market research report, citywide ultra high speed broadband project, palo alto
TRANSCRIPT
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Market Research ReportCitywide Ultra High-Speed Broadband System Project
Tellus VentureAssociates
®
Downtown Palo Alto
1 June 2011
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Scope of work Market research report
Tellus Venture Associates
• Analysis of potential fiber network extensions • Research methodology • Mapping data
• Cost-benefit analysis and ROI for extensions • Pricing analysis • Assess “value-added” commercial telecom services (“lit” services) • Assessment of consumer FTTP market
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Findings Market research report
Tellus Venture Associates
• High market share, brand awareness within niche • Except for resellers, no other telecommunications service providers
offer intra-city dark fiber services in Palo Alto • Core competency
• Reliable, inexpensive basic connectivity • Market effectiveness
• Excellent coverage in Stanford Research Park, downtown • Gaps in commercial coverage
• Hard to reach businesses located at edge of network (5 areas) • Mobile telephone carriers (“backhaul” service) • Potential Solutions
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Recommendations Market research report
Tellus Venture Associates
• Low level, targeted marketing will maintain market position and customer acquisition efforts
• Consider extending network to hard to reach business clusters (5 areas) • Based on ROI and/or economic development potential
• Mobile carriers, multi-tenant office buildings are growth opportunities • Provisioning commercial lit services is not recommended. Don’t
compete with resellers • Evaluate flat rate pricing • Evaluate “Fiber-to-the-Basement” for multi-tenant office buildings • No current business case for residential FTTP service
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Commercial electric accounts were sorted by rate and annual billing
Types A, B & C matched profile of current CPAU fiber customers
Tellus Venture Associates
CPAU Commercial Electric Accounts
Customer Electric Account Profile Number of Accounts Mapping Type
Large commercial 41 A
Medium commercial 728 B
Small commercial greater than $20,000 73 C
Small commercial greater than $10,000 204 D
Small commercial 3,224 E
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Tellus Venture Associates
CPAU fiber network within
reach of hundreds of businesses,
downtown & Stanford
Research Park completely covered.
Stanford Research Park 83% have investigated
service
Downtown Palo Alto
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Several dozen potential fiber customers were identified
More than ¾ths have investigated service or aren’t prospects
Tellus Venture Associates
CPAU Fiber Awareness & Opportunity by Percentage
Geographic GroupElectricity
Usage Profile Matches
CPAU Fiber Database Matches
Technology, Medical &
Professional
Commercial Property Company
Retail or Other Non-Prospect
Stanford Research Park 145 83% 9% 3% 5%
Downtown Palo Alto 177 22% 11% 14% 53%
OtherType A, B, C within 200 meters of network
395 18% 12% 15% 55%
Total 717 32% 11% 12% 44%
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Several dozen potential fiber customers were identified
More than ¾ths have investigated service or aren’t prospects
Tellus Venture Associates
CPAU Fiber Awareness & Opportunity by Percentage
Geographic GroupElectricity
Usage Profile Matches
CPAU Fiber Database Matches
Technology, Medical &
Professional
Commercial Property Company
Retail or Other Non-Prospect
Stanford Research Park 145 83% 9% 3% 5%
Downtown Palo Alto 177 22% 11% 14% 53%
OtherType A, B, C within 200 meters of network
395 18% 12% 15% 55%
Total 717 32% 11% 12% 44%
Fiber DB Tech, Med, ProfessionalCommercial Property Retail
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Mapping also showed
clusters of large commercial
accounts more than 200
meters from network.
Tellus Venture Associates
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Tellus Venture Associates
Site surveys, interviews, secondary
research fed into cost/
benefit analysis
X
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Tellus Venture Associates
Mobile carriers, commercial properties could be
addressed by pricing
programs
0
100
200
300
400
0%
10%
20%
30%
40%
50%
60%
Monthly maximum service fee (not including drop fee of $210)
$400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000 $2,200 $2,400
Flat rate pricing
Fiber to the Basement
Multi-tenant commercial properties
$1,400 maximum flat rate zone
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Com
petitive position
Market attractiveness
Mixed results for overbuilders No cash cows, few stars, lots of dogs and question marks
Tellus Venture Associates
Kansas
Sacramento
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Questions?
