Page 1 © Copyright 2004, the Yankee Group. All rights reserved. Bringing Affordable Broadband To Maryland’s Eastern Shore Updated and Revised at the Request

Page 1© Copyright 2004, the Yankee Group. All rights reserved.

Bringing Affordable Broadband Bringing Affordable Broadband To Maryland’s Eastern ShoreTo Maryland’s Eastern Shore

Updated and Revised at the Request of The Regional Councils of Maryland’s Eastern Shore

December 31, 2004

The Yankee Group

31 St. James AvenueBoston, MA 02116www.yankeegroup.com

Bringing Affordable Broadband Bringing Affordable Broadband To Maryland’s Eastern ShoreTo Maryland’s Eastern Shore

Updated and Revised at the Request of The Regional Councils of Maryland’s Eastern Shore

December 31, 2004

The Yankee Group

31 St. James AvenueBoston, MA 02116www.yankeegroup.com


Table of Contents

Executive Summary

Broadband Update

Backbone Vs. Access

Access Technology Assessment

WiMax Analysis

Wireless Broadband Financial Model

Benchmarking

Key Findings and Recommendations


• The Yankee Group conducted an independent assessment and provided an analysis and advice on whether reasonably priced broadband services are currently available on the Eastern Shore of Maryland.

• Furthermore we examined the prospects that reasonably priced broadband services to be widely available in the near future – independent of government action.

• Yankee also conducted an objective financial feasibility study assessing the viability of a capital project to increase the availability and affordability of broadband access on the Eastern Shore, leveraging our existing research, supplemented by our own primary research.

• If a broadband network infrastructure project is feasible, the Yankee Group provided recommendations on the most practical approach to achieve this goal.

Executive Summary


Eastern Shore Objectives

The broadband network infrastructure project is aimed at expanding the Eastern Shore's communications infrastructure in order to:

1. Increase broadband addressable market – serve both unserved and underserved areas.

2. Offer diverse routes to diverse carriers in order to stimulate competition and ensure redundancy.

3. Impact overall broadband pricing and bring them in line with national and state averages.

4. Use economical broadband availability as a driver to stimulate local economic development.


Eastern Shore Broadband Objectives Extend Affordable Broadband to the Underserved

Reduce Broadband Cost for Small Business

Extend Broadband to Remote Business Locations

Public safety, schools, librariesgovernment offices, remote and mobile

Remote and unserved by Telco DSL or Cable broadband

• Attract New Businesses and Jobs

• Increase Broadband Competition

Reduce Infrastructure Basis for Digital Divide

Residential

Government

Business

Economic Development


Project Overview Determine most appropriate Government actions required to promote

availability of competitive broadband services at reasonable cost for business, government, institutional and residential customers throughout the nine county region

Determine whether sufficient carrier wholesale demand exists to support the cost of the fiber Backbone that would support the subscriber broadband network infrastructure.

Assess the technological options available to deliver broadband cost-effectively to businesses in the Eastern Shore of Maryland, including a detailed evaluation of WiMAX wireless broadband.

Assess the ownership structure, financing options and operating plan for this broadband business.

Provide concrete recommendations on what technology to deploy and business model to pursue.

Provide an unbiased external assessment of the risk for such a deployment and business model.


Key Questions Addressed

Is building a fiber optic network the best way to help accomplish this goal? If not, what other options are available.

What technology should be used for the access portion of the network?

Without any government action, would broadband competition, particularly T1, DSL and cable modem capabilities, evolve to adequately service addressable business market demand in the same time period?

If not, what specific actions on the part of government are appropriate and necessary to stimulate broadband service development?

Does this justify the investment of public funds or other risk capital on the part of government to promote broadband?

What type of entity or organization would be needed to fund, construct and operate the broadband network infrastructure?


Project Overview

• The Yankee Group assessed the feasibility of offering a publicly sponsored broadband network that would extend the availability of affordable broadband services to a wider range of business and residential users throughout the nine county region.

• The Yankee Group conducted research and analysis to determine which technologies are best suited to offer cost-effective broadband services to increase its attractiveness and competitiveness for economic development.

• This study was also designed to assist the Council in making decisions on the best way to offer these services from a management and go-to-market perspective.


Broadband Availability & Affordability

• The Yankee Group has confirmed there is a significant appetite for economical T1 or equivalent Internet access services in the Eastern Shore, and that much of the nine county region on the Eastern Shore of Maryland has been underserved by broadband infrastructure and services.

• Some business customers located in this region have been paying significantly higher prices for broadband access options than their counterparts in more urban areas of Maryland.

• But the situation is improving, in part due to the efforts of the Maryland Rural Broadband Taskforce.

• Governor Ehrlich worked with the Eastern Shore regional councils and TEDCO to negotiate the extension of DSL broadband service to 26 Eastern Shore communities as part of a larger strategy to extend DSL coverage in other rural areas of the State.

• Governor Ehrlich also negotiated for affordable broadband high-speed Internet access service to Maryland's rural counties, to eliminate the rural business cost penalty allowing rural Maryland businesses to receive broadband service at the same costs as urban Maryland businesses.


Yankee Group Recommendations• The Yankee Group has concluded that broadband wireless is the

most appropriate and cost-effective backbone and access technology for the Eastern Shore regional Councils to use in expanding the availability of affordable broadband service.

• The Yankee Group recommends that the Eastern Shore Regional Councils support the formation of a Regional Broadband Cooperative with funding and access to public towers to develop a common, open system broadband wireless network infrastructure that would be used to offer cost-effective broadband service throughout the nine county region.

• The proposed Regional Broadband Cooperative would initially be funded through County and State sources and would offer wholesale wireless broadband services to be sold with appropriate customer premise equipment (CPE) by local Wireless ISPs.

• This initiative will also maintain pressure on cable and DSL providers to extend affordable broadband service throughout the region.


Yankee Group Financial Model

• The Yankee Group financial model indicates that a combined capital investment of $4.3 million would cover the initial cost of constructing a wireless broadband backbone network ($2.6 million) and a broadband wireless access network ($1.7 million).

• This network could be operational within 12-18 months and would provide extensive coverage of wireless broadband services throughout the region, serving thousands of subscribers.

• In addition to the capital for the network infrastructure, the model projects additional $2.7 million capital required to purchase the first two years of CPE and $$1 million for two years of operating costs ($500,000 per year).

• We estimate that a total of $7 million in initial funding would be required to cover the cost of network infrastructure, CPE and operating costs through 2008.

• The financial model projects that the Broadband Coop would generate revenues growing from $1.7 million to $4.8 million per year from Wireless ISPs. The wholesale operation would begin generating positive net income after 3 years of operations beginning in 2008.


Yankee Group Regional Broadband Cooperative Proposal• The Yankee Group’s proposed Regional Broadband Cooperative would

provide a common wireless broadband infrastructure to be used by local WISPs to offer cost-effective broadband service throughout the nine county region.

• It would also provide the vehicle for a Public-Private Partnership that could leverage Federal, State and County government funding in the development of the backbone and access network, without competing with private retail service providers.

County Government

Regional Broadband Cooperative

State Funding Federal Funding Private Equity

Local WISPLocal WISP Local WISP

SubscribersSubscribers Subscribers


Yankee Group Recommendations

• The Yankee Group also assessed the feasibility of developing a broadband access network with a fiber optic backbone.

• The Yankee Group believes the economic barriers and financial risk associated with the Counties investing directly in a regional fiber optic ring to be a very high hurdle in the near term.

• Construction of a new fiber optic backbone network throughout the nine counties would require a capital investment of $9.9 million in addition to the $1.7 million for the access facilities.

• The investment of County funds into a regional fiber backbone would not directly contribute to the increased availability of affordable broadband services to regional customers.

