as the best alternative for services to be provided over the municipal fibre network. Construction Timing – recommendation is to spread capital cost of construction across 6 years. Prioritizing the construction and build out by phases. Phase I carrying the highest priority, Phase II and a portion of Phase III to be a secondary priority and remaining sections of Phase III to carry third priority. Resellers and key customers should be part of strategic decision making for scaling out the municipal fibre network. Effective communication plan required to educate and raise awareness for all stakeholders Technology centre should not simply be a fibre termination and customer co-location site. There should be multiple co-location and fibre termination sites to reduce fibre counts in the backbone and also maintain a high reliability network. Considering the size of the Prince George market, the need for future expansion of the existing City IT infrastructure, the requirement for multiple fibre termination points in order to properly support the Municipal fibre network as well as future opportunities and possibilities to improve City operations, it seems appropriate that the City embark on the creation of at least one (1) other fibre network termination point with sufficient capacity to provide: Co-location space for the fibre network customers, Backbone redundancy for the fibre network Ability to scale the site to accommodate a small 800 -1000 sq-ft Tier III data centre facility to support City IT department expansion, business continuity coverage, Winter games data (digital Audio and Video) support as well as longer term City Operations improvements. Provide a potential to accommodate third party gateway or business critical data back-up facilities. The new Technology Centre facility is not recommended to be a full Open Access data centre, but rather open access for all network customers and resellers. The facility could be scaled in phases or ‘modules” to reduce capital spending requirements at the front end of the project and also provide a natural mechanism for scaling and segregating the users. Municipal Fibre Network & Technology Centre 85 | Page Overall, although we believe the financial model assumptions are weighted more on the conservative side, the estimated accuracy of our model is approximately +/- 25% which could have substantial viability impact over the expenditure life cycle. The sensitivity analysis indicates that a small 10%-20% reduction in revenue stream significantly magnifies the viability concerns. It is recommended that the City proceed to an assumption validation phase prior to making a final decision. We believe It is prudent to validate the critical key assumptions used in developing the financial model. Specifically, the revenue projections and the capital and ongoing operating costs. Municipal Fibre Network & Technology Centre 86 | Page 13 APPENDICES Appendix A – Financial Model Appendix B – Detailed Capital Assumptions Appendix C – Detailed Operational Assumptions Appendix D – Detailed Connection Assumptions Appendix E – Detailed Sensitivity Analysis Appendix F – Key Components of Technology Centre Appendix G – Network Map Appendix H – Option Matrix Report Appendix I – Legal and Regulatory References Municipal Fibre Network & Technology Centre 87 | Page 14 APPENDIX A – FINANCIAL MODEL Municipal Fibre Network & Technology Centre 88 | Page THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS Ten Year Cumulative Forecast (Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LIGHT TOTAL BOUNDARY ROAD CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Dark fibre rental $3,660,000 $2,022,000 $1,062,000 $576,000 Customer drop fees $2,509,200 $1,166,040 $870,840 $472,320 Total revenues $6,169,200 $3,188,040 $1,932,840 $1,048,320 OPERATING EXPENSES: Emergency maintenance standby fees $320,000 $320,000 $0 $0 Customer drop expense $2,182,606 $1,014,270 $757,493 $410,844 Total operating expense $2,502,606 $1,334,270 $757,493 $410,844 INTER‐COMPANY (with City): Dark fibre rental to City $0 $0 $0 $0 Labor allocations from City Managerial $713,700 $394,290 $207,090 $112,320 Marketing Support $244,000 $134,800 $70,800 $38,400 Admin support $0 $0 $0 $0 Network administration $439,200 $242,640 $127,440 $69,120 Maintenance and repairs $305,000 $168,500 $88,500 $48,000 Maintenance supplies $61,000 $33,700 $17,700 $9,600 Occupancy costs from City $1 $0 $0 $1 NETWORK USAGE FEE payable to City $61,692 $31,880 $19,328 $10,483 Overhead allocation from City $238,266 $131,632 $69,136 $37,498 Net inter‐company expense $2,062,859 $1,137,443 $599,995 $325,422 EBITDA Amortization $741,774 $330,124 $195,124 $216,526 Interest on interim financing debt $141,695 $78,625 $18,955 $44,115 Interest on long term debt $702,500 $287,500 $112,500 $302,500 NET INCOME/(LOSS) $159,461 $98,704 $267,728 ($206,972) CASH FLOW STATEMENT OPERATING ACTIVITIES : Net income $159,461 $98,704 $267,728 ($206,972) Add: Amortization $741,774 $330,124 $195,124 $216,526 Cash (to)from operations $901,234 $428,827 $462,853 $9,554 INVESTING ACTIVITIES: Capital expenditures ‐ network extension ($3,030,678) ($1,179,224) ($575,990) ($1,275,463) Capital expenditures ‐ building connections ($1,336,769) ($451,379) ($647,431) ($237,960) Capital expenditures ‐ capital renewal ($275,278) ($113,015) ($75,669) ($86,595) Cash (to)from investing ($4,642,725) ($1,743,618) ($1,299,089) ($1,600,018) FINANCING ACTIVITIES: Customer financing (building connections) $1,336,769 $451,379 $647,431 $237,960 Long term financing issued $1,660,000 $0 $450,000 $1,210,000 Long term financing (repaid) ($1,170,238) ($478,923) ($187,405) ($503,910) Cash (to)from financing $2,976,531 $1,122,456 $910,026 $944,049 NET CASH INFLOW/(OUTFLOW) ($764,959) ($192,334) $73,789 ($646,414) THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS Year 10 (Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LIGHT TOTAL BOUNDARY ROAD CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Dark fibre rental $600,000 $294,000 $192,000 $114,000 Customer drop fees $442,800 $191,880 $157,440 $93,480 Total revenues $1,042,800 $485,880 $349,440 $207,480 OPERATING EXPENSES: Emergency maintenance standby fees $32,000 $32,000 $0 $0 Customer drop expense $385,166 $166,905 $136,948 $81,313 Total operating expense $417,166 $198,905 $136,948 $81,313 INTER‐COMPANY (with City): Dark fibre rental to City $0 $0 $0 $0 Labor allocations from City Managerial $117,000 $57,330 $37,440 $22,230 Marketing Support $40,000 $19,600 $12,800 $7,600 Admin support $0 $0 $0 $0 Network administration $72,000 $35,280 $23,040 $13,680 Maintenance and repairs $50,000 $24,500 $16,000 $9,500 Maintenance supplies $10,000 $4,900 $3,200 $1,900 Occupancy costs from City $0 $0 $0 $0 NETWORK USAGE FEE payable to City $10,428 $4,859 $3,494 $2,075 Overhead allocation from City $39,060 $19,139 $12,499 $7,421 Net inter‐company expense $338,488 $165,608 $108,474 $64,406 EBITDA Amortization $$101,161101,161 $$40,14940,149 $$29,36729,367 $$31,64531,645 Interest on interim financing debt $0 $0 $0 $0 Interest on long term debt $140,500 $57,500 $22,500 $60,500 NET INCOME/(LOSS) $45,485 $23,718 $52,152 ($30,384) CASH FLOW STATEMENT OPERATING ACTIVITIES : Net income $45,485 $23,718 $52,152 ($30,384) Add: Amortization $101,161 $40,149 $29,367 $31,645 Cash (to)from operations $146,646 $63,867 $81,519 $1,261 INVESTING ACTIVITIES: Capital expenditures ‐ network extension $0 $0 $0 $0 Capital expenditures ‐ building connections ($113,950) ($33,028) ($57,126) ($23,796) Capital expenditures ‐ capital renewal ($49,961) ($19,868) ($14,477) ($15,616) Cash (to)from investing ($163,911) ($52,896) ($71,603) ($39,412) FINANCING ACTIVITIES: Customer financing (building connections) $113,950 $33,028 $57,126 $23,796 Interim financing debt issued (repaid) $0 $0 $0 $0 Long term financing issued $0 $0 $0 $0 Long term financing (repaid) ($234,048) ($95,785) ($37,481) ($100,782) Cash (to)from financing ($120,098) ($62,757) $19,645 ($76,986) Opening Cash ($627,597) ($140,548) $44,229 ($531,277) Closing Cash ($764,959) ($192,334) $73,789 ($646,414) NET CASH INFLOW/(OUTFLOW) ($137,363) ($51,786) $29,561 ($115,137) THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS Year 16 (Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LIGHT TOTAL BOUNDARY ROAD CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Dark fibre rental $600,000 $294,000 $192,000 $114,000 Customer drop fees $0 $0 $0 $0 Total revenues $600,000 $294,000 $192,000 $114,000 OPERATING EXPENSES: Emergency maintenance standby fees $32,000 $32,000 $0 $0 Customer drop expense $0 $0 $0 $0 Total operating expense $32,000 $32,000 $0 $0 INTER‐COMPANY (with City): Dark fibre rental to City $0 $0 $0 $0 Labor allocations from City $0 $0 $0 $0 Managerial $117,000 $57,330 $37,440 $22,230 Marketing Support $0 $0 $0 $0 Admin support $0 $0 $0 $0 Network administration $72,000 $35,280 $23,040 $13,680 Maintenance and repairs $50,000 $24,500 $16,000 $9,500 Maintenance supplies $10,000 $4,900 $3,200 $1,900 Occupancy costs from City $0 $0 $0 $0 NETWORK USAGE FEE payable to City $6,000 $2,940 $1,920 $1,140 Overhead allocation from City $22,753 $16,395 $0 $6,357 Net inter‐company expense $277,753 $141,345 $81,600 $54,808 EBITDA Amortization $102,771 $40,562 $30,382 $31,827 Interest on interim financingfinancing debt $$00 $$00 $$00 $$00 Interest on long term debt $0 $0 $0 $0 NET INCOME/(LOSS) $187,476 $80,093 $80,018 $27,365 CASH FLOW STATEMENT OPERATING ACTIVITIES : Net income $187,476 $80,093 $80,018 $27,365 Add: Amortization $102,771 $40,562 $30,382 $31,827 Cash (to)from operations $290,247 $120,655 $110,400 $59,192 INVESTING ACTIVITIES: Capital expenditures ‐ network extension $0 $0 $0 $0 Capital expenditures ‐ building connections $0 $0 $0 $0 Capital expenditures ‐ capital renewal ($51,385) ($20,281) ($15,191) ($15,914) Cash (to)from investing ($51,385) ($20,281) ($15,191) ($15,914) FINANCING ACTIVITIES: Customer financing (building connections) $0 $0 $0 $0 Interim financing debt issued (repaid) $0 $0 $0 $0 Long term financing issued $0 $0 $0 $0 Long term financing (repaid) $0 $0 $0 $0 Cash (to)from financing $0 $0 $0 $0 Opening Cash ($1,443,390) ($456,888) $249,929 ($1,236,430) Closing Cash ($1,204,528) ($356,514) $345,138 ($1,193,151) NET CASH INFLOW/(OUTFLOW) $238,861 $100,374 $95,209 $43,279 NOTE: Years 11‐30 of the model use the following assumptions: 1) No further capital funding is required to extend out the network 2) No further customer connections are made beyond year #10. 3) No additional annual revenues will flow beyond those identified in year #10. 4) Assume that capital renewal and/or any other capital requirements will be funded from business operations. No further borrowing will be required. 5) Freeze operational costs beyond year 10. No additional staffing required. 6) Assume a 14% Corporate overhead. Remove Admin and Occupancy expenses for all years. Remove Marketing expenses after 10 THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS Year 20 (Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LIGHT TOTAL BOUNDARY ROAD CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Dark fibre rental $600,000 $294,000 $192,000 $114,000 Customer drop fees $0 $0 $0 $0 Total revenues $600,000 $294,000 $192,000 $114,000 OPERATING EXPENSES: Emergency maintenance standby fees $32,000 $32,000 $0 $0 Customer drop expense $0 $0 $0 $0 Total operating expense $32,000 $32,000 $0 $0 INTER‐COMPANY (with City): Dark fibre rental to City $0 $0 $0 $0 Labor allocations from City $0 $0 $0 $0 Managerial $117,000 $57,330 $37,440 $22,230 Marketing Support $0 $0 $0 $0 Admin support $0 $0 $0 $0 Network administration $72,000 $35,280 $23,040 $13,680 Maintenance and repairs $50,000 $24,500 $16,000 $9,500 Maintenance supplies $10,000 $4,900 $3,200 $1,900 Occupancy costs from City $0 $0 $0 $0 NETWORK USAGE FEE payable to City $6,000 $2,940 $1,920 $1,140 Overhead allocation from City $22,753 $16,395 $0 $6,357 Net inter‐company expense $277,753 $141,345 $81,600 $54,808 EBITDA Amortization $102,771 $40,562 $30,382 $31,827 Interest on interim financingfinancing debt $$00 $$00 $$00 $$00 Interest on long term debt $0 $0 $0 $0 NET INCOME/(LOSS) $187,476 $80,093 $80,018 $27,365 CASH FLOW STATEMENT OPERATING ACTIVITIES : Net income $187,476 $80,093 $80,018 $27,365 Add: Amortization $102,771 $40,562 $30,382 $31,827 Cash (to)from operations $290,247 $120,655 $110,400 $59,192 INVESTING ACTIVITIES: Capital expenditures ‐ network extension $0 $0 $0 $0 Capital expenditures ‐ building connections $0 $0 $0 $0 Capital expenditures ‐ capital renewal ($51,385) ($20,281) ($15,191) ($15,914) Cash (to)from investing ($51,385) ($20,281) ($15,191) ($15,914) FINANCING ACTIVITIES: Customer financing (building connections) $0 $0 $0 $0 Interim financing debt issued (repaid) $0 $0 $0 $0 Long term financing issued $0 $0 $0 $0 Long term financing (repaid) $0 $0 $0 $0 Cash (to)from financing $0 $0 $0 $0 Opening Cash ($487,944) ($55,393) $630,764 ($1,063,315) Closing Cash ($249,082) $44,981 $725,973 ($1,020,036) NET CASH INFLOW/(OUTFLOW) $238,861 $100,374 $95,209 $43,279 NOTE: Years 11‐30 of the model use the following assumptions: 1) No further capital funding is required to extend out the network 2) No further customer connections are made beyond year #10. 3) No additional annual revenues will flow beyond those identified in year #10. 4) Assume that capital renewal and/or any other capital requirements will be funded from business operations. No further borrowing will be required. 5) Freeze operational costs beyond year 10. No additional staffing required. 6) Assume a 14% Corporate overhead. Remove Admin and Occupancy expenses for all years. Remove Marketing expenses after 10 years, all Phases. THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS Year 25 (Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LIGHT TOTAL BOUNDARY ROAD CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Dark fibre rental $600,000 $294,000 $192,000 $114,000 Customer drop fees $0 $0 $0 $0 Total revenues $600,000 $294,000 $192,000 $114,000 OPERATING EXPENSES: Emergency maintenance standby fees $32,000 $32,000 $0 $0 Customer drop expense$ $0$ $0$ $0$ $0 Total operating expense $32,000 $32,000 $0 $0 INTER‐COMPANY (with City): Dark fibre rental to City $0 $0 $0 $0 Labor allocations from City $0 $0 $0 $0 Managerial $117,000 $57,330 $37,440 $22,230 Marketing Support $0 $0 $0 $0 Admin support $0 $0 $0 $0 Network administration $72,000 $35,280 $23,040 $13,680 Maintenance and repairs $50,000 $24,500 $16,000 $9,500 Maintenance supplies $10,000 $4,900 $3,200 $1,900 Occupancy costs from City $0 $0 $0 $0 NETWORK USAGE FEE payable to City $6,000 $2,940 $1,920 $1,140 Overhead allocation from City $22,753$ $16,395$ $ $0 $6,357$ Net inter‐company expense $277,753$ $141,345$ $81,60$ 0 $54,808$ EBITDA $290,247$ $120,655$ $110,400$ $59,192$ Amortization $102,771 $40,562 $30,382 $31,827 Interest on interim financingfinancing debt $$00 $$00 $$00 $$00 Interest on long term debt $0$ $ $0$ $0$ $0 NET INCOME/(LOSS) $187,476 $80,093 $80,018 $27,365 CASH FLOW STATEMENT OPERATING ACTIVITIES : Net income $187,476 $80,093 $80,018 $27,365 Add: Amortization $102,771$ $40,562$ $30,382$ $31,827$ Cash (to)from operations $290,247 $120,655 $110,400 $59,192 INVESTING ACTIVITIES: Capital expenditures ‐ network extension $0 $0 $0 $0 Capital expenditures ‐ building connections $0 $0 $0 $0 Capital expenditures ‐ capital renewal ($51,385) ($20,281) ($15,191) ($15,914) Cash (to)from investing ($51,385) ($20,281) ($15,191) ($15,914) FINANCING ACTIVITIES: Customer financing (building connections) $0 $0 $0 $0 Interim financing debt issued (repaid) $0 $0 $0 $0 Long term financing issued $0 $0 $0 $0 Long term financing (repaid) $0 $0 $0 $0 Cash (to)from financing $0 $0 $0 $0 Opening Cash $706,364 $446,476 $1,106,808 ($846,921) Closing Cash $945,225 $546,850 $1,202,017 ($803,642) NET CASH INFLOW/(OUTFLOW) $238,861 $100,374 $95,209 $43,279 NOTE: Years 11‐30 of the model use the following assumptions: 1) No further capital funding is required to extend out the network 2) No further customer connections are made beyond year #10. 3) No additional annual revenues will flow beyond those identified in year #10. 4) Assume that capital renewal and/or any other capital requirements will be funded from business operations. No further borrowing will be required. 5) Freeze operational costs beyond year 10. No additional staffing required. 6) Assume a 14% Corporate overhead. Remove Admin and Occupancy expenses for all years. Remove Marketing expenses after 10 THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS Year 30 (Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LIGHT TOTAL BOUNDARY ROAD CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Dark fibre rental $600,000 $294,000 $192,000 $114,000 Customer drop fees $0 $0 $0 $0 Total revenues $600,000 $294,000 $192,000 $114,000 OPERATING EXPENSES: Emergency maintenance standby fees $32,000 $32,000 $0 $0 Customer drop expense$ $0$ $0$ $0$ $0 Total operating expense $32,000 $32,000 $0 $0 INTER‐COMPANY (with City): Dark fibre rental to City $0 $0 $0 $0 Labor allocations from City $0 $0 $0 $0 Managerial $117,000 $57,330 $37,440 $22,230 Marketing Support $0 $0 $0 $0 Admin support $0 $0 $0 $0 Network administration $72,000 $35,280 $23,040 $13,680 Maintenance and repairs $50,000 $24,500 $16,000 $9,500 Maintenance supplies $10,000 $4,900 $3,200 $1,900 Occupancy costs from City $0 $0 $0 $0 NETWORK USAGE FEE payable to City $6,000 $2,940 $1,920 $1,140 Overhead allocation from City $22,753 $16,395 $0 $6,357 Net inter‐company expense $277,753 $141,345 $81,600 $54,808 EBITDA Amortization $102,771 $40,562 $30,382 $31,827 Interest on interim financingfinancing debt $$00 $$00 $$00 $$00 Interest on long term debt $0$ $ $0$ $0$ $0 NET INCOME/(LOSS) $187,476 $80,093 $80,018 $27,365 CASH FLOW STATEMENT OPERATING ACTIVITIES : Net income $187,476 $80,093 $80,018 $27,365 Add: Amortization $102,771$ $40,562$ $30,382$ $31,827$ Cash (to)from operations $290,247 $120,655 $110,400 $59,192 INVESTING ACTIVITIES: Capital expenditures ‐ network extension $0 $0 $0 $0 Capital expenditures ‐ building connections $0 $0 $0 $0 Capital expenditures ‐ capital renewal ($51,385) ($20,281) ($15,191) ($15,914) Cash (to)from investing ($51,385) ($20,281) ($15,191) ($15,914) FINANCING ACTIVITIES: Customer financing (building connections) $0 $0 $0 $0 Interim financing debt issued (repaid) $0 $0 $0 $0 Long term financing issued $0 $0 $0 $0 Long term financing (repaid) $0 $0 $0 $0 Cash (to)from financing $0 $0 $0 $0 Opening Cash $1,900,671 $948,345 $1,582,853 ($630,527) Closing Cash $2,139,532 $1,048,719 $1,678,061 ($587,248) NET CASH INFLOW/(OUTFLOW) $238,861 $100,374 $95,209 $43,279 NOTE: Years 11‐30 of the model use the following assumptions: 1) No further capital funding is required to extend out the network 2) No further customer connections are made beyond year #10. 3) No additional annual revenues will flow beyond those identified in year #10. 4) Assume that capital renewal and/or any other capital requirements will be funded from business operations. No further borrowing will be required. 5) Freeze operational costs beyond year 10. No additional staffing required. 6) Assume a 14% Corporate overhead. Remove Admin and Occupancy expenses for all years. Remove Marketing expenses after 10 THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS = CONSOLIDATED ALL PHASES TOTAL 1234567891011121314151617181920 INCOME STATEMENT OPERATING REVENUES: Dark fibre rental $3,660,000 $78,000 $150,000 $240,000 $312,000 $360,000 $408,000 $456,000 $504,000 $552,000 $600,000 $600,000 $600,000 $600,000 $600,000 $600,000 $600,000 $600,000 $600,000 $600,000 $600,000 Customer drop fees $2,509,200 $14,760 $73,800 $147,600 $206,640 $246,000 $285,360 $324,720 $364,080 $403,440 $442,800 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total revenues $6,169,200 $92,760 $223,800 $387,600 $518,640 $606,000 $693,360 $780,720 $868,080 $955,440 $1,042,800 $600,000 $600,000 $600,000 $600,000 $600,000 $600,000 $600,000 $600,000 $600,000 $600,000 OPERATING EXPENSES: Emergency maintenance and repair fees $320,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 Customer drop expense $2,182,606 $12,839 $64,194 $128,389 $179,744 $213,981 $248,218 $282,455 $316,692 $350,929 $385,166 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total operating expense $2,502,606 $44,839 $96,194 $160,389 $211,744 $245,981 $280,218 $314,455 $348,692 $382,929 $417,166 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 INTER‐COMPANY: Dark fibre rental to City $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Labor allocations from City $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Managerial $713,700 $15,210 $29,250 $46,800 $60,840 $70,200 $79,560 $88,920 $98,280 $107,640 $117,000 $117,000 $117,000 $117,000 $117,000 $117,000 $117,000 $117,000 $117,000 $117,000 $117,000 Marketing Support $244,000 $5,200 $10,000 $16,000 $20,800 $24,000 $27,200 $30,400 $33,600 $36,800 $40,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Admin support (included in City Overhead) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Network administration $439,200 $9,360 $18,000 $28,800 $37,440 $43,200 $48,960 $54,720 $60,480 $66,240 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 Maintenance and repairs $305,000 $6,500 $12,500 $20,000 $26,000 $30,000 $34,000 $38,000 $42,000 $46,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 Maintenance supplies $61,000 $1,300 $2,500 $4,000 $5,200 $6,000 $6,800 $7,600 $8,400 $9,200 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 Occupancy costs from City $1 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 NETWORK USAGE FEE payable to City $61,692 $928 $2,238 $3,876 $5,186 $6,060 $6,934 $7,807 $8,681 $9,554 $10,428 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 Overhead allocation from City (Includes Admin support and Occupancy costs ) $238,266 $5,078 $9,765 $15,624 $20,311 $23,436 $26,561 $29,686 $32,810 $35,935 $39,060 $22,753 $22,753 $22,753 $22,753 $22,753 $22,753 $22,753 $22,753 $22,753 $22,753 Net inter‐company expense $2,062,859 $43,576 $84,253 $135,100 $175,778 $202,896 $230,015 $257,133 $284,251 $311,370 $338,488 $277,753 $277,753 $277,753 $277,753 $277,753 $277,753 $277,753 $277,753 $277,753 $277,753 EBITDA $1,603,734 $4,346 $43,353 $92,111 $131,118 $157,123 $183,128 $209,132 $235,137 $261,141 $287,146 $290,247 $290,247 $290,247 $290,247 $290,247 $290,247 $290,247 $290,247 $290,247 $290,247 Amortization $741,774 $24,417 $42,267 $50,718 $66,385 $81,056 $89,382 $92,614 $95,463 $98,312 $101,161 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 Interest on interim financing debt $141,695 $5,355 $19,040 $31,705 $39,865 $45,730 Interest on long term debt $140,500 $140,500 $140,500 $140,500 $140,500 $140,500 $140,500 $140,500 $140,500 $140,500 $0 $0 $0 $0 $0 NET INCOME/(LOSS) $861,961 ($20,071) $1,086 $41,394 $64,733 $76,067 ($46,754) ($23,982) ($826) $22,329 $45,485 $46,976 $46,976 $46,976 $46,976 $46,976 $187,476 $187,476 $187,476 $187,476 $187,476 CASH FLOW STATEMENT OPERATING : Net income $861,961 ($20,071) $1,086 $41,394 $64,733 $76,067 ($46,754) ($23,982) ($826) $22,329 $45,485 $46,976 $46,976 $46,976 $46,976 $46,976 $187,476 $187,476 $187,476 $187,476 $187,476 Add: Amortization $741,774 $24,417 $42,267 $50,718 $66,385 $81,056 $89,382 $92,614 $95,463 $98,312 $101,161 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 Cash (to)from operations $1,603,734 $4,346 $43,353 $92,111 $131,118 $157,123 $42,628 $68,632 $94,637 $120,641 $146,646 $149,747 $149,747 $149,747 $149,747 $149,747 $290,247 $290,247 $290,247 $290,247 $290,247 INVESTING : CapitalCapital expendituresexpenditures ‐ nenetworktwork exextensiontension ($3,030 ,678) ($633,662) ($1,026 ,965) ($566,516) ($517,615) ($270,571) ($15,348) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital expenditures ‐ building connections ($1,336,769) ($112,172) ($207,080) ($219,867) ($113,950) ($113,950) ($113,950) ($113,950) ($113,950) ($113,950) ($113,950) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital expenditures ‐ capital renewal ($275,278) $0 $0 $0 $0 ($39,909) ($44,072) ($45,688) ($47,112) ($48,537) ($49,961) ($51,385) ($51,385) ($51,385) ($51,385) ($51,385) ($51,385) ($51,385) ($51,385) ($51,385) ($51,385) Cash (to)from investing ($4,642,725) ($745,834) ($1,234,045) ($786,383) ($631,565) ($424,429) ($173,370) ($159,638) ($161,062) ($162,487) ($163,911) ($51,385) ($51,385) ($51,385) ($51,385) ($51,385) ($51,385) ($51,385) ($51,385) ($51,385) ($51,385) FINANCING : Customer financing (building connections) $1,336,769 $112,172 $207,080 $219,867 $113,950 $113,950 $113,950 $113,950 $113,950 $113,950 $113,950 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Interim financing debt issued (repaid) $0 $630,000 $980,000 $510,000 $450,000 $240,000 ($2,810,000) Long term financing issued $2,810,000 Long term financing (repaid) ($1,170,238) ($234,048) ($234,048) ($234,048) ($234,048) ($234,048) ($234,048) ($234,048) ($234,048) ($234,048) ($234,048) $0 $0 $0 $0 $0 Cash (to)from financing $166,531 $742,172 $1,187,080 $729,867 $563,950 $353,950 ($120,098) ($120,098) ($120,098) ($120,098) ($120,098) ($234,048) ($234,048) ($234,048) ($234,048) ($234,048) $0 $0 $0 $0 $0 NET CASH INFLOW/(OUTFLOW) ($764,959) $684 ($3,612) $35,595 $63,503 $86,643 ($250,840) ($211,103) ($186,523) ($161,943) ($137,363) ($135,686) ($135,686) ($135,686) ($135,686) ($135,686) $238,861 $238,861 $238,861 $238,861 $238,861 Opening cash $0 $684 ($2,929) $32,666 $96,169 $182,813 ($68,027) ($279,131) ($465,654) ($627,597) ($764,959) ($900,645) ($1,036,331) ($1,172,017) ($1,307,704) ($1,443,390) ($1,204,528) ($965,667) ($726,805) ($487,944) Closing cash $684 ($2,929) $32,666 $96,169 $182,813 ($68,027) ($279,131) ($465,654) ($627,597) ($764,959) ($900,645) ($1,036,331) ($1,172,017) ($1,307,704) ($1,443,390) ($1,204,528) ($965,667) ($726,805) ($487,944) ($249,082) AMORTIZATION: Opening gross book value $0 $683,820 $1,913,108 $2,605,855 $3,192,686 $3,525,738 $3,655,036 $3,768,986 $3,882,936 $3,996,886 $4,110,836 $4,110,836 $4,110,836 $4,110,836 $4,110,836 $4,110,836 $4,110,836 $4,110,836 $4,110,836 $4,110,836 Additions during the year $708,237 $1,229,288 $692,747 $586,830 $333,052 $129,298 $113,950 $113,950 $113,950 $113,950 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Gross book value $708,237 $1,913,108 $2,605,855 $3,192,686 $3,525,738 $3,655,036 $3,768,986 $3,882,936 $3,996,886 $4,110,836 $4,110,836 $4,110,836 $4,110,836 $4,110,836 $4,110,836 $4,110,836 $4,110,836 $4,110,836 $4,110,836 $4,110,836 Accumulated amortization ($($24,417)24,417) ($($66,683)66,683) ($($117,401)117,401) ($($183,786)183,786) ($($264,842)264,842) ($($354,224)354,224) ($($446,838)446,838) ($($542,301)542,301) ($($640,613)640,613) ($($741,774)741,774) ($($844,545)844,545) ($($947,316)947,316) ($($1,050,087)1,050,087) ($($1,152,857)1,152,857) ($($1,255,628)1,255,628) ($($1,358,399)1,358,399) ($($1,461,170)1,461,170) ($($1,563,941)1,563,941) ($($1,666,712)1,666,712) ($($1,769,483)1,769,483) Net book value $683,820 $1,846,425 $2,488,454 $3,008,900 $3,260,896 $3,300,813 $3,322,148 $3,340,635 $3,356,273 $3,369,062 $3,266,291 $3,163,520 $3,060,749 $2,957,979 $2,855,208 $2,752,437 $2,649,666 $2,546,895 $2,444,124 $2,341,353 Amortization expense $24,417 $42,267 $50,718 $66,385 $81,056 $89,382 $92,614 $95,463 $98,312 $101,161 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 $102,771 1234567891011121314151617181920 NOTE: DEBT FINANCING: Interim financing is used in years Opening balance $0 $630,000 $1,610,000 $2,120,000 $2,570,000 $0 $2,575,952 $2,341,905 $2,107,857 $1,873,810 $1,639,762 $1,405,715 $1,171,667 $937,620 $703,572 $469,524 $469,524 $469,524 $469,524 $469,524 1 through 5 after which it is taken New debt $630,000 $980,000 $510,000 $450,000 $240,000 $2,810,000 $0 $0 $0 $0 out with 10 year City amortization Toal debt o/s $630,000 $1,610,000 $2,120,000 $2,570,000 $2,810,000 $2,810,000 $2,575,952 $2,341,905 $2,107,857 $1,873,810 $1,639,762 $1,405,715 $1,171,667 $937,620 $703,572 $469,524 $469,524 $469,524 $469,524 $469,524 "sinking fund" schedule Interest expense $5,355 $19,040 $31,705 $39,865 $45,730 $140,500 $140,500 $140,500 $140,500 $140,500 $140,500 $140,500 $140,500 $140,500 $140,500 $0 $0 $0 $0 $0 ‐ Interim rate = 1.70% Principal repayment $0 $0 $0 $0 $0 ($234,048) ($234,048) ($234,048) ($234,048) ($234,048) ($234,048) ($234,048) ($234,048) ($234,048) ($234,048) $0 $0 $0 $0 $0 ‐ 10 yr rate = See Amortization Closing balance $630,000 $1,610,000 $2,120,000 $2,570,000 $2,810,000 $2,575,952 $2,341,905 $2,107,857 $1,873,810 $1,639,762 $1,405,715 $1,171,667 $937,620 $703,572 $469,524 $469,524 $469,524 $469,524 $469,524 $469,524 Table Annual Payment $234,048 $234,048 $234,048 $234,048 $234,048 $234,048 $234,048 $234,048 $234,048 $234,048 Actuarial Amount $0 $9,362 $19,098 $29,224 $39,755 $50,707 $62,097 $73,943 $86,263 $99,075 Total Annual Repaid: $234,048 $243,409 $253,146 $263,272 $273,803 $284,755 $296,145 $307,991 $320,310 $333,123 CUM REPAYMENT: $234,048 $477,457 $730,603 $993,875 $1,267,677 $1,552,432 $1,848,577 $2,156,567 $2,476,877 $2,810,000 THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS = PHASE 1 TOTAL 1234567891011121314151617181920 INCOME STATEMENT OPERATING REVENUES: Dark fibre rental $2,022,000 $72,000 $114,000 $156,000 $186,000 $204,000 $222,000 $240,000 $258,000 $276,000 $294,000 $294,000 $294,000 $294,000 $294,000 $294,000 $294,000 $294,000 $294,000 $294,000 $294,000 NEW Customer drop fees $1,166,040 $9,840 $44,280 $78,720 $103,320 $118,080 $132,840 $147,600 $162,360 $177,120 $191,880 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total revenues $3,188,040 $81,840 $158,280 $234,720 $289,320 $322,080 $354,840 $387,600 $420,360 $453,120 $485,880 $294,000 $294,000 $294,000 $294,000 $294,000 $294,000 $294,000 $294,000 $294,000 $294,000 OPERATING EXPENSES: Emergency maintenance and repair fees $320,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 NEW Customer drop expense $1,014,270 $8,559 $38,517 $68,474 $89,872 $102,711 $115,550 $128,389 $141,227 $154,066 $166,905 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total operating expense $1,334,270 $40,559 $70,517 $100,474 $121,872 $134,711 $147,550 $160,389 $173,227 $186,066 $198,905 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 $32,000 INTER‐COMPANY: Dark fibre rental to City $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Labor allocations from City Managerial $394,290 $14,040 $22,230 $30,420 $36,270 $39,780 $43,290 $46,800 $50,310 $53,820 $57,330 $57,330 $57,330 $57,330 $57,330 $57,330 $57,330 $57,330 $57,330 $57,330 $57,330 Marketing Support $134,800 $4,800 $7,600 $10,400 $12,400 $13,600 $14,800 $16,000 $17,200 $18,400 $19,600 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Admin support (included in City Overhead) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Network administration $242,640 $8,640 $13,680 $18,720 $22,320 $24,480 $26,640 $28,800 $30,960 $33,120 $35,280 $35,280 $35,280 $35,280 $35,280 $35,280 $35,280 $35,280 $35,280 $35,280 $35,280 Maintenance and repairs $168,500 $6,000 $9,500 $13,000 $15,500 $17,000 $18,500 $20,000 $21,500 $23,000 $24,500 $24,500 $24,500 $24,500 $24,500 $24,500 $24,500 $24,500 $24,500 $24,500 $24,500 Maintenance supplies $33,700 $1,200 $1,900 $2,600 $3,100 $3,400 $3,700 $4,000 $4,300 $4,600 $4,900 $4,900 $4,900 $4,900 $4,900 $4,900 $4,900 $4,900 $4,900 $4,900 $4,900 Occupancy costs from City $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 NETWORK USAGE FEE payable to City $31,880 $818 $1,583 $2,347 $2,893 $3,221 $3,548 $3,876 $4,204 $4,531 $4,859 $2,940 $2,940 $2,940 $2,940 $2,940 $2,940 $2,940 $2,940 $2,940 $2,940 Overhead allocation from City (Includes Admin support and Occupancy costs ) $131,632 $4,687 $7,421 $10,156 $12,109 $13,280 $14,452 $15,624 $16,796 $17,968 $19,139 $16,395 $16,395 $16,395 $16,395 $16,395 $16,395 $16,395 $16,395 $16,395 $16,395 Net inter‐company expense $1,137,443 $40,186 $63,914 $87,643 $104,592 $114,761 $124,931 $135,100 $145,269 $155,439 $165,608 $141,345 $141,345 $141,345 $141,345 $141,345 $141,345 $141,345 $141,345 $141,345 $141,345 EBITDA $716,327 $1,095 $23,849 $46,603 $62,856 $72,608 $82,360 $92,111 $101,863 $111,615 $121,367 $120,655 $120,655 $120,655 $120,655 $120,655 $120,655 $120,655 $120,655 $120,655 $120,655 Amortization $330,124 $8,139 $24,465 $33,818 $35,195 $36,020 $36,846 $37,672 $38,497 $39,323 $40,149 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 Interest on interim financing debt $78,625 $5,100 $14,875 $19,550 $19,550 $19,550 Interest on long term debt $287,500 $57,500 $57,500 $57,500 $57,500 $57,500 $57,500 $57,500 $57,500 $57,500 $57,500 $0 $0 $0 $0 $0 NET INCOME/(LOSS) $98,704 ($7,044) ($615) $12,785 $27,662 $36,588 ($11,986) ($3,060) $5,866 $14,792 $23,718 $22,593 $22,593 $22,593 $22,593 $22,593 $80,093 $80,093 $80,093 $80,093 $80,093 CASH FLOW STATEMENT OPERATING : Net income $98,704 ($7,044) ($615) $12,785 $27,662 $36,588 ($11,986) ($3,060) $5,866 $14,792 $23,718 $22,593 $22,593 $22,593 $22,593 $22,593 $80,093 $80,093 $80,093 $80,093 $80,093 Add: Amortization $330,124 $8,139 $24,465 $33,818 $35,195 $36,020 $36,846 $37,672 $38,497 $39,323 $40,149 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 Cash (to)from operations $428,827 $1,095 $23,849 $46,603 $62,856 $72,608 $24,860 $34,611 $44,363 $54,115 $63,867 $63,155 $63,155 $63,155 $63,155 $63,155 $120,655 $120,655 $120,655 $120,655 $120,655 INVESTING : Capital expenditures ‐ network extension ($1,179,224) ($596,064) ($583,159) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital expenditures ‐ building connections ($451,379) ($55,046) ($88,074) ($77,065) ($33,028) ($33,028) ($33,028) ($33,028) ($33,028) ($33,028) ($33,028) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital expenditures ‐ capital renewal ($113,015) $0 $0 $0 $0 ($17,804) ($18,217) ($18,629) ($19,042) ($19,455) ($19,868) ($20,281) ($20,281) ($20,281) ($20,281) ($20,281) ($20,281) ($20,281) ($20,281) ($20,281) ($20,281) Cash (to)from investing ($1,743,618) ($651,111) ($671,233) ($77,065) ($33,028) ($50,831) ($51,244) ($51,657) ($52,070) ($52,483) ($52,896) ($20,281) ($20,281) ($20,281) ($20,281) ($20,281) ($20,281) ($20,281) ($20,281) ($20,281) ($20,281) FINANCING : Customer financing (building connections) $451,379 $55,046 $88,074 $77,065 $33,028 $33,028 $33,028 $33,028 $33,028 $33,028 $33,028 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Interim financing debt issued (repaid) $0 $600,000 $550,000 $0 $0 $0 ($1,150,000) Long term financing issued $1,150,000 Long term financing (repaid) ($478,923) ($95,785) ($95,785) ($95,785) ($95,785) ($95,785) ($95,785) ($95,785) ($95,785) ($95,785) ($95,785) $0 $0 $0 $0 $0 Cash (to)from financing $1,122,456 $655,046 $638,074 $77,065 $33,028 $33,028 ($62,757) ($62,757) ($62,757) ($62,757) ($62,757) ($95,785) ($95,785) ($95,785) ($95,785) ($95,785) $0 $0 $0 $0 $0 NET CASH INFLOW/(OUTFLOW) ($192,334) $5,031 ($9,310) $46,603 $62,856 $54,804 ($89,141) ($79,803) ($70,464) ($61,125) ($51,786) ($52,911) ($52,911) ($52,911) ($52,911) ($52,911) $100,374 $100,374 $100,374 $100,374 $100,374 Opening cash $0 $5,031 ($4,280) $42,324 $105,180 $159,984 $70,843 ($8,960) ($79,424) ($140,548) ($192,334) ($245,245) ($298,156) ($351,067) ($403,978) ($456,888) ($356,514) ($256,141) ($155,767) ($55,393) Closing cash $5,031 ($4,280) $42,324 $105,180 $159,984 $70,843 ($8,960) ($79,424) ($140,548) ($192,334) ($245,245) ($298,156) ($351,067) ($403,978) ($456,888) ($356,514) ($256,141) ($155,767) ($55,393) $44,981 AMORTIZATION: Opening gross book value $0 $642,972 $1,314,205 $1,391,270 $1,424,298 $1,457,325 $1,490,353 $1,523,381 $1,556,408 $1,589,436 $1,622,464 $1,622,464 $1,622,464 $1,622,464 $1,622,464 $1,622,464 $1,622,464 $1,622,464 $1,622,464 $1,622,464 Additions during the year $651,111 $671,233 $77,065 $33,028 $33,028 $33,028 $33,028 $33,028 $33,028 $33,028 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Gross book value $651,111 $1,314,205 $1,391,270 $1,424,298 $1,457,325 $1,490,353 $1,523,381 $1,556,408 $1,589,436 $1,622,464 $1,622,464 $1,622,464 $1,622,464 $1,622,464 $1,622,464 $1,622,464 $1,622,464 $1,622,464 $1,622,464 $1,622,464 Accumulated amortization ($8,139) ($32,604) ($66,422) ($101,617) ($137,637) ($174,483) ($212,155) ($250,652) ($289,975) ($330,124) ($370,685) ($411,247) ($451,809) ($492,370) ($532,932) ($573,493) ($614,055) ($654,616) ($695,178) ($735,740) Net book value $642,972 $1,281,602 $1,324,848 $1,322,681 $1,319,688 $1,315,870 $1,311,226 $1,305,756 $1,299,461 $1,292,340 $1,251,779 $1,211,217 $1,170,655 $1,130,094 $1,089,532 $1,048,971 $1,008,409 $967,847 $927,286 $886,724 Amortization expense $8,139 $24,465 $33,818 $35,195 $36,020 $36,846 $37,672 $38,497 $39,323 $40,149 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 $40,562 1234567891011121314151617181920 NOTE: DEBT FINANCING: Interim financing is used in years Opening balance $0 $600,000 $1,150,000 $1,150,000 $1,150,000 $0 $1,054,215 $958,431 $862,646 $766,862 $671,077 $575,292 $479,508 $383,723 $287,939 $192,154 $192,154 $192,154 $192,154 $192,154 1 through 5 after which it is taken New debt $600,000 $550,000 $1,150,000 out with 10 year City amortization Toal debt o/s $600,000 $1,150,000 $1,150,000 $1,150,000 $1,150,000 $1,150,000 $1,054,215 $958,431 $862,646 $766,862 $671,077 $575,292 $479,508 $383,723 $287,939 $192,154 $192,154 $192,154 $192,154 $192,154 "sinking fund" schedule Interest expense $5,100 $14,875 $19,550 $19,550 $19,550 $57,500 $57,500 $57,500 $57,500 $57,500 $57,500 $57,500 $57,500 $57,500 $57,500 $0 $0 $0 $0 $0 ‐ Interim rate = 1.70% Principal repayment $0 $0 $0 $0 $0 ($95,785) ($95,785) ($95,785) ($95,785) ($95,785) ($95,785) ($95,785) ($95,785) ($95,785) ($95,785) $0 $0 $0 $0 $0 ‐ 10 yr rate = See Amortization Closing balance $600,000 $1,150,000 $1,150,000 $1,150,000 $1,150,000 $1,054,215 $958,431 $862,646 $766,862 $671,077 $575,292 $479,508 $383,723 $287,939 $192,154 $192,154 $192,154 $192,154 $192,154 $192,154 Table Annual Payment $95,785 $95,785 $95,785 $95,785 $95,785 $95,785 $95,785 $95,785 $95,785 $95,785 Actuarial Amount $0 $3,831 $7,816 $11,960 $16,270 $20,752 $25,413 $30,261 $35,303 $40,547 Total Annual Repaid: $95,785 $99,616 $103,601 $107,745 $112,054 $116,537 $121,198 $126,046 $131,088 $136,331 CUM REPAYMENT: $95,785 $195,401 $299,001 $406,746 $518,800 $635,337 $756,535 $882,581 $1,013,669 $1,150,000 THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS = PHASE 2 TOTAL 1 2 3 4567891011121314151617181920 INCOME STATEMENT OPERATING REVENUES: Dark fibre rental $1,062,000 $6,000 $30,000 $60,000 $84,000 $102,000 $120,000 $138,000 $156,000 $174,000 $192,000 $192,000 $192,000 $192,000 $192,000 $192,000 $192,000 $192,000 $192,000 $192,000 $192,000 Customer drop fees $870,840 $4,920 $24,600 $49,200 $68,880 $83,640 $98,400 $113,160 $127,920 $142,680 $157,440 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total revenues $1,932 ,840 $10,920 $54,600 $109,200 $152,880 $185,640 $218,400 $251,160 $283,920 $316,680 $349,440 $192,000 $192,000 $192,000 $192,000 $192,000 $192,000 $192,000 $192,000 $192,000 $192,000 OPERATING EXPENSES: Emergency maintenance and repair fees $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Customer drop expense $757,493 $4,280 $21,398 $42,796 $59,915 $72,754 $85,592 $98,431 $111,270 $124,109 $136,948 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total operating expense $757,493 $4,280 $21,398 $42,796 $59,915 $72,754 $85,592 $98,431 $111,270 $124,109 $136,948 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 INTER‐COMPANY: Dark fibre rental to City $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Labor allocations from City Managerial $207,090 $1,170 $5,850 $11,700 $16,380 $19,890 $23,400 $26,910 $30,420 $33,930 $37,440 $37,440 $37,440 $37,440 $37,440 $37,440 $37,440 $37,440 $37,440 $37,440 $37,440 Marketing Support $70,800 $400 $2,000 $4,000 $5,600 $6,800 $8,000 $9,200 $10,400 $11,600 $12,800 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 AdminAdmin support (i(includedncluded iinn CiCityty OOverhead)verhead) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Network administration $127,440 $720 $3,600 $7,200 $10,080 $12,240 $14,400 $16,560 $18,720 $20,880 $23,040 $23,040 $23,040 $23,040 $23,040 $23,040 $23,040 $23,040 $23,040 $23,040 $23,040 Maintenance and repairs $88,500 $500 $2,500 $5,000 $7,000 $8,500 $10,000 $11,500 $13,000 $14,500 $16,000 $16,000 $16,000 $16,000 $16,000 $16,000 $16,000 $16,000 $16,000 $16,000 $16,000 Maintenance supplies $17,700 $100 $500 $1,000 $1,400 $1,700 $2,000 $2,300 $2,600 $2,900 $3,200 $3,200 $3,200 $3,200 $3,200 $3,200 $3,200 $3,200 $3,200 $3,200 $3,200 Occupancy costs from City $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 NETWORK USAGE FEE pypayable to Cityy $19,328 $109 $546 $1,092 $1,529 $1,856 $2,184 $2,512 $2,839 $3,167 $3,494 $1,920 $1,920 $1,920 $1,920 $1,920 $1,920 $1,920 $1,920 $1,920 $1,920 Overhead allocation from City (Includes Admin support and Occupancy costs ) $69,136 $391 $1,953 $3,906 $5,468 $6,640 $7,812 $8,984 $10,156 $11,327 $12,499 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Net inter‐company expense $599,995 $3,390 $16,949 $33,898 $47,457 $57,627 $67,796 $77,965 $88,135 $98,304 $108,474 $81,600 $81,600 $81,600 $81,600 $81,600 $81,600 $81,600 $81,600 $81,600 $81,600 EBITDA $575,353 $3,251 $16,253 $32,506 $45,508 $55,260 $65,012 $74,763 $84,515 $94,267 $104,019 $110,400 $110,400 $110,400 $110,400 $110,400 $110,400 $110,400 $110,400 $110,400 $110,400 AmortizationAmortization $195,124 $8,139 $9,615 $8,483 $15,073 $21,262 $23,654 $25,082 $26,510 $27,939 $29,367 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 Interest on interim financing debt $18,955 $0 $1,190 $3,740 $6,375 $7,650 Interest on long term debt $112,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $0 $0 $0 $0 $0 NET INCOME/(LOSS) $267,728 ($4,888) $6,638 $24,023 $30,435 $33,998 $18,857 $27,181 $35,505 $43,828 $52,152 $57,518 $57,518 $57,518 $57,518 $57,518 $80,018 $80,018 $80,018 $80,018 $80,018 CASH FLOW STATEMENT OPERATING : Net income $267,728 ($4,888) $6,638 $24,023 $30,435 $33,998 $18,857 $27,181 $35,505 $43,828 $52,152 $57,518 $57,518 $57,518 $57,518 $57,518 $80,018 $80,018 $80,018 $80,018 $80,018 Add: Amortization $195,124 $8,139 $9,615 $8,483 $15,073 $21,262 $23,654 $25,082 $26,510 $27,939 $29,367 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 Cash (to)from operations $462,853 $3,251 $16,253 $32,506 $45,508 $55,260 $42,512 $52,263 $62,015 $71,767 $81,519 $87,900 $87,900 $87,900 $87,900 $87,900 $110,400 $110,400 $110,400 $110,400 $110,400 INVESTING : Capital expenditures ‐ network extension ($575,990) $0 ($156,588) ($190,421) ($190,421) ($38,560) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital expenditures ‐ building connections ($647,431) ($57,126) ($95,210) ($95,210) ($57,126) ($57,126) ($57,126) ($57,126) ($57,126) ($57,126) ($57,126) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital expenditures ‐ capital renewal ($75,669) $0 $0 $0 $0 ($10,425) ($11,621) ($12,335) ($13,049) ($13,763) ($14,477) ($15,191) ($15,191) ($15,191) ($15,191) ($15,191) ($15,191) ($15,191) ($15,191) ($15,191) ($15,191) Cash (to)from investing ($1,299,089) ($57,126) ($251,799) ($285,631) ($247,547) ($106,111) ($68,747) ($69,461) ($70,175) ($70,889) ($71,603) ($15,191) ($15,191) ($15,191) ($15,191) ($15,191) ($15,191) ($15,191) ($15,191) ($15,191) ($15,191) FINANCING : Customer financing (building connections) $647,431 $57,126 $95,210 $95,210 $57,126 $57,126 $57,126 $57,126 $57,126 $57,126 $57,126 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Interim financing debt issued (repaid) $0 $0 $140,000 $160,000 $150,000 $0 ($450,000) Long term financing issued $450,000 $450,000 Long term financing (repaid) ($187,405) ($37,481) ($37,481) ($37,481) ($37,481) ($37,481) ($37,481) ($37,481) ($37,481) ($37,481) ($37,481) $0 $0 $0 $0 $0 Cash ()(to)from financingg $,$910,026$, $57,126$, $235,210$, $255,210$, $207,126$, $57,126$, $19,645$, $19,645$, $19,645$, $19,645$, $19,645 ($($37,481) , ) ($ ($37,481) , ) ($ ($37,481) , ) ($ ($37,481) , ) ($ ($37,481) , ) $$0$ $0$ $0$ $0$ $0 NET CASH INFLOW/(OUTFLOW) $73,789 $3,251 ($335) $2,085 $5,087 $6,275 ($6,590) $2,448 $11,485 $20,523 $29,561 $35,228 $35,228 $35,228 $35,228 $35,228 $95,209 $95,209 $95,209 $95,209 $95,209 Opening cash $0 $3,251 $2,915 $5,000 $10,087 $16,363 $9,773 $12,220 $23,706 $44,229 $73,789 $109,017 $144,245 $179,473 $214,701 $249,929 $345,138 $440,347 $535,555 $630,764 Closing cash $3,251 $2,915 $5,000 $10,087 $16,363 $9,773 $12,220 $23,706 $44,229 $73,789 $109,017 $144,245 $179,473 $214,701 $249,929 $345,138 $440,347 $535,555 $630,764 $725,973 AMORTIZATION: Opening gross book value $0 $48,987 $300,786 $586,417 $833,964 $929,651 $986,777 $1,043,903 $1,101,030 $1,158,156 $1,215,282 $1,215,282 $1,215,282 $1,215,282 $1,215,282 $1,215,282 $1,215,282 $1,215,282 $1,215,282 $1,215,282 Additions during the year $57,126 $251,799 $285,631 $247,547 $95,686 $57,126 $57,126 $57,126 $57,126 $57,126 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Gross book value $57,126$57,126 $300,786$300,786 $586,417$586,417 $833,964$833,964 $929,651$929,651 $986,777$986,777 $1,043,903$1,043,903 $1,101,030$1,101,030 $1,158,156$1,158,156 $1,215,282$1,215,282 $1,215,282$1,215,282 $1,215,282$1,215,282 $1,215,282$1,215,282 $1,215,282$1,215,282 $1,215,282$1,215,282 $1,215,282$1,215,282 $1,215,282$1,215,282 $1,215,282$1,215,282 $1,215,282$1,215,282 $1,215,282$1,215,282 Accumulated amortization ($8,139) ($17,754) ($26,237) ($41,310) ($62,572) ($86,226) ($111,309) ($137,819) ($165,758) ($195,124) ($225,506) ($255,888) ($286,270) ($316,653) ($347,035) ($377,417) ($407,799) ($438,181) ($468,563) ($498,945) Net book value $48,987 $283,032 $560,180 $792,654 $867,079 $900,551 $932,595 $963,211 $992,398 $1,020,158 $989,776 $959,394 $929,012 $898,629 $868,247 $837,865 $807,483 $777,101 $746,719 $716,337 Amortization expense $8,139 $9,615 $8,483 $15,073 $21,262 $23,654 $25,082 $26,510 $27,939 $29,367 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 $30,382 1234567891011121314151617181920 NOTE: DEBT FINANCING: Interim financing is used in years Opening balance $0 $0 $140,000 $300,000 $450,000 $0 $412,519 $375,038 $337,557 $300,076 $262,595 $225,114 $187,634 $150,153 $112,672 $75,191 $75,191 $75,191 $75,191 $75,191 1 through 5 after which it is taken New debt $0 $140,000 $160,000 $150,000 $0 $450,000 out with 10 year City amortization Toal debt o/s $0 $140,000 $300,000 $450,000 $450,000 $450,000 $412,519 $375,038 $337,557 $300,076 $262,595 $225,114 $187,634 $150,153 $112,672 $75,191 $75,191 $75,191 $75,191 $75,191 "sinking fund" schedule Interest expense $0 $1,190 $3,740 $6,375 $7,650 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $22,500 $0 $0 $0 $0 $0 ‐ Interim rate = 1.70% Principal repaymen $0 $0 $0 $0 $0 ($37,481) ($37,481) ($37,481) ($37,481) ($37,481) ($37,481) ($37,481) ($37,481) ($37,481) ($37,481) $0 $0 $0 $0 $0 ‐ 10 yr rate = See Amortization Closing balance $0 $140,000 $300,000 $450,000 $450,000 $412,519 $375,038 $337,557 $300,076 $262,595 $225,114 $187,634 $150,153 $112,672 $75,191 $75,191 $75,191 $75,191 $75,191 $75,191 Table Annual Payment $37,481 $37,481 $37,481 $37,481 $37,481 $37,481 $37,481 $37,481 $37,481 $37,481 Actuarial Amount $0 $1,499 $3,058 $4,680 $6,366 $8,120 $9,944 $11,841 $13,814 $15,866 Total Annual Repaid: $37,481 $38,980 $40,539 $42,161 $43,847 $45,601 $47,425 $49,322 $51,295 $53,347 CUM REPAYMENT $37,481 $76,461 $117,000 $159,161 $203,009 $248,610 $296,035 $345,358 $396,653 $450,000 THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS = PHASE 3 TOTAL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 INCOME STATEMENT OPERATING REVENUES: Dark fibre rental $576,000 $0 $6,000 $24,000 $42,000 $54,000 $66,000 $78,000 $90,000 $102,000 $114,000 $114,000 $114,000 $114,000 $114,000 $114,000 $114,000 $114,000 $114,000 $114,000 $114,000 Customer drop fees $472,320 $0 $4,920 $19,680 $34,440 $44,280 $54,120 $63,960 $73,800 $83,640 $93,480 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total revenues $1,048 ,320 $0 $10,920 $43,680 $76,440 $98,280 $120,120 $141,960 $163,800 $185,640 $207,480 $114,000 $114,000 $114,000 $114,000 $114,000 $114,000 $114,000 $114,000 $114,000 $114,000 OPERATING EXPENSES: Emergency maintenance and repair fees $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Customer drop expense $410,844 $0 $4,280 $17,118 $29,957 $38,517 $47,076 $55,635 $64,194 $72,754 $81,313 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total operating expense $410,844 $0 $4,280 $17,118 $29,957 $38,517 $47,076 $55,635 $64,194 $72,754 $81,313 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 INTER‐COMPANY: Dark fibre rental to City $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Labor allocations from City Managerial $112,320 $0 $1,170 $4,680 $8,190 $10,530 $12,870 $15,210 $17,550 $19,890 $22,230 $22,230 $22,230 $22,230 $22,230 $22,230 $22,230 $22,230 $22,230 $22,230 $22,230 Marketing Support $38,400 $0 $400 $1,600 $2,800 $3,600 $4,400 $5,200 $6,000 $6,800 $7,600 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 AdminAdmin support (i(includedncluded iinn CiCityty OOverhead)verhead) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Network administration $69,120 $0 $720 $2,880 $5,040 $6,480 $7,920 $9,360 $10,800 $12,240 $13,680 $13,680 $13,680 $13,680 $13,680 $13,680 $13,680 $13,680 $13,680 $13,680 $13,680 Maintenance and repairs $48,000 $0 $500 $2,000 $3,500 $4,500 $5,500 $6,500 $7,500 $8,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 Maintenance supplies $9,600 $0 $100 $400 $700 $900 $1,100 $1,300 $1,500 $1,700 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 Occupancy costs from City $1 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 NETWORK USAGE FEE pypayable to Cityy $10,483 $0 $109 $437 $764 $983 $1,201 $1,420 $1,638 $1,856 $2,075 $1,140 $1,140 $1,140 $1,140 $1,140 $1,140 $1,140 $1,140 $1,140 $1,140 Overhead allocation from City (Includes Admin support and Occupancy costs ) $37,498 $0 $391 $1,562 $2,734 $3,515 $4,297 $5,078 $5,859 $6,640 $7,421 $6,357 $6,357 $6,357 $6,357 $6,357 $6,357 $6,357 $6,357 $6,357 $6,357 Net inter‐company expense $325,422 $0 $3,390 $13,559 $23,729 $30,508 $37,288 $44,068 $50,847 $57,627 $64,406 $54,808 $54,808 $54,808 $54,808 $54,808 $54,808 $54,808 $54,808 $54,808 $54,808 EBITDA $312,054 ($0) $3,250 $13,002 $22,754 $29,255 $35,756 $42,257 $48,759 $55,260 $61,761 $59,192 $59,192 $59,192 $59,192 $59,192 $59,192 $59,192 $59,192 $59,192 $59,192 AmortizationAmortization $216,526 $8,139 $8,187 $8,416 $16,117 $23,773 $28,882 $29,861 $30,455 $31,050 $31,645 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 Interest on interim financing debt $44,115 $255 $2,975 $8,415 $13,940 $18,530 Interest on long term debt $302,500 $60,500 $60,500 $60,500 $60,500 $60,500 $60,500 $60,500 $60,500 $60,500 $60,500 $0 $0 $0 $0 $0 NET INCOME/(LOSS) ($206,972) ($8,139) ($4,937) $4,586 $6,637 $5,482 ($53,626) ($48,103) ($42,197) ($36,291) ($30,384) ($33,135) ($33,135) ($33,135) ($33,135) ($33,135) $27,365 $27,365 $27,365 $27,365 $27,365 CASH FLOW STATEMENT OPERATING : Net income ($206,972) ($8,139) ($4,937) $4,586 $6,637 $5,482 ($53,626) ($48,103) ($42,197) ($36,291) ($30,384) ($33,135) ($33,135) ($33,135) ($33,135) ($33,135) $27,365 $27,365 $27,365 $27,365 $27,365 Add: Amortization $216,526 $8,139 $8,187 $8,416 $16,117 $23,773 $28,882 $29,861 $30,455 $31,050 $31,645 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 Cash (to)from operations $9,554 ($0) $3,250 $13,002 $22,754 $29,255 ($24,744) ($18,243) ($11,741) ($5,240) $1,261 ($1,308) ($1,308) ($1,308) ($1,308) ($1,308) $59,192 $59,192 $59,192 $59,192 $59,192 INVESTING : Capital expenditures ‐ network extension ($1,275,463) ($37,598) ($287,217) ($376,095) ($327,194) ($232,011) ($15,348) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital expenditures ‐ building connections ($237,960) $0 ($23,796) ($47,592) ($23,796) ($23,796) ($23,796) ($23,796) ($23,796) ($23,796) ($23,796) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Capital expenditures ‐ capital renewal ($86,595) $0 $0 $0 $0 ($11,680) ($14,235) ($14,724) ($15,021) ($15,319) ($15,616) ($15,914) ($15,914) ($15,914) ($15,914) ($15,914) ($15,914) ($15,914) ($15,914) ($15,914) ($15,914) Cash (to)from investing ($1,600,018) ($37,598) ($311,013) ($423,687) ($350,990) ($267,487) ($53,379) ($38,520) ($38,817) ($39,115) ($39,412) ($15,914) ($15,914) ($15,914) ($15,914) ($15,914) ($15,914) ($15,914) ($15,914) ($15,914) ($15,914) FINANCING : Customer financing (building connections) $237,960 $0 $23,796 $47,592 $23,796 $23,796 $23,796 $23,796 $23,796 $23,796 $23,796 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Interim financing debt issued (repaid) $0 $30,000 $290,000 $350,000 $300,000 $240,000 ($1,210,000) Long term financing issued $1,210,000 $1,210,000 Long term financing (repaid) ($503,910) ($100,782) ($100,782) ($100,782) ($100,782) ($100,782) ($100,782) ($100,782) ($100,782) ($100,782) ($100,782) $0 $0 $0 $0 $0 Cash (to)from financing $944,049 $30,000 $313,796 $397,592 $323,796 $263,796 ($76,986) ($76,986) ($76,986) ($76,986) ($76,986) ($100,782) ($100,782) ($100,782) ($100,782) ($100,782) $0 $0 $0 $0 $0 NET CASH INFLOW/(OUTFLOW) ($646,414) ($7,598) $6,033 ($13,093) ($4,441) $25,564 ($155,109) ($133,748) ($127,545) ($121,341) ($115,137) ($118,003) ($118,003) ($118,003) ($118,003) ($118,003) $43,279 $43,279 $43,279 $43,279 $43,279 Opening cash $0 ($7,598) ($1,565) ($14,658) ($19,098) $6,466 ($148,643) ($282,391) ($409,936) ($531,277) ($646,414) ($764,417) ($882,421) ($1,000,424) ($1,118,427) ($1,236,430) ($1,193,151) ($1,149,873) ($1,106,594) ($1,063,315) Closing cash ($7,598) ($1,565) ($14,658) ($19,098) $6,466 ($148,643) ($282,391) ($409,936) ($531,277) ($646,414) ($764,417) ($882,421) ($1,000,424) ($1,118,427) ($1,236,430) ($1,193,151) ($1,149,873) ($1,106,594) ($1,063,315) ($1,020,036) AMORTIZATION: Opening gross book value $0 ‐$8,139 $298,117 $628,168 $934,424 $1,138,762 $1,177,906 $1,201,702 $1,225,498 $1,249,294 $1,273,090 $1,273,090 $1,273,090 $1,273,090 $1,273,090 $1,273,090 $1,273,090 $1,273,090 $1,273,090 $1,273,090 Additions during the year $0 $306,256 $330,052 $306,256 $204,338 $39,144 $23,796 $23,796 $23,796 $23,796 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Gross