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April 2009

DNTA. Rural Broadband Network Development Analytical Model Overview General Overview of Key Elements of an Analytical Model to support subsidized deployment of Rural Broadband networks in commercial non-viable locations. April 2009. David N. Townsend & Associates. DNT@dntownsend.com.

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April 2009

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  1. DNTA Rural Broadband Network Development Analytical Model OverviewGeneral Overview of Key Elements of an Analytical Model to support subsidized deployment ofRural Broadband networks in commercial non-viable locations April 2009 David N. Townsend & Associates DNT@dntownsend.com

  2. Rural Broadband Network DevelopmentAnalytical Model Overview DNTA Key Requirements from Recovery Act: • Define, identify “unserved” and “underserved” areas; • Develop a mechanism for evaluating the appropriate levels of subsidy payments needed to provide service in such areas; • The system must be broad and flexible enough to respond to applications from States and other government entities, non-profits, and to support at least one grant in each of 50 states; • Demonstrate for each grant “that the project would not have been implemented during the grant period without Federal grant assistance.” (Section 6001(e)(3))

  3. Rural Broadband Network DevelopmentAnalytical Model Overview DNTA Underlying Concepts: • For private, commercial network operators, infrastructure deployment and service provision decisions are based on evaluation of the potential profitability (ROI) of each project; • The market will provide coverage up to some boundary, known as the “Market Efficiency Frontier”, beyond which further deployment would be unprofitable (see diagrams); • The location of this Frontier is constantly shifting, but is typically well beyond the point of current service availability, especially in a growing market.

  4. Rural Broadband Network DevelopmentAnalytical Model Overview DNTA Analytical Framework, the “Gaps” concept:

  5. Rural Broadband Network DevelopmentAnalytical Model Overview DNTA Sustainability Frontier Simplified depiction of Market Frontier concept: Market Frontier

  6. Rural Broadband Network DevelopmentAnalytical Model Overview DNTA Illustrative Evaluation and Decision Process: Develop standardized application requirements Applicants submit required data Model estimates expected ROI of project Unprofitable Profitable Model calculates subsidy needed to make project viable Application must be manually reviewed, needs further info, or rejected If consistent with application: approve If substantially below application

  7. Rural Broadband Network DevelopmentAnalytical Model Overview DNTA Model Objectives: • Quantitative economic assessment of market structure for broadband service in any given location; • Focus on determination of Market Frontier, and cost/benefit Business Case for broadband deployment; • High-level “macro” analysis that can be applied on a statewide or region-wide basis for comparative purposes; • Detailed “micro”-level mechanism to serve as a tool to analyze and validate specific network development subsidy proposals across many locations, sizes, market conditions.

  8. Rural Broadband Network DevelopmentAnalytical Model Overview DNTA Model Approach and Methodology: • Evaluate the underlying economic costs to provide access to broadband service in locations not currently served; • Collect data to represent the market structure and factors determining average network deployment costs for various technology platforms under different conditions; • Methodology is geographically-based, focusing primarily upon rural areas where current networks are not available; • Forward-looking technology and cost assumptions, recognizing that the market will take time to implement these; • Key assumptions regarding potential service revenues, based upon demonstrated market trends and benchmarks.

  9. Rural Broadband Network DevelopmentAnalytical Model Overview DNTA Model Structure and Components: • Data Inputs • Detailed inputs on market-specific characteristics (see next) • Cost Assumptions • Estimated unit costs of each type of network facility and technology • Network Development • Algorithms to represent infrastructure buildout, based upon geography, population, penetration, etc. • Revenue Assumptions • Trend data and correlations of RPU to income, penetration, other factors based on market research • Net Revenue Calculations • Difference between average (annual) costs and expected revenues to introduce new service, expressed on a per-location (e.g., town) basis • Results: Market and access gaps, by geographic area, and net subsidy cost to close access gap.

  10. Rural Broadband Network DevelopmentAnalytical Model Overview DNTA Data Requirements: • Geographic and demographic data which define the structure of each defined area (state, region, etc.) its current broadband market, according to the exact specified format required for the model’s calculations: • Distribution of towns and/or neighborhoods by population; also geographic size (sq. km). • Accurate data on current degree (%) of availability of broadband networks/services within each geographic/population group. • Other market and economic factors: income, overall penetration, etc.

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