• The Yankee Group recommends that the Counties consider the use of the planned extension of the Mid-Atlantic Broadband fiber optic backbone network to address increasing bandwidth requirements and quality of service (QoS) considerations, as reliability and new applications dictate in the long-term.


Bay Broadband Proposal• After the Yankee Group’s final presentation on November 10, Bay

Broadband President and CEO Allen Hammond submitted a proposal for a privately financed and developed wireless broadband Internet access network to elected officials gathered at the Maryland Association of Counties conference in Hagerstown, MD.

• Bay Broadband agrees with the Yankee Group’s conclusion that a wireless broadband network is the most cost-effective way to provide widespread, affordable access to high speed Internet services throughout the dispersed communities on the Eastern Shore of Maryland.

• Bay Broadband has acknowledged the value of the Yankee Group report in presenting its own private sector alternative counter-proposal, while raising several concerns about the Regional Broadband Coop proposal to the three Tri-County Councils.

• Bay Broadband currently operates a similar network in Kent County, and has 9 of a planned 14 access points already deployed. Bay Broadband has completed construction of the first of two licensed wireless broadband links across the Chesapeake Bay and has initiated site acquisition for the entire wireless broadband backbone network for all nine counties.


Bay Broadband Proposal• At the request of the Tri-County Councils, the Yankee Group has conducted a

preliminary review of the Bay Broadband proposal and has address each of these concerns in the last section of this report.

• Both the Bay Broadband and Yankee Group proposals are based on preliminary network designs developed with the expert assistance of John Dolmetsch of BIG Wireless.

• Bay Broadband claims its lower cost estimate stems from a more efficient backbone structure and a proprietary low-cost approach to constructing access networks which are the key to widespread access on the Eastern Shore (since 75% of regional households are outside incorporated towns).

• Bay Broadband has proposed, 14-link backbone ring and lower cost, unlicensed spurs, with a cost of $2.6 million designed to match network capacity to market demand.

• This compares to $4.3 million for the 26 backbone links in the Yankee Group proposal, which is designed to offer additional redundancy and reliability while extending coverage throughout the region.


Yankee Group Assessment of the Bay Broadband Proposal• Bay Broadband claims the Yankee Group’s assumptions for wholesale

broadband prices in the financial model developed for the Regional Broadband Coop are too high. Our model proposes wholesale prices ranging from $25-45 per month for delivering wireless broadband access to the business and residential subscribers, excluding CPE, customer care and billing which would be provided by retail WISPs.

• Bay Broadband has compared this price to only the cost of bulk T-1 bandwidth and excludes the cost of the access network to deliver this service to the customer. The Regional Broadband Coop would actually purchase bulk bandwidth in larger quantities than any one WISP, and would pass on these savings to the retail provider.

• Bay Broadband has mistakenly raised concerns that the Yankee Group proposal would put the Maryland Counties into the position of competing with the private sector. In fact, the Regional Broadband Coop proposed by the Yankee Group would only utilize government funding to develop a common wireless broadband backbone and access infrastructure to allow private WISPs to offer retail services at a reduced cost. This Coop would not compete with any private sector WISPs.


Yankee Group Assessment of the Bay Broadband Proposal• Bay Broadband proposes to raise and invest the cost of its network from

private sources, without the use of County funds.

• However, Bay Broadband has asked the counties for low cost use of public water towers and other tall structures to place wireless equipment in support of its plan to provide broadband wireless Internet access throughout the region. In return, it proposes to provide free broadband access for several community centers in each County and service to County facilities at half of commercial rates.

• The Bay Broadband proposal also relies on the use of low cost federal RUS loans from the USDA Broadband Community Connect Grant Program which is intended for rural towns and communities where no broadband service exists.

• After raising approximately $2 million in startup funds, Bay Broadband claims it would qualify for a $4 million RUS loan to finance and/or subsidize the cost of customer premises equipment, and remove the “initial cost” barrier to widespread participation.

• The Yankee Group supports this approach to financing CPE, and is ready to assist Bay Broadband in raising the required matching funds.


Yankee Group Proposal for Next Steps

• The Yankee Group supports the decision of the Tri-County Councils to support the Bay Broadband proposal, or any other private sector Internet provider that can successfully meet the needs for affordable broadband service in the nine counties on the Eastern Shore

• Eastern Shore County government officials have given Bay Broadband until February 1, 2005 to demonstrate the feasibility of its wireless broadband project by successfully raising $1.1 million of the required funding.

• The Yankee Group has also initiated discussions with other regional WISPs including Delmarva On-line and Easton Utilities to solicit feedback to the Bay Broadband and Broadband Coop proposals for extending broadband service throughout the nine county region.

• It is clear from these preliminary discussions that there are a number of misunderstandings among these interested parties, and that all would benefit from participating in a meeting hosted by the Tri-County Councils early in January 2005. The Yankee Group is prepared to participate in this meeting if it can be arranged on a convenient date.


Table of Contents

Executive Summary

Broadband Update

Backbone Vs. Access


Benchmarking Municipal Broadband

WiMax Analysis




Eastern Shore Broadband Update of Previous Findings (Backbone)• Regional T-1 pricing has historically been out of

line with national/urban averages estimated at approximately $350 +$10/mile on a monthly basis.

• These prices could be as high as $1,200-1,500/month due to long access loops connecting customers to Long Distance PoPs

• Verizon has extensive inter-office fiber used to carry voice and data traffic between their central offices, which has been limited by capacity and LATA boundaries.

• Rural T-1 backhaul often lacks redundancy and requires too many network hops between the customer premises and POP - therefore is inadequate for mission critical applications.


Verizon Broadband Availability & Pricing on the Eastern Shore is Quite Different from 4 years Ago

MIDDLETOWN

NORTH BEACH

ANNAPOLIS

GLEN BURNIE

CHARLES ST

COCKEYSVILLE

SEVERNA PARK

KEY MEDICAL

BROOKLYN

ARMIGER

NORTHPOINT

DUNDALK

ESSEX

HAMILTON

FORK

PARKVILLE

FRANKFORD

PERRY HALL

WHITE MARSH

JARRETTSVILLE

SOLOMONS

PRINCE FREDERICK

MUTUAL

HOLLYWOOD

LEXINGTONPARK

RIDGE

VALLEY LEE

ROCK HALL

CHASE

EDGEWOOD

BELAIR

DARLINGTON

CHURCHVILLE

WINTERSRUN

ABERDEEN

CAMBRIDGE

WINGATE

HONGA

DEALISLAND

SMITHISLAND

EASTON

TILGHMAN

GALESVILLE

SAINTMICHAELS

OXFORD

TRAPPE

HURLOCK

PRESTON

FEDERALSBURG

ROMANCOKE

SAINT MARGARETS

QUEENSTOWNSTEVENSVILLE

CENTREVILLE

GREENSBORO

TUCKAHOE

DENTON

GALENASTILLPOND

CHESTERTOWN

SUDLERSVIILE

CHURCHHILL

MILLINGTON

CECILTON

BAINBRIDGE

NORTH EAST

RSSNMDXR

HAVRE DE GRACE

ELKTON

CHESAPEAKE CITY

NEWARK, DE

CRISFIELD

VIENNA

SHARPTOWN

MARION

NANTICOKE

PRINCESS ANNE

SNOW HILL

DELMAR

SALISBURY

POCOMOKECITY

BISHOP

WILLARDS

TEMPERANCEVILLE, VA

OCEANPINES

HERRINGCREEK

MONTEGO BAY

OCEAN CITY

OCEAN CITYNORTH

BERLIN

Verizon Inter-Office Fiber Network

On the Eastern ShoreRanging from 48 to 216 pairs

• Verizon has deployed DSLAMs in 90% of COs on the Eastern Shore, with more slated for 2005.