book value $$00 $$298,117298,117 $$628,168628,168 $$934,424934,424 $$1,138,7621,138,762 $$1,177,9061,177,906 $$1,201,7021,201,702 $$1,225,4981,225,498 $$1,249,2941,249,294 $$1,273,0901,273,090 $$1,273,0901,273,090 $$1,273,0901,273,090 $$1,273,0901,273,090 $$1,273,0901,273,090 $$1,273,0901,273,090 $$1,273,0901,273,090 $$1,273,0901,273,090 $$1,273,0901,273,090 $$1,273,0901,273,090 $$1,273,0901,273,090 Accumulated amortization ($8,139) ($16,326) ($24,742) ($40,859) ($64,633) ($93,514) ($123,375) ($153,830) ($184,881) ($216,526) ($248,353) ($280,180) ($312,008) ($343,835) ($375,662) ($407,489) ($439,317) ($471,144) ($502,971) ($534,798) Net book value ‐$8,139 $281,791 $603,426 $893,565 $1,074,129 $1,084,392 $1,078,327 $1,071,668 $1,064,414 $1,056,564 $1,024,737 $992,910 $961,083 $929,255 $897,428 $865,601 $833,774 $801,946 $770,119 $738,292 Amortization expense $8,139 $8,187 $8,416 $16,117 $23,773 $28,882 $29,861 $30,455 $31,050 $31,645 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 $31,827 1 2 3 4 5 6 7 8 9 1011121314151617181920 NOTE: DEBT FINANCING: Interim financing is used in years Opening balance $0 $30,000 $320,000 $670,000 $970,000 $0 $1,109,218 $1,008,436 $907,654 $806,872 $706,090 $605,308 $504,526 $403,744 $302,962 $202,180 $202,180 $202,180 $202,180 $202,180 1 through 5 after which it is taken New debt $30,000 $290,000 $350,000 $300,000 $240,000 $1,210,000 out with 10 year City amortization Toal debt o/s/ $30,000 $320,000 $670,000 $970,000 $1,210,000 $1,210,000 $1,109,218 $1,008,436 $907,654 $806,872 $706,090 $605,308 $504,526 $403,744 $302,962 $202,180 $202,180 $202,180 $202,180 $202,180 "sinking fund" schedule Interest expense $255 $2,975 $8,415 $13,940 $18,530 $60,500 $60,500 $60,500 $60,500 $60,500 $60,500 $60,500 $60,500 $60,500 $60,500 $0 $0 $0 $0 $0 ‐ Interim rate 1.70% Principal repayment $0 $0 $0 $0 $0 ($100,782) ($100,782) ($100,782) ($100,782) ($100,782) ($100,782) ($100,782) ($100,782) ($100,782) ($100,782) $0 $0 $0 $0 $0 ‐ 10 yr rate = See Amortization Closing balance $30,000 $320,000 $670,000 $970,000 $1,210,000 $1,109,218 $1,008,436 $907,654 $806,872 $706,090 $605,308 $504,526 $403,744 $302,962 $202,180 $202,180 $202,180 $202,180 $202,180 $202,180 Table Annual Payment $100,782 $100,782 $100,782 $100,782 $100,782 $100,782 $100,782 $100,782 $100,782 $100,782 Actuarial Amount $0 $4,031 $8,224 $12,584 $17,119 $21,835 $26,739 $31,840 $37,145 $42,662 Total Annual Repaid: $100,782 $104,813 $109,006 $113,366 $117,901 $122,617 $127,521 $132,622 $137,927 $143,444 CUM REPAYMENT: $100,782 $205,595 $314,601 $427,967 $545,868 $668,485 $796,006 $928,629 $1,066,556 $1,210,000 10 Year Term PHASE I 4% Capitalization Rate 10 Year Term PHASE II 4% Capitalization Rate 10 Year Term PHASE III 4% Capitalization Rate Principal: 1,150,000.00 Interest Rate: 5.00% S/F Factor: 0.083290944 Principal: 450,000.00 Interest Rate: 5.00% S/F Factor: 0.083290944 Principal: 1,210,000.00 Interest Rate: 5.00% S/F Factor: 0.083290944 Principal Pymnt Interest Pymnt Total Pymnt Actuarial Reducing Balance Principal Pymnt Interest Pymnt Total Pymnt Actuarial Reducing Balance Principal Pymnt Interest Pymnt Total Pymnt Actuarial Reducing Balance 1,150,000.00 450,000.00 1,210,000.00 Yr 1 Semi Annual 28,750.00 28,750.00 1,150,000.00 Yr 1 Semi Annual 11,250.00 11,250.00 450,000.00 Yr 1 Semi Annual 30,250.00 30,250.00 1,210,000.00 Yr 1 Annual 95,784.59 28,750.00 124,534.59 1,054,215.41 Yr 1 Annual 37,480.92 11,250.00 48,730.92 412,519.08 Yr 1 Annual 100,782.04 30,250.00 131,032.04 1,109,217.96 Yr 2 Semi Annual 28,750.00 28,750.00 1,054,215.41 Yr 2 Semi Annual 11,250.00 11,250.00 412,519.08 Yr 2 Semi Annual 30,250.00 30,250.00 1,109,217.96 Yr 2 Annual 95,784.59 28,750.00 124,534.59 3,831.38 954,599.44 Yr 2 Annual 37,480.92 11,250.00 48,730.92 1,499.24 373,538.91 Yr 2 Annual 100,782.04 30,250.00 131,032.04 4,031.28 1,004,404.63 Yr 3 Semi Annual 28,750.00 28,750.00 954,599.44 Yr 3 Semi Annual 11,250.00 11,250.00 373,538.91 Yr 3 Semi Annual 30,250.00 30,250.00 1,004,404.63 Yr 3 Annual 95,784.59 28,750.00 124,534.59 7,816.02 850,998.84 Yr 3 Annual 37,480.92 11,250.00 48,730.92 3,058.44 332,999.54 Yr 3 Annual 100,782.04 30,250.00 131,032.04 8,223.81 895,398.78 Yr 4 Semi Annual 28,750.00 28,750.00 850,998.84 Yr 4 Semi Annual 11,250.00 11,250.00 332,999.54 Yr 4 Semi Annual 30,250.00 30,250.00 895,398.78 Yr 4 Annual 95,784.59 28,750.00 124,534.59 11,960.05 743,254.20 Yr 4 Annual 37,480.92 11,250.00 48,730.92 4,680.02 290,838.60 Yr 4 Annual 100,782.04 30,250.00 131,032.04 12,584.05 782,032.68 Yr 5 Semi Annual 28,750.00 28,750.00 743,254.20 Yr 5 Semi Annual 11,250.00 11,250.00 290,838.60 Yr 5 Semi Annual 30,250.00 30,250.00 782,032.68 Yr 5 Annual 95,784.59 28,750.00 124,534.59 16,269.83 631,199.79 Yr 5 Annual 37,480.92 11,250.00 48,730.92 6,366.46 246,991.22 Yr 5 Annual 100,782.04 30,250.00 131,032.04 17,118.69 664,131.95 Yr 6 Semi Annual 28,750.00 28,750.00 631,199.79 Yr 6 Semi Annual 11,250.00 11,250.00 246,991.22 Yr 6 Semi Annual 30,250.00 30,250.00 664,131.95 Yr 6 Annual 95,784.59 28,750.00 124,534.59 20,752.01 514,663.19 Yr 6 Annual 37,480.92 11,250.00 48,730.92 8,120.35 201,389.94 Yr 6 Annual 100,782.04 30,250.00 131,032.04 21,834.72 541,515.18 Yr 7 Semi Annual 28,750.00 28,750.00 514,663.19 Yr 7 Semi Annual 11,250.00 11,250.00 201,389.94 Yr 7 Semi Annual 30,250.00 30,250.00 541,515.18 Yr 7 Annual 95,784.59 28,750.00 124,534.59 25,413.47 393,465.13 Yr 7 Annual 37,480.92 11,250.00 48,730.92 9,944.40 153,964.62 Yr 7 Annual 100,782.04 30,250.00 131,032.04 26,739.39 413,993.75 Yr 8 Semi Annual 28,750.00 28,750.00 393,465.13 Yr 8 Semi Annual 11,250.00 11,250.00 153,964.62 Yr 8 Semi Annual 30,250.00 30,250.00 413,993.75 Yr 8 Annual 95,784.59 28,750.00 124,534.59 30,261.39 267,419.15 Yr 8 Annual 37,480.92 11,250.00 48,730.92 11,841.42 104,642.28 Yr 8 Annual 100,782.04 30,250.00 131,032.04 31,840.25 281,371.46 Yr 9 Semi Annual 28,750.00 28,750.00 267,419.15 Yr 9 Semi Annual 11,250.00 11,250.00 104,642.28 Yr 9 Semi Annual 30,250.00 30,250.00 281,371.46 Yr 9 Annual 95,784.59 28,750.00 124,534.59 35,303.23 136,331.33 Yr 9 Annual 37,480.92 11,250.00 48,730.92 13,814.31 53,347.04 Yr 9 Annual 100,782.04 30,250.00 131,032.04 37,145.14 143,444.27 Yr 10 Semi Annual 28,750.00 28,750.00 136,331.33 Yr 10 Semi Annual 11,250.00 11,250.00 53,347.04 Yr 10 Semi Annual 30,250.00 30,250.00 143,444.27 Yr 10 Annual 95,784.59 28,750.00 124,534.59 40,546.75 ‐0.00 Yr 10 Annual 37,480.92 11,250.00 48,730.92 15,866.12 ‐0.00 Yr 10 Annual 100,782.04 30,250.00 131,032.04 42,662.23 ‐0.00 TOTALS: 957,845.86 575,000.00 1,532,845.86 192,154.14 TOTALS: 374,809.25 225,000.00 599,809.25 75,190.75 TOTALS: 1,007,820.43 605,000.00 1,612,820.43 202,179.57 pal repaid plus total actuarial earnings equal amount originally borrowed Total principal repaid plus total actuarial earnings equal amount originally borrowed Total principal repaid plus total actuarial earnings equal amount originally borrowed NOTE: This schedule of payments is calculated on an estimate of rates based on today's rate. 5‐Apr‐11 NOTE: This schedule of payments is calculated on an estimate of rates based on today's rate. 5‐Apr‐11 NOTE: This schedule of payments is calculated on an estimate of rates based on today's rate. 5‐Apr‐11 15 APPENDIX B - DETAILED CAPITAL ASSUMPTIONS Municipal Fibre Network & Technology Centre 89 | Page THE CITY OF PRINCE GEORGE KEY CAPITAL ASSUMPTIONS MUNICIPAL FIBRE NETWORK & DATA CENTRE InInputput ‐ Shaded cells onlyonly Capital Costs MilMaterial CComponent: Fibre Count (Units) 72 Refers to the Fibre Cable Strand count to be used in the network. Source: discussions between City of PG and Stantec. Cable Cost ($/m) $5.40 Refers to the cost of the fibre cable to be used in the network expansion (normalized to a $/m rate for the fibre cable): Source: Texscan Cables Inc ‐ Edmonton, AB. A/E Material Costs (includes Strand, pole line Refers to the Capital requirements for the necessary Fiber materials and construction costs to provide fibre drops from the Network to the customer drop point. $$1.531.53 hardware,hd lhilashing wire)i) ($/($/m) ) 00%0.0% SSource: RGE CdCanada ULC fibfiber contractortt ‐ ClCalgary, ABAB. Total MATERIALS A/E ($/m) $6.93 Refers to the total cost of materials to create the network (normalized to a $/m rate) 60mm Conduit Cost ($/m) $3.00 Refers to the Cost of the conduit to be used in the network expansion (normalized to a $/m rate): Source: Texscan cables Inc ‐ Edmonton, AB. 75mm Conduit Cost ($/m) $3.75 Refers to the Cost of the conduit to be used in the network expansion (normalized to a $/m rate): Source: Texscan cables Inc ‐ Edmonton, AB. 100mm00 CoConduit du t Cost ($/($/m) ) $$66.00.00 Refers to the Cost of the conduit to be used in the network expansionexpansion ((normalizednormalized to a $/$/mm rate):rate): Source: Texscan cables Inc ‐ Edmonton, ABAB.. Misc H/w, FOSC, Fiber Termination ($/m) $5.00 Refers to costs of miscellaneous fibre network OSP Hardware to create the network (normalized to a $/m rate). Source: RGE Canada ULC fiber contractor ‐ Calgary, AB. Total MATERIALS U/G ($/m) $16.40 Refers to the total cost of materials to create the network (normalized to a $/m rate) Labour Component: Engineering, Design and PM Costs ($/m) $3.00 Refers to the Capital requirements for the necessary Network planning, Design and Project Management costs normalized to a $/m rate. Source: Stantec PermitsPermits, AApplicationspplications, StakingsStakings CCostost ($/($/m)m) $1.00 RefersRefers to thethe CCapitalapital requrequirementsirements to support tthehe networnetworkk bbuilduild, specspecificallyifically PPermitsermits, appapplicationslications, stakingsstakings etc normalizednormalized to a $/m$/m rate.rate SSource:ource: SStantectantec Conduit Install ($/m) $6.00 Refers to the Capital requirements for the installation of the conduit on a $/m rate. Source: RGE canada Inc fiber contractor ‐ Calgary, AB. Fibre Placement ($/m) $5.85 Refers to the Capital requirements for the necessary Fiber materials and construction costs to provide fibre drops from the Network to the customer drop point Fibre Splicing ($/Strand) $13.40 Refers to the Capital requirements for splicing of the fibres. Source: RGE Canada ULC fiber contractor ‐ Calgary, AB. Fibre Testing (OTDR testing end to end @ 1310nm $13.30 RefersRefers ttoo ththee CCapitalapital requrequirementsirements fforor ththee necessary FibFiberer materialsmaterials anandd consconstructiontruction coscoststs ttoo provprovideide fibfibrere ddropsrops ffromrom ththee NNetworketwork ttoo ththee cuscustomertomer ddroprop popointint AND 1550nm) FOSC Install ($/Each) $370.00 Refers to the Capital requirements for the installation of the Fibre optic enclosures at all splice and breakout points on the network. Source: RJE canada ULC, Calgary, VAULT Install ($/Each) $650.00 Refers to the Capital requirements for the necessary Fiber materials and construction costs to provide fibre drops from the Network to the customer drop point Coring/Tie Ins to City Duct Structure ($/Each) $650.00 Refers to the Capital requirements for establishing the Tie Ins to City Duct Structure. Source: RGE Canada ULC fiber contractor ‐ Calgary, AB. RfRefers tto ththe CitlCapital requirementsit for ththe necessary FibFiber materiatills andd constructiontti costst tto provideid fibfibre ddrops from tthhe propertyt lliine tot tthhe customert premise.i ThiThis $260.00 Customer Drops (A/E 60 meters Avg) ($/each) cost is for an A/E drop connection. Source: RGE Canada ULC fiber contractor ‐ Calgary, AB. Refers to the Capital requirements for the necessary Fiber materials and construction costs to provide fibre drops from the property line to the customer premise. This $4,279.62 BUS Customer Drops (U/G 50 meters Avg) ($/each) cost is for an U/G drop connection. Source: RGE Canada ULC fiber contractor ‐ Calgary, AB. Number of Splice points/km 1.0 Refers to the number of Splice points per Km assumed to be required to complete the network. Source: Stantec Number of FOSC Install/km 1.0 Refers to the number of FOSC locations required per Km in order to complete the network. Source: Stantec Number of Vaults/km 1.0 Refers to the number of FOSC/Vault locations requiredq pper Km in order to completep the network. Source: Stantec Number of A/E drops/km 0.0 0.0% Refers to the number of A/E drops expected per Km in order to complete the network. Source: Stantec Number of U/G drops/km 0.0 100.0% Refers to the number of U/G drops expected per Km in order to complete the network. Source: Stantec Number of Duct Structure Tie‐In's /km 1.0 Refers to the number of City duct structure tie‐in's required per Km in order to complete the network. Source: Stantec Total (Blended) LABOUR A/E ($/m) $6.94 Refers to the Total Blended labour rate in $/m to complete the necessary A/E consruction on the Network. Total (Blended) LABOUR U/G ($/m) $19.44 Refers to the Total Blended labour rate in $/m to complete the necessary U/G consruction on the Network. Construction Components: A/E Construction Costs Fiber lashing/install (placing strand and lashing fiber) $9.75 Refers to the Capital requirements for the necessary A/E construction costs to build the Network. Source: RJE Canada ULC, Calgary, AB ($/m) 0.0% U/E Construction Costs Plowing Costs‐DOWNTOWN ($/m) $5.18 0.0% Refers to the Capital requirements for U/G Construction, specifically plowing of the conduit/fibre to build the Network. Source: RJE Canada ULC, Calgary, AB Trenchingh Costs‐DOWNTOWN ($/($/m) ) $14.50 0.0% Refers to the Capital requirements for U/G Construction, specifically trenching of the conduit/fibre to build the Network. Source: RJE Canada ULC, Calgary, AB Directional Boring Costs‐DOWNTOWN ($/m) $49.75 100.0% Refers to the Capital requirements for U/G Construction, specifically directional boring of the conduit to build the Network. Source: RJE Canada ULC, Calgary, AB Plowing Costs‐CARTER INDUSTRIAL ($/m) $5.18 10.0% Refers to the Capital requirements for U/G Construction, specifically plowing of the conduit/fibre to build the Network. Source: RJE Canada ULC, Calgary, AB Trenching Costs ‐CARTER INDUSTRIAL ($/m) $14.50 20.0% Refers to the Capital requirements for U/G Construction, specifically trenching of the conduit/fibre to build the Network. Source: RJE Canada ULC, Calgary, AB Directional BoringBoring Costs‐CARTER INDUSTRIAL (($/m)$/m) $$4949.75.75 70 70.0.0%% Refers to the CapitalCapital rerequirementsquirements for U/GU/G Construction, specificallyspecifically directional boringboring of the conduit to build the Network.Network. Source: RJE Canada ULC, CalgaryCalgary,, AB Plowing Costs‐BOUNDARY ROAD ($/m) $5.18 75.0% Refers to the Capital requirements for U/G Construction, specifically plowing of the conduit/fibre to build the Network. Source: RJE Canada ULC, Calgary, AB Trenching Costs‐BOUNDARY ROAD ($/m) $14.50 20.0% Refers to the Capital requirements for U/G Construction, specifically trenching of the conduit/fibre to build the Network. Source: RJE Canada ULC, Calgary, AB Directional Boring Costs‐BOUNDARY ROAD ($/m) $49.75 5.0% Refers to the Capital requirements for U/G Construction, specifically directional boring of the conduit to build the Network. Source: RJE Canada ULC, Calgary, AB Crossings@ ($/m) $110.00 10.0% Refers to the Capital requirements for the necessary construction costs to facilitate street crossings for the network build. Source: RJE Canada ULC, Calgary, AB CONCRETE ‐ RRestorationestoration CostsCosts ($/($/m)m) $24$24.00 00 50%5.0% RfRefers tto ththe CitlCapital requirementsit for ththe CtConcrete relltdated restorationtti costst tto supportt ththe networtkk bui ildld. SSource: CitCity of PG ASPHALT ‐ Restoration Costs ($/m) $14.00 20.0% Refers to the Capital requirements for the Asphalt related restoration costs to support the network build. Source: City of PG SOD AND IRRIGATION ‐ Restoration Costs ($/m) $9.00 25.0% Refers to the Capital requirements for the Sod and irrigation related restoration costs to support the network build. Source: City of PG BOULEVARD/DITCHES ‐ Restoration Costs ($/m) $1.00 50.0% Refers to the Capital requirements for the Boulevard/Ditches related restoration costs to support the network build. Source: City of PG BLENDED Restoration Costs ($/m) $6.75 Refers to the Capitalp requirementsq for the necessaryy construction costs to facilitate street crossingsg for the network build. Source: RJE Canada ULC, Calgary,gy AB Total (Blended) Construction Rate ‐DOWNTOWN ($/m) $74.25 Refers to the Blended Capital requirements $ cost/m to facilitate the network build. Restoration costs at 2X blended rate for Downtown Total (Blended) Construction Rate ‐CARTER INDUSTRIAL $59.37 Refers to the Blended Capital requirements $ cost/m to facilitate the network build. Restoration costs at 1.5X blended rate for Carter Light Industrial area. Total (Blended) Construction Rate ‐BOUNDARY ROAD $23.65 Refers to the Blended Capital requirements $ cost/m to facilitate the network build. Restoration costs at 0.5X blended rate for Boundary Road Industrial Network Build‐Out Assumptions: 1 The Downtown Core has the highest priority. Completed within 2 yrs. 2 The College light Industrial area has 2nd priority.priority. Completed over next 5 yrsyrs.. The Boundary Road industrial development has 3rd priority, although it can be started at the same time as the College area. Connectivity to be achieved over 3 years, however full redundancy 3 to be achiebed over 6 yrs. 4 Creation of fiber Rings has 4th priority 5 NetNetwor orkk backbonebackbone eexpans pansionion iiss compcompletedleted oerover a 6 yrr timeframetimeframe 6 Existing empty conduit to be filled with new fiber 5 Existing fibre in conduit assumed to have sufficent capacity to meet future needs. No new fibre assumed for this network portion NETWORK CONSTRUCTION SUMMARY ((ALL AREAS)) TOTALS YR 1YR 2YR 3YR 4YR 5YR 6YR 7YR 8YR 9YR 10 DOWNTOWN CORE (PHASE I) Refers to the Completed Network total Route Km. Including all existing fiber in conduit, existing empty conduit and any new Total Build Route (m) 16,898 11,601 16,898 16,898 16,898 16,898 16,898 Network extension component. Existing Conduit Only (m) 580 580 0 Refers to all existing empty conduit only in this area. Existing Fibre in Conduit (m) 5,724 5,724 11,601 16,898 Refers to all existing fibre in conduit in this area. Refers to all new Network extension required (both new conduit and new fibre will be required to complete this portion). New Conduit Required (m) 10,594 5,297 5,297 Refers to all new fibre cable required in order to complete all new plant extensions and fill any existing empty conduits in New Fibre Required (m) 11,174 5,877 5,297 the area. Totall CUM NETWORK Build:ild 16,898 11,601 16,898 CARTER LIGHT INDUSTRIAL (PHASE II) Refers to the Completed Network total Route Km. Including all existing fiber in conduit, existing empty conduit and any new Total Build Route (m) 10,728 4,204 6,323 8,323 10,323 10,728 10,728 Network extension component. Existing Conduit Only (m) 619 0 619 0 0 0 Refers to all existing empty conduit only in this area. Existing Fibre in Conduit (m) 4,204 4,204 4,204 6,323 8,323 10,323 10,728 Refers to all existing fibre in conduit in this area. Refers to all new Network extension required (both new conduit and new fibre will be required to complete this portion). New Conduit Required (m) 5,905 0 1,500 2,000 2,000 405 Refers to all new fibre cable required in order to complete all new plant extensions and fill any existing empty conduits in New Fibre Required (m) 6,524 0 2,119 2,000 2,000 405 the area. Total CUM NETWORK Build: 10,728 4,204 6,323 8,323 10,323 10,728 10,728 BOUNDARY ROAD INDUSTRIAL ‐ AIRPORT (PHASE III) Refers to the Completed Network total Route Km. Including all existing fiber in conduit, existing empty conduit and any new Total Build Route (m) 22,188 0 6,000 12,000 18,000 21,930 22,188 22,188 Network extension component. Existing Conduit Only (m) 7,430 2,000 2,000 2,000 1,430 0 0 Refers to all existing empty conduit only in this area. Existing Fibre in Conduit (m) 0 0 0 6,000 12,000 18,000 21,930 22,188 Refers to all existing fibre in conduit in this area. Refers to all new Network extension required (both new conduit and new fibre will be required to complete this portion). New Conduit Required (m) 14,758 0 4,000 4,000 4,000 2,500 258 Refers to all new fibre cable required in order to complete all new plant extensions and fill any existing empty conduits in New Fibre Required (m) 22,188 0 6,000 6,000 6,000 3,930 258 the area. Total CUM NETWORK Build: 22,188 0 6,000 12,000 18,000 21,930 22,188 22,188 CITY WIDE TRANSPORT ‐ BACKBONE Refers to the Completed Network total Route Km. Including all existing fiber in conduit, existing empty conduit and any new Total Build Route (m) 19,394 8,781 11,609 13,931 15,994 17,957 19,394 19,394 Network extension component. Existing Conduit Only (m) 6,563 2,000 2,000 0 563 563 1,437 Refers to all existing empty conduit only in this area. Existing Fibre in Conduit (m) 6,149 6,149 8,781 11,609 13,931 15,994 17,957 19,394 Refers to all existing fibre in conduit in this area. Refers to all new Network extension required (both new conduit and new fibre will be required to complete this portion). New Conduit Required (m) 6,682 632 828 2,322 1,500 1,400 0 Refers to all new fibre cable required in order to complete all new plant extensions and fill any existing empty conduits in New Fibre Required (m) 13,245 2,632 2,828 2,322 2,063 1,963 1,437 0 the area. Total CUM NETWORK Build: 19,39419,394 8,7818,781 11,60911,609 13,93113,931 15,99415,994 17,95717,957 19,39419,394 19,39419,394 TOTALS YR 1YR 2YR 3YR 4YR 5YR 6YR 7YR 8YR 9YR 10 Refers to the annual completed total Network Route Km, across all areas. This includes all existing fiber in conduit, existing TOTAL CUM NETWORK SUMMARY (ALL AREAS) 69,208 24,586 40,830 51,152 61,215 67,513 69,208 69,208 0 0 0 empty conduit and any new Network extension components. EXISTING EMPTY CONDUIT (ALL AREAS) 15,192 2,580 4,619 2,000 2,563 1,993 1,437 0000Refers to all existing empty conduit across all area. TOTALS NEW CONDUIT (ALL AREAS) 37,939 5,929 11,625 8,322 7,500 4,305 258 0000Refers to all NEW conduit required across all areas. TOTALS EXISTING FIBRE (ALL AREAS) 16,077 16,077 0 0 0 000000Refers to all existing fibre in conduit across all areas. TOTALS NEW FIBRE (ALL AREAS) 53,131 8,509 16,244 10,322 10,063 6,298 1,695 0000Refers to all NEW fibre required across all areas. THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE DATE: 5‐Apr‐11 CAPITAL OUTLAY SUMMARY EXISTING CITY DUCT SUMMARY ($ ALL AREAS) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 DOWNTOWN CORE (PHASE I) Existing City Duct Split‐Vault Overbuilds: $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 New Conduit Installation: $77.25 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 New Vault or Pull box: $650.00 Loc $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Fiber Cable Placement (Overpulls): $5.85 /m $3,393 $0 $0 $0 $0 $0 $0 $0 $0 $0 Fiber Cable Placement (New pulls): $5.85 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Materials: $16.40 /m $9,512 $0 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Existing City Duct: $12,905 $0 $0 $0 $0 $0 $0 $0 $0 $0 CARTER LIGHT INDUSTRIAL (PHASE II) Existing City Duct Split‐Vault Overbuilds: $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 New Conduit Installation: $77.25 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 New Vault or Pull box: $650.00 Loc $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Fiber Cable Placement (Overpulls): $5.85 /m $0 $3,621 $0 $0 $0 $0 $0 $0 $0 $0 Fiber Cable Placement (New pulls): $5.85 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Materials: $16.40 /m $0 $10,152 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal Existing City Duct: $0 $13,773 $0 $0 $0 $0 $0 $0 $0 $0 BOUNDARY ROAD INDUSTRIAL ‐ AIRPORT AREA (PHASE III) Existing City Duct Split‐Vault Overbuilds: $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 New Conduit Installation: $77.25 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 New Vault or Pull box: $650.00 Loc $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Fiber Cable Placement (Overpulls): $5.85 /m $0 $11,700 $11,700 $11,700 $8,366 $0 $0 $0 $0 $0 Fiber Cable Placement (New pulls): $5.85 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Materials: $16.40 /m $0 $32,800 $32,800 $32,800 $23,452 $0 $0 $0 $0 $0 Subtotal Existing City Duct: $0 $44,500 $44,500 $44,500 $31,818 $0 $0 $0 $0 $0 TOTAL Existing City Duct: $12,905 $58,273 $44,500 $44,500 $31,818 $0 $0 $0 $0 $0 NEW NETWORK EXTENSIONS SUMMARY ($ ALL AREAS) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 DOWNTOWN CORE (PHASE I) New Network Extensions A/E Construction: $16.69 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Includes Fiber lashing/install (placing strand and lashing fiber) Materials: $6.93 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 U/G Construction: $93.69 /m $496,289 $496,289 $0 $0 $0 $0 $0 $0 $0 $0 Includes New Conduit Installation, I New Vault or Pull box and Fiber Cable Placement, plus all associated labour components Materials: $16.40 /m $86,871 $86,871 $0 $0 $0 $0 $0 $0 $0 $0 Subtotal New Network Extensions: $583,159 $583,159 $0 $0 $0 $0 $0 $0 $0 $0 CARTER LIGHT INDUSTRIAL (PHASE II) New Network Extensions A/E Construction: $16.69 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Includes Fiber lashing/install (placing strand and lashing fiber) Materials: $6.93 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 U/G Construction: $78.81 /m $0 $118,216 $157,621 $157,621 $31,918 $0 $0 $0 $0 $0 Includes New Conduit Installation, I New Vault or Pull box and Fiber Cable Placement, plus all associated labour components Materials: $16.40 /m $0 $24,600 $32,800 $32,800 $6,642 $0 $0 $0 $0 $0 Subtotal New Network Extensions: $0 $142,816 $190,421 $190,421 $38,560 $0 $0 $0 $0 $0 BOUNDARY ROAD INDUSTRIAL ‐ (PHASE III) New Network Extensions A/E Construction: $16.69 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Includes Fiber lashing/install (placing strand and lashing fiber) Materials: $6.93 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 U/G Construction: $43.09 /m $0 $172,360 $172,360 $172,360 $107,725 $11,117 $0 $0 $0 $0 Includes New Conduit Installation, I New Vault or Pull box and Fiber Cable Placement, plus all associated labour components Materials: $16.40 /m $0 $65,600 $65,600 $65,600 $41,000 $4,231 $0 $0 $0 $0 Subtotal New Network Extensions: $0 $237,960 $237,960 $237,960 $148,725 $15,348 $0 $0 $0 $0 CITY WIDE TRANSPORT ‐ BACKBONE (PHASE III) New Network Extensions A/E Construction: $16.69 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Includes Fiber lashing/install (placing strand and lashing fiber) Materials: $6.93 /m $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 U/G Construction: $43.09 /m $27,233 $35,678 $100,055 $64,635 $60,326 $0 $0 $0 $0 $0 Includes New Conduit Installation, I New Vault or Pull box and Fiber Cable Placement, plus all associated labour components Materials: $16.40 /m $10,365 $13,579 $38,081 $24,600 $22,960 $0 $0 $0 $0 $0 Subtotal New Network Extensions: $37,598 $49,258 $138,136 $89,235 $83,286 $0 $0 $0 $0 $0 TOTAL New Network Extensions: $620,757 $1,013,192 $566,516 $517,615 $270,571 $15,348 $0 $0 $0 $0 BUILDING CONNECTIONS SUMMARY ($ ALL AREAS) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 DOWNTOWN CORE (PHASE I) Building Connections New "PRIMARY" Customer Connections: 100 m "Last 200m" Network extension: $110.09 /m $33,028 $55,046 $44,037 $22,018 $22,018 $22,018 $22,018 $22,018 $22,018 $22,018 New "SECONDARY" Customer Connections: "Last 200m" Network extension: $110.09 /m $22,018 $33,028 $33,028 $11,009 $11,009 $11,009 $11,009 $11,009 $11,009 $11,009 Subtotal Building Connections: $55,046 $88,074 $77,065 $33,028 $33,028 $33,028 $33,028 $33,028 $33,028 $33,028 CARTER LIGHT INDUSTRIAL (PHASE II) Building Connections New "PRIMARY" Customer Connections: 200 m "Last 200m" Network extension: $95.21 /m $38,084 $57,126 $57,126 $38,084 $38,084 $38,084 $38,084 $38,084 $38,084 $38,084 New "SECONDARY" Customer Connections: "Last 200m" Network extension: $95.21 /m $19,042 $38,084 $38,084 $19,042 $19,042 $19,042 $19,042 $19,042 $19,042 $19,042 Subtotal Building Connections: $57,126 $95,210 $95,210 $57,126 $57,126 $57,126 $57,126 $57,126 $57,126 $57,126 INDUSTRIAL ‐ AIRPORT AREA (PHASE III) Building Connections New "PRIMARY" Customer Connections: 200 m "Last 200m" Network extension: $59.49 /m $0 $11,898 $23,796 $11,898 $11,898 $11,898 $11,898 $11,898 $11,898 $11,898 New "SECONDARY" Customer Connections: "Last 200m" Network extension: $59.49 /m $0 $11,898 $23,796 $11,898 $11,898 $11,898 $11,898 $11,898 $11,898 $11,898 Subtotal Building Connections: $0 $23,796 $47,592 $23,796 $23,796 $23,796 $23,796 $23,796 $23,796 $23,796 TOTAL Building Connections: $112,172 $207,080 $219,867 $113,950 $113,950 $113,950 $113,950 $113,950 $113,950 $113,950 CAPITAL FUNDING ESTIMATE ‐ City of PG Fibre Network YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 PHASE I ‐ Downtown Core Network Extensions $583,159 $583,159 $0 $0 $0 $0 $0 $0 $0 $0 Existing City Duct $12,905 $0 $0 $0 $0 $0 $0 $0 $0 $0 Customer Building Connections $55,046 $88,074 $77,065 $33,028 $33,028 $33,028 $33,028 $33,028 $33,028 $33,028 PHASE II ‐ Carter Light Industrial Network Extensions $0 $142,816 $190,421 $190,421 $38,560 $0 $0 $0 $0 $0 Existing City Duct $0 $13,773 $0 $0 $0 $0 $0 $0 $0 $0 Customer Building Connections $57,126 $95,210 $95,210 $57,126 $57,126 $57,126 $57,126 $57,126 $57,126 $57,126 PHASE III ‐ Boundary Road Industrial + City Wide Transport Network Extensions $37,598 $287,217 $376,095 $327,194 $232,011 $15,348 $0 $0 $0 $0 Existing City Duct $0 $44,500 $44,500 $44,500 $31,818 $0 $0 $0 $0 $0 Customer Building Connections $0 $23,796 $47,592 $23,796 $23,796 $23,796 $23,796 $23,796 $23,796 $23,796 ANNUAL NEW CAPITAL REQUIRED: $745,834 $1,278,545 $830,883 $676,065 $416,338 $129,298 $113,950 $113,950 $113,950 $113,950 CUMULATIVE CAPITAL REQUIRED: $745,834 $2,024,380 $2,855,263 $3,531,328 $3,947,666 $4,076,964 $4,190,914 $4,304,864 $4,418,814 $4,532,764 EXISTING CITY DUCT SUMMARY QUANTITIES (ALL AREAS) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 DOWNTOWN CORE (PHASE I) Existing City Duct Total Build Route (m) 11,601 16,898 16,898 16,898 16,898 16,898 0000 Existing Conduit Only (m) 580000000000 Existing Fibre in Conduit (m) 5,724 11,601 16,898 0000000 New Conduit Required (m) 5,297 5,297 00000000 New Fibre Required (m) 5,877 5,297 00000000 Split‐Vault Overbuilds: 0000000000 New Conduit Installation: 0000000000 New Vault or Pull box: 1.0/km0000000000 Fiber Cable Placement (Overpulls): 580000000000 Fiber Cable Placement (New pulls): 0000000000 NEW Capital ‐ Subtotal City Duct (Route Meters): 580.