Jessica Richter & Jamie Becker

Is Diversification the Answer to a Successful Future? Jessica Richter & Jamie Becker

Agenda • Ideas for the Regulated Environment • Ideas for the Nonregulated Environment • Key Performance Indicators (KPIs) • Contribution Margin Analysis

Regulated Environment • A-CAM II Offer • Public Notice DA 19-504, Released June 5, 2019 • Revises offer for 37 companies • 34 related to census block eligibility changes • 2 related to reflect common control or ownership or lack thereof • Resulted in an additional offer • If not one of the 37 companies listed, no changes to offer or obligations

Regulated Environment • A-CAM II Offer • Public Notice DA 19-504, Released June 5, 2019 • Extends deadline to accept A-CAM II Offer until July 17, 2019 • All carriers, not just those with revised offers • Slightly revises acceptance email language • V2.5.2 and Report 16

Regulated Environment • A-CAM II Offer • Public Notice DA 19-504, Released June 5, 2019 • Seeks comment on adjustments related to the number of locations in eligible census blocks • Same procedure for A-CAM as CAF II Auction? • Within 1 year of the auction closing PN • Review and comment period • Subject to audit • Pro rata adjustment to locations and support • If not, what changes are necessary to adapt to A-CAM II

Regulated Environment • BDS order (Cost-based A-CAM I or II adopting carriers) • Pros • Cost Savings by eliminating annual cost study • Pricing flexibility (hopefully) • Lower special access pricing to be more competitive • Cons • Essentially nothing ROR • Forever election • ACAM year 11 uncertainty • First year(s) implementation “growing pains/learning curve”

Regulated Environment • Legacy – Legacy CBOL service (start or increase) • Pros • Generally higher USF than voice based USF • Customer demand, in most areas • More options for customers to chose what works for them • Cons • Loss of local residential/business access service revenues • Once offered hard to go back to requiring voice service • Strain on budget, assuming many companies roll out CBOL

Regulated Environment • Legacy or A-CAM – Switch Consolidations • Pros • Lower costs, including maintenance contracts • For Cost companies switching recovery frozen • Revenue stream if you host for neighboring companies • Cons • Watch out for double recovery • Switchless concerns and issues • Loss of control if you get host switching from neighbor

Regulated Environment • Legacy or A-CAM – Dark Fiber Leases (ROR based) • Pros • Pricing flexibility/market based rates • More likely to win ETS circuits • Can offer and still remain in NECA or other tariff • Cons • Cost Study impact • Dot the I’s and cross the T’s (do everything right) • Especially if in NECA’s tariff

Non-Regulated Environment • VOIP Phone Systems • Replacing traditional key systems with Voice Over Internet Protocol system • Many businesses switching to VOIP systems to save money

Non-Regulated Environment • VOIP Phone Systems • Pros • Similar to legacy key system environment • Equipment is widely used and available • Cons • Additional training for technicians • Sales staff needed for demos and sales calls • Truck rolls to install equipment which can be expensive depending on service territory • Less access revenue

Non-Regulated Environment • Edging off Existing Fiber Routes to provide broadband • Manufacturing, large farming operations on the edge of communities where you have fiber route going right by • Expansion of the network in small increments in a focused manner

Non-Regulated Environment • Edging off Existing Fiber Routes to provide broadband • Pros • Pick up new customers – broadband, circuits, dark fiber • Often not significant capex costs since main route already there • Can lead to additional customers once you get 1 or 2 • Often can get customers to pay for part of build • Cons • Requires some marketing to potential customers • Need to determine pricing, look at payback analysis • Can be pretty competitive

Non-Regulated Environment • Video Replacements • Over The Top platforms and related devices • Netflix • Hulu • Sling • Amazon Prime • YoutubeTV • Sony PlaystationVue • HBO Now • Roku, etc. • Disney – coming soon!

Non-Regulated Environment • Video Replacements – OTT platforms and related devices • Pros • No longer negotiating programming contracts • Get customers off existing video platform which loses money • Keep the customer by selling additional broadband which has much better contribution margin • No set-top boxes or middleware to manage and maintain • Cons • Need to train staff on OTT options so they can educate customers • Need to try several and then pick 1 or 2

Non-Regulated Environment • Managed Wi-Fi • Initial installation of Wi-Fi routers to ensure best signal where the customer needs it most • Apps available to test Wi-Fi signal throughout the home • Work with customer to understand where they want and need the best signal • Place router in best spot or advise use of extenders or multiple routers • Educate client so they know where devices will work best to optimize their broadband usage experience • Ongoing maintenance to help customers as needs arise

Non-Regulated Environment • Managed Wi-Fi • Pros • Help customers maximize the broadband experience • Customer looks to your company for complete service • Cons • Spending more time in the customer premise • Training needed for technicians • Some additional testing equipment

Non-Regulated Environment • Internet of Things (IoT)/Smart Home Installation and Management • So many devices out there to create a “Smart Home” • Garage door openers • Thermostats • BBQ Grills & Smokers • Refrigerator and other home appliances • Gaming systems • Doorbells • Home security • Audio systems • Lights • The list goes on and on… • Help the customer manage their devices and get the best performance

Non-Regulated Environment • Internet of Things (IoT)/Smart Home Installation and Management • Pros • Increases need for broadband services • Providing more complete solution to customers • Cons • Training needed for technicians so they can help customers • Spending more time in the customer premise • Likely to drive increased backhaul needs for company

Non-Regulated Environment • Home Security Installation & Monitoring • Installation of security systems for homes and/or businesses • Sell the equipment and get paid a fee for the installation • Provide monitoring service (usually in partnering with a 3rd party)