• Verizon reports that 70% of lines are capable of receiving DSL service by year end 2004, with expectation reach will push toward 80% in 2005. Use of mini-DSLAMs is on the drawing boards.

• Prior to November 2002, just 3 Central Offices and no RTs were upgraded for DSL.

• Between then and Jan 1 2004, 31 COs and 18 RTs serving 150K plus lines have been DSL-enabled. 9 additional COs and 1 RT are slated for 2004.

• In 2004 16 additional RTs were upgraded.• DSL pricing is same as in downtown

Baltimore or Washington, DC, again disciplined by competition.

• Currently 7 SONET fiber rings serve the entire Eastern Shore, and there are plans to deploy approximately 20 in 2005/2006.


Verizon Flat Rate Tariff for T-1 Connection to ATM or Frame Relay• Verizon does not offer "flat-rate" dedicated point to point T-1 circuits, which ARE

distance sensitive. Verizon does offer non-distance sensitive rate for T-1 connection to layer 2 ATM or Frame Relay services

• Per a new 2004 Verizon state-wide tariff, T-1 access to Frame Relay or ATM service is available throughout the Eastern Shore at a flat rate with no distance sensitivity at the same price as in downtown Baltimore or Silver Spring, MD -- where rates are disciplined by competition.

• Tariff rate for 1.5 mbps (T-1) access to frame relay:

– $435 per month, under a month to month term contract– $380 per month, under 5 year contract

• The tariff ATM rate for 1.5 mbps (T-1) is $565 state-wide. A new virtual DS-3 ATM connectivity service is available at $5,175 - $6,375/month.

• T-1 Internet access is currently priced in the range of approximately $685.

• The prices for T-1 Internet access are not regulated (only the underlying Layer 2 service is regulated), and therefore can fluctuate. So the distinction between "list" and "street" prices becomes relevant.

• The Verizon Online port charge for dedicated Internet access is not a tariffed service. The "list" price is quoted starting at $320 per month, but the "street" price generally is lower, $250 or less.


Verizon Flat Rate Tariff for T-1 Connection to ATM or Frame Relay• The only source for the Verizon tariff information for the T-1 connections

to fast packet services tariffs is the following Link to a PDF document posted on the Verizon web site.

• Go to www.verizon.com

• click on "About Verizon"

• click on "Public Policy and Regulatory Infiormation"

• click on "Tariffs:"

• click on "Maryland" on the map

• click on "Effective Tariffs" for Verizon Telephone Operating Companies"

• click on "Advanced Tariffs No. 207"

• You have arrived at a scanned, PDF document.

• Click on Section 4, Advanced Data Services, posted on 9-3-04.

• In the PDF document, third revised p. 26, 3a has the Frame T-1 rates. p. 52, C2 has the ATM information.


Eastern Shore Broadband Competition• Comcast reports that 80% of its addressable

market can be reached by cable modem service in the Eastern Shore region.

• Comcast recently announced the expansion of its national fiber infrastructure, through an agreement with Level 3 Communications, to deliver multiple wavelengths -- each with 40 gigabytes per second capacity, offering a potential capacity of nearly 3 terabits per second.

• As Comcast upgrades for two way cable they will offer competitive business class offerings.

• Atlantic Broadband passes 45K homes in region, will upgrade all plant to cable modem ready in next 6 months


Cable Modem Service on the Eastern Shore

Atlantic BroadbandQueen Anne County

Kent CountyTalbot County

ComcastCarolina County

Dorchester CountyWicomico County


Eastern Shore Broadband- Update of Previous Findings • Differentiation between “moderate” (low

bandwidth/poor QOS) and “intensive”(1 – 10 Mbps/high QOS) access.

• DSL availability constrained by loop distance and central office locations.

• Cable modem and DSL only appropriate for “moderate” broadband needs.

• 65% of regions SMB’s still on dial-up.

• Satellite can fill moderate broadband needs, albeit it is $10-$35/month more expensive. Hughes Spaceway is now cancelled.


Broadband Conclusions

• Current Verizon Fiber and DSL as well as Cable Modem Service provides the infrastructure and service for adequate coverage and affordability of broadband high speed Internet access

• To achieve its economic development objectives, Maryland’s Eastern Shore requires a state of the art fiber network connecting office and business parks designed to be part of a larger broadband network running through the entire mid-atlantic region.

• Two options exist – build entire network or link up with other networks in a bandwidth swapping scenario


Table of Contents

Executive Summary

Broadband Update

Backbone Vs. Access



WiMAX Analysis




Mid-Atlantic Broadband Coop

• Mid-Atlantic Broadband Cooperative plans to drive the fiber deployment effort from Virginia into Maryland’s Eastern Shore.

• The proposed fiber ring would allow region to “leapfrog” other areas.

• MBC would secure funding from various federal, state and private sources

• Private/public partnership only utilizing public funds as needed.

• MBC would own and run the network.

• Develop partnerships with other Fiber owners such as Cavalier or Easton Utilities to bandwidth trade in order to mitigate costs.

• 24 month build schedule – payback anticipated in 5 years.

• Create a broadband bonding authority.

• Form a Systems and Network Development Corporation (SAND) to bring private best practices to a public entity.


Mid-Atlantic Broadband Cooperative (MBC)

Proposed by Old DominionElectric Cooperative (ODEC)

Existing Non-Profit cooperative to own and operate the 300+ mile Dark Fiber Network

Capital Cost range from $6.7 - $9.9 million

Common Open Access Fiber Infrastructure leased by Retail Broadband Service Providers

Enhance Quality and Reliability while reducing the Cost of Broadband Access

Proposed Fiber Network on Maryland’s Eastern Shore

© Copyright 2004, the Yankee Group. All rights reserved.


Backbone versus Access

• Focus of the MBC capital project/business case is centered around building and operating a fiber ring.

• The term “broadband” is loosely applied to this build.

• The first mile, or access portion of the network build and business case is lightly addressed. MBC is interested in broadband wireless as a means to deliver service to customers along the fiber route.

• The concentration of data intensive government, military and aerospace facilities near Wallops Island, Virginia is a target for the MBC fiber network, and route redundancy through the Eastern Shore of Maryland is attractive for these customers

• Without understanding the access portion of the network, it is difficult (impossible) to determine what applications can be supported and what the overall cost/revenue picture looks like.


Growing Broadband Demand in the Eastern Shore of Virginia

Wallops Command and Data Acquisition Station US Navy Surface Combat Systems Center

NASA

NOAH/Weather Service


Mid-Atlantic Broadband CooperativeYankee Group Risk Analysis

• MBC is continuing to build its fiber network in Virginia with a plan to reach the Eastern Shore of Maryland early in 2006. Completing the Maryland portion of the network will require both customer and government funding support.

• Old Dominion/Choptank is no longer able to drive this initiative. In September 2004, Choptank/ODEC informed us that while negotiating for funding to build new turbines, it was made clear to ODEC that any involvement in telecommunications expansion would adversely affect their bond rating. ODEC has “lent” the services of Dave Hudgins for this effort, but will play no further role in MBC.

• A fiber ring would bring the region on par with many other parts of the country/state and help ensure it is not left behind. However, fiber would have to be extended all the way to the customer premises to claim any kind of significant network-based advantage.

• Service providers such as Easton Utilities expressed very little enthusiasm for committing resources to a fiber build, but were interested in utilizing it if it was built. There was more interest in first mile access.


Access Options

• When building a facilities-based first mile broadband access network, a number of options exist:

Option Recommendation

Register as a CLEC, collocate DSLAMs lease UNE’s and offer DSL.

Many failures attempting this business model.