Tellus Venture Associates
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Backup Slides
Tellus Venture Associates
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Tellus Venture Associates
Current network coverage
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Unreached commercial
clusters
Tellus Venture Associates
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Businesses along current network Most are within 50 meters
Tellus Venture Associates
CPAU Commercial Electric Accounts
Distance from existing CPAU fiber network:
Commercial Account Type
Within 50 meters or
less
Within 100 meters or
less
Within 200 meters or
less
Greater than 200 meters
(Types A, B, C)
Greater than 200 meters (all Types)
A 34 34 35 3 3
B 509 577 619 72 72
C 53 57 61 10 10
D 14
E 479
Total 596 668 715 85 578
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Tellus Venture Associates
Extended network coverage
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Cost & reach of extensions 204 Type A, B, C within reach, not all are prospects
Tellus Venture Associates
Cost Estimate of Network Extensions (000s)
Fiber segment Length (miles) Low cost($30/foot)
High cost($60/foot)
1 - El Camino Real 2.5 $393 $785
2 - Sand Hill/Welch 2.6 $407 $814
3 - San Antonio 0.7 $111 $222
4 - East Meadow Circle 0.7 $115 $231
5 - East Bayshore 0.3 $44 $87
Total 6.8 $1,069 $2,139
Prospects Identified for Further Investigation
Fiber Segment Locations
1 - El Camino Real 20
2 - Sand Hill/Welch 15
3 - San Antonio 1
4 - East Meadow Circle 12
5 - East Bayshore 4
Total 52
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Cost/benefit analysis of extensions Welch Road would be a “go” with shorter network, pre-sales
Tellus Venture Associates
Cost/Benefit Comparison - Low Cost Scenario (000s)Fiber segment NPV 3 Years NPV 5 Years NPV 10 Years
1 - El Camino Real -$237 -$155 $192 - Sand Hill/Welch -$354 -$330 -$278
3 - San Antonio -$111 -$111 -$111
4 - East Meadow Cir. -$11 $43 $1595 - East Bayshore $8 $36 $93Total -$704 -$516 -$118
Cost/Benefit Comparison - High Cost Scenario (000s)Fiber segment NPV 3 Years NPV 5 Years NPV 10 Years
1 - El Camino Real -$629 -$547 -$3742 - Sand Hill/Welch -$761 -$736 -$685
3 - San Antonio -$222 -$222 -$222
4 - East Meadow Cir. -$127 -$72 $445 - East Bayshore -$35 -$8 $50
Total -$1,774 -$1,585 -$1,187
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Unreached Palo Alto school sites Two schools on Stanford campus could also be served
Tellus Venture Associates
Cost Estimate of Extensions to Unserved Schools
Fiber segment Length (miles) Low cost($30/foot)
High cost($60/foot)
6 - Coulombe Drive 0.1 $10,703 $21,407
7 - Barron Avenue 0.4 $63,599 $127,199
8 - Heather Lane 0.3 $42,033 $84,066
9 - Amarillo Avenue 0.1 $19,686 $39,372
10 - Louis Road 0.5 $71,394 $142,787
Total 1.3 $207,416 $414,831
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$1,400 max monthly service fee would reduce current revenue 11%
Combined with standard $210 drop fee, total would be $1,610
Tellus Venture Associates
Effect of Flat Rate Monthly Service Pricing
0
100
200
300
400
0%
10%
20%
30%
40%
50%
60%
Monthly maximum service fee (not including drop fee of $210)
$400 $700 $1,000 $1,300 $1,600 $1,900 $2,200 $2,500
Monthly revenue reduction (%)Number of net new subs to break even
Monthly maximum service fee $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000Monthly revenue reduction (%) 32% 23% 16% 11% 7% 4% 2%New subs to break even 115 69 42 24 13 6 3
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Increasing drop fee by $200 pays back average install cost in 3.5 years
Within lifespan of average CPAU fiber customers
Tellus Venture Associates
Average CPAU Fiber Customer Lifetime
Years
All customers 4.1
Active customers 5.8
Disconnected customers 2
Effect of Increasing CPAU Monthly Drop Fee
+$100 +$200
NPV 1 year $1,143 $2,286
NPV 2 years $2,231 $4,463
NPV 3 years $3,268 $6,536
NPV 4 years $4,255 $8,510
NPV 5 years $5,195 $10,391
NPV 6 years $6,091 $12,182
NPV 7 years $6,944 $13,887
NPV 8 years $7,756 $15,512
NPV 8 years $8,529 $17,059
NPV 10 years $9,266 $18,532
Years to payback 7.8 3.5
Discount rate: 5%
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Fiber to the basement model adds value on cash flow alone
Private network could be run by owners or third party
Tellus Venture Associates
“Fiber to the Basement” – Private Sector Provider Model
$5,000 Capex $20,000 Capex
Monthly Fee $300 $500 $700 $1,000 $300 $500 $700 $1,000
NPV 5 years $8,643 $15,466 $20,015 $45,035 $31,388 $35,937 $49,583 $45,035
Years to payback 2.6 1.4 1.0 0.5 2.9 2.5 1.8 1.9
Subscribing tenants 12 7 5 4 14 8 6 5
Discount rate: 10%
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Contact: Steve Blum Tellus Venture Associates +1-831-582-0700 [email protected] www.tellusventure.com
Tellus Venture Associates
Tellus VentureAssociates
®