Non-Regulated Environment • Home Security Installation & Monitoring • Pros • Another touchpoint with customers • Similar to other products and services • Opportunities to upgrade broadband • Cons • More time in the customer premise • Additional training for technicians • Some additional equipment needed • Technology changes frequently

Non-Regulated Environment • Computer Services • Network management, firewalls, anti-virus, computer setup, etc. for both residential and small-medium sized businesses • Sell the hardware and software as well as fee for the service provided to install, configure and maintain

Non-Regulated Environment • Computer Services – network management, firewalls, anti-virus, computer setup, etc. • Pros • Often doing all of this for your own companies, provides a way to leverage that to generate revenue • Generally good margins • Cons • Skilled staff needed • More time in the customer premise • Managing work hours for staff to meet customer needs

Non-Regulated Environment • Web Hosting and Design • Storing and/or designing website files for customers • Fixed cost for the storage of the site for them • Variable cost for the design of the site • Recurring costs for maintenance of the site • For hosting need to consider redundancy needs to ensure no gaps in service

Non-Regulated Environment • Web Hosting and Design • Pros • Already providing the broadband so another touchpoint • Another reason for customers to look to your company for solutions • Can lead to other services • Cons • Requires skilled staff • Constant maintenance to meet consumer needs • Marketing

Non-Regulated Environment • Data Centers • Colocation – provide a secure location and power to the equipment • Managed Services – providing device management including firewalls, anti-virus, software provisioning, backups, logical access controls, cloud computing, etc.

Non-Regulated Environment • Data Centers – Colocation, Managed Cloud, etc. • Pros • Ability to sell additional broadband/circuits so customers and providers can access the facility • Use existing fiber networks to provide connectivity • Marketplace need continues to grow • Opportunities to market backup solutions to existing customers • Cons • Very large cap-ex investment • Skilled staff needed for operation • Significant marketing needs to enter the market

Non-Regulated Environment • Edge Data Centers – Supplement 5G Networks • Data center facilities away from the centralized core network to offer additional computing power • Generally smaller facilities • 5G while powerful is very distance sensitive and requires a very dense network to support it

Non-Regulated Environment • Edge Data Centers – Supplement 5G Networks • Pros • Colocation option for equipment for 5G providers • Ability to sell additional circuits using existing fiber networks to provide connectivity • Cons • Providing network for a competitor (cellular) • Possible large cap-ex investment • Possible upgrades needed to existing network

Key Performance Indicators (KPIs) • What are they? • Critical (key) indicators of progress toward an intended result • Provide a focus for strategic and operational improvement • Help create an analytical basis for decision making • Focus attention on what matters most

Key Performance Indicators (KPIs) • Good KPI’s • Provide objective evidence of progress towards achieving a desired result • Measure what is intended to be measured to help inform better decision making • Offer a comparison that gauges the degree of performance change over time • Can track efficiency, effectiveness, quality, timeliness, governance, compliance, behaviors, economics, project performance, personnel performance or resource utilization • Are balanced between leading and lagging indicators

Key Performance Indicators (KPIs) • KPIs can be very different from company to company • Need to determine specific outcomes trying to be achieved in order to understand what measurements will be useful to determine success • Decide what matters most to you and what do you feel indicates success or progress towards your goal

Key Performance Indicators (KPIs) • Strategic Measures • Track progress toward strategic goals, focusing on intended/desired results of the End Outcome or Intermediate Outcome. When using a balanced scorecard, these strategic measures are used to evaluate the organization’s progress in achieving its Strategic Objectives depicted in each of the following four balanced scorecard perspectives: • Customer/Stakeholder • Financial • Internal Processes • Organizational Capacity • Operational Measures • Focus on operations and tactics, and designed to inform better decisions around day-to-day product / service delivery or other operational functions

Key Performance Indicators (KPIs) • Project Measures • Focus on project progress and effectiveness • Risk Measures • Focus on the risk factors that can threaten our success • Employee Measures • Focus on the human behavior, skills, or performance needed to execute strategy • Likely need some of each to achieve an overall goal

Key Performance Indicators (KPIs) • KPI Examples • Desired Outcome – Increase broadband customers from 1,500 to 2,500 in the next 18 months • How many potential customers are there and who are they? • What is the timeline for number of new customer increases within the 18 months. E.g. 60 customers per month • What is the backhaul requirement if we bring that many customers on the network? • What specific network upgrades are needed to accommodate? • Set a timeline for network upgrades that falls in line with your strategic goal set above

Key Performance Indicators (KPIs) • KPI Example • How many competitors do we have in our market? • How many customers are we losing to competitors? • If we lose a customer are we asking and tracking why they leave? • How many ads per month are we running and in what media? • Are we tracking how customers heard of us when they sign up? • How many CSR sales of new broadband services have we made each month?

Contribution Margin • How much of a specific customer rate/plan price (e.g. broadband) falls to the bottom line after expenses • Consider • Revenue • Fixed direct costs • Variable direct costs • Overhead costs

Contribution Margin • Benefits • Focus marketing efforts on plans/rates with highest contribution margin to achieve best profit • Better design pricing in the future • Hurdles • Fairly complicated process to dig out all the specific costs for each rate or plan • Time consuming

Conclusion • Many options to consider when trying to grow and evolve • Need to be strategic – good use of business case analysis • Future possibilities are endless

JESSICA RICHTER, CPA.CITP, CISA JRICHTER@BKD.COM PH# 515-221-4630 JAMIE BECKER JBECKER@BKD.COM PH# 402-431-9805

Jessica Richter & Jamie Becker