Overbuild a cable network See above

Build FTTP Appropriate for new builds and clusters of homes, but a difficult model for rural deployment

Broadband Wireless/WiMax The most cost effective way to deliver basic broadband services


Table of Contents

Executive Summary

Broadband Update

Backbone Vs. Access



WiMax Analysis




DSL Technical Capabilities

FutureToday

DSL

• Upgrade of DSL in outside plant will be completed.

• Likely to cover 90% of addressable market nationally.

• Will include high income rural locations.

• G.SHDSL can offer 2.3 Mbps symmetric. ADSL2+ can deliver 10 to 20 Mbps within 10K feet.

• ADSL2+ can be bonded for more bandwidth.

• Micro DSLAMs will allow small line powered DSL devices to cherry pick attractive, yet remote end users.

• Low density ADSL focused DSLAMs installed in “Football city” central offices in late 90’s. Rush by CLECs to offer DSL.

• 2000-2001 slower builds due to capital constraints – urban deployment continues. Rural areas ignored.

• 2002-2003 digital loop carriers begin to be upgraded. National DSL availability moves from 45% to 65% - stands at around 70% today.

• Low density, CO based DSLAMs giving way to environmentally hardened remote cabinet DSLAMs.

• Average throughput is 500 Kbps downstream, 100 Kbps.


Cable Modem Technical Capabilities

FutureToday

Cable Modem

• Next generation network architecture will combine the voice, video, and data networks, allowing them to forge services and applications across these three areas.

• Network enhancements (DOCSIS 2.0, splitting fiber nodes) will allow them to increase upstream and downstream speeds of their services.

• Expand SMB offerings by using their ability to prioritize traffic and reserve bandwidth to create better business class services. Likely to try to introduce symmetrical T1 type services.

• Will use QoS mechanisms to create new multimedia services that keep broadband from becoming a commodity service/pipe.

• Plant upgraded in the late 90’s and fiber pushed deeper into the network for higher capacity

• Mainly a consumer grade “best effort” data service.

• Downstream speeds up to 5 Mbps for consumers and businesses, but upstream speeds limited to less than 1 Mbp.

• Tiered best effort services for SMBs, but do not meet the criteria of the dedicated T1+ market unless using fiber.

• New standards allow operators to prioritize traffic such as VoIP and dedicate bandwidth for business applications, but only providing consumer VoIP so far.


Broadband Wireless Access/ WiMAX Technical Capabilities

FutureToday

Broadband Wireless Access/WiMAX

• Availability of standards-based equipment will drive down prices, especially of customer premise equipment (CPE).

• WiMAX enhances the QoS capabilities of broadband wireless access products, enabling a higher level of support for VoIP and other latency sensitive applications.

• Initial fixed WiMAX products (802.16-2004) will require outdoor mounted antennas.

• The second generation of the standard (802.16e), will allow for indoor antennas, and will be portable/mobile.

• The customer premise equipment will also go from a modem product, to a PCMCIA card, to being embedded in devices.

• Only proprietary technologies today.

• Fixed and portable/mobile broadband wireless products exist.

• Throughput varies depending on spectrum used. Unlicensed 5 GHz spectrum provides the ability to offer T1+ services, but must be line of sight or near line of sight.

• Using licensed 2.5 GHz spectrum or unlicensed 900 MHz allows for non-line of sight operation.

• Unlicensed and licensed spectrum can also be used to provide point-to-point links with capacity greater the 50 Mbps.


SMB Technology Breakdown

Q5. Which of the following technologies does your company use at its headquarters as its primary Internet access technology?

N = 600Source: The Yankee Group

Very Small Business (2-19)

Small Business (20 – 99)

Medium Business (100-499)

Percent of Respondents

2003

2002

25 750 50 100

26 17 50 7

35 22 34 9

42 43 11 4

47 36 9 8

36 25 27 12

21 25 39 15

2003

2002

2003

2002

DSL Cable Modem T1 (Any Form) Other


Broadband Penetration by Industry Segments• More information- and bandwidth-intensive industries such as

technology vendors, financial, consulting, and education are leading consumers of higher bandwidth technologies such as T-1 and DSL

• Retail, construction, and non-professional services gravitate toward lower bandwidth technologies (cable modem and DSL)

N = 913, Total Sample

DSLCable

Modem

T-1 (any form) Other

Non-prof service 15% Retail 13% IT/VAR/SI 16% Education 20%Prof Srvcs/Consult. 11% Non-prof service 11% Education 16% IT/VAR/SI 12%IT/VAR/SI 10% Prof Srvcs/Consult. 10% Prof Srvcs/Consult. 10% Retail 8%Construction 7% Construction 9% Financial 10% Non-prof service 8%Retail 7% IT/VAR/SI 9% Telco/Comm/Utilities 7% Financial 6%Education 6% Education 8% Manufacturing 6% Manufacturing 6%Manufacturing 6% Media/Ent. 6% Non-prof service 6% Media/Ent. 6%Financial 6% Pharmaceuticals/Healthcare 6% Media/Ent. 5% Doctor/Hospital 6%Legal 5% Manufacturing 4% Public Admin/Government 5% Telco/Comm/Utilities 6%Doctors office/Hospital 5% Transportation/Automotive 4% Legal 3% Insurance 4%

Main Access Type

Q41. What type of business is your company in?


DSL SMB Subscriber ForecastDSL SMB Subscriber Forecast

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

2003 2004 2005 2006 2007 2008

DSL SMBSubscribers (InThousands)


Cable HFC-based SMB Subscriber Forecast

-

500

1,000

1,500

2,000

2,500

Thousands

2003 2004 2005 2006 2007 2008

Residential GradeServiceBusiness ClassServiceTotal

(continued)


Eastern Shore Specific Technology Analysis• The broadband landscape on the Eastern Shore is

rapidly improving.

• The fundamental question to be answered is: Are DSL, Cable and Satellite adequate technologies to cover the needs of SMBs? Or is bigger bandwidth/symmetric service essential to attract/retain businesses?

• If not, is WiMAX a significant enough technological step up to justify this capital project?

• If so, will enough SMBs recognize the superiority of the technology to generate enough wholesale revenues to create a break-even business model?


Overall Access Technology Analysis• Committing to the idea that symmetric bandwidth and only

symmetric bandwidth will meet the needs of small businesses is to embrace thinking promoted by DLECs that used this advantage as a marketing ploy vs. the RBOCs. While it is true that more upstream bandwidth is better, it is not essential to capturing SMB share.

• Dismissing Cable Modem as an adequate SMB access technology is making the same error as the RBOCs did. As a result MSOs have captured almost as many SMBs as DSL without really trying. This is before anticipated advances in cable technology and the prospect of VoIP.

• Broadband Wireless is a maturing technology that is gaining momentum, but it has had a difficult time gaining share vs. DSL and cable in other markets.


Table of Contents

Executive Summary

Broadband Update

Backbone Vs. Access



WiMAX Analysis




Allegany County, MD - Allconet 1 & 2

• Phase 1: Rural Appalachian Mountain County needed a means to bridge the digital divide after giving up hope that the incumbent telco would upgrade the copper lines for DSL

• Allegheny County Government, the Board of Education, the Public Library System, and the City of Cumberland searched for funding to build their own broadband network.

– The County thought that due to its proximity to Washington DC, a high speed infrastructure could help spur back office federal government operations to build facilities in this are. This could help drive government jobs.

• Phase 2: Lack of telecom infrastructure kept businesses from creating facilities in this area, especially high tech and biotech companies. Businesses turn to Allconet for private sector telecom needs.



• Phase 1: Allconet 1 Network Built

– Created a microwave ring (wireless SONET ring) using licensed point to point 11, 18 and 23 GHz spectrum.

– Unlicensed spectrum (900 MHz, 2.4 GHz, and 5GHz) for last mile connectivity to work stations off of this ring.

