HomeMy WebLinkAbout2005-09-08 AFN Options Committee Agenda PacketOF
S� H L A NI:�Wr�
AFN Options Committee Meeting
Agenda
September 8, 2005, 7:30am
Siskiyou room, CDES Building, 51 Winburn Way
I. CALL TO ORDER
II. ROLL CALL
III. REVIEW COMMITTEE MINUTES
Approval of minutes dated August 15, 2005
IV. REVIEW DOCUMENTS REQUESTED
A. Internal AFN Development Opportunities (Wanderscheid Memo)
B. Navigant Report, Marketing Development Opportunities Results Update
(Wanderscheid Memo)
C. AFN ISP Analysis Memo and Spreadsheet
D. Cost Benefit of VOIP on AFN's Network Memo and Spreadsheet
E. Cost Benefit of Settop Replacement on AFN's Network Memo and
Spreadsheet
F. Video on Demand Memo
G. Competitive Analysis Cable TV Memo
H. Broadband Internet Comparison Memo
I. CATV Channel Lineup Comps Spreadsheet
J. AFN Revenue Contracts Spreadsheet
K. Bulk Cable TV Contracts Spreadsheet
L. Open Purchase Orders as of August 26, 2005 Spreadsheet
V. COMMITTEE DISCUSSION
A. Cash Flow/ Business Plan Review
B. Council Communication, AFN Quarterly