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 CARTER LIGHT INDUSTRIAL (PHASE II) Existing City Duct Total Build Route (m) 4,204 6,323 8,323 10,323 10,728 10,728 0000 Existing Conduit Only (m) 061900000000 Existing Fibre in Conduit (m) 4,204 4,204 6,323 8,323 10,323 10,728 0000 New Conduit Required (m) 0 1,500 2,000 2,000 405 00000 New Fibre Required (m) 0 2,119 2,000 2,000 405 00000 Split‐Vault Overbuilds: 0000000000 New Conduit Installation: 0000000000 New Vault or Pull box: 1.0/km0000000000 Fiber Cable Placement (Overpulls): 061900000000 Fiber Cable Placement (New pulls): 0000000000 Subtotal Existing City Duct: 0.0 619.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 BOUNDARY ROAD INDUSTRIAL ‐ AIRPORT AREA (PHASE III) Existing City Duct Total Build Route (m) 0 6,000 12,000 18,000 21,930 22,188 22,188 0 0 0 Existing Conduit Only (m) 0 2,000 2,000 2,000 1,430 00000 Existing Fibre in Conduit (m) 0 0 6,000 12,000 18,000 21,930 22,188 0 0 0 New Conduit Required (m) 0 4,000 4,000 4,000 2,500 258 0000 New Fibre Required (m) 0 6,000 6,000 6,000 3,930 258 0000 Split‐Vault Overbuilds: 0000000000 New Conduit Installation: 0000000000 New Vault or Pull box: 1.0/km0000000000 Fiber Cable Placement (Overpulls): 0 2,000 2,000 2,000 1,430 00000 Fiber Cable Placement (New pulls): 0000000000 Subtotal Existing City Duct: 0.0 2,000.0 2,000.0 2,000.0 1,430.0 0.0 0.0 0.0 0.0 0.0 NEW Capital ‐ TOTAL Existing City Duct: 580.0 2,619.0 2,000.0 2,000.0 1,430.0 0.0 0.0 0.0 0.0 0.0 NEW NETWORK EXTENSIONS SUMMARY QUANTITIES (ALL AREAS) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 DOWNTOWN CORE (PHASE I) New Network Extensions Total Build Route (m) 11,601 16,898 16,898 16,898 16,898 00000 Existing Conduit Only (m) 580000000000 Existing Fibre in Conduit (m) 5,724 11,601 16,898 0000000 New Conduit Required (m) 5,297 5,297 00000000 New Fibre Required (m) 5,877 5,297 00000000 Split‐Vault Overbuilds: 0000000000 New Conduit Installation: 5,297 5,297 00000000 New Vault or Pull box: 1.0/km6600000000 Fiber Cable Placement (Overpulls): 0000000000 Fiber Cable Placement (New pulls): 5,297 5,297 00000000 Subtotal New Network Extensions: 5,297.0 5,297.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 CARTER LIGHT INDUSTRIAL (PHASE II) New Network Extensions Total Build Route (m) 4,204 6,323 8,323 10,323 10,728 10,728 0000 Existing Conduit Only (m) 061900000000 Existing Fibre in Conduit (m) 4,204 4,204 6,323 8,323 10,323 10,728 0000 New Conduit Required (m) 0 1,500 2,000 2,000 405 00000 New Fibre Required (m) 0 2,119 2,000 2,000 405 00000 Split‐Vault Overbuilds: 0000000000 New Conduit Installation: 0 1,500 2,000 2,000 405 00000 New Vault or Pull box: 1.0/km0222100000 Fiber Cable Placement (Overpulls): 061900000000 Fiber Cable Placement (New pulls): 0 1,500 2,000 2,000 405 00000 Subtotal New Network Extensions: 0.0 1,500.0 2,000.0 2,000.0 405.0 0.0 0.0 0.0 0.0 0.0 BOUNDARY ROAD INDUSTRIAL ‐ AIRPORT AREA (PHASE III) New Network Extensions Total Build Route (m) 0 6,000 12,000 18,000 21,930 22,188 22,188 0 0 0 Existing Conduit Only (m) 0 2,000 2,000 2,000 1,430 00000 Existing Fibre in Conduit (m) 0 0 6,000 12,000 18,000 21,930 22,188 0 0 0 New Conduit Required (m) 0 4,000 4,000 4,000 2,500 258 0000 New Fibre Required (m) 0 6,000 6,000 6,000 3,930 258 0000 Split‐Vault Overbuilds: 0000000000 New Conduit Installation: 0 4,000 4,000 4,000 2,500 258 0000 New Vault or Pull box: 1.0/km0444310000 Fiber Cable Placement (Overpulls): 0000000000 Fiber Cable Placement (New pulls): 0 4,000 4,000 4,000 2,500 258 0000 Subtotal New Network Extensions: 0.0 4,000.0 4,000.0 4,000.0 2,500.0 258.0 0.0 0.0 0.0 0.0 CITY WIDE TRANSPORT ‐ BACKBONE (PHASE IV) New Network Extensions Total Build Route (m) 8,781 11,609 13,931 15,994 17,957 19,394 19,394 0 0 0 Existing Conduit Only (m) 2,000 2,000 0 563 563 1,437 0000 Existing Fibre in Conduit (m) 6,149 8,781 11,609 13,931 15,994 17,957 19,394 0 0 0 New Conduit Required (m) 632 828 2,322 1,500 1,400 00000 New Fibre Required (m) 2,632 2,828 2,322 2,063 1,963 1,437 0000 Split‐Vault Overbuilds: 0000000000 New Conduit Installation: 632 828 2,322 1,500 1,400 00000 New Vault or Pull box: 1.0/km1132200000 Fiber Cable Placement (Overpulls): 0000000000 Fiber Cable Placement (New pulls): 632 828 2,322 1,500 1,400 00000 Subtotal New Network Extensions: 632.0 828.0 2,322.0 1,500.0 1,400.0 0.0 0.0 0.0 0.0 0.0 NEW Capital ‐ TOTAL New Network Extensions: 5,297.0 10,797.0 6,000.0 6,000.0 2,905.0 258.0 0.0 0.0 0.0 0.0 NEW NETWORK EXTENSIONS SUMMARY QUANTITIES (ALL AREAS) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9 YEAR 10 DOWNTOWN CORE (PHASE I) Building Connections New "PRIMARY" Customer Connections: 3.0 5.0 4.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 New "SECONDARY" Customer Connections: 2.0 3.0 3.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Subtotal Building Connections: 41 5.0 8.0 7.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 CARTER LIGHT INDUSTRIAL (PHASE II) Building Connections New "PRIMARY" Customer Connections: 2.0 3.0 3.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 New "SECONDARY" Customer Connections: 1.0 2.0 2.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Subtotal Building Connections: 34 3.0 5.0 5.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 INDUSTRIAL ‐ AIRPORT AREA (PHASE III) Building Connections New "PRIMARY" Customer Connections: 0.0 1.0 2.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 New "SECONDARY" Customer Connections: 0.0 1.0 2.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Subtotal Building Connections: 20 0.0 2.0 4.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 NEW Capital ‐ TOTAL Building Connections: 95 8.0 15.0 16.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 CUMULATIVE Connections: 8.0 23.0 39.0 47.0 55.0 63.0 71.0 79.0 87.0 95.0 16 APPENDIX C - DETAILED OPERATIONAL ASSUMPTIONS Municipal Fibre Network & Technology Centre 90 | Page THE CITY OF PRINCE GEORGE KEY OPERATIONS ASSUMPTIONS MUNICIPAL FIBRE NETWORK & DATA CENTRE Input yellow‐shaded cells only Operating Revenues Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 NOTES : Number of Customer Connections 10 YRS (cumulative) Long term Debt is Retired First 5 yrs after long term Debt is Retired Dark fibre rental: 2011 Existing customer connections 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 Phase 1 ‐ New customer connections 2 9 16 21 24 27 30 33 36 39 39 39 39 39 39 39 39 39 39 39 Refers to number of dark fibre rental for the Network Operator. Total Phase 1 1219263134374043464949494949494949494949** refer to "CAPITAL ASSUMPTIONS" worksheet for calculations Phase 2 ‐ New customer connections 1 5 10 14 17 20 23 26 29 32 32 32 32 32 32 32 32 32 32 32 Revenues each year are prior yr cumulative + one‐half of new drops constructed during year Phase 3 ‐ New customer connections 01479111315171919191919191919191919 Grand Total 13 25 40 52 60 68 76 84 92 100 100 100 100 100 100 100 100 100 100 100 Rental rate = $ per month/drop $500 Customer Connections Refers to the fees charged to customers for rental of a dark fibre PAIR (All Phases) Refers to the fees chargedg to customers for the necessaryy Fibrematerials and construction costs to CustomerCustomer d droprop f feesees $4,920 = feefee c chargedharged per fib fibrere d droprop includesincludes overheadoverhead a allocationllocation 60 provide fibre drops from the Network to the customer drop point Phase I Overhead allocation 15% 50 Refers to the overhead allocation added onto all fees charged to customers 46 43 40 40 37 Phase II Operating Expenses 34 Title 31 30 29 26 26 Axis Transit exchange access $0 = $ per Terabyte Assume this is not required 23 Refers to costs related to the purchase of Bandwidth from regional/national Access providers 20 19 20 Phase III 17 17 15 14 13 12 11 Maintenance standby fee $32,000 = per PGANTF report estimate Assume all is Phase 1 as must have it and unlikely to increase in Phase 2 and 3 10 10 9 Refers to emergency maintenance and repair standby fee 7 5 4 0 10 1 Customer drop cost $4,280 = per CAPITAL ASSUMPTIONS worksheet 12345678910 Inter‐Company: Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Management support Annual salary per FTE $130,000 * Includes Phase 1 FTE 0.11 0.17 0.23 0.28 0.31 0.33 0.36 0.39 0.41 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 FTE per 50 customer 0.45 benefits Phase 2 FTE 0.01 0.05 0.09 0.13 0.15 0.18 0.21 0.23 0.26 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 Refers to management of the operations Phase 3 FTE 0.00 0.01 0.04 0.06 0.08 0.10 0.12 0.14 0.15 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 Total 0.12 0.23 0.36 0.47 0.54 0.61 0.68 0.76 0.83 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90 Marketing Support Annual salary per FTE $100,000 * Includes Phase 1 FTE 0.05 0.08 0.10 0.12 0.14 0.15 0.16 0.17 0.18 0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 benefits Refers to expenses related to Marketing of the products and services offered to Customers plus FTE per 50 customer 0.20 Phase 2 FTE 0.00 0.02 0.04 0.06 0.07 0.08 0.09 0.10 0.12 0.13 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Communication plans, FAQ's, brochures and alignment with other City departments Phase 3 FTE 0.00 0.00 0.02 0.03 0.04 0.04 0.05 0.06 0.07 0.08 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total 0.05 0.10 0.16 0.21 0.24 0.27 0.30 0.34 0.37 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Administrative support Annual salary per FTE $40,000 * Includes Phase 1 FTE 0.11 0.17 0.23 0.28 0.31 0.33 0.36 0.39 0.41 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 FTE per 50 customer E30.45 benefits Phase 2 FTE 0.01 0.05 0.09 0.13 0.15 0.18 0.21 0.23 0.26 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 Refers to expenses related to admin, billing, etc Phase 3 FTE 0.00 0.01 0.04 0.06 0.08 0.10 0.12 0.14 0.15 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 E3 Total 0.12 0.23 0.362=2=±±±±=t=t==FF~=r=r= 0.47 0.54 0.61 0.68 0.76 0.83 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90 0.90 Network administration (office): ----+--+- i=+=+--+---I=I=~±±=t~=t=t=.=fr ====------Annual salary per FTE $80,000 * Includes Phase 1 FTE 0.11 0.17 0.23 0.28 0.31 0.33 0.36 0.39 0.41 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 0.44 benefits FTE per 50 customer 0.45 Phase 2 FTE 0.01 0.05 0.09 0.13 0.15 0.18 0.21 0.23 0.26 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 0.29 Refers to costs associated with Network Operator Planning and Engineering expenses in the Phase 3 FTE 0.00 0.01 0.04 0.06 0.08 0.10 0.12 0.14 0.15 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 0.17 connection of new customers or MAC (Moves, Adds and Changes) on existing connections TotalTotal 0120.12 0230.23 0360.36 0470.47 0540.54 0610.61 0680.68 0760.76 0830.83 0900.90 0900.90 0900.90 0900.90 0900.90 0900.90 0900.90 0900.90 0900.90 0900.90 0900.90 Maintenance and repairs (field): Annual salary per FTE $100,000 * Includes Phase 1 FTE 1111110.06 0.10 0.13 0.16 0.17 0.19 0.20 0.22 0.23 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 ~benefits FTE per 50 customer 0.25 Phase 2 FTE 0.01 0.03 0.05 0.07 0.09 0.10 0.12 0.13 0.15 0.16 0.16 0.16 0.16 0.16 0.16111111---- 0.16 0.16 0.16 0.16 0.16 Refers to maintenance and repair costs associated with maintaining the overall fibre Network. This is Phase 3 FTE 0.00 0.01 0.02 0.04 0.05 0.06 0.07 0.08 0.09 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 primarily a field position and includes a vehicle Total 0.07 0.13 0.20 0.26 0.30 0.34 0.38 0.42 0.46 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 $ materials per year/ $100 Phase 1 $1,200 $1,900 $2,600 $3,100 $3,400 $3,700 $4,000 $4,300 $4,600 $4,900 $4,900 $4,900 $4,900 $4,900 $4,900 $4,900 $4,900 $4,900 $4,900 $4,900 Refers to maintenance and repair costs associated with maintaining the overall fibre Network per customer Phase 2 $100 $500 $1,000 $1,400 $1,700 $2,000 $2,300 $2,600 $2,900 $3,200 $3,200 $3,200 $3,200 $3,200 $3,200 $3,200 $3,200 $3,200 $3,200 $3,200 Phase 3 $0 $100 $400 $700 $900 $1,100 $1,300 $1,500 $1,700 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 Total 1,300$ 2,500$ 4,000$ 5,200$ 6,000$ 6,800$ 7,600$ 8,400$ 9,200$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ 10,000$ Phase 1 FTE 0.38 0.61 0.83 0.99 1.09 1.18 1.28 1.38 1.47 1.57 1.57 1.57 1.57 1.57 1.57 1.57 1.57 1.57 1.57 1.57 Total Phase 2 FTE 0.03 0.16 0.32 0.45 0.54 0.64 0.74 0.83 0.93 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 1.02 FTE Phase 3 FTE 0.00 0.03 0.13 0.22 0.29 0.35 0.42 0.48 0.54 0.61 0.61 0.61 0.61 0.61 0.61 0.61 0.61 0.61 0.61 0.61 1 • Total 0.42 0.80 1.28 1.66 1.92 2.18 2.43 2.69 2.94 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20 3.20I 3.20 I 3.20 I Occupancy costs: Annual Refers to costs associated with the space occupied by the equipment at City owned facilities Sq. ft. per FTE N/A N/A Phase 1 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% $ / sq. ft. Extrapolated based on FTE count each year D ~I* Includes op costs Phase 2 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% Phase 3 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% \/CONFIRMED! Total I14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I Corporate overhead: / Refers to costs associated with the office, supplies, computers etc. used by manager and admin. 14.0% Phase 1 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% D Extrapolated based on FTE count each year % total FTE Related Expenses Phase 2 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% Phase 3 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% 14.0% Total I14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% I 14.0% Network Usage Fees: I~~ Based on Annual Total gross Revenues: Phase 1 818 1,583 2,347 2,893 3,221 3,548 3,876 4,204 4,531 4,859 2,940 2,940 2,940 2,940 2,940 2,940 2,940 2,940 2,940 2,940 Refers to costs associated with the Network Operator renting ducts or facilities which are owned by PhasePhase 2 109 546 1,092 1,529 1,856 2,184 2,512 2,839 3,167 3,494 1,920 1,920 1,920 1,920 1,920 1,920 1,920 1,920 1,920 1,920 ootherther d departmentsepartments Assumes conduit rental for new conduit averaged each at one half of new build Phase 3 I 0 I 109 I 437 I 764 I 983 I 1,201 I 1,420 I 1,638 I 1,856 I 2,075 I 1,140 I 1,140 I 1,140 I 1,140 I 1,140 I 1,140 I 1,140 I 1,140 I 1,140 I 1,140 I'------' NETWORK USAGE FEE payable to City @ 1% of Total Revenues/year ‐‐> CJ1.0% Financial Rates Inflation rates: 0.00% = forecast annual CPI Refers to annual indexing of expenses related to CPI Amortization rate: 2.50% = assume average of 40 year life: (fibre = 25 year, conduit = 85 year25 year straight line), half‐year rule applies Refers to the amortization model to be used, based on life of OSP Long term debt Interest rate 5.00% = Municipal Finance Authority ‐ BC (MF‐ABC) NOTE: ASSUMES THAT INTERIM FINANCING USED TO FUND YEARS 1‐5 THEN REPLACED WITH 10 YR LONG TERM DEBT Interim finance rate 1.70% = Municipal Finance Authority ‐ BC (MF‐ABC) Debt term 15 = years Capital maintenance (Renewal) 1.25% = one‐half of amortization ( fibre network requires minimal capital upkeep) ... 1£. ~ :l,.,.._.rl_.Jx .eo.._t.:r_-.c, .t-c:n p . [111 ~ :-:- - ,·o~H l-offl ~ 1.sA ~ 1_.acf;., B_J 2_Y,ai,Jw.f'•;,e,• • J_C~ •.1"_c-,;:.-mv»• "'t ·:--~ J1_j 6_Mana~"Jl".ta'M1 ;_:;e111t.et 9 10._We.:<-« ~~~ •J .0:.,-c,; "' * ('i,1 ~ 111.noc,d~~~&t.viC:troe ~~ ~ ------, ~6::.:-~~-~-:::----:~ ~ ~- - ,_. Minke l Rilles ,.1arM1ll•tes C.u.-rent Rates fo r Fe-br:uary 1, 20 11 -- · ==n=-: ~-~-f---1:: ',m-o.:iog; ---+-- }:::-: -] ~r 3, l h.,.,..,:, • T,,..,,..,,• .,, 1111,.._ , MFA Spring 2011 Debe ntu re Iss ue ilh;a.lllt>0Ul"ll , E5dm.oot e.:,.,,iaoo:;llh R.eMNd 5aet - e~t;:,,,.-s u-.,t c«IN:d to ¥ ~ • ::i ..-. te,n'fl -• ....,o.:,sro tt-.s ~ t"'·•.Jit•~ At thll re.fitulinein g dillltoi- l:>Ol'Tow@ni with b ',bw s th~t .a" ,:e"'dl 1(1 v,e.s h;1~@ tt'l'f: op ban to repily .ail or- a p01110n of tht! w lo.an baf.llnce, SOrTO'o'f'llrs w111'1t11ig to t".Ie t CI!~ ...... e;..-ly p.--.,..dOwl'I o , p ,)"y .. .. ,...... r'lob f.,- u~ MFA p u ,:,, to w... r,e,financi~ dat,e, . lo dica tlve Market Rates Jf Ille Nf'A were 11:01 -i,uDdl a de b ent1.1re-tod.i,y for .i,n;y o f lbe t~ rns l isted l>clQ- (~ , 1,0 , :t.!J, :l!O, ~~., . JO v~) 11"'!5~ ~·~ I.h r.: (."!,,Hll...,.h::(, I r (:- le 11..i:.,. ,, .-ales. · l - Tt...... ,,.,,. ,._ ...... +.n...... ,., .. n, ... -.,.~-•....l ...... -. .. .. - ,.'+..,..tn._0 17 APPENDIX D - DETAILED CONNECTION ASSUMPTIONS Municipal Fibre Network & Technology Centre 91 | Page Customer Connection Assumptions: 1 "Primary" customer connections are based on direct subscribership to the network 2 "Secondary" customer connections are based on connections through a Reseller 3 A "Secondary Subscriber" connection Ratio of 1:10 will be used to establish additional dark fibre requirements for the resellers. 4 The database for "Primary" customer connections will be derived from all businesses who have > 50 employees. 5 The database for "Secondary" customers will be derived from all businesses who have < 50 employees. 6 "Primary" and "Secondary" customer connection penetration rates and number of business quantities for each area are included below. 7 The three target areas of the Downtown Core, Carter Light Industrial and Boundary Road Industrial make up approximately 60% of total businesses in Prince George DOWNTOWN CORE (PHASE I) - CUSTOMER Assump tion Wor k Shee t 33,297 297 Total Businesses in PG Market (100%) Total Business Customer Base: 3,297 60% of Total Base: 1,979 999 % with >50 Employess: 4.1% Captured by Network in Phase % with <50 Employees: 95.9% DOWNTOWN CORE (PHASE I) - (Portion of 50%): 50.0% "PRIMARY Customer" PENETRATION Rate (30%(y) after 3 yrs): 10.0% 959 "SECONDARY Customer" PENETRATION Rate (9% after 3 yrs): 3.0% 96% (o (off 60%) <<5050 EmEmployeesployees "PRIMARY Customer" PENETRATION Rate (5%/YR beyond 3 yrs): 5.0% "SECONDARY Customer" PENETRATION Rate (1%/YR beyond 3 yrs): 1.0% 41 SECONDARY Reseller to Customer Connection Ratio: 10.0% 4% (of 60%) >50 Employees Customer Projections YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9 YR10 Annual Business Growth Rate: 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Total Potential Downtown Core (Phase I) Customer Base : 999 986 961 937 934 932 929 926 923 921 Total Potential PRIMARY Customer Base : 41 41 40 39 38 38 38 38 38 38 Total Potential SECONDARY Customer Base : 959 947 923 899 897 894 892 889 886 884 "PRIMARY "C"Customer t PENETRATION RRate: t 1010.0% 0% 10.0%10 0% 10.0%10 0% 5.0%50% 5.0%50% 5.0%50% 5.0%50% 5.0%50% 5.0%50% 5.0%50% "SECONDARY" Customer PENETRATION Rate: 3.0% 3.0% 3.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Primary Customer Connections(Derate by 50% in YR1): 3 5 42222222 Secondary Customer Connections (Derate by 50% in Yr1): 2 3 3 1 1 1 1 1 1 1 Total Customer Connections: 5 8 73333333 CUMULATIVE Customer Connections: 5 132023262932353841 PENETRATION RATE of Total Business Base: 2.3% 3.5% 3.5% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% 2.3% 5.9% 9.6% 11.1% 12.4% 13.7% 15.1% 16.4% 17.8% 19.1% Customer Connection Assumptions: 1 "Primary""Pi" customer t connections ti are based b d on direct ditbibhittht subscribership to the network k 2 "Secondary" customer connections are based on connections through a Reseller 3 A "Secondary Subscriber" connection Ratio of 1:10 will be used to establish additional dark fibre requirements for the resellers. 4 The database for "Primary" customer connections will be derived from all businesses who have > 50 employees. 5 TheTh database d t b for f "Secondary" "S d " customers t will ill be b derived d i d from f all ll businesses b i who h have h < 50 employees. l 6 "Primary" and "Secondary" customer connection penetration rates and number of business quantities for each area are included below. 7 The three target areas of the Downtown Core, Carter Light Industrial and Boundary Road Industrial make up approximately 60% of total businesses in Prince George CARTER LIGHT INDUSTRIAL (PHASE II) - CUSTOMER Assumption Work Sheet 3,297 Total Businesses in PG Market (100%) Total Business Customer Base: 3,297 60% ofof TotalTotal Base:Base: 1, 979 600 % with >50 Employess: 4.1% Captured by Network in Phase % with <50 Employees: 95.9% DOWNTOWN CORE (PHASE I) - (Portion of 50%): 30.0% "PRIMARY CCustomer" t " PENETRATION RRate t (30% after ft 3 yrs): ) 1010.0% 0% 575 "SECONDARY Customer" PENETRATION Rate (9% after 3 yrs): 3.0% 96% (of 60%) <50 Employees "PRIMARY Customer" PENETRATION Rate (5%/YR beyond 3 yrs): 5.0% "SECONDARY Customer" PENETRATION Rate (1%/YR beyond 3 yrs): 1.0% 24 SECONDARY Reseller to Customer Connection Ratio: 10.0% 4% (of 60%) >50 Employees Customer Projections YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9 YR10 Annual Business Growth Rate: 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Total Potential College District (Phase II) Customer Base : 600 594 577 559 553 546 540 533 527 520 Total Potential PRIMARY Customer Base : 25 25 24 23 23 23 22 22 22 22 TTotal t l PPotential t ti l SECONDARY CCustomer t BBase : 576 570 554 537 531 525 518 512 506 499 "PRIMARY "Customer PENETRATION Rate: 10.0% 10.0% 10.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% "SECONDARY" Customer PENETRATION Rate: 3.0% 3.0% 3.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Primary Customer Connections(Derate by 50% in YR1): 2 3 3 2 2 2 2 2 2 2 Secondary Customer Connections (Derate by 50% in Yr1): 1 2 21111111 Total Customer Connections: 3 5 53333333 CUMULATIVECUMULATIVE Customer stomer ConnectionsConnections: 3 8 13 16 19 22 2525 28 31 34 PENETRATION RATE of Total Business Base: 2.0% 3.9% 4.0% 2.1% 2.2% 2.2% 2.2% 2.3% 2.3% 2.3% 2.0% 5.9% 10.1% 12.5% 14.8% 17.2% 19.6% 22.1% 24.7% 27.3% Customer Connection Assumptions: 1 "Primary" customer connections are based on direct subscribership to the network 2 "Secondary" customer connections are based on connections through a Reseller 3 A "Secondary Subscriber" connection Ratio of 1:10 will be used to establish additional dark fibre requirements for the resellers. 4 The database for "Primary" customer connections will be derived from all businesses who have > 50 employees. 5 The database for "Secondary" customers will be derived from all businesses who have < 50 employees. 6 "Primary" and "Secondary" customer connection penetration rates and number of business quantities for each area are included below. 7 The three target areas of the Downtown Core, Carter Light Industrial and Boundary Road Industrial make up approximately 60% of total businesses in Prince George BOUNDARY ROAD INDUSTRIAL (PHASE III) - CUSTOMER Assumption Work Sheet 3,297 Total Businesses in PG Market (100%) Total Business Customer Base: 3,297 60% ooff TotalTotal BBase:ase: 1,9,97979 440000 % with >50 Employess: 4.1% Captured by Network in Phase % with <50 Employees: 95.9% BOUNDARY ROAD INDUSTRIAL (PHASE III) - (Portion of 70%): 20.0% "PRIMARY Customer" PENETRATION Rate (30% after 3 yrs): 10. 0% 384 "SECONDARY Customer" PENETRATION Rate (9% after 3 yrs): 3.0% 96% (of 60%) <50 Employees "PRIMARY Customer" PENETRATION Rate (5%/YR beyond 3 yrs): 5.0% "SECONDARY Customer" PENETRATION Rate (1%/YR beyond 3 yrs): 1.0% 16 SECONDARY ResellerReseller toto CustomerCustomer ConnectionConnection Ratio:Ratio: 10. 