– Connect 85 buildings, 4,000 work stations, and 10,000 users (government, law enforcement, education, non profits).

– Used 2 water towers, the roof of a high school, a local bell tower, and 3 freestanding airport towers for transmitters .

• Phase 2: Allconet 2 Created

– Recognizing that the backbone created to serve the public sector could help spur economic development, the project worked to reach underserved businesses within the rural county.

– Allconet 2, a second generation architecture will use the existing wireless fiber SONET backbone, and unlicensed 900 MHz, 2.4 GHz and 5.8 GHz spectrum to serve varying SMBs and residences.


• The SONET ring supports 622 Mbps (over 400 T1 lines), resulting in additional capacity for other uses.

• Eradicates high monthly costs paid by all public institutions to the incumbent phone companies.

• Offer affordable T1 and T3 lines in rural communities.

• Allconet 2 creates an open access municipal network

•3 to 5 ISPs get access to the network for a low fee to provide affordable commercial and residential broadband services.

• The County must ensure a high quality of service on the network to ensure the success of the ISPs. Increased service calls or truck rolls can drain resources and prohibit future investment.

• Major cost savings using a wireless backbone instead of fiber.

• Utilize existing city infrastructure instead of tower space

• Started as a public project to reach the underserved public entities such as schools and libraries.

• Private sector need helped spur network advancements.


Why It Makes Sense Implications

Allegany County is one of the most advanced municipal broadband project in the US, and demonstrates the value of using these networks both for the public and private sector.


Buffalo, MN• Buffalo about 40 miles from Minneapolis/St Paul.

Population of 13,000. Broadband providers refused to bring fiber to this small town.

• Formed a community technology committee comprised of local business and education leaders.

– Large business leaders requested that the city act as a broadband service provider due to the lack of existing service options.

– Government institutions also needed a means of connectivity.

• In assessing technical options, the city recognized a good opportunity in 1997 when the electric utility was installing a fiber loop to connect its electrical stations.


Buffalo Wireless Internet Group• Phase 1 (1997): Formed Buffalo Wireless Internet Group (BWIG)

– Extend the utilities fiber ring with fixed wireless technology to serve large business and government customers.

• Phase 1 (2001)

– BWIG receives proposals for service to SMBs and consumers.

– After filing with the MN PUC, they extend the service offering. Little marketing effort is done, but use promotional activities and community seminars to raise the awareness of the benefits of broadband service.

• Phase 3 (2004/2005)

– Plans to roll out a wireless mobile mesh network to be fully operational by the year end 2004.

– This network is intended to automate data entry processes by workers and reduce trips to headquarters by workers on the move.

– The network will serve almost all city departments including police, fire, parks, streets, electric, water, wastewater, and engineering.


Buffalo Wireless Internet Group


This small rural town provides a good example of the current and future applications and benefits for government, enabling using of diverse wireless technologies.

• Initial project was able to use a fiber backbone created to connect electric utilities.

• The city had the support of the local business community.

• Fixed wireless technology allowed them to reach government institutions as well as the private sector.

• Mobile capabilities will enable city wide real time data collection and higher efficiency.

• The city had to invest $1 million in the initial fiber network, and $750,000 in the fixed wireless system.

• Efforts and increased awareness led the local cable company to deploy cable modem service in 2002.

• Current success has led them to look at expanding the wireless network into adjacent rural areas..

• Success with wireless network has also led to the development of their mobile mesh network for city departments.

•Improves productivity, cuts overtime costs, reduces downtime

•Increase focus on proactive crime and emergency prevention


Wheatland Electric Cooperative

• Successful rural electric membership cooperative in Kansas serving a population of 40,000 since 1953 to bring electricity to sparsely populated rural farming counties.

• Wheatland Electric Cooperative wanted to extend broadband services to rural counties to promote the growth of the farming communities and small businesses.

• Wheatland Broadband Services formed in 2001.

– Initially they were targeting areas with no other forms of access, though local cable companies and telcos now compete in some of the counties.


Wheatland Electric Cooperative

• Built a broadband wireless network using a variety of licensed and unlicensed spectrum.

– Licensed backhaul links of 14 Mbps, 36 Mbps, and 72 Mbps.

– Unlicensed 900 MHz, 2.4 GHz, and 5 GHz multipoint for last mile connectivity to businesses

– 29 cell sites.

• Wireless was clearly the best and most cost effective technology to cover this sparsely populated area.

– In a 3 year period the cooperative went from serving one county to reaching 11 counties.

– They use broadband wireless technology to reach both businesses and consumers.

• Understanding of wireless is now leading them to use WiFi hot spots in areas such as a county library.


Owensboro, KY

• Owensboro is Kentucky’s third largest city, but remains in a rural area with limited access to broadband.

• Owensboro Municipal Utilities (OMU) is the largest municipally owned power and water utility in Kentucky with more than 26,000 electric and 24,000 water customers.

• OMU had built a fiber network and decided to use broadband wireless to bring broadband access to local consumers and businesses that lacked other options.

Owensboro, KY Situation


Owensboro, KY

• 1997 began the installation of fiber. In 1999, OMU began offering telecommunications services, including high speed Internet and point-to-point data services, to commercial customers over its fiber optic network.

• Now expanding by partnering with Kenergy, the largest U.S. power Co-op.

• Can offer both business and residential broadband services at really low costs.

– Residential service is $25 a month with a $50 installation charge.

– SMB offers services ranging from 128 kbps to 1.5 Mbps. Prices vary from $49 a month to $184 a month. There is also a $100 installation fee.

Business Model Assessment


Owensboro, KY


Yankee Group: Using their existing customer base and deep rooted ties into the local community, OMU has been able to drive strong adoption in rural communities. Developing this type of brand recognition is crucial for the success of new online service providers..

• Leveraged fiber network and utility assets such as water towers.

• Already had a base of utility customers. Brand recognition and close community links are crucial in small markets.

• Offer an affordable broadband option for both businesses and consumers.

• Already have 2,500 subscribers.

• Adds revenue to their utility business leveraging infrastructure.

• Creates a more competitive broadband market in rural communities as traditional providers respond by offering broadband services in certain areas.


Models for Municipal BroadbandGovernment Owned & Operated Cooperative Wholesale Model

Objectives

Provide network for government, business, and residential use

Alconet 1 & 2

Provide network connections for all government agencies at cost, thereby saving taxpayer money

Sell excess capacity at wholesale to private providers who then retail wireless services to businesses and individual consumers

Funding

Strategies Uses local, state, and federal monies, bonds, local option sales tax

Mid-Atlantic Broadband Coop

Uses local, state, and federal monies, bonds, local option sales tax

Earns revenue by selling wholesale capacity to wireless Internet service providers, existing telcos, etc


Models for Municipal BroadbandFree Community Network Private Consortium Model

Objectives Provide free broadband wireless access for citizens

Mainly used by citizens for low bandwidth activities for short periods

Lower reliability and security because it is viewed as an amenity

To profitably provide a wireless network to businesses, governments, and citizens

Focused on quality of service, security, building subscriber base

Can be composed of different companies that provide different parts of value chain

Funding Strategy

Can use government funding, foundation grants, and fundraising efforts by coalitions in exchange for ads on homepage

Uses private funding with the possibility of obtaining federal government grant monies like E-rate

Can also seek concessions from local governments on lower tower rental, fees, etc.


Municipal Broadband Lessons Learned

• Wireless Broadband reduces cost and time to deployment. Many municipal fiber backbones already exist or built for other purposes (utility).

• Avoid direct competition with local telcos, cablecos and WISPs by opening the network to empower multiple SPs to provide retail services to local residents and businesses.

