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

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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
DNTA
David N. Townsend Associates

• April 2009

DNT_at_dntownsend.com
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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))

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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.

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Rural Broadband Network DevelopmentAnalytical
Model Overview
DNTA

• Analytical Framework, the Gaps concept

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Rural Broadband Network DevelopmentAnalytical
Model Overview
DNTA
Sustainability Frontier

• Simplified depiction of Market Frontier concept

Market Frontier
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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
Profitable
Unprofitable
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
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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.

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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.

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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.

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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
  models 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.