0% 4% (of 60%) >50 Employees Customer Projections YR1 YR2 YR3 YR4 YR5 YR6 YR7 YR8 YR9 YR10 Annual Business Growth Rate: 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Total Potential Boundary Rd Industrial (Phase III) Customer Base : 400 404 397 379 372 364 357 349 342 334 Total Potential PRIMARY Customer Base : 17 17 17 16 16 15 15 15 14 14 Total Potential SECONDARY Customer Base : 384 388 381 364 357 350 343 336 329 321 "PRIMARY "Customer PENETRATION Rate: 10.0% 10.0% 10.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% "SECONDARY" Customer PENETRATION Rate: 3.0% 3.0% 3.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Primaryy(y,) Customer Connections(Derate by 50% in YR2,100% in YR1): 0 1 21111111 Secondary Customer Connections (Derate by 50% in Yr2,100% in YR1): 0 1 21111111 Total Customer Connections: 0 2 42222222 CUMULATIVE Customer Connections: 0 2 6 8 10 12 14 16 18 20 PENETRATION RATE of Total Business Base: 0.0% 2.7% 5.5% 2.9% 3.0% 3.0% 3.1% 3.1% 3.2% 3.3% 0.0% 2.7% 8.3% 11.6% 14.8% 18.1% 21.6% 25.2% 28.9% 32.9% 18 APPENDIX E - DETAILED SENSITIVITY ANALYSIS Municipal Fibre Network & Technology Centre 92 | Page THE CITY OF PRINCE GEORGE SENSITIVITY ANALYSIS MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS Ten Year Cumulative Forecast BASE MODEL ‐ REFERENCE REVENUES @ ‐10% REVENUES @ ‐20% (Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 PHASE 1 PHASE 2 PHASE 3 PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LIGHT DOWNTOWN CARTER LIGHT DOWNTOWN CARTER LIGHT TOTAL BOUNDARY ROAD TOTAL BOUNDARY ROAD TOTAL BOUNDARY ROAD CORE INDUSTRIAL CORE INDUSTRIAL CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Total revenues $6,169,200 $3,188,040 $1,932,840 $1,048,320 $5,803,200 $2,985,840 $1,826,640 $990,720 $5,437,200 $2,783,640 $1,720,440 $933,120 OPERATING EXPENSES: Total operating expense $2,502,606 $1,334,270 $757,493 $410,844 $2,502,606 $1,334,270 $757,493 $410,844 $2,502,606 $1,334,270 $757,493 $410,844 INTER‐COMPANY (with City): Net inter‐company expense $2,062,859 $1,137,443 $599,995 $325,422 $2,059,199 $1,135,421 $598,933 $324,846 $2,055,539 $1,133,399 $597,871 $324,270 EBITDA NET INCOME/(LOSS) $159,461 $98,704 $267,728 ($206,972) ($202,879) ($101,474) $162,590 ($263,996) ($565,219) ($301,652) $57,452 ($321,020) CASH FLOW STATEMENT OPERATING ACTIVITIES : Cash (to)from operations $901,234 $428,827 $462,853 $9,554 $538,894 $228,649 $357,715 ($47,470) $176,554 $28,471 $252,577 ($104,494) INVESTING ACTIVITIES: Cash (to)from investing ($4,642,725) ($1,743,618) ($1,299,089) ($1,600,018) ($4,642,725) ($1,743,618) ($1,299,089) ($1,600,018) ($4,642,725) ($1,743,618) ($1,299,089) ($1,600,018) FINANCING ACTIVITIES: Cash (to)from financing $2,976,531 $1,122,456 $910,026 $944,049 $2,976,531 $1,122,456 $910,026 $944,049 $2,976,531 $1,122,456 $910,026 $944,049 NET CASH INFLOW/(OUTFLOW) ($764,959) ($192,334) $73,789 ($646,414) ($1,127,299) ($392,512) ($31,349) ($703,438) ($1,489,639) ($592,690) ($136,487) ($760,462) THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS Year 10 BASE MODEL ‐ REFERENCE REVENUES @ ‐10% REVENUES @ ‐20% (Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 PHASE 1 PHASE 2 PHASE 3 PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LIGHT DOWNTOWN CARTER LIGHT DOWNTOWN CARTER LIGHT TOTAL BOUNDARY ROAD TOTAL BOUNDARY ROAD TOTAL BOUNDARY ROAD CORE INDUSTRIAL CORE INDUSTRIAL CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Total revenues $1,042,800 $485,880 $349,440 $207,480 $982,800 $456,480 $330,240 $196,080 $922,800 $427,080 $311,040 $184,680 OPERATING EXPENSES: Total operating expense $417,166 $198,905 $136,948 $81,313 $417,166 $198,905 $136,948 $81,313 $417,166 $198,905 $136,948 $81,313 INTER‐COMPANY (with City): Net inter‐company expense $338,488 $165,608 $108,474 $64,406 $337,888 $165,314 $108,282 $64,292 $337,288 $165,020 $108,090 $64,178 EBITDA NET INCOME/(LOSS) $45,485 $23,718 $52,152 ($30,384) ($13,915) ($5,388) $33,144 ($41,670) ($73,315) ($34,494) $14,136 ($52,956) CASH FLOW STATEMENT OPERATING ACTIVITIES : Cash (to)from operations $146,646 $63,867 $81,519 $1,261 $87,246 $34,761 $62,511 ($10,025) $27,846 $5,655 $43,503 ($21,311) INVESTING ACTIVITIES: Cash (to)from investing ($163,911) ($52,896) ($71,603) ($39,412) ($163,911) ($52,896) ($71,603) ($39,412) ($163,911) ($52,896) ($71,603) ($39,412) FINANCING ACTIVITIES: Long term financing (repaid) ($234,048) ($95,785) ($37,481) ($100,782) ($234,048)$ ($95,785)$ ($37,481)$ ($100,782)$ ($234,048) ($95,785) ($37,481) ($100,782) Cash (to)from financing ($120,098) ($62,757) $19,645 ($76,986) ($120,098) ($62,757) $19,645 ($76,986) ($120,098) ($62,757) $19,645 ($76,986) Opening Cash ($627,597) ($140,548) $44,229 ($531,277) ($930,537) ($311,620) ($41,901) ($577,015) ($1,233,477) ($482,692) ($128,031) ($622,753) Closing Cash ($764,959) ($192,334) $73,789 ($646,414) ($1,127,299) ($392,512) ($31,349) ($703,438) ($1,489,639) ($592,690) ($136,487) ($760,462) NET CASH INFLOW/(OUTFLOW) ($137,363) ($51,786) $29,561 ($115,137) ($196,763) ($80,892) $10,553 ($126,423) ($256,163) ($109,998) ($8,455) ($137,709) THE CITY OF PRINCE GEORGE SENSITIVITY ANALYSIS MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS Year 16 BASE MODEL ‐ REFERENCE REVENUES @ ‐10% REVENUES @ ‐20% (Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 PHASE 1 PHASE 2 PHASE 3 PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LIGHT DOWNTOWN CARTER LIGHT DOWNTOWN CARTER LIGHT TOTAL BOUNDARY ROAD TOTAL BOUNDARY ROAD TOTAL BOUNDARY ROAD CORE INDUSTRIAL CORE INDUSTRIAL CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Total revenues $600,000 $294,000 $192,000 $114,000 $540,000 $264,600 $172,800 $102,600 $480,000 $235,200 $153,600 $91,200 OPERATING EXPENSES: Total operating expense $32,000 $32,000 $0 $0 $32,000 $32,000 $0 $0 $32,000 $32,000 $0 $0 INTER‐COMPANY (with City): Net inter‐company expense $277,753 $141,345 $81,600 $54,808 $277,153 $141,051 $81,408 $54,694 $276,553 $140,757 $81,216 $54,580 EBITDA NET INCOME/(LOSS) $187,476 $80,093 $80,018 $27,365 $128,076 $50,987 $61,010 $16,079 $68,676 $21,881 $42,002 $4,793 CASH FLOW STATEMENT OPERATING ACTIVITIES : Cash (to)from operations $290,247 $120,655 $110,400 $59,192 $230,847 $91,549 $91,392 $47,906 $171,447 $62,443 $72,384 $36,620 INVESTING ACTIVITIES: Cash (to)from investing ($51,385) ($20,281) ($15,191) ($15,914) ($51,385) ($20,281) ($15,191) ($15,914) ($51,385) ($20,281) ($15,191) ($15,914) FINANCING ACTIVITIES: Cash (to)from financing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Opening Cash ($1,443,390) ($456,888) $249,929 ($1,236,430) ($2,102,730) ($802,596) $49,751 ($1,349,884) ($2,762,070) ($1,148,304) ($150,427) ($1,463,338) Closing Cash ($1,204,528) ($356,514) $345,138 ($1,193,151) ($1,923,268)$ ($731,328)$ $125,952$ ($1,317,891)$ ($2,642,008) ($1,106,142) ($93,234) ($1,442,631) NET CASH INFLOW/(OUTFLOW) $238,861 $100,374 $95,209 $43,279 $179,461 $71,268 $76,201 $31,993 $120,061 $42,162 $57,193 $20,707 THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS Year 20 BASE MODEL ‐ REFERENCE REVENUES @ ‐10% REVENUES @ ‐20% (Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 PHASE 1 PHASE 2 PHASE 3 PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LIGHT DOWNTOWN CARTER LIGHT DOWNTOWN CARTER LIGHT TOTAL BOUNDARY ROAD TOTAL BOUNDARY ROAD TOTAL BOUNDARY ROAD CORE INDUSTRIAL CORE INDUSTRIAL CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Total revenues $600,000 $294,000 $192,000 $114,000 $540,000 $264,600 $172,800 $102,600 $480,000 $235,200 $153,600 $91,200 OPERATING EXPENSES: Total operating expense $32,000 $32,000 $0 $0 $32,000 $32,000 $0 $0 $32,000 $32,000 $0 $0 INTER‐COMPANY (with City): Net inter‐company expense $277,753 $141,345 $81,600 $54,808 $277,153 $141,051 $81,408 $54,694 $276,553 $140,757 $81,216 $54,580 EBITDA NET INCOME/(LOSS) $187,476 $80,093 $80,018 $27,365 $128,076 $50,987 $61,010 $16,079 $68,676 $21,881 $42,002 $4,793 CASH FLOW STATEMENT OPERATING ACTIVITIES : Cash (to)from operations $290,247 $120,655 $110,400 $59,192 $230,847 $91,549 $91,392 $47,906 $171,447 $62,443 $72,384 $36,620 INVESTING ACTIVITIES: Cash (to)from investing ($51,385) ($20,281) ($15,191) ($15,914) ($51,385) ($20,281) ($15,191) ($15,914) ($51,385) ($20,281) ($15,191) ($15,914) FINANCING ACTIVITIES: Cash (to)from financing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Opening Cash ($487,944) ($55,393) $630,764 ($1,063,315) ($1,384,884) ($517,525) $354,554 ($1,221,913) ($2,281,824) ($979,657) $78,344 ($1,380,511) Closing Cash ($249,082) $44,981 $725,973 ($1,020,036) ($1,205,422)$ ($446,257)$ $430,755$ ($1,189,920)$ ($2,161,762) ($937,495) $135,537 ($1,359,804) NET CASH INFLOW/(OUTFLOW) $238,861 $100,374 $95,209 $43,279 $179,461 $71,268 $76,201 $31,993 $120,061 $42,162 $57,193 $20,707 THE CITY OF PRINCE GEORGE SENSITIVITY ANALYSIS MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS Year 25 BASE MODEL ‐ REFERENCE REVENUES @ ‐10% REVENUES @ ‐20% (Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 PHASE 1 PHASE 2 PHASE 3 PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LIGHT DOWNTOWN CARTER LIGHT DOWNTOWN CARTER LIGHT TOTAL BOUNDARY ROAD TOTAL BOUNDARY ROAD TOTAL BOUNDARY ROAD CORE INDUSTRIAL CORE INDUSTRIAL CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Total revenues $600,000 $294,000 $192,000 $114,000 $540,000 $264,600 $172,800 $102,600 $480,000 $235,200 $153,600 $91,200 OPERATING EXPENSES: $ $ $ $ Total operating expense $32,000 $32,000 $0 $0 $32,000 $32,000 $0 $0 $32,000 $32,000 $0 $0 INTER‐COMPANY (with City): $ $ $ $ Net inter‐company expense $277,753$ $141,345$ $81,60$ 0 $54,808$ $277,153$ $141,051$ $81,408$ $54,69$ 4 $276,553 $140,757 $81,216 $54,580 EBITDA $290,247$ $120,655$ $110,400$ $59,192$ NET INCOME/(LOSS) $187,476 $80,093 $80,018 $27,365 $128,076 $50,987 $61,010 $16,079 $68,676 $21,881 $42,002 $4,793 CASH FLOW STATEMENT OPERATING ACTIVITIES : $ $ $ $ Cash (to)from operations $290,247 $120,655 $110,400 $59,192 $230,847 $91,549 $91,392 $47,906 $171,447 $62,443 $72,384 $36,620 INVESTING ACTIVITIES: Cash (to)from investing ($51,385) ($20,281) ($15,191) ($15,914) ($51,385) ($20,281) ($15,191) ($15,914) ($51,385) ($20,281) ($15,191) ($15,914) FINANCING ACTIVITIES: Cash (to)from financing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Opening Cash $706,364 $446,476 $1,106,808 ($846,921) ($487,576) ($161,186) $735,558 ($1,061,949) ($1,681,516) ($768,848) $364,308 ($1,276,977) Closing Cash $945,225 $546,850 $1,202,017 ($803,642) ($308,115)$ ($89,918)$ $811,759$ ($1,029,956)$ ($1,561,455)$ ($726,686)$ $421,501$ ($1,256,270)$ NET CASH INFLOW/(OUTFLOW) $238,861 $100,374 $95,209 $43,279 $179,461 $71,268 $76,201 $31,993 $120,061 $42,162 $57,193 $20,707 THE CITY OF PRINCE GEORGE MUNICIPAL FIBRE NETWORK & DATA CENTRE INCOME AND CASH FLOW STATEMENTS Year 30 BASE MODEL ‐ REFERENCE REVENUES @ ‐10% REVENUES @ ‐20% (Nominal Dollars) PHASE 1 PHASE 2 PHASE 3 PHASE 1 PHASE 2 PHASE 3 PHASE 1 PHASE 2 PHASE 3 DOWNTOWN CARTER LIGHT DOWNTOWN CARTER LIGHT DOWNTOWN CARTER LIGHT TOTAL BOUNDARY ROAD TOTAL BOUNDARY ROAD TOTAL BOUNDARY ROAD CORE INDUSTRIAL CORE INDUSTRIAL CORE INDUSTRIAL INCOME STATEMENT OPERATING REVENUES: Total revenues $600,000 $294,000 $192,000 $114,000 $540,000 $264,600 $172,800 $102,600 $480,000 $235,200 $153,600 $91,200 OPERATING EXPENSES: $ $ $ $ Total operating expense $32,000 $32,000 $0 $0 $32,000 $32,000 $0 $0 $32,000 $32,000 $0 $0 INTER‐COMPANY (with City): Net inter‐company expense $277,753 $141,345 $81,600 $54,808 $277,153 $141,051 $81,408 $54,694 $276,553 $140,757 $81,216 $54,580 EBITDA $ $ $ $ NET INCOME/(LOSS) $187,476 $80,093 $80,018 $27,365 $128,076 $50,987 $61,010 $16,079 $68,676 $21,881 $42,002 $4,793 CASH FLOW STATEMENT OPERATING ACTIVITIES : $ $ $ $ Cash (to)from operations $290,247 $120,655 $110,400 $59,192 $230,847 $91,549 $91,392 $47,906 $171,447 $62,443 $72,384 $36,620 INVESTING ACTIVITIES: Cash (to)from investing ($51,385) ($20,281) ($15,191) ($15,914) ($51,385) ($20,281) ($15,191) ($15,914) ($51,385) ($20,281) ($15,191) ($15,914) FINANCING ACTIVITIES: Cash (to)from financing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Opening Cash $1,900,671 $948,345 $1,582,853 ($630,527) $409,731 $195,153 $1,116,563 ($901,985) ($1,081,209) ($558,039) $650,273 ($1,173,443) Closing Cash $2,139,532 $1,048,719 $1,678,061 ($587,248) $589,192$ $266,421$ $1,192,763$ ($869,992)$ ($961,148)$ ($515,877)$ $707,465$ ($1,152,736)$ NET CASH INFLOW/(OUTFLOW) $238,861 $100,374 $95,209 $43,279 $179,461 $71,268 $76,201 $31,993 $120,061 $42,162 $57,193 $20,707 $3,000,000 ,------.======.------CUMULATIVE CASH FLOW (CONSO LI DATED) $2,000,000 +------'------'------7"- Sho rt Te rm Lo ng Te rm Fina ncing - Capital Investment Required 1 2 3 4 - Cumulative Cash Flow (BASE CASE) YEARS - Cumulative Cash Flow (Revenue @-10%) - Cumulative Cash Flow (Revenue @-20%) 38yrs -$3,000,000 +------+------ -$4,000,000 ~------$1,500,000 CUMULATIVE CASH FLOW (Phase I) $1,000,000 ,------======--~ Sho rt Te rm Lo ng Te rm Financing $500,000 t-----'r-- --t------+------F-:____ _ 19 yrs - Capital Investment Required - Cumulative Cash Flow (BASE CASE) - Cumulative Cash Flow (Revenue @-10%) 1 2 3 4 YEARS 39 yrs - Cumulative Cash Flow (Revenue @-20%) -$1,500,000 -'------$2,000,000 ~------CUMULATIVE CASH FLOW (Phase II) $1,500,000 +-c-=o"r ,,.-,;-e,.,rm.,,....,------,,------r- Lo ng Term Financing Financing - Capital Investment Required - Cumulative Cash Flow (BASE CASE) - Cumulative Cash Flow (Revenue @-10%) yrs 1 - Cumulative Cash Flow (Revenue @-20%) 1 2 3 4 YEARS -$500,000 ~------$1,000,000 ~------======----- CUMULATIVE CASH FLOW Short (Phase 111) Term l ong Term $0 +:,...,~;;::;:~r"'i"i"~"'i"i"'i"i"i'"'i"i"''i"i"i'"i"'i"ii"i"i"i"'i"i'"'i"i"'i"'i"i''i"'i"'~~"'i"i"i"'i"i'"'i"i"'i""i"";pffli 11 13 $ 17 19 21 23 25 27 29 31 33 35 37 39. - Capital Investment Required - Cumulative Cash Flow (BASECA SE) - Cumulative Cash Flow ( Revenue @-10%) - Cumulative Cash Flow ( Revenue @-20%) -$1,500,000 +------ -$2,000,000 -'------ 19 APPENDIX F – KEY COMPONENTS OF TECHNOLOGY CENTRE Municipal Fibre Network & Technology Centre 93 | Page City of Prince George – Technology Centre Support Document Stantec Stantec has been asked to provide an opinion on whether there is a business case to be made to add a Technology centre component as part of the overall municipally owned fibre network strategy in the City of Prince George. It is also important to state at this time that Stantec was asked not to consider the future IT needs of the City of Prince George as a key driver in forming our opinion. Stantec was asked to evaluate the need for a Technology Centre on its own merit. This document provides key decision criteria which are pertinent in developing a Data Centre Strategy for the City of Prince George. Stantec CITY OF PRINCE GEORGE – TECHNOLOGY CENTRE Executive Summary Stantec has been asked to provide an opinion on whether there is a business case to be made to add a Technology centre component as part of the overall municipally owned fibre network strategy in the City of Prince George. It is also important to state at this time that the future IT needs of the City of Prince George are not to be considered as key drivers for this opinion. Stantec was asked to evaluate the need for a Technology Centre on its own merit without consideration for opportunities to scale future City IT Department needs. As indicated in the capital costing section in the body of the final report, there are a number of different considerations which should be understood before a definitive argument can be made for or against the need for a Technology centre. This document is intended to provide background material to support some of the key components which will be necessary considerations when developing a data centre strategy for the City of Prince George. This is very preliminary and high level view and obviously a more detailed assessment and overall design effort is required before decisions are made to proceed. These components include the following: Site Selection Architectural Considerations Site Electrical Site Mechanical Size and Modularity Availability and Tier levels Also, if the City wishes to have a detailed assessment and Technology Centre design completed, Stantec would be happy to provide a fee estimate to complete all of the necessary work from detailed assessment, business case finalization to full design, construction and commissioning of the centre. One Team . Infinite Solutions. i Stantec CITY OF PRINCE GEORGE – TECHNOLOGY CENTRE Table of Contents EXECUTIVE SUMMARY E.1 1.0 Background ...... 1.1 1.2 BUSINESS DEMOGRAPHICS ...... 1.1 2.0 Key Components for a Technology Centre ...... 2.2 2.1 SITE SELECTION ...... 2.2 2.2 SIZE AND MODULARITY ...... 2.3 2.3 AVAILABILITY AND TIER LEVEL ...... 2.4 ii Stantec CITY OF PRINCE GEORGE – TECHNOLOGY CENTRE 1.0 Background IT backbone is a key strategic asset for any organization. Depending upon the required availability and reliability, the choices organizations have to maintain a robust IT operation are: .1 Have an in-house data centre / server room operation .2 House the IT equipment in a co-location site .3 Have both. Modern organizations seek High Availability and Disaster Recovery systems, located in multiple sites. If one fails the other can be activated seamlessly. Modern data centres need to be flexible and scalable. IT infrastructure in organizations goes through constant change with network capacity upgrades, downsizing, acquisitions, newer technologies and shorter life cycles for technology turnover and upgrades. The Uptime Institute reports that 39% of data centre managers expected that their data centres would run out of cooling capacity in the next 12-24 months and 21% claimed they would run out of cooling capacity within 5 years. With these changing scenarios, Collocation strategies are seen as excellent alternatives to in-house capital intensive infrastructures. 1.2 BUSINESS DEMOGRAPHICS There are various criteria for site selection for a data centre. Some initial criteria for site selection have been listed below: .1 City of Prince George has two commercial data centres, both of which are owned and operated by local ISP’s who are already partners in the municipal Fibre project through the PGANTF .2 Location is uniquely important to each organization, so that equipment upgrades and maintenance of servers and facilities can be accomplished effectively when required. .3 The City of Prince George is also located in a favorable seismic zone which can be a significant advantage to business clients. Prince George could potentially offer alternatives to collocation sites in Kamloops, Kelowna and the Vancouver region or other coastal cities. One Team . Infinite Solutions. 1.1 Stantec CITY OF PRINCE GEORGE – TECHNOLOGY CENTRE Key Components for a Technology Centre April 6, 2011 2.0 Key Components for a Technology Centre 2.1 SITE SELECTION There are various criteria for site selection for a data centre. Some initial criteria for site selection have been listed below: 2.1.1 Architectural Criteria .1 The need for redundant access to the building from separate roads should be considered. .2 Where practical, the building should be a single story dedicated data centre building. .3 Buildings with large clear spans between columns that maximize usable space for equipment are preferred. .4 The building materials should be non-combustible. Exterior walls should be constructed of concrete or masonry to provide security, particularly in areas where brush fires may cause service outages or threaten the structure. .5 For one or two story buildings, the building construction should be International Building Code Type V-N, fully sprinklered with 18 m (60 ft) of clear side yards on all sides. For buildings with three or more stories, the building construction should be International Building Code Type I or II. .6 Where the building is not dedicated to the data centre, other tenant spaces should be nonindustrial, International Building Code type ‘B’ offices, and non- intrusive to the data centre. .7 Avoid buildings with restaurants and cafeterias to minimize fire risk. .8 If the data centre is to be on an upper floor of a multi-tenant building, then there should be adequate shaft and conduit space for generator, security, telecommunications, and electrical conduits as needed. .9 The building should meet the structural requirements of the installation. Consider floor loading for UPS batteries and transformers as well as vibration isolation from rotary equipment on the adjacent floors. .10 The height from the floor to the underside of the building should be considered. Heights of 4 m (13 ft) or more may be required to accommodate access flooring, equipment, and cabling. .11 The building should be provided with sufficient parking to meet all applicable codes. Consideration should be given to “exit strategies” which may require additional parking. .12 Sufficient space should be provided for all mechanical and electrical support equipment, including indoor, outdoor, and rooftop equipment. Consideration should be given to future equipment requirements. .13 The building should have a sufficiently large loading dock, freight elevator, and pathway to handle all anticipated deliveries of supplies and equipment. .14 The computer room should be located away from sources of EMI and RFI such as x-ray equipment, radio transmitters, and transformers. Sources of EMI & RFI One Team . Infinite Solutions. 2.2 Stantec CITY OF PRINCE GEORGE – TECHNOLOGY CENTRE Key Components for a Technology Centre April 6, 2011 should be at a distance that will reduce the interference to 3.0 volts/meter throughout the frequency spectrum. .15 The data centre and all support equipment should be located above the highest expected 200 year floodwater levels. No critical electronic, mechanical or electrical equipment should be located in basement levels. .16 Avoid locating computer room below plumbed areas such as rest rooms, janitor closets, kitchens, laboratories, and mechanical rooms. .17 The computer room should have no exterior windows. If there are windows in a proposed computer room space, they should be covered for security reasons and to minimize any solar heat gain. 2.1.2 Electrical Considerations .1 The local utility company should be able to provide adequate power to supply all initial and future power requirements for the data centre. .2 The availability and economics of redundant utility feeders possibly from separate utility substations should also be considered. .3 Underground utility feeders are preferable to overhead feeders to minimize exposure to lightning, trees, traffic accidents, and vandalism. .4 Standby diesel generators should also be considered in a high reliability configuration 2.2 SIZE AND MODULARITY Depending upon the customer base, cities and municipality IT networks will have different sizes of collocation data centres. Drawing parallels from data centres for similar sized network providers in British Columbia, we estimate the basic module footprint of white space required should be between 1,000ft² and 1,200ft². If and when the requirement increases, the data centre space can be increased by simply adding another module. The associated communications, UPS space and Mechanical equipment can be housed in separate rooms of about 300ft² each. The shell space for these rooms can be initially built for more than one module with drywall partitions to limit on-need expansion. The initial module of 1,000ft² can be used by the IT department across the City of Prince George. Between 16 to 20 server racks in security cages can be accommodated in this space. We recommend the space to have under floor cooling, required redundancies on cooling and caged environments. UPS systems and Communication racks can be housed in a separate room. The 5kW per rack design can be offered as basic, which can be supported by a raised floor cooling system. The overall environmental infrastructure design should consider the need to support higher power densities per rack (6KW – 12KW) over the longer term. One Team . Infinite Solutions. 2.3 Stantec CITY OF PRINCE GEORGE – TECHNOLOGY CENTRE Key Components for a Technology Centre April 6, 2011 Following attributes have been estimated for a 1,000ft² data centre space: .1 Approximately 20 server racks with cages .2 A need for 130 kW of UPS power .3 Approximately 40 tons of basic cooling (40 tons extra for n+n redundancy and about 60 tons for n+1) .4 300 kW standby generator Build out budget cost for Tier III data centre can be estimated between $1500 - $2,000 per square foot for the first module. The costs on the utilities and building shell side won’t be incurred on subsequent modules and the cost will drop by about 20-25% per additional module. 2.3 AVAILABILITY AND TIER LEVEL Data Centre industry performance is modeled on four Tier levels. Tier levels relate to various levels of availability of the data centre facility overall infrastructure. Higher Tier levels not only correspond to higher availability, but also lead to higher construction costs. Specific business circumstances might call for some systems to be designed at higher Tier levels than others. For example, a data centre located where utility electric power is less reliable than average might be designed with a Tier III electrical system but only Tier II mechanical systems. The mechanical systems might be enhanced with spare parts to help ensure a low MTTR (mean time to repair). Currently, collocation data centres typically provide Tier II to Tier III availability. The same data centre can provide, if required by any customers, lower Tier levels, which can be reflected by a corresponding lower price. At times, the customers will take multiple Tiers within the same collocation to align with their needs. A data centre may also have different Tier ratings for different portions of its infrastructure. For example, a data centre may be rated Tier III for electrical, but Tier II for mechanical. However, the data centre’s overall Tier rating is always equal to the lowest rating across all portions of its infrastructure. Thus, a data centre that is rated Tier IV for all portions of its infrastructure except electrical, where it is rated Tier II, is rated as a Tier II overall. The overall rating for the data centre is based on its weakest component. For the City of Prince George case, Stantec suggests that the Technology Centre should be an overall Tier III facility. The existing Tier levels for the two existing Data Centre’s in the Prince George market should also be verified. It I quite possible that these are at levels 3 or lower which would make a City owned and operated Tier III facility very appealing to business customers. Tier III translates to a “Concurrently Maintainable” system. This level capability allows for any planned site infrastructure activity without disrupting the computer hardware operation in any way. Planned activities include preventive and programmable maintenance, repair and replacement of components, addition or removal of capacity components, testing of components and systems, and more. Unplanned activities such as errors in operation or spontaneous One Team . Infinite Solutions. 2.4 Stantec CITY OF PRINCE GEORGE – TECHNOLOGY CENTRE Key Components for a Technology Centre April 6, 2011 failures of facility infrastructure components will still cause a data centre disruption. Tier III sites are often designed to be upgraded to Tier IV when the client’s business case justifies the cost of additional protection. Alternately, a Tier II facility can be the basic level with on-need/as-required enhanced availability with Tier III. A high level Tier level description has been included in the following section, however a more comprehensive discussion can be found in the Uptime institute document entitled “Data Center Site Infrastructure Tier Standard: Topology”, copyright ©2009 by the Uptime Institute. A copy of this document can be provided upon request. 2.3.1 Data Centre Tier Level Overview A high level overview of the four data centre Tiers as originally defined by The Uptime Institute are: .1 Tier I Data Centre: Basic A Tier I data centre is susceptible to disruptions from both planned and unplanned activity. It has computer power distribution and cooling, but it may or may not have a raised floor, a UPS, or an engine generator. If it does have UPS or generators, they are single-module systems and have many single points of failure. The infrastructure should be completely shut down on an annual basis to perform preventive maintenance and repair work. Urgent situations may require more frequent shutdowns. Operation errors or spontaneous failures of site infrastructure components will cause a data centre disruption. .2 Tier II Data Centre: Redundant Components Tier II facilities with redundant components are slightly less susceptible to disruptions from both planned and unplanned activity than a basic data centre. They have a raised floor, UPS, and engine generators, but their capacity design is “Need plus One” (N+1), which has a single threaded distribution path throughout. Maintenance of the critical power path and other parts of the site infrastructure will require a processing shutdown. .3 Tier III Data Centre: Concurrently Maintainable Tier III level capability allows for any planned site infrastructure activity without disrupting the computer hardware operation in any way. Planned activities include preventive and programmable maintenance, repair and replacement of components, addition or removal of capacity components, testing of components and systems, and more. For large sites using chilled water, this means two independent sets of pipes. Sufficient capacity and distribution must be available to simultaneously carry the load on one path while performing maintenance or testing on the other path. Unplanned activities such as errors in operation or spontaneous failures of facility infrastructure components will still cause a data centre disruption. Tier III sites are often designed to be upgraded to Tier IV when the client’s business case justifies the cost of additional protection. One Team . Infinite Solutions. 2.5 Stantec CITY OF PRINCE GEORGE – TECHNOLOGY CENTRE Key Components for a Technology Centre April 6, 2011 .4 Tier IV Data Centre: Fault Tolerant Tier IV provides site infrastructure capacity and capability to permit any planned activity without disruption to the critical load. Fault-tolerant functionality also provides the ability of the site infrastructure to sustain at least one worst-case unplanned failure or event with no critical load impact. This requires simultaneously active distribution paths, typically in a System+System configuration. Electrically, this means two separate UPS systems in which each system has N+1 redundancy. Because of fire and electrical safety codes, there will still be downtime exposure due to fire alarms or people initiating an Emergency Power Off (EPO). Tier IV requires all computer hardware to have dual power inputs as defined by the Institute’s Fault-Tolerant Power Compliance Specification. Tier IV site infrastructures are the most compatible with high availability IT concepts that employ CPU clustering, RAID DASD, and redundant communications to achieve reliability, availability, and serviceability. 2.3.2 SUMMARY TABLE – TIER LEVELS Component Description Tier I Tier II Tier III Tier IV Power and cooling Single Single path Multiple path Multiple path distribution path Redundant systems None HVAC-UPS- HVAC-UPS- HVAC-UPS-(N+1)- (N+1)-Generators (N+1)-Generators Generators Watts/square foot 20-30 40-50 100-150 150-200 Average annual down time 28.8 22 hours 1.6 hours 0.4 hours hours Reliability expectation 99.67% 99.75% 99.98% 99.99% One Team . Infinite Solutions. 2.6 20 APPENDIX G – NETWORK MAP Municipal Fibre Network & Technology Centre 94 | Page City of Prince George Network Map ~ . I', ,,,,'' •· ------i ,,,, ' _s·\-->/\ 1/ I ' r / 7I I ! \ ( / . ..(~~/ ' ' I' '•.I, "------~ _J ',._ \ i_ - ' L / ------r r / ' '' ' '' L IIIIIIIIIIREl L UlJ 11 11 111•~- I I' I I I I I I I 1~.~~1 '' ------i m11,,11,~~-- 1' --- \ . -=-11 ' I· ··~'''I,,. " " I- "I' "I' I \ I' I~ \ I I I 'I I 'I I I 'I ~,~~;::=·~ ,, L___ '' \ '' ', I / \\ ,_ .' ' LE~-tt1t II I I \\ I ~e--,, "IL_ __ _ !' Ci '' '' '' I' I I I I I I ,,' ; rr c= 1I - _, ~ /,,/ L D "/ / / '• Network Map 21 APPENDIX H – OPTION MATRIX REPORT Municipal Fibre Network & Technology Centre 95 | Page City of Prince George Municipal Fibre Network & Technology Centre Business Case Options Profile Report January 17, 2011 Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 stantec Table of Contents 1.0 INTRODUCTION ...... 1 2.0 DELIVERABLE – OPTIONS MATRIX ...... 1 2.1 APPROACH AND METHODOLOGY ...... 1 2.2 DEFINITIONS AND ASSUMPTIONS ...... 3 2.2.1 OPTION EVALUATION MATRIX - DEFINITIONS ...... 3 WHOLESALE SERVICES ...... 3 RETAIL (MANAGED) SERVICES ...... 4 OWNER 4 OPERATOR ...... 4 RISK and REWARD ...... 5 2.3 MATRIX RATING RESULTS ...... 5 2.4 CONCLUSIONS ...... 10 2.5 APPENDIX ...... 12 eld u:\114777974\01_mgmt\06_report\options matrix\options matrix report jan17_11.docx i Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 1.0 INTRODUCTION This report provides the details and conclusions of the Business Case Options Profile deliverable. The next step is to have the City of Prince George review our findings and if in agreement with the ratings, provide direction for us to begin the development of the fiber network business case on the basis of the most viable option surfaced from the options ratings. With respect to the Technology Centre and Service Type components, both were included in the evaluation and rating process. The results are discussed briefly in our conclusions, however in order for us to proceed towards drafting of the business case; conclusions on these components are not required at this time. The crucial decision which is required concerns ownership and operation of the fiber network as this component drives our ability to continue development of the project business case. 2.0 DELIVERABLE – OPTIONS MATRIX The first step in developing the foundation for the business case is to identify the various options available to the city for the ownership and operation of the proposed fiber network and technology centre. Stantec working with the City have developed an Options selection matrix. This selection matrix allows for ranking of the various options using relevant rating criteria developed from key information, data and input received from the City in order to surface the most viable option. 2.1 APPROACH AND METHODOLOGY Stantec’s approach and methodology in creating the options matrix and rating system was based on discussions with the City of Prince George as well as using Stantec’s previous experience with successful business case development work. After data gathering and discussions with the City, key information and data was reviewed and a short list of viable ownership and operating options for the Fibre Network/Data Centre were selected. Key criteria which reflect pertinent and relevant rewards or risks to the City were added to form 5 key criteria sections and associated sub-sections. These included the following: 1) Economic a. Capital investment level required by City of Prince George b. Impact on City of Prince George franchise fee revenues 1 Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 c. Affordability of service offering to Prince George businesses d. Impact of project profitability to the City e. Impact on new job creation through business expansion and attracting new business f. Impact on City of Prince George non-taxable status. 2) Environmental a. Impact of network construction approach on Prince George environment b. Impact on Prince George carbon footprint (e.g. enabling media rich services, video conferencing, tele-commuting, medical records accessibility etc.) c. Impact on waste and/or recycling in Prince George due to digital media storage d. Ability to take advantage of ongoing City and Developer projects 3) Social a. Impact on Prince George resident's quality of life b. Impact on development and enhancement in downtown core c. Impact on the image of Prince George to others. d. Impact on social interaction in community e. Ability to scale the network to target residential offerings in the Future 4) Operations a. Impact on City of Prince George departments operating efficiencies b. Impact on customer service levels/network fault response c. Impact on network administration complexity d. Ease of future expansion (applications, permits etc) e. Level of existing network knowledge and experience 2 Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 stantec 5) Legal, Political and Regulatory a. Impact on open access and fair market practices. b. Local market regulatory/legal implications c. Alignment with internal stakeholder strategies d. Community support for project The evaluation criteria sub-category risk and reward explanations are detailed in the spreadsheet. These explanations were used to position the thinking during the rating of the different options with respect to how each option contributes to reward or risk for the City. Weightings of the different sections were discussed and left at an equal amount of 20% for each of the five categories. The City should review the weightings and decide whether they still believe that each evaluation category should represent the same weighting. Stantec can make adjustments to the overall scoring to reflect different category weightings. The spreadsheet calculations will need to be redone should this be the city’s conclusion. Our first-pass ratings were completed separately by three different Stantec project resources with different areas of expertise and experience perspectives and all three cases delivered similar conclusions. In our second-pass, the ratings were completed with everyone in the same room with extensive discussion and perspective. The results are included in Appendix A. 2.2 DEFINITIONS AND ASSUMPTIONS The following provides an overview of the definitions and assumptions which were made in defining the respective options that have been evaluated and rated. 2.2.1 OPTION EVALUATION MATRIX - DEFINITIONS WHOLESALE SERVICES Wholesale services refers to provision of dark fibre only. Under this service model the dark fibre will be constructed with various connection points along the distribution network. The businesses/resellers will provide payment to the base network owner for access to the dark fibre network. 3 Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 stantec RETAIL (MANAGED) SERVICES Retail or 'managed' services refers to provision of channelized bandwidth access. Under this services model the dark fibre will be provided directly to the business premises. Instead of providing raw access to the significant fibre bandwidth, the dark fibre is channelized (split up) to provide lower bandwidth access to match the needs of a greater number of businesses. This model would provide non-regulated services only, specifically excluding local and long distance telephone services and cable television services which require stringent licensing and regulatory approval. OWNER The Owner of the base fibre network and data centre refers strictly to legal ownership of the physical assets. The Owner will construct and be financially responsible for the initial capital cost and subsequent plant extension of the base fibre network and data centre. The Owner would also construct fibre extensions from the base fibre network connection point to the business property line (drop point) for buildings connected to the fibre network and will be reimbursed by the Operator for these costs. The Owner will receive payment from the Operator for access to and use of the base fibre network/data centre. OPERATOR The Operator of the fibre network/data centre refers to the entity(s) who operate and maintain the fibre network/data centre. The Operator is responsible for all operating and maintenance activities including the network administration and maintenance, customer service, marketing, billing and other administrative back office requirements. The operator will pay a fee to the owner for access to the base network and will have sole discretion to determine rates for businesses access to all services provided through the fibre network. The operator will maintain the entire fibre network, including the base network/data centre. The Operator will receive a fee from the Owner for maintenance of the base fibre network/data centre and will be reimbursed by the Owner for any capital repairs to the base network/data centre. To help clarify the differences in responsibility between the owner and the operator, please refer to the following chart: OWNER/ OPERATOR RESPONSIBILITY SUMMARY Who Who Performs Who RESPONSI Bl LITIES Owns The Wo rk Pays Construct base fib re network/data centre Owner Owner Owner Construct fib re connections to base fib re network Owner Owner Operator Construct/install fib re and equipment in buildings Operator Operator Operator Maintain base fibre network/data centre n/a Operator Owner Ma intain fib re connections to base fi bre network n/a Operator Owner Ma intain fibre and equipment in buildings n/a Operator Operator 4 Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 Stantec RISK and REWARD With respect to definitions of RISK and REWARD, the following assumptions were made: - All items do not necessarily have both a RISK and a REWARD component. - If the risk associated with a particular criterion is simply the opposite of the reward for that criterion, then the opposing ratings will effectively cancel each other out and provide a "0" contribution to the category. If there are sizable and distinct reward or risk contributions then those are legitimate components to be considered on both sides. These assumptions are required to ensure that there is no “double counting” or “zeroing out” of the contribution for a particular category. Therefore some category evaluation criteria items will only have a Reward or a Risk component but not both. 2.3 MATRIX RATING RESULTS The following charts provide a visual representation of how each evaluation criteria impacts across the different options. OWNERSH IP/OPERATOR OPTIONS {ECONOMIC CRITERIA) 120.0% MAX Line 100.0%------oi"' :> Q) ....I 80.0% 'ii- Cla: 0.0%_ M IN line Stat us Quo City Owns & City Owns & Othe rs Own & Others Own & Ope rat e s Othe rs Operate City Ope rat es Ope rat e Economic reward is highest for City Owns & Operates option due to greatest likelihood of being an affordable service available to most number of businesses, therefore greatest economic benefit. Economic risk is also highest for this option due to capital expenditure requirement and 5 Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 Stantec greatest likelihood that Franchise Fees and non-taxable status may be impacted. OWNERSHIP/OPERATOR OPTIONS {ENVIRONMENT CRITERIA) 120.0% ,------ MAX Lin e "' 100.0% ------iii :> Q) ....I 80.0% +------?l o a: ~ • REWARD LUa: RISK -g 40.0% • :.::.. Vl a: 20.0% M IN line 0.0%_ Status Quo City Owns & City Owns & Ot hers Own & Others Own & Operates Others Operate City Operates Operate Environment reward is highest for City Owns & Operates option due to greatest likelihood of being affordable/accessible to most businesses therefore providing greatest opportunity to reduce carbon footprint and waste as well as City ability to coordinate network construction with other City development projects. Environment risk is highest for Others Own & Operate option due to greatest likelihood of private party using most economical solutions and less ability to coordinate construction with other City development projects. OWNERSHIP/OPERATOR OPTIONS {SOCIAL CRITERIA} 120.0% ,------,------...- - - _- _- _- _- _- _- _- _- _- _- _- _- _- _- _- _- _- _- _- __ __ _ NOTE : This crit eria is REWARD driven, therefore The RISK MAX Lin e VI 1m0% ------com ponent is set t o a "O" value iii :> Q) ~ 80.0% +------0 a: ~ 60.0% +------LU • REWARD a: -0 • RISK = 0 ffi 40.0% +------l,l a: 20.0% M IN line 0.0%- St atus Quo City Owns & City Owns & Others Own & Others Own & Operates Ot hers Operate City Operates Operate 6 Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 Stantec Social reward is highest for City Owns & Operates option due to greatest likelihood of being affordable/accessible to most businesses therefore providing greatest positive impact to City image, quality of life, downtown redevelopment and community interaction, All social criteria are reward driven therefore risk is not applicable. OWNERSHIP/OPERATOR OPTIONS {OPERATIONS CRITERIA) 12 0.0% ~------ M AX Line 100.0% ------"' cii,. ~"' 80.0% +------~ 0 a: i 60.0% LU • REWA RD a: "'C • RIS K C 40.0% "' ~ ci: 2 0.0% 0.0% M IN lin e Status Quo City Owns & City Owns & Others Own & City Others Own & Operates Others Operate Operates Operate Operations reward is highest for City Owns & Operates due to City having greatest influence on operations and customer service therefore creating greatest likelihood of providing efficiencies to other City departments, and ease in planning, permitting etc. for expansions. The Others Own & Operate option has greatest Operations risk to the City primarily due to third party having control over operating activities that may impact City departments efficiency, OWNERSHIP/OPERATOR OPTIONS {LEGAL, POLITICAL and REGULATORY CRITERIA) 100.0% -,------~-~------MAX li---ne 90.0 % NOTE: This criteria is RISK driven, t herefore The REWARD component "' 8 0.0% cii,. is set to a "O" value 70.0% ...I"' ?fl. 0 60.0% a: i 50.0% LU • REWARD=O a: 40.0% "'C • RISK C 30.0% :>!"' 7 Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 stantec All legal, political & regulatory criteria are risk driven therefore reward is not applicable. Legal, political & regulatory risk is highest for the Other Owns & Operates option due to greatest likelihood of private owner/operator restricting access and less likelihood of having community support and aligning with City and other stakeholder strategic objectives. The following charts provide a visual representation of how each option is impacted by the various evaluation criteria. CRITERIA CATEGORY RATINGS {STATUS QUO - Model) 100.0JI ~------::::::::::::::::::::~-----=~------~r------MAX Li ne NOTE: 90.0JI +------l - Soc ial Crit eria seen as a REWARD driver only. BO.OJI +------l "' oi - Legal, Po lit ical and Regulatory :,. 70.0% Ill ------1 criteria seen as a RISK driver o nly. ...J 0 60.0JI a: ; SO.OJI a:UJ • REWARD .., 40.0JI C: (ti • RISK ~ 30.0JI The Status Quo model provides a reasonable mix of reward and risk. Risk is lower mainly due to the model having smaller scale therefore lower commitment, environment impact and possibility for legal, political & regulatory issues. Similar to risk, the rewards of this model are also limited due to lower and slower expansion into Prince George business community. CRITERIA CATEGORY RATINGS {CITY OWNS & OPERATES - Model) 120.0% NOTE : - Social Crit eria seen as a MAX line 100.0%------, REWARD driver only. oi"' :,. Ill - Leg al, Politica l and Reg ulatory ...J 80.0% crit eria se en as a RISK driver -;I. only. 0 a: M IN Li ne 0.0%- Economic Environmental Social Operations Legal, Political and Regulatory 8 Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 Stantec The City Owns & Operates model provides the most favorable overall combination of reward versus risk. Risk in most criteria categories is lowest due to City having influence and control over the expansion and operations of the network and likelihood of the market being open and fair. With this control also comes the required capital commitment making economic risk higher. Reward criteria are highest for this model also because of City influence and control over access and affordability thereby maximizing the benefits to community, environment etc. CRITERIA CATEGORY RATINGS (CITY OWNS & OTHERS OPERATE - Model) 100.0% - NOTE: M 6Y l i m> 90.0% +------1 - Social Crit eria seen as a REWARD 80.0% oi"' ::, QJ ....I 70.0% ~ Cl 60.0% a:: ; 50.0% UJ • REWARD a:: 40.0% "O • RISK C 30.0% ~"' The City Own & Others Operate model is generally less favorable because it places the economic risk of capital commitment on the City but doesn't benefit from having control over the operations and expansion of the network. As a result, environment, operations and legal, political & regulatory risk are higher relative to the likely reward. CRITERIA CATEGORY RATINGS (OTHERS OWN & CITY OPERATES - Model) 100.0%' y------.======::;;---=-, ---M AX--Li ne NOTE: 90.0% ------1 - Social Crit eria seen as a REWARD driver o nly. 80.0% ______, - Legal, Political and Regula tory criteria seen as oi"' ::, a RISK d river only. QJ ....I 70.0% ~ Cl 60.0% a:: ; 50.0% UJ • REWARD a:: 40.0% "O • RISK C 30.0% ~"' 9 Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 Stantec The Others Own & City Operates model is the second most desirable model due primarily to the City having control and influence over the operating activities and expansion of the network to businesses without the capital commitment of ownership. Although having control over operations results in higher rewards for most criteria, not having ownership does limit these rewards somewhat and also results in higher overall risk in all criteria versus if the City owned the assets. CRITERIA CATEGORY RATINGS (OTHERS OWN & OPERATE - Model) 120.0% ,------~~======::::------..... NOTE: MAX line - Social Crit eria seen as a 100.0% ------VI REWARD driver only. ai .,::, - Legal, Polit ical and ~ 80.0% Regulatory crit eria seen as a 0 a: RISK driver only. ; 60.0% +------UJ • REWARD a: ...., • RISK ffi 40.0% +---- ~ "'ii: 20.0% M IN Li ne Economic Environmental Social Operations Legal, Polit ical and Regulatory The Others Own & Operate option is the least desirable model for the City of Prince George. The rewards in economic, environment social and operations criteria are lower due to the greater likelihood that services will be less affordable for businesses resulting in less economic expansion and social benefits. Risks in environment, operations and legal, political and regulatory are generally higher with this model due to private sector having less ability to integrate network expansion with City projects and department activities and likelihood of a less competitive market. 2.4 CONCLUSIONS With respect to the various options and their ratings, it seems clear that there are greater overall rewards and less overall risk with a city ownership and operations model. The overall results for each option across all evaluation criteria are visualized below: 10 Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 stantec OWNERSHIP/OPERATOR OPTIONS (ALL CRITERIA} 120.0% MAX Li oe 100.0% ni"' ::,, Q) -' 80.0% -;;te. C 0:: 60.0% • REWARD iuJ 0:: "C • RISK C: cu 40.0% :..:: Ill 22 20.0% M IN Li oe 0.0% Status Quo City Owns & City Owns & Others Own & Others Own & Operates Others Operate City Operates Operate Combining the results for all risk and reward criteria clearly indicates that the City Owns & Operates model is the most preferred option for the City. This model provides the greatest reward by a significant margin and is second only to the Status Quo model with respect to risk criteria. While the risk of the Status Quo model (44%) is lower than the City Owns & Operates model (61%), the increased reward possible from the City Owns & Operates model (96% vs. 58%) is so significant that it easily compensates for the added risk. We would like the city of Prince George to review our findings and provide any comments or feedback you may have concerning the rating methodology or the results outlined in this report. Our plan is to move ahead with the detailed business case based on the City Owns and Operates option unless the feedback we receive suggests otherwise. Also, it would be interesting for the City to go ahead and also rate the evaluation categories independently to see whether there is similar agreement in the results. We will await your response and comments before moving ahead with the detailed risk analysis and development of the draft business case. 11 Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 2.5 APPENDIX Appendix A REWARD Evaluation Matrix, RISK Evaluation Matrix OPTIONS Evaluation Matrix 12 Stantec CITY OF PRINCE GEORGE - BUSINESS CASE OPTIONS PROFILE REPORT January 17, 2011 APPENDIX A REWARD Evaluation Matrix RISK Evaluation Matrix OPTIONS Evaluation Matrix 13 SERVICE OPTIONS OWNERSHIP/OPERATOR OPTIONS TECH CENTRE OPTIONS THE CITY OF PRINCE GEORGE W FIBRE NETWORK AND DATA CENTRE E I G H COMBINED (REWARD - RISK) EVALUATION MATRIX T operates Dark Fibre I as is operate STATUS QUO P3 NETWORK P3 NETWORK CITY NETWORK CITY CITY NETWORK RETAIL SERVICE N Managed services City owns and Other and Other owns City City owns and operates owns City WHOLESALE SERVICE City Owns and Operates Owns City Continue to build out and build out to Continue TECHNOLOGY CENTRE TECHNOLOGY CENTRE TECHNOLOGY CENTRE G and operates owns Other Other Owns and Operates Owns Other Other owns - City Operates City - owns Other City Owns - Other Operates Other - Owns City Criteria Evaluation SUBJECTIVE CRITERIA (OVERALL SCORE = REWARD ratings minus RISK ratings) RESULTS : (Higher Score = Larger REWARD and Smaller RISK, Lower Score = Larger RISK and Smaller REWARD) ECONOMIC 20% -3.00 -3.00 0.00 -2.00 -3.00 -1.00 -3.00 -2.00 -4.00 -3.00 1 Capital investment level required by City of Prince George -3 -3 -2 -3 -3 -1 -1 -3 -3 -1 2 Impact on City of Prince George franchise fee revenues -1 -3 -1 -2 -2 -2 -3 -2 -3 -3 3 Affordability of service offering to Prince George businesses 13 33131 311 4 Impact of project profitability to the City 0 0 -101-100 1 0 5 Impact on new job creation through business expansion and attracting new business 13 33131 311 6 Impact on City of Prince George non-taxable status. -1 -3 -2 -3 -1 -3 -1 -3 -1 -1 ENVIRONMENTAL 20% 0.00 3.00 3.00 6.00 1.00 2.00 -3.00 4.00 2.00 -1.00 1 Impact of network construction approach on Prince George environment -2 -3 -1 -2 -3 -2 -3 -2 -2 -3 Impact on Prince George carbon footprint (e.g. enabling media rich services, video 2 13 13221 321 conferencing, tele-commuting, medical records accessibility etc.) 3 Impact on waste and/or recycling in Prince George due to digital media storage 13 13221 321 4 Ability to take advantage of ongoing City and Developer projects 00 2200-2000 SOCIAL 20% 8.00 12.00 5.00 15.00 10.00 10.00 5.00 12.00 8.00 4.00 1 Impact on Prince George resident's quality of life 23 13221 321 2 Impact on development and enhancement in downtown core 23 13221 321 3 Impact on the image of Prince George to others. 