• Municipality must take responsibility for ensuring that they provide a high quality network, otherwise it can result in additional expenses for SPs.

• Create broad based coalition for spectrum usage coordination and to bind together users and SPs to gain support for the business model and funding for network.

• Use of multiple types of both licensed and unlicensed spectrum helps target different types of end-users located both within line of sight and non-line of sight.

• Municipalities have the advantage of already having cheap access to government owned buildings and sites for transceivers such as water towers and other towers.

• Begin by fulfilling the need for connectivity for government institutions, educational facilities, libraries, and other public sector organizations.

Time to Market and Cost

Open Access Municipal Networks

High Quality Carrier ClassNetworks

Coalitions and Coordination

Multiple Spectrum Options

Leverage Existing Infrastructure

Government Connectivity


Table of Contents

Executive Summary

Broadband Update

Backbone Vs. Access



WiMax Analysis




Demystifying Broadband Wireless


Understanding WiMAX

The WiMAX Forum is a group of broadband wireless access vendors, silicon manufacturers, and service providers working together to test products for

compatibility with different flavors of the IEEE 802.16 standard.

802.16-2004Products are being tested today for compliance with this standard.

First generation certified products will likely become available by the middle of 2005.

This is a fixed wireless technology that can operate over both licensed and unlicensed spectrum.

Most customer premise products will still require an outdoor antenna.

Understanding the basics……….

802.16-eThis standard is NOT yet ratified by the IEEE.

Vendors expect the specification to be ratified by the middle of 2005. First generation WiMAX certified 802.16e products will not be readily available until late 2006 or early 2007.

This is a portable and mobile broadband wireless technology that can operate over both licensed and unlicensed spectrum


IEEE 802.16 Specification Details

802.16-2004 (rev d) 802.16eStandard Completed 802.16- 2004: July 2004 Estimate Q2’05

Spectrum< 11 GHz

Licensed & Unlicensed

< 11 GHz ( <6 GHz practical)

Licensed (& Unlicensed)

User modelFixed

Receiver: fixed

Pedestrian Mobility –> Full mobility

Receiver: in the notebook

Channel Conditions Non Line of Sight

Modulation OFDM 256 / OFDMA 2k Scalable OFDMA (128 – 2k)

Peak Raw data rateUp to 75 Mbps with 20MHz channels

4-18 Mbps in 5 MHz channels

Up to 75 Mbps with 20MHz channels

Full mobility:

80% performance of fixed usage model

Channel Bandwidth Flexible channel bandwidths between 1.25 and 20 MHz

Range at 2.5 GHz

(average cell)

1.2 to 6.2 miles semi-rural

1.2 to 3.1 miles urban/suburban

(frequency dependent – significantly better for 700MHz)

Max range 21 miles at 700 MHz

Portable/mobile

Urban/Suburban/Semi-rural

.6 – 3.1 miles (indoor)

1.2 – 4.3 miles (outdoor)


Unlicensed Versus Licensed Spectrum

UnlicensedLicensed

Comparing Licensed and Unlicensed Spectrum

• No costs to get started.

• The 5.8 GHz spectrum is still relatively uncrowded, but the 2.4 GHz spectrum is very crowded.

• Provider must undertake deeper frequency planning and deployment assessments to ensure that they can deliver a service with high SLAs.

• Products must follow strict power requirements due to the need to mitigate interference potential.

• Power restrictions affect the ability to achieve non line of sight operations.

• Spectrum acquisition costs vary depending on the spectrum. Point to point spectrum costs (ex: 6, 18, 23 GHz) are cheap, and spectrum is easy to come by.

• Point to point frequencies often used for backhaul or creating wireless metropolitan rings are much cheaper than the 2.5 GHz spectrum.

• Higher power levels aid non line of sight operations in the 2.5 GHz spectrum.

• Allowance for higher power levels increase distance of links.

Coordinated efforts with other unlicensed providers are key to success. Point to point unlicensed wireless backhaul links can cause real interference issues. A good example of a coordinated effort is the

Broadband Access Network Coordination (BANC) group.


Usage Models & Time Frames

Access Metro Coverage

Wi-Fi* Hotspot

Wi-Fi

Fixed Outdoor

Backhaul

NomadicMetrozone

EnterpriseCampus Piconet

Fixed Indoor

Mobility

Mobile

802.16-2004 2005802.16e 2006

802.16e Late 2006…………………………………2007+


WIMAX Vendors


Table of Contents

Executive Summary

Broadband Update

Backbone Vs. Access



WiMAX Analysis




Eastern Shore Broadband Specifics

• The primary objective is to target underserved SMBs, making broadband wireless an easier sell, with subsequent plans to target the consumer market.

• The backbone coverage was estimated using 155Mb radio links to cover the areas of the shore that are not directly covered by current service and designed a ring for redundancy. Included are costs for cabinets, generators and structural analysis.

• Included are spur links to cover areas that the main backbone would not serve. These are the maroon links on the map.

• 29 multipoint cells are used for last mile coverage and a 5 mile radius. While the Alvarion VL with line-of-sight can extend past 5 miles, we took a more conservative approach in the model. Also included is a 900Mhz radio and Omni at each site. We are seeing 3 to 5 miles non-line of sight with these new antennas.

• Three counties already have point to multipoint 5.8 GHz unlicensed networks set up. These networks could be re-used.

– Caroline County (fully covered)– Queen Annes County (fully covered)– Talbot County (50% covered)

Unique Elements


Infrastructure Example: Current Costs, Throughputs and Ranges

Product Type/Use

Cost Average Throughput

Range LOS or NLOS

• Point to point licensed (6-20 GHz) link

• Backhaul

• Approximately $30,000

• Approximately $50,000

• 100 Mbps link

• 155 Mbps link

2 to 11 miles Line of sight

• Unlicensed (5.8 GHz) point to multipoint

• Larger building and SMB access

• 4 sector Base Station $16,000

• Business Subscriber unit Moderate $750Intensive $1,400

• With 2500 + subs

• Symmetrical

• (High throughput) 15 Mbps, 20 users, 1 sector.

• (Low throughput) 3-5 Mbps, 40 users, 1 sector

• Line of sight (8 to 9 miles)

• Near line of sight (1 to 2 miles)

Line of sight and near line of sight

• Unlicensed (900 MHz) point to multipoint

• Smaller business and consumer access

• 4 sector Base Station $16,000

• Subscriber unit in volume $400

• With 2500 + subs

• Not symmetrical

• 1 to 3 Mbps, 40 to 60 users on a base station with an omni-directional antenna

• Line of sight up to 6 miles.

• Non line of sight 2 to 3 miles

Non line of sight achievable.


Cost Estimates – Wireless Deployment

AccessBackbone

Wireless Broadband Costs

• A 100 Mbps link would cost approximately $30,000. A 155 Mbps link would cost approximately $50,000. A 300 Mbps link would cost approximately $100,000.

• 80% of the infrastructure to support a wireless backbone network in the Eastern Shore exists due to the Sailor network (i.e. towers, buildings, water towers, etc.)

• Areas that lack coverage such as Easton would require building 2 medium sized towers, which would cost approximately $70,000.

• We estimate Tower lease costs at $500,000 and spectrum costs of approximately $62,000 per year

• Estimated cost for the total backbone project would be $2 million to $2.5 million. This would give the Eastern Shore a high availability network comprised of 25 links.

• Costs depend on the type of spectrum used, however to target SMBs it is likely that the Eastern Shore would want to build 5.8 GHz multipoint access networks.

• A 5.8 GHz unlicensed base station would costs approximately $4,000 per sector. A 4 or 6 sector base station is usually required to cover an area. A four sector tower with installation would cost approximately $25,000.

• Current prices for 5.8 GHz customer premise equipment is between $400 for consumers and between $750 and $1,400 depending on data spee.

