Powhatan County Broadband Recommendations Funding options, strategies, and recommendations Funded by the Virginia Department of Housing and Community Development Prepared for Powhatan County, VA July, 2011 DESIGN NINE we build networks that perform Copyright © 2011 Design Nine, Inc. Provided for the exclusive use of Powhatan County. All other rights reserved. Disclaimer The telecommunications business is continually evolving. We have made our best effort to apply our experience and knowledge to the business and technical information contained herein. We believe the data we have presented at this point in time to be accurate and to be representative of the current state of the telecommunications industry. Market changes and new technology breakthroughs may affect our recommendations over time. Design Nine, Inc. presents this information solely for planning purposes. 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For more information: www.designnine.com Table of Contents Executive Summary 1 Next Steps 4 Why Invest? 5 Services 7 Costs 9 Service Provider Analysis 11 Local Providers 11 Mid-Atlantic Broadband Cooperative (MBC) 11 MBC Opportunities and Service Providers 12 Representative Pricing from Municipal and Open Access Networks 19 FiberNet Monticello 19 Palm Coast FiberNET 19 Chattanooga 19 The Wired Road 20 Powell, Wyoming 20 Lafayette, Louisiana 20 Broadband Education Strategies 21 New Job Opportunities 21 Education Partners and Opportunities 22 Capital Region Workforce Investment Board (WIB) – Area 9 23 John Tyler Community College (JTCC) 23 First Mile Connectivity Options 25 Telephone/DSL 25 Cable Systems 25 Satellite 26 BPL 27 Fiber 27 The Wireless Broadband Debate 29 Wireless Technology Trends and Issues 29 Fixed Point Access Wireless 32 Mobile Access Wireless 32 Case Studies 34 Danville, Virginia 34 Lafayette, Louisiana 35 Accomack/Northampton Broadband 36 Rockbridge Area Network Authority 37 The Wired Road 38 Palm Coast, Florida 39 Powell, Wyoming 40 Risk Factors 42 Market Size 42 Take Rate 42 Funding 42 Service Providers 43 Technology 43 Planning a Community-Owned Network 45 Community Broadband Network Components 45 Core Network 46 Distribution Network 46 Access Network 46 Colocation Facilities 47 Backhaul 47 Managing a Pilot Project 48 Leadership Activities 48 Service Provider Development 49 Network Construction Costs 49 Operations and Management 51 Marketing and Public Awareness 51 Powhatan Fiber Build Out Study 52 Overview of Cost Categories 55 Administrative and Legal 55 Leases, permits, and rights of way 55 Project Management 55 Network Design and Engineering 55 Buildings, Improvements, and Prefabricated Shelters 56 Outside Plant Construction Materials 56 Outside Plant Construction Labor 56 Network Equipment, Software, and Related Costs 56 Network Integration and Testing 56 Miscellaneous 56 Contingencies 56 Evaluating Cost Estimates 57 Construction Method and Assumptions 57 Organization and Network Operations 64 Government Ownership 64 Regional Authority 65 Non-profit 66 Ownership Recommendations 67 Business Model 67 Approach 68 Description of the Business Model 68 Business Case for Pilot Fiber Project 71 Premises Passed and Take Rate 71 Capital Expenditures 72 Financing 72 Revenue, Operating Expenses, and Cash Flow 73 Funding Strategies 74 User/Customer Funding 75 Connection Fees 76 Use Fee Model 77 Purchase Commitments 78 General Funding Strategies 78 Revenue Bonds 79 General Obligation Bonds 80 Revenue Bond Guarantees 80 RUS Loans 80 New Markets Tax Credit 81 State Funds 81 Federal Funds 82 Business Contributions 82 Grants and Donations 82 Survey Results 83 Overview 83 Residential Survey Results 83 Business Survey Results 96 Recommended Areas of Attention 105 Ownership and Management 105 Public/Private Partnerships 105 County Initiatives 105 Community 107 Executive Summary Design Nine has worked with the Virginia Department of Housing and Community Development and Powhatan County since early 2011 to identify what investments are needed to accelerate economic development and job opportunities in Powhatan County. A broadband survey of residents was conducted online, and it received the highest response rate we have seen for a county of this size. More than 350 residents responded to the survey, with some of the key results listed below. 96% of residents answered that they did have an Internet connection. [This is the highest number we have ever seen, and much higher than the national average of about 75%] 80% of residents want better Internet/data service. 65% of residents are somewhat or very willing to pay more for better Internet access. 95% of residents felt the Internet is very important to their household. 26% of residents are already working part or full time from their home, and an additional 46% need evening and weekend access to their place of work. 49% of residents have VPN access to their place of work, meaning a significant number of workers already need business class broadband access from home. The very high response rate of the survey, coupled with the data that shows Powhatan residents make heavy use of the Internet for business, education, and pleasure, illustrates that the need exists for improved access to affordable high performance broadband services like Internet, phone, TV, business videoconferencing, data backup, and telemedicine/telehealth applications. Increased affordability and availability of broadband delivered services has the potential to increase job creation in the county, help retain existing businesses, and improve the county’s ability to attract new businesses and entrepreneurs. • Powhatan has experienced significant new business and residential growth over the past decade, yet access to affordable high performance broadband is still extremely limited. Powhatan County needs more affordable broadband, more choice in broadband providers, and higher speed broadband services to retain existing businesses and to attract new businesses and entrepreneurs to the county. • Powhatan businesses on the eastern end of the county remain constrained by a lack of choice in providers. The limited competition also keeps the cost of services high compared to the cost of services in Powhatan County - Broadband Recommendations Page 1 of 108 other parts of Virginia where competition has created sharp reductions in telecom costs for businesses. • There is a growing trend of more people working from home, in two distinct groups. The survey data shows that Powhatan County has attracted established business professionals who want to run a business from their home, but they expect business class broadband services. There are also growing opportunities for residents to work full-time from home, and to qualify for these jobs, reliable and affordable broadband must be available. • Many future job and work opportunities will be created in areas of the county outside traditional economic development zones (e.g. town centers and business parks). Powhatan County needs a long term strategy of being able to locate businesses and workers anywhere in the county, and that means widespread availability of business class broadband services. • The trend of increasing energy costs is already making long commutes to work more difficult for Powhatan residents. Work from home options have the potential to substantially reduce or eliminate commuting costs, and can reduce the number of residents who have to travel to jobs located outside the county. Perhaps the most important data collected from the broadband survey is that 26% of respondents are already working part time or full time from home--highlighting the need for a modern broadband infrastructure that supports work from home business and job opportunities. • Powhatan County has excellent quality of life, a relatively low cost of living, substantial economic activity, and superb recreational activities. The area is also located within commuting distance of Richmond. Having the right broadband infrastructure will give the county an important tool in its economic development toolkit to create jobs and business opportunities while preserving a great quality of life and without the risks of over-urbanization. Over the next thirty years, the businesses, residents, and institutions of Powhatan County will spend, very conservatively, more than $537 million on telecommunications services (voice, video, and data). This estimate (see the Costs section of this chapter) is based on current average expenditures, and does not consider what is expected to be rapid growth in new kinds of services (e.g., tele-medicine, tele-health, IP-based security applications, video on demand, online games, and many other emerging business applications and services). If these future services were included as part of the financial projection, the total spent on telecommunications in the county would probably exceed $700 million (over 30 years). Powhatan County - Broadband Recommendations Page 2 of 108 The most evident recommendation that emerges from this study is that if the county is to meet its longer term economic and community development goals, wider (universal) access to broadband services with a wide choice of services at affordable price points must be available