23 13221 321 4 Impact on social interaction in community 23 13221 321 5 Ability to scale the network to target residential offerings in the Future 00 13221 000 OPERATIONS 20% 10.00 -2.00 6.00 8.00 1.00 4.00 0.00 6.00 -1.00 -1.00 1 Impact on City of Prince George departments operating efficiencies 0 0 -12-20-22-2-2 2 Impact on customer service levels/network fault response 2-21 1-10-22-2-2 3 Impact on network administration complexity 2-200000000 4 Ease of future expansion (applications, permits etc) 31 33121 000 5 Level of existing network knowledge and experience 31 32323 233 LEGAL / POLITICAL / REGULATORY 20% -4.00 -4.00 -4.00 -6.00 -8.00 -8.00 -10.00 -6.00 -8.00 -10.00 1 Impact on open access and fair market practices. 0 0 -1-1-2-2-3-1-2-3 2 Local market regulatory/legal implications -2 -3 -1 -3 -2 -2 -1 -3 -2 -1 3 Alignment with internal stakeholder strategies 0 0 -1-1-2-2-3-1-2-3 4 Community support for project -2 -1 -1 -1 -2 -2 -3 -1 -2 -3 Overall TOTALS: 100% 11 61021 17-1114 -3 -11 Scored Categories 24 24 24 24 24 24 24 24 24 24 Max Scores 72 72 72 72 72 72 72 72 72 72 % of Max Score 15.3% 8.3% 13.9% 29.2% 1.4% 9.7% -15.3% 19.4% -4.2% -15.3% NOTE: Negative % results indicate an OPTION with an overall LOW REWARD with VERY HIGH RISK. L L77 :J VHQJ%C 1J$RQJ`1RVJ 1:C 7P `1JHV!VQ`$VP"] 1QJ : `16P%1@%V1:`R"] 1QJ : `16Z):JZ SERVICE OPTIONS OWNERSHIP/OPERATOR OPTIONS TECH CENTRE OPTIONS THE CITY OF PRINCE GEORGE W E FIBRE NETWORK AND DATA CENTRE I G NOTES H CRITERIA EXPLANATION T REWARD EVALUATION MATRIX operates Dark Fibre I as is operate STATUS QUO P3 NETWORK P3 NETWORK CITY NETWORK CITY CITY NETWORK CITY Managed servicesManaged N RETAIL SERVICE City owns and Other owns and Other City City owns and operates City City Owns and Operates City WHOLESALE SERVICE G and out build to Continue Other owns and operates Other TECHNOLOGY CENTRE TECHNOLOGY CENTRE TECHNOLOGY CENTRE TECHNOLOGY Other Owns and Operates Other Other owns - City Operates owns - City Other City Owns - Other Operates Owns - Other City Criteria Evaluation SUBJECTIVE CRITERIA Scoring : REWARD (Low=1, Medium=2, High=3) CRITERIA EXPLANATION 1 ECONOMIC 20% 3.00 9.00 7.00 9.00 4.00 8.00 3.00 9.00 4.00 3.00 1 Capital investment level required by City of Prince George ------Not Applicable to Reward Capital investment by City will never be lower than zero therefore reward is not relevant to criteria 2 Impact on City of Prince George franchise fee revenues ------Not Applicable to Reward All scenarios contribute to competition therefore would not increase Franchise Fees being received. Reward = The likelihood and amount that each option will provide fiber access at a price level that IS affordable for most 3 Affordability of service offering to Prince George businesses 1 3 33131 3 1 1 Network operator (not owner) controls pricing therefore if the City operates the network, pricing businesses. can be kept lower. Also, if City owns network the return required may be lower. 4 Impact of project profitability to the City 1 3 13221 3 2 1Reward = The likelihood that the option will result in increased profitability for the City, potentially offsetting the tax base. Any profits/losses are primarily borne by the operator (not the owner). Increased profitability from project may subsidize 'general revenues.' Impact on new job creation through business expansion and Reward = The likelihood and amount that each option will result in economic expansion of existing businesses and/or 5 1 3 33131 3 1 1 attracting new business attract new business to Prince George lower prices --->greater access----->new products and services------>expansion------>more jobs and new businesses 6 Impact on City of Prince George non-taxable status. ------Not Applicable to Reward Becoming taxable is a risk only. Reward is not applicable to this criteria. 2 ENVIRONMENTAL 20% 2.00 6.00 5.00 9.00 6.00 6.00 3.00 6.00 4.00 2.00 Impact of network construction approach on Prince George 1 ------Not Applicable to Reward environment No positive environmental impacts are expected regardless of service offering or ownership type therefore Reward is not applicable to this criteria. Impact on Prince George carbon footprint (e.g. enabling media rich Reward = The likelihood and amount that each option will reduce Prince George's carbon footprint by reducing the need 2 services (i.e. video conferencing, tele-commuting, medical records 1 3 13221 3 2 1 to travel between businesses and institutions for meetings, work etc. accessibility etc.) Greater Access-----> more opportunity to reduce carbon footprint----->greater carbon footprint rewards. City owner/operator solution likely to be available to more businesses. Impact on waste and/or recycling in Prince George due to digital Reward = The likelihood and amount that each option will reduce Prince George's solid waste or paper recycling by 3 1 3 13221 3 2 1 Greater Access-----> more opportunity to reduce waste----->greater reward. City owner/operator reducing the need for paper copies, faxes, file storage and other paper media. media storage solution likely to be available to more businesses. Reward = The likelihood and amount that each option will integrate future network expansions into other City projects 4 Ability to take advantage of ongoing City and Developer projects - - 33221 - - - such as road construction, underground infrastructure upgrades etc. thereby lessening the need for additional invasive City owner/operator----> better project awareness------>greater reward of taking advantage. No construction. impact on Tech Centre or by service type. 3 SOCIAL 20% 8.00 12.00 5.00 15.00 10.00 10.00 5.00 12.00 8.00 4.00 Reward - The likelihood and amount that each option will improve Prince George residents access to new technologies, 1 Impact on Prince George resident's quality of life 2 3 13221 3 2 1 City owner/operator = greater penetration----> more businesses---->expansion----->greater quality digital media services, improved health and emergency services etc. of life Reward = The likelihood and amount that each option will improve the downtown district by attracting housing 2 Impact on development and enhancement in downtown core 2 3 13221 3 2 1 City owner/operator =greater penetration----> more businesses---->expansion----->greater developments, educational, social and cultural facilities etc. downtown development Reward = The likelihood and amount that each option will improve the image of Prince George as a technologically 3 Impact on the image of Prince George to others. 2 3 13221 3 2 1 modern and attractive place to live and do business. City owner/operator =greater penetration----> more businesses---->expansion----->Improved Image Reward = The likelihood and amount that each option will increase Prince George business and residents physical and 4 Impact on social interaction in community 2 3 13221 3 2 1 City owner/operator =greater penetration----> more businesses---->expansion----->greater virtual interaction through enhanced media, community events, festivals, arts and cultural activities. interaction in community Reward = The likelihood and amount that each option will expand fiber network services to residential neighborhoods City project alignment---->mandate conduit installs in new subdivision--->potential for future 5 Ability to scale the network to target residential offerings in the Future - - 13221 - - - outside the downtown core in the future. residential scaling. Modest revenue model----> higher probably to scale, as higher capital costs to reach residential market. Service offering and Tech Centre not material contributors to reward. 4 OPERATIONS 20% 12.00 4.00 9.00 10.00 6.00 8.00 6.00 8.00 5.00 5.00 City as operator will be more efficient implementing services internally with other City departments Reward = The likelihood and amount that each option increases operating efficiency and effectiveness at City 1 Impact on City of Prince George departments operating efficiencies - - 13121 3 1 1 compared to if operated by external party. Service offering is not a material contributor to departments. operating efficiency. Existing evidence from customer calls---->high service levels from city currently. SHAW and Reward = The likelihood and amount that each option will provide a higher level of service and reduce network 2 Impact on customer service levels/network fault response 3 1 22121 3 1 1 TELUS Service levels in Town appear to be questioned, therefore City Operations ----> greater downtime for fibre network users. customer service reward Complexity is primarily influenced by service type and not by ownership/operator therefore Reward 3 Impact on network administration complexity 31 ------Not Applicable to Reward not applicable. Tech Centre complexity is also influenced by service type and not ownership/operator. Reward = The likelihood and amount that each option expands the network efficiently in the future by managing 4 Ease of future expansion (applications, permits etc) 3 1 33121 - - - City control of operations---> greater planning, permits alignment. External ownership ---> slower required applications, permitting etc. (more steps and complexity) application and approval processes Reward = The likelihood and amount that each option will operate the fibre network more efficiently and effectively due Private sector telecommunications expertise is typically higher than public sector. Private sector 5 Level of existing network knowledge and experience 3 1 32323 2 3 3 to technological, telecom sector and business knowledge and experience. can specialize expertise to drive business. City not likely to be as highly specialized. However, City has great head start in understanding the existing network 5 LEGAL / POLITICAL / REGULATORY 20% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Base assumption and expectation is for open access to the network therefore reward is not 1 Impact on open access and fair market practices. ------Not Applicable to Reward applicable. 2 Local market regulatory/legal implications ------Not Applicable to Reward Base assumption and expectation is for no regulatory or legal challenges therefore reward is not applicable. 3 Alignment with internal stakeholder strategies ------Not Applicable to Reward Base assumption and expectation is for project alignment with key stakeholder strategies therefore reward is not applicable. Base assumption and expectation is for community support for project therefore reward is not 4 Community support for project ------Not Applicable to Reward applicable. REWARD Total 100% 25 31 26 43 26 32 17 35 21 14 1/14/2011 : 12:37 PM Stantec Consulting ‐ Confidential U:\114777974\01_mgmt\06_report\Options Matrix\Risk Reward Options Matrix_Jan14_11.xlsx SERVICE OPTIONS OWNERSHIP/OPERATOR OPTIONS TECH CENTRE OPTIONS THE CITY OF PRINCE GEORGE W FIBRE NETWORK AND DATA CENTRE E I G CRITERIA EXPLANATION NOTES H RISK EVALUATION MATRIX T operates Dark Fibre I operate as is STATUS QUO P3 NETWORK P3 NETWORK P3 CITY NETWORK CITY NETWORK Managed services N RETAIL SERVICE City owns and Other City owns and operates City Owns and Operates WHOLESALE SERVICE WHOLESALE G Continue to build out and Other owns and operates TECHNOLOGY CENTRE TECHNOLOGY CENTRE TECHNOLOGY CENTRE Other Owns and Operates Other owns - City Operates City Owns - Other Operates Criteria Evaluation SUBJECTIVE CRITERIA Scoring : RISK ( Low=1, Medium=2, High=3) CRITERIA EXPLANATION 1 ECONOMIC 20% 6.00 12.00 7.00 11.00 7.00 9.00 6.00 11.00 8.00 6.00 Capital investment level required by City of Prince 1 3 3 23311 3 3 1RISK = The likelihood and amount that each option will require Higher Capital investment Level of capital investment by City is contingent on ownership, not type of service. Best scenario for City is to have others George input Capital $. Channelized services require greater Capital $ Impact on City of Prince George franchise fee 2 1 3 12223 2 3 3RISK = The likelihood and amount that each option will reduce Franchise Fees received by the City. Any scenario where competition is created will reduce competitor revenues. The more aggressive the competition the greater revenues the risk of lowering Franchise Fees. Affordability of service offering to Prince George 3 ------Not Applicable to Risk businesses No expected increase in current price for fibre access regardless of model therefore this criteria is not applicable to risk. 4 1 3 23131 3 1 1RISK = The likelihood of each option to incur losses which must be absorbed by the City. Impact of project profitability to the City Any profits/losses are primarily borne by the operator (not the owner). Impact on new job creation through business 5 ------Not Applicable to Risk expansion and attracting new business No expected decrease in job creation or development regardless of model therefore this criteria is not applicable to risk. Taxation will be governed by ownership and success of Revenue model. Greater revenues---> greater tax impact, Outside 6 1 3 23131 3 1 1RISK = The likelihood that the option WILL result in greater profits for the City, thereby increasing taxes (or tax in lieu). Impact on City of Prince George non-taxable status. ownership ----> less tax impact--->greater reward. Service Type is NOT relevant 2 ENVIRONMENTAL 20% 2.00 3.00 2.00 3.00 5.00 4.00 6.00 2.00 2.00 3.00 Impact of network construction approach on Prince RISK = The likelihood and amount that each option will have negative environmental impacts such as trenching, 1 2 3 12323 2 2 3 George environment deconstruction, aesthetics of visible cables etc. Operator (not owner) will be the primary influence on environmental impact. City as operator likely to have less impact than other as operator. Impact on Prince George carbon footprint (e.g. 2 enabling media rich services, video conferencing, ------Not Applicable to Risk tele-commuting, medical records accessibility etc.) No expected worsening of waste or recycling regardless of service offering or ownership model, therefore all are low risk. Impact on waste and/or recycling in Prince George 3 ------Not Applicable to Risk due to digital media storage No expected worsening of carbon footprint regardless of service offering or ownership model, therefore all are low risk. Ability to take advantage of ongoing City and RISK = The likelihood and amount that each option is NOT likely to integrate future network expansions into other City 4 - - 11223 - - - projects such as road construction, underground infrastructure upgrades etc. thereby lessening the need for additional Developer projects City owner/operator----> better project awareness------>lower risk of not taking advantage. No impact on Tech Centre or by invasive construction. service type. 3 SOCIAL 20% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1 Impact on Prince George resident's quality of life ------Not Applicable to Risk No expected worsening of quality of life under any service offering or ownership model, therefore all are low risk. Impact on development and enhancement in 2 ------Not Applicable to Risk downtown core No expected worsening of downtown development under any service offering or ownership/operator model. 3 Impact on the image of Prince George to others. ------Not Applicable to Risk No expected worsening of City image under any service offering or ownership/operator model. 4 Impact on social interaction in community ------Not Applicable to Risk No expected worsening of social interaction under any service offering or ownership/operator model. Ability to scale the network to target residential No expected worsening of ability to target residential offerings in the future under any service offering or ownership/operator 5 ------Not Applicable to Risk offerings in the Future model. 4 OPERATIONS 20% 2.00 6.00 3.00 2.00 5.00 4.00 6.00 2.00 6.00 6.00 Impact on City of Prince George departments 1 - - 21323 1 3 3RISK = The likelihood and amount that each option decreases operating efficiency and effectiveness at City departments. City as operator will be more efficient implementing services internally with other City departments compared to if operated operating efficiencies by external party. Service offering is not a material contributor to operating efficiency. Impact on customer service levels/network fault RISK = The likelihood and amount that each provides a lower level of service and increases network downtime for fibre 2 1 3 11223 1 3 3 Existing evidence from customer calls---->high service levels from city. SHAW and TELUS Service levels in Town appear to response network users. be questioned, therefore City Operations ----> greater customer service reward Complexity is primarily influenced by service type and not by ownership/operator. Tech Centre complexity is also influenced 3 13 ------Not Applicable to Risk Impact on network administration complexity by service type and not ownership/operator. 4 Ease of future expansion (applications, permits etc) ------Not Applicable to Risk Risk of not expanding due to application process challenges is immaterial as business is traditionally conducted this way currently. Tech Centre is not influenced much by applications process etc. 5 Level of existing network knowledge and experience ------Not Applicable to Risk Both City and other operators have sufficient network experience and knowledge to make risk negligible. 5 LEGAL / POLITICAL / REGULATORY 20% 4.00 4.00 4.00 6.00 8.00 8.00 10.00 6.00 8.00 10.00 RISK = The likelihood and degree to which each option fails to provide open access to the fiber network in a fair and 1 Impact on open access and fair market practices. - - 11223 1 2 3 competitive manner. Ownership is the differentiator here. City Model is based on Open access 2 Local market regulatory/legal implications 2 3 13221 3 2 1RISK = The likelihood of each option to cause the potential for anti-competitive or unfair business advantage. Ownership is the differentiator here. Legal/regulatory challenge is only relevant if city is involved in this business RISK = The likelihood and degree to which each option fails to align with the requirements and strategies of the City and key 3 Alignment with internal stakeholder strategies - - 11223 1 2 3 municipal stakeholders such as City Charter, Strategic Plan, IPG, downtown revitalization etc. City ownership----> greater opportunity for Alignment 2 1 11223 1 2 3RISK = The likelihood and degree to which each option fails to achieve public and community support. 4 Community support for project Pricing and open access would be the 2 most important factors driving Community Support. Ownership is primary driver RISK Total 100% 14 25 16 22 25 25 28 21 24 25 Scored Categories 9 9 12 12 12 12 12 11 11 11 Max Scores 27 27 36 36 36 36 36 33 33 33 % of Max Score 51.9% 92.6% 44.4% 61.1% 69.4% 69.4% 77.8% 63.6% 72.7% 75.8% 1/14/2011 : 12:36 PM Stantec Consulting ‐ Confidential U:\114777974\01_mgmt\06_report\Options Matrix\Risk Reward Options Matrix_Jan14_11.xlsx 22 APPENDIX I – LEGAL AND REGULATORY REFERENCES Municipal Fibre Network & Technology Centre 96 | Page Licensing in an era of liberalization and convergence – Case study: Canada Table 4 – CRTC Registration and reporting requirements Type of telecommunication Obligations Comments service provider Competitive local exchange √ CRTC registration and compliance with administrative √ Forbearance exercised with 1) carrier (CLEC) requirements (e.g. provide a map of the proposed service area, respect to end-user tariffs, 3) A CLEC provides local residential meet a set of consumer safeguards, technical interoperability and including resellers . 2) or commercial services in interconnection requirements, etc. . √ A list of CLECs is available at competition with the telephone √ Canadian ownership and control requirements. http://www.crtc.gc.ca/eng/pu companies that provided the service √ Subject to universal fund contributions. blic/iplists/clec.htm. prior to the introduction of √ competition in local service. √ Full CLEC obligations are listed at http://www.crtc.gc.ca/frn/public/2003/8180/CRTC/clecobl.htm. Non-dominant carriers4) √ CRTC registration, indicating categories of service, and providing √ Dominant A non-dominant carrier is a service certain other items of information5). telecommunication operators provider other than an incumbent √ Canadian ownership and control requirements. must file their tariffs with the local exchange carriers (ILEC), CRTC. √ Subject to universal fund contributions. providing services that fall under √ A list of non-dominant Telecom Decision CRTC 95-19 of √ Other obligations: Participate in numbering planning, provide carriers is available at 6) 8 September 1995 (“Forbearance – points of interconnection and so on . 31 Licensing in an era of liberalization and convergence – Case study: Canada Table 4 – CRTC Registration and reporting requirements (end) Type of telecommunication service provider Obligations Comments Competitive payphone service √ CRTC registration; administrative requirements such as providing √ An ILEC is only required to 14) providers the name of the carrier supplying the access lines, providing the register as a CPTSP if it provides pay telephones A Competitive Pay Telephone CRTC with maps showing areas where the service is to be outside of the territory in Service Provider (CPTSP) is a provided and making them available for public consultation in which it formerly operated as company other than an Incumbent their business offices, providing details on the manner of dealing a monopoly16. Local Exchange Carrier (ILEC) with customer complaints, incorporating consumer rights protection in its contracts with other CLECs and ILECs √ ILECs and resellers alike can that provides pay telephones at 17) customer locations. (including access to emergency services, access for hearing- be CPTSPs . impaired and physically handicapped persons, clear operating √ A list of CPTSPs is available instructions and cost information, limitations on the functionality, at: complaint submission, compliance with CRTC regulations on http://www.crtc.gc.ca/eng/pu customer privacy15). blic/iplists/cptsp.htm. √ Subject to universal fund contributions. √ Canadian owership and control requirements. √ Full CPTSP obligations are listed at: http://www.crtc.gc.ca/frn/public/8180-9.htm. Wireless service providers √ No registration required unless they choose CLEC qualification18). √ The fees charged by the fixed (WSPs) √ No obligation to register with the CRTC, except in the case of operators to the cellular wireless services offered by dominant companies. operators for using their network are regulated. Exceptions: 1) Those connected to the public switched telephone network must comply with confidentiality requirements. 2) Bell Canada and Rogers Cantel had to submit their agreements with telephone company affiliates and comply with other obligations, including the prohibition of exchange of confidential customer information and of cross- subsidies19). √ Submit a list of their subsidiaries, affiliates and related companies20). √ Subject to licensing requirements under the Radiocommuni- cation Act. √ Subject to universal service fund contributions21). √ Canadian ownership and control requirements. Internet service providers (ISPs) √ The prices charged by the incumbent telephone and cable √ No entry procedures, companies to ISPs to access their infrastructure are subject to registration process or CRTC approval22). obligations. √ Contribution : two categories, one subject to universal fund √ The tariffs charged by ISPs to contributions and the other exempt23). end customers are not subject √ Registration required for those which qualify as resellers24). to regulation. √ Internet service providers which provide high-speed digital services (DSL) via wire-based lines must register. Companies wishing to become digital subscriber line service providers are required to inform the CRTC of their intention to do so and submit the name of the carrier supplying the unbundled local loop and collocation. As DSL service providers they cannot use these loops to provide voice services unless they undertake to become CLECs. Entrants to the long distance market need to register with the CRTC25). √ DSL providers may not enter the local switched telephony market26). Sharing group27 √ CRTC registration. √ A list of sharing groups is A Sharing Group is a group of available at: persons or companies who share http://www.crtc.gc.ca/eng/pu telecommunications services such blic/iplists/shgroup.htm. as a company sharing the same lines or network of lines, as in the case of a Centrex system. 32 Licensing in an era of liberalization and convergence – Case study: Canada Table 6 – Canada’s licensing regime for the provision of information and communication services and the operation of underlying facilities Licence type Scope of licence Licence terms Authority Radio licence Install, operate or possess radio apparatus to ♦ Scope: It is a term of a radio licence that the holder Industry perform any of the following services at a of the radio licence shall restrict the activities of the Canada fixed station, mobile station or space station: station to those radiocommunication services i) aeronautical service, referred to in paragraph 3(a) of the Radiocommunication Regulations that are specified ii) amateur radio service, in the licence2). iii) public information service, ♦ Ban on discrimination: It is a term of a radio iv) developmental service, licence that the holder of the radio licence who is a v) fixed service, radiocommunication service provider shall provide vi) intersatellite service, its radiocommunication services without unjust 3) vii) land mobile service, discrimination . 4) viii) maritime service, and ♦ Eligibility (Restriction on foreign ownership). ix) radiodetermination service1). ♦ Minister’s discretion. ♦ Transfer and assignment: Requires ministerial authorization5) . ♦ Radio licence fees: Various6). ♦ Conditions of licence. Example: Mobile operators are required, as part of their licence obligations, to invest 2% of adjusted gross revenues in research and development. Spectrum licence Use specified radio frequencies within a ♦ Term: Generally valid for ten years from the date of Industry 7) 8) Authorizations defined geographic area . licence issuance . Canada available for ♦ Renewal: As a rule, there is a high expectation of assignment in an renewal for a further ten-year term. A public auction consultation regarding the renewal of the licence will commence no later than two years prior to the end of the licence term if the Department foresees the possibility that it will not renew this licence or if renewal fees are contemplated9). ♦ Modifications: The minister has the power to amend the terms and conditions of licences, in exceptional cases and following due consultation 10). ♦ Reallocation of licences: In exceptional circumstances11). ♦ Utilization: Market forces must determine who will gain access to spectrum as well as how it will be used (flexibility in determining the services they will offer and the technologies they will employ)12). ♦ Service areas: Following service area tiers 13). ♦ Transfer and divisibility: In whole or in part, in both the bandwidth and geographic dimensions to a qualified recipient (larger than a single spectrum grid cell)14). ♦ Eligibility: i) radiocommunication users or radiocommunication service providers (art. 9(1) RR); ii) radiocommunication carriers (art. 10 RR). Minister to be informed of any changes. ♦ Technical requirements15). ♦ Obligations under the sharing and coordination arrangements between Canada and the United States16). ♦ Conditions for implementation of service or roll- out conditions: May be imposed 17). Broadcasting No person shall, except under and in Industry certificate accordance with a radio authorization, install, Canada operate or possess radio apparatus, other than: a) radio apparatus exempted by or under regulations made under paragraph 6(1)(m) of the Radiocommunication Act, b) radio apparatus that is capable only of the reception of broadcasting and that is not a distribution undertaking18). 