• CPE prices are not likely to drop until 2006 when the true effects of standardization hit.


Regional Tower Infrastructure

• 80% of necessary towers already exist on Eastern Shore

• 2 medium sized towers would cost approximately $70,000.

• We estimate Tower lease costs at $500,000/year


Tower Assessment and Cost Estimates (municipal, state, county)• The Yankee Group developed an estimate of tower leasing and construction

costs based on data provided by BIG, a leading integrator that has hands-on experience deploying these networks.

– 80% of necessary towers already exist on Eastern Shore– Only 2 medium sized towers would need to be built costing approximately $70,000.

• A more detailed assessment of tower costs could only be developed through an engineering study independent which is beyond our scope of work.

• Our financial model includes an estimate of $500,000 in annual lease costs for the 116 backbone, transmitter and access towers required to build the wireless broadband network.

Towers Annual Lease Total Lease Cost

Access 50 $1,200 $60,000

Spurs 29 $2,000 $58,000

Backbone 26 $10,000 $260,000

Backbone 11 $12,000 $132,000

Total 116 $510,000


Bulk Internet Access and CPE Costs

• Bulk Internet Access Costs - The Yankee Group financial model includes an estimate of $50 per Mbps for wholesale Internet backbone access, with a 25:1 oversubscription rate for residential subscribers and a 5:1 oversubscription rate for business subscribers.

• CPE Cost - We have assumed that the Broadband Coop will purchase subscriber terminal CPE on behalf of its members to standardize on specific models for each customer category and to take advantage of quantity discounts.

• CPE costs are estimated to start relatively high with provisions for cost reductions over the forecast period. But we also have assumed that CPE will be treated as a monthly cost recovery item for the wireless broadband retailers.

– Consumer $400 – Moderate Business $750– Intensive Business $1,400


Eastern Shore Regional County Specifics

• Sailor Project already provides free access to government institutions including education and healthcare.

– The Sailor project creates a wireless backbone throughout the eastern Shore, but it cannot be used to serve the private sector. Moreover, with a 100 Mbps backbone, there would not likely be enough capacity to share with government and medical applications.

• Network Maryland

– Network Maryland is currently building a Fiber and Microwave network for Government Users that will feature a POP in every county seat stretching throughout the Eastern Shore. This network is designed to serve government offices, hospitals and other public facilities.

– Network Maryland could make tower space available to other networks including a potential tri-county network for a “reasonable” fee.

Unique Elements


Preliminary Analysis and Findings– Demand for Wholesale Broadband Service

• Based on National Averages 30% of residences and 52% of businesses with broadband available take the service.

• Applied to the Eastern Shore, this translates to 6,350 businesses and 50,000 households projected to take broadband.

• On average, for “moderate” high speed service, wholesale broadband access charges are approximately $28/month for residential and $75 for business.

• We estimate $35 and $140 as wholesale rates for “intensive” (T1 plus) speeds.

• Based on a blended take rate of 70% moderate and 30% intensive businesses, and 90% moderate and 10% intensive residences - this translates to an addressable market of $24 million per year in wholesale access revenues.

The Yankee Group believes it reasonable to assume a competitive wholesale service provider could capture: 3% of moderate residences 10% of intensive residences 10% of moderate businesses 30% of intensive businesses

This translates toAnnual Wholesale Access revenues of$2,000,000 per year.


Wireless Broadband Financial Forecast for Maryland Eastern Shore

End to End Wireless NetworkSource: The Yankee Group

Revenues, EBITDA, and Net Income ($Millions)

($1.0)

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

Year

Financial Measures ($Millions)

Revenue ($Mil)

EBITDA ($Mil)

Net Income ($Mil)

Revenue ($Mil) $0.78 $3.12 $3.73 $4.29 $4.81 $5.16

EBITDA ($Mil) $0.24 $1.67 $2.04 $2.37 $2.68 $2.89

Net Income ($Mil) ($0.03) $0.70 $0.92 $1.13 $1.32 $1.44

2005 2006 2007 2008 2009 2010


Wireless Broadband with Fiber Backbone Financial Forecast for Maryland Eastern Shore

Fiber Backbone/Wireless Access Source: The Yankee Group/MBC

Revenues, EBITDA, and Net Income ($Millions)

($1.0)

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

Year

Financial Measures ($Millions)

Revenue ($Mil)

EBITDA ($Mil)

Net Income ($Mil)

Revenue ($Mil) $0.38 $1.70 $2.37 $3.14 $4.02 $4.89

EBITDA ($Mil) ($0.07) $0.82 $1.22 $1.69 $2.21 $2.73

Net Income ($Mil) ($0.49) ($0.69) ($0.58) ($0.24) $0.26 $0.73

2005 2006 2007 2008 2009 2010


Table of Contents

Executive Summary

Broadband Update

Backbone Vs. Access


WiMAX Analysis




Risk Benefit Assessment - Wireless

BenefitsRisks

Yankee Group Assessment

• Allow for competitive service providers to offer low cost alternative broadband services

• Avoid spending 10 million dollars to build a fiber network, which would require finding service providers interested in leasing capacity to get a pay back.

• Utilizes existing infrastructure (I.e. water towers, cell towers, government buildings)

• Can use the Sailor or Net Maryland backbone creation as an implementation guide. Though actual transmitters cannot be used, there is likely other tower infrastructure costs that can be shared.

• Wireless allows for a quick and efficient deployment.

• A municipal broadband deployment model usually involves connecting government institutions, educational facilities, etc to disperse network costs. This will be the first municipal deployment solely created to serve the private sector.

• Could undermine the local incumbent and create a regulatory debate.

• Entrenched service providers and ISPs may question the viability of using an all wireless network to provide business class services equivalent to an incumbent.

• DSL and Cable Modem availability is increasing, and new technologies are emerging that will make them even more advanced.



• The Yankee Group has concluded that broadband wireless is the most appropriate and cost-effective backbone and access technology for the Eastern Shore regional Councils to use in expanding the availability of affordable broadband service and satisfying the demand for economical T-1+ equivalent Internet service among businesses in the Eastern Shore.

• The Yankee Group recommends that the Eastern Shore Regional Councils support the formation of a Regional Broadband Cooperative to offer funding support and right of way/tower rights to develop a common, open system broadband wireless network infrastructure that would be used by regional WISPs to offer cost-effective broadband service throughout the nine county region.

• The Yankee Group financial model indicates that a combined capital investment of $4.3 million would cover the cost of a wireless broadband backbone network ($2.6 million) and a broadband wireless access network ($1.7 million).

• This network could be operational within 12-18 months and would provide extensive coverage of wireless broadband services throughout the region, serving thousands of subscribers and generating revenues growing from $1.7 million to $4.8 million per year from Wireless ISPs.


Yankee Group Recommendations• This initiative will also maintain pressure on cable and DSL providers to

extend affordable broadband service throughout the region.

• The Yankee Group also assessed the feasibility of developing a broadband access network with a fiber optic backbone.

• The Yankee Group believes the economic barriers and financial risk associated with the Counties investing directly in a regional fiber optic ring to be a very high hurdle in the near term.

• Construction of a new fiber optic backbone network throughout the nine counties would require a capital investment of $9.9 million in addition to the $1.7 million for the access facilities.

• The investment of County funds into a regional fiber backbone would not directly contribute to the increased availability of affordable broadband services to regional customers.

• The Yankee Group recommends that the Counties consider the use of the planned extension of the Mid-Atlantic Broadband fiber optic backbone network to address increasing bandwidth requirements and quality of service (QoS) considerations, as reliability and new applications dictate in the long-term.


Bay Broadband Proposal• After the Yankee Group’s final presentation on November 10, Bay

Broadband President and CEO Allen Hammond submitted a proposal for a privately financed and developed wireless broadband Internet access network to elected officials gathered at the Maryland Association of Counties conference in Hagerstown, MD.

• Bay Broadband agrees with the Yankee Group’s conclusion that a wireless broadband network is the most cost-effective way to provide widespread, affordable access to high speed Internet services throughout the dispersed communities on the Eastern Shore of Maryland

• Bay Broadband currently operates a similar network in Kent County, and has 9 access points of a planned 14 access points already deployed. Bay Broadband has initiated site acquisition for the entire wireless broadband backbone network for all nine counties.

• Bay Broadband has completed construction of the first of two licensed wireless broadband links across the Chesapeake Bay, designed to provide redundant access to the Internet backbone and bulk bandwidth at prices substantially below commercial prices now available in the region.


Bay Broadband Proposal• Both the Bay Broadband and Yankee Group proposals are based on

preliminary network designs developed with the expert assistance of John Dolmetsch of BIG Wireless

• Bay Broadband claims its lower cost estimate stems from a more efficient backbone structure and a proprietary low-cost approach to constructing access networks which are the key to widespread access on the Eastern Shore (since 75% of regional households are outside incorporated towns).

• Bay Broadband a cost-effective 14-link backbone ring and lower cost, unlicensed spurs, designed to match network capacity to market demand. This compares to 26 backbone links in the Yankee Group proposal, which is designed to offer additional redundancy and reliability while extending coverage throughout the region.

• The Bay Broadband backbone will serve an extensive access network with an average of 15 transmitters per county, assuming a 3-mile radius of coverage in non-line-of-sight conditions and 5 miles in line-of-sight conditions.

• Bay Broadband estimates that a total of $2.6 million in capital is required for the backbone and access networks, compared to $4.3 million for the Yankee Group proposal.


Bay Broadband Proposal

• Bay Broadband has acknowledged the value of the Yankee Group report in presenting its own private sector alternative counter-proposal, while raising several concerns about the Regional Broadband Coop proposal to the three Tri-County Councils.

• At the request of the Tri-County Councils, the Yankee Group has conducted a preliminary review of the Bay Broadband proposal and has address each of these concerns.

• Bay Broadband has misunderstood the Yankee Group financial model developed for the Regional Broadband Coop. The Yankee Group model shows that with approximately 4,000 business and residential customers served by local WISPs, the Coop would provide a positive return on the proposed $4.3 million investment in only three years. The Yankee Group expects that considerably more of the regions underserved broadband customers would ultimately participate in the project.


Yankee Group Assessment of the Bay Broadband Proposal• Bay Broadband claims the Yankee Group’s assumptions for wholesale

broadband prices in the financial model developed for the Regional Broadband Coop are too high. Our model proposes wholesale prices ranging from $25-45 per month for delivering wireless broadband access to the business and residential subscribers, excluding CPE, customer care and billing which would be provided by retail WISPs.

• Bay Broadband has compared this price to only the cost of bulk T-1 bandwidth and excludes the cost of the access network to deliver this service to the customer. The Regional Broadband Coop would actually purchase bulk bandwidth in larger quantities than any one WISP, and would pass on these savings to the retail provider.

• Bay Broadband has mistakenly raised concerns that the Yankee Group proposal would put the Maryland Counties into the position of competing with the private sector. In fact, the Regional Broadband Coop proposed by the Yankee Group would only utilize government funding to develop a common wireless broadband backbone and access infrastructure to allow private WISPs to offer retail services at a reduced cost. This Coop would not compete with any private sector WISPs.


Yankee Group Assessment of the Bay Broadband Proposal• The Yankee Group’s proposed Regional Broadband Cooperative would

provide a common wireless broadband infrastructure to be used by local WISPs to offer cost-effective broadband service throughout the nine county region.

• It would also provide the vehicle for a Public-Private Partnership that could leverage Federal, State and County government funding in the development of the backbone and access network, without competing with private retail service providers.

County Government

Regional Broadband Cooperative

State Funding Federal Funding Private Equity

Local WISPLocal WISP Local WISP

SubscribersSubscribers Subscribers


Yankee Group Assessment of the Bay Broadband Proposal• Bay Broadband proposes to raise and invest the cost of its network from

private sources, without the use of County funds.

• However, Bay Broadband has asked the counties for low cost use of public water towers and other tall structures to place wireless equipment in support of its plan to provide broadband wireless Internet access throughout the region. In return, it proposes to provide free broadband access for several community centers in each County and service to County facilities at half of commercial rates.

• The Bay Broadband proposal also relies on the use of low cost federal RUS loans from the USDA Broadband Community Connect Grant Program which is intended for rural towns and communities where no broadband service exists.

• After raising approximately $2 million in startup funds, Bay Broadband claims it would qualify for a $4 million RUS loan to finance and/or subsidize the cost of customer premises equipment, and remove the “initial cost” barrier to widespread participation.

• The Yankee Group supports this approach to financing CPE, and is ready to assist Bay Broadband in raising the required matching funds.


Yankee Group Assessment of the Bay Broadband Proposal• The Bay Broadband will use currently available pre-WiMAX access and

customer premises equipment, but plans to migrate to standard WiMAX equipment when reliability and cost issues are resolved.

• The Yankee Group believes that the cost of both access and CPE will come down and performance will improve as WiMAX standard equipment becomes available in late 2005 and early 2006. As such, our plan begins with the construction of the backbone network and does not include the purchase of large quantities of pre-standard access CPE, as these may become high cost stranded assets as these prices fall.

• Bay Broadband plans to compete directly with DSL and cable modem providers by offering monthly service pricing plans starting at $39.95/month, including customer premises equipment rental. The Yankee Group’s proposal focuses on extending broadband at competitive prices to those that are not served by DSL and cable modem providers.

• Bay Broadband plans to offer advanced bandwidth-intensive services such as voice-over-internet phone service, video on demand, and on-line business applications. We note that WISPs do not have a successful track record in offering competitive advanced broadband services.


Yankee Group Assessment of the Bay Broadband Proposal• The Yankee Group supports the decision of the Tri-County

Councils to support the Bay Broadband proposal, or any other private sector Internet provider that can successfully meet the needs for affordable broadband service in the nine counties on the Eastern Shore

• Eastern Shore County government officials have given Bay Broadband until February 1, 2005 to demonstrate the feasibility of its wireless broadband project by successfully raising $1.1 million of the required funding.

• A Worcester County Commissioner has said the counties would pursue a wireless coop approach if Bay Broadband is unable to raise the $1.1 million by February 1, 2005.

• The Yankee Group recommends that the Tri-County Councils confirm that Bay Broadband can actually receive approval for its RUS loan application once it raises appropriate matching funds.


• Bay Broadband is highly biased to private funding, but has expressed to the Yankee Group an interest in finding a way for government funding to take an equity role (even indirectly) to support the growth of wireless broadband services and the resulting economic development for the Eastern Shore.

• The Yankee Group has also initiated discussions with other regional WISPs including Delmarva On-line and Easton Utilities to solicit feedback to the Bay Broadband and Broadband Coop proposals.

• Each of these private sector firms have expressed support for common objective of extending broadband service throughout the nine county region, but have concerns regarding the role of government in the project.

• It is clear from these preliminary discussions that there are a number of misunderstandings and a general lack of clear communications among these interested parties, and that all would benefit from participating in a meeting hosted by the Tri-County Councils early in January 2005.

• The Yankee Group is prepared to participate in this meeting and has plans to be in the area on January 18 if it can be arranged on that date.


Documents

Page 1 © Copyright 2004, the Yankee Group. All rights reserved. Bringing Affordable Broadband To Maryland’s Eastern Shore Updated and Revised at the Request