34 Licensing in an era of liberalization and convergence – Case study: Canada Table 6 – Canada’s licensing regime for the provision of information and communication services and the operation of underlying facilities (end) Licence type Scope of licence Licence terms Authority Radio operator ♦ Eligibility: The following persons are eligible to be issued a radio Industry certificate operator certificate: Canada a) an individual who has passed the examinations set by the Minister in respect of the radio operator certificate being applied for; b) an individual who has met reissuance requirements or the requirements for the issuance of an equivalent certificate, set out in section 28 of the Radiocommunication Regulations; or c) an individual who is a citizen of a country other than Canada if i) the individual is the holder of an authorization that is issued by the responsible administration of that country and that corresponds with the applicable radio operator certificate set out in subsection 26(1) of the Radiocommunication Regulations, and ii) a reciprocal arrangement that establishes correspondence between radio operator certificates is in effect between the responsible administrations of Canada and that country 19). Technical ♦ To certify technical acceptance and compliance with applicable Industry acceptance standards20). Canada certificate International Two types: ♦ Term: Ten years21). Industry submarine cable Terminating licence ♦ Renewal or modification: Upon licensee request22). Canada licence Through licence ♦ Transfer: Subject to ministerial consent23). ♦ Suspension and revocation: if the Minister believes on reasonable grounds that the licensee has ceased to be eligible under the regulations or has contravened the Telecommunications Act, the regulations or any condition of the licence after giving notice in writing of the reasons for the suspension or revocation and a reasonable opportunity to make representations to the Commission24). ♦ Environmental compliance: An application for a licence must include documentation indicating compliance with the requirements set out in the Canadian Environmental Assessment Act (CEAA)25). ♦ Other conditions: An international submarine cable licence may contain such conditions as the Minister considers are consistent with the Canadian telecommunications policy objectives26). International Class A ♦ Term: 10 years27). Licences were issued initially for five years28). CRTC telecommu- Class B ♦ Renewal: On application by the licensee29). nications service licence ♦ Modification: Possible30). ♦ Transfer: With CRTC consent31). ♦ Suspension or revocation of licence: if the Minister believes on reasonable grounds that the licensee has ceased to be eligible under the regulations or has contravened the Telecommunications Act, the regulations or any condition of the licence after giving notice in writing of the reasons for the suspension or revocation and a reasonable opportunity to make representations to the Commission32). ♦ Competition: i) Prohibition of engaging in anti-competitive conduct33), ii) Obligation to furnish and maintain an up-to-date list of all agreements or arrangements entered into with any foreign telecommunications service providers34), iii) Provide any other information needed35). ♦ Minutes of traffic: Class A licensees must retain quarterly international traffic minute data until the CRTC has determined the requirements in the framework of Public Notice CRTC 2000-175 (“Monitoring the Canadian telecommunications industry”) of 15 December 200036). 35 Canadian Radio-television and Conseil de la radiodiffusion et des l• I Telecommunications Commission telecommunications canadiennes Telecom Decision CRTC 2010-930 PDF version Route reference: Telecom Notice of Consultation 2010-165, as amended Ottawa, 9 December 2010 Classification of service providers that light leased dark fibre for subsequent sale File number: 8665-C12-201004853 In this decision, the Commission determines that a service provider that leases dark fibre and lights the fibre using its own optical equipment does not own or operate a “transmission facility,” and, when it provides services to the public using these facilities, it is not operating as a “telecommunications common carrier” as defined in the Telecommunications Act. Introduction 1. On 25 November 2009, AboveNet Communications Inc. (AboveNet) filed a letter requesting that the Commission register its Canadian subsidiary, AboveNet Canada Inc. (AboveNet Canada), as a reseller. AboveNet stated that the initial intention was for AboveNet Canada to resell dark and lit fibre-optic services in Canada. AboveNet also stated that the telecommunications services to be resold would be obtained from TELUS Communications Company (TCC) pursuant to an existing facilities lease agreement, noting that AboveNet Canada neither owned nor operated transmission facilities in Canada. 2. By letter dated 7 December 2009, TCC opposed the registration of AboveNet Canada as a reseller. TCC argued that, based on the facts presented to the Commission, AboveNet Canada does not qualify to operate as a reseller and should be considered a “telecommunications common carrier” under the Telecommunications Act (the Act). 3. In March 2010, the Commission issued Telecom Notice of Consultation 2010-165, in which it called for comments on whether by lighting dark fibre leased from a third party and providing that lit fibre to third parties for compensation, a service provider is “operating” a “transmission facility” and is a “telecommunications common carrier,” as defined in the Act. 4. The Commission received submissions from AboveNet; AT&T Global Services Canada Co. (AGSC); Bell Aliant Regional Communications, Limited Partnership and Bell Canada (collectively, the Bell companies); Cogent Canada Inc., Level 3 Communications, LLC, and Verizon Canada Ltd. (collectively, the Coalition); MTS Allstream Inc. (MTS Allstream); NextG Networks Canada Inc. and its parent NextG Networks, Inc. (collectively, NextG); TCC; TekSavvy Solutions Inc. (TekSavvy); and Yak Communications (Canada) Corp. (Yak). C dl • I ana a 5. AboveNet, and AGSC, the Coalition, MTS Allstream, NextG, TekSavvy, and Yak (collectively, the other parties) argued that a service provider that lights leased dark fibre and uses the lit fibre to provide telecommunications service to the public is not a “telecommunications common carrier.” The Bell companies and TCC argued that such a service provider operates “transmission facilities” and therefore operates as a “telecommunications common carrier.” 6. The public record of this proceeding, which closed on 28 April 2010, is available on the Commission’s website at www.crtc.gc.ca under “Public Proceedings” or by using the file number provided above. Background and legislative context 7. In June 1993, Parliament enacted the Act1 which, among other things, repealed telecommunications-related provisions of the predecessor Railway Act. Under the Railway Act, the obligation to file tariffs and other regulatory requirements applied to facilities-based service providers and, following a Commission determination in 1992,2 to resellers (i.e. those who leased transmission capacity) that provided end-to- end basic telecommunications by means of interprovincial services or facilities that they configured, and that exercised control over the carriage and routing of their traffic. Prior to the Commission’s decision in 1992, resellers were not considered “companies” subject to the regulatory framework set out in the Railway Act. 8. With the new Act, Parliament, among other things, addressed the distinction between resellers and facilities-based service providers. In Telecom Public Notice 93-62, which was issued just prior to the coming into force of the Act, the Commission stated that “in order to satisfy, among other things, the intent of Parliament that resellers that do not have basic transmission facilities should not be subject to Commission regulation, a series of related definitions were included in section 2 of the Act.” 9. The seminal definition introduced in the Act was that of a “telecommunications common carrier” as a person that owns or operates a “transmission facility” used to provide “telecommunications services” to the public for compensation.3 The definition of “transmission facility”4 does not include “exempt transmission 1 The Act came into force on 25 October 1993. 2 See Telecom Decision 92-11. 3 Telecommunications common carriers that are subject to the legislative authority of Parliament are “Canadian carriers” subject to tariffing and related requirements under the Act. 4 “transmission facility” means any wire, cable, radio, optical or other electromagnetic system, or any similar technical system, for the transmission of intelligence between network termination points, but does not include any exempt transmission apparatus. apparatus” (ETA).5 As a result, only a service provider that owns or operates a transmission facility (whether or not in combination with ETA) can be a “telecommunications common carrier” and can be subject to the tariffing and other requirements of the Act. 10. Accordingly, in Telecom Public Notice 93-62, the Commission concluded that resellers would not be subject to the provisions of the Act applicable to Canadian carriers, including the requirement to file tariffs for prior Commission approval. 11. The distinction between resellers and facilities-based providers was addressed again in 1998 when Parliament created a new category of service provider in conjunction with new powers6 granted to the Commission. Since the new powers were intended to apply to resellers as well as facilities-based service providers, the definition of “telecommunications service provider” was introduced into the Act in order to capture all providers of basic telecommunications services – whether facilities-based or not. Issues 12. The Commission has identified the following two issues to be addressed in this decision: I. Does the optical equipment used by a service provider to light leased dark fibre fall within the definition of ETA or can it be considered, in and of itself, a “transmission facility?” II. Does a service provider operate a “transmission facility” when it attaches optical equipment to leased dark fibre to provide telecommunications services to third parties? I. Does the optical equipment used by a service provider to light leased dark fibre fall within the definition of ETA or can it be considered, in and of itself, a “transmission facility?” 13. TCC stated that a piece of equipment is not ETA unless it performs only the functions listed in parts (a) - (c) of the definition of ETA. 5 “exempt transmission apparatus” means any apparatus whose functions are limited to one or more of the following: (a) the switching of telecommunications, (b) the input, capture, storage, organization, modification, retrieval, output or other processing of intelligence, or (c) control of the speed, code, protocol, content, format, routing or similar aspects of the transmission of intelligence. 6 The new powers were to issue international service licences (sections 16.1-16.4) and to require contribution to a fund to support basic telecommunications services (section 46.5). 14. TCC argued that the purpose of including part (a) in the definition of ETA was to ensure that the operation of equipment that was limited to switching did not bring a service provider within the scope of the definition of a “telecommunications common carrier.” Further, TCC argued that part (b) of the ETA definition was intended to exclude enhanced service providers, and that part (c) was designed to ensure that companies engaged solely in data processing were also excluded. 15. TCC argued that while the electronics used to light dark fibre may (i) perform a switching function, (ii) process intelligence, and (iii) control the speed of the transmission,7 they will also convert an input signal into pulses of light that will travel down the fibre and transmit intelligence. TCC submitted that this function is the core function of a carrier and is not included in the definition of ETA. 16. TCC submitted that the functions of the equipment used to light dark fibre by converting electromagnetic signals into light signals cannot be properly described as changing the “format,” “code,” or “protocol” of the transmissions, as those terms are defined in Newton’s Telecom Dictionary (21st edition, 2005). TCC further argued that, in a 1984 decision,8 the Commission had previously linked the concept of “formatting” to that of “editing” and that this linkage should be used to determine the meaning of “format” in the ETA definition. 17. AboveNet and several of the other parties submitted that the optical equipment falls within part (c) of the ETA definition as its function is to convert an input signal into pulses of light, which constitutes a protocol and format conversion that amounts to a control of the speed, code, protocol, content, and format of the transmission of intelligence that is encoded in the pulses of light. 18. AboveNet argued that the term “exempt transmission apparatus” refers to apparatus that have a transmission function. AboveNet argued that, based on the definition of “transmission facility” in the Act, it is reasonable to conclude that it is the basic transmission medium that is intended to be captured (i.e. the fibre-optic cable) and not the transmission-related equipment that is attached to or associated with the basic transmission capacity. Commission’s analysis and determinations 19. The parties to this proceeding agreed that equipment used to light dark fibre performs, in part, some of the functions identified in the definition of ETA. The key dispute related to whether the optical equipment,9 to the extent it converts electromagnetic signals into light signals, properly falls within the definition of ETA. 7 As defined by parts a, b, and c, respectively, of the ETA definition. 8 See Telecom Decision 84-18. 9 For the purpose of this decision, the term “optical equipment” refers to a piece of equipment, or a component of an integrated multi-function apparatus, that converts electromagnetic signals into light signals, and does not include any other components of an integrated apparatus that may perform functions such as, but not limited to, protocol conversion, data storage, and routing. 20. In this regard, the Commission notes in particular part (c) of the ETA definition, which is set out as follows: control of the speed, code, protocol, content, format, routing or similar aspects of the transmission of intelligence. 21. The Commission considers that there is no basis to consider that the term “format” in part (c) of the ETA definition refers solely to the shape, size, or presentation of the message being transmitted, as argued by TCC. The Commission considers that the term “format” is a broad and general term and that TCC’s restrictive interpretation is inconsistent with the plain meaning of the word and, more generally, with the broad and comprehensive nature of the definition of ETA. 22. The Commission notes that in order for the intelligence to be transmitted along the optical fibre, it must be converted from electromagnetic signals into light signals and that the optical equipment performs this function. The Commission considers, as a matter of fact, that the conversion of electromagnetic signals into light signals involves control of the format of the transmission of intelligence from one which is compatible with an electromagnetic transmission medium to a format compatible with an optical transmission medium. The Commission therefore finds, as a matter of fact, that the function of the optical equipment is to control the format of the transmission of the intelligence. 23. In light of the above, the Commission therefore finds that the functions of optical equipment used to light leased dark fibre are limited to those identified in the definition of ETA. 24. Furthermore, the Commission notes that even if optical equipment used to light dark fibre were not captured by the definition of ETA, it could not by itself constitute a “transmission facility.” As noted above, that term is defined to mean any wire, cable, radio, optical or other electromagnetic system, or any similar technical system, for the transmission of intelligence between network termination points, but does not include any exempt transmission apparatus. 25. The Commission considers that optical equipment used to light dark fibre could not of itself be described as an “electromagnetic system, or any similar technical system, for the transmission of intelligence between network termination points.” Optical equipment does not by itself transmit intelligence between network termination points. 26. Given the wide scope of ETA, and that a “transmission facility” is for the “transmission of intelligence between network termination points,” the Commission considers that an interpretation pursuant to which the term “transmission facility” captures the basic transmission medium, as argued by AboveNet, and not the transmission-related equipment such as optical equipment attached at both ends of such facility, is more consistent with Parliament’s intention. 27. In light of all of the above, the Commission concludes that the optical equipment used to light leased dark fibre is not a “transmission facility” as defined in section 2 of the Act. II. Does a service provider operate a “transmission facility” when it attaches optical equipment to leased dark fibre to provide telecommunications services to third parties? 28. The Bell companies argued that the word “operate” means “to cause to function.” They submitted that the question should not be “who operates the equipment attached to the transmission facility,” but rather who is operating the transmission facility itself. They argued that dark fibre is inert, and that the provisioning of dark fibre does not involve causing the transmission facility to function. Rather, the Bell companies submitted that it is the lessee (i.e. Above-Net) or end-user that causes the dark fibre to function by lighting it. 29. The Bell companies submitted that accepting AboveNet’s and others’ arguments would render the words “or operates” in the Act meaningless, allowing telecommunications common carriers to circumvent the rules pertaining to foreign ownership and control simply by leasing, rather than owning, transmission facilities. 30. TCC submitted that the attachment of the optical equipment has the overall effect of turning dark fibre into a system capable of transmitting intelligence. 31. TCC argued that either ownership or operation of a system is enough to bring a person within the definition of a telecommunications common carrier. TCC cited a number of Commission decisions (issued prior to the new Act) to support the argument that just as the Act’s predecessor applied to some but not all resellers, depending on how they operate, so too does the current Act. TCC submitted that attaching ETA or non-ETA to dark fibre constitutes operating a system, and therefore satisfies the definition of a telecommunications common carrier. 32. AboveNet and several of the other parties noted that the carriers that lease the dark fibre to the resellers operate the dark fibre to the extent that they are responsible for the ongoing management, maintenance, repair, and replacement of the fibres. A number of these parties noted that in fact the resellers (i.e. those leasing the dark fibre) cannot access the facility and cannot finance, engineer, manage, modify, maintain, operate, or transfer any interests in the transmission facility, which in all instances remains “owned” and operated by the facilities-based telecommunications common carrier. For example, AGSC stated that (i) the reseller is responsible for notifying the Network Operations Centre (NOC) operated by the carrier in the event that transmission is interrupted or otherwise degraded, and (ii) it is the carrier’s NOC personnel who facilitate repairs to the (fibre) network facilities and restoration of service, not those of the reseller. 33. AboveNet argued that the test for defining “operate” under the Act cannot be based on which party intends to cause the transmission to function, as submitted by the Bell companies, as every party involved in the supply chain, from carrier to customer to end-user, takes various actions in relation to the facility to cause it to function. Rather, the Commission must look to the words and objects of the Act itself to interpret the meaning of “operate.” Commission’s analysis and determinations 34. The Commission notes that the definition of “telecommunications common carrier” refers to a person that “owns or operates a transmission facility,” and the definition of “transmission facility” specifically excludes apparatus falling within the definition of ETA. 35. In the Commission’s view, a service provider that attaches ETA equipment to leased dark fibre operates the ETA equipment, not a transmission facility. Indeed, the Commission notes that several parties submitted that the carrier that owns the leased dark fibre retains operational responsibility of the fibre to the extent that it remains responsible for access to, and the maintenance, repair, and replacement of, the fibre. 36. The Commission notes the argument made by parties that Parliament specifically included the definition of ETA so that resellers operating such apparatus could not be held to be a “telecommunications common carrier.” Further, having considered the Act in its entirety, and its legislative history, the Commission is of the view that the distinction between resellers and facilities-based providers is essential to a proper interpretation of the Act. 37. In light of the above, the Commission finds that, to the extent that it uses optical equipment to light leased dark fibre, a service provider does not own or operate a “transmission facility” as defined in the Act. Policy Direction 38. The Bell companies submitted that the Commission cannot forbear from the definitions of the Act or rely on the Policy Direction10 in order to create exceptions to the Canadian foreign ownership and control rule. 39. TCC argued that the Policy Direction does not speak to the issues to be decided in this case, but even if it did, there is no basis for resorting to any source other than the Act in deciding what the Act says unless the Act is unclear. In support of this view, TCC cites Driedger, Construction of Statutes (2nd edition, 1983), page 87, where the author says that Today there is only one principle or approach [to the construction of legislation], namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. 10 Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, P.C. 2006-1534, 14 December 2006 (the Policy Direction) 40. MTS Allstream submitted that the Canadian telecommunications industry has relied on and, indeed, structured itself on the basis of Telecom Public Notice 93-62 on how the definition of a “telecommunications common carrier” should be interpreted. This decision has enabled a variety of service providers to contribute to the telecommunications infrastructure in Canada and increase overall levels of competition in the process. 41. Several of the other parties shared the view that a ruling declaring resellers who light leased dark fibre to be telecommunications common carriers would be immediately disruptive to the Canadian telecommunications industry that has developed since Telecom Public Notice 93-62 by placing a number of large resellers in violation of the Act and would be inconsistent with the objectives of the Act and the Policy Direction. Commission’s analysis and determinations 42. The Commission considers that neither the Policy Direction nor the telecommunications policy objectives set out in section 7 of the Act can alter the meaning of the definitions in section 2 of the Act examined in this proceeding. Nevertheless, the definitions must, as TCC has submitted and as the Commission has done in this decision, be considered in the context of the entire Act, and read in a manner that is consistent with their purpose and the intention of Parliament. 43. The Commission considers that its determinations in this decision further the telecommunications policy objectives set out in section 7 of the Act, including, in particular, those set out in paragraphs 7(a), (c), (e), and (f) of the Act.11 Further, given that the effect of the determinations in this decision is to rely on market forces to the maximum extent possible, the Commission considers that its determinations are consistent with the Policy Direction. Conclusion 44. In light of the above, the Commission concludes that a service provider that leases dark fibre to which it attaches optical equipment in order to provide telecommunications services to the public is not on that basis a “telecommunications common carrier” as defined in the Act. Secretary General 11 The cited policy objectives of the Act are (a) to facilitate the orderly development throughout Canada of a telecommunications system that serves to safeguard, enrich and strengthen the social and economic fabric of Canada and its regions; (c) to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications; (e) to promote the use of Canadian transmission facilities for telecommunications within Canada and between Canada and points outside Canada; and (f) to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective. Related documents • Classification of service providers that light leased dark fibre for subsequent sale, Telecom Notice of Consultation CRTC 2010-165, 19 March 2010, as amended by Telecom Notice of Consultation CRTC 2010-165-1, 25 March 2010 • Exemption of resellers from regulation, Telecom Public Notice CRTC 93-62, 4 October 1993 • Application by TWU – Status of resellers under the Railway Act, Telecom Decision CRTC 92-11, 11 June 1992 • Enhanced Services, Telecom Decision CRTC 84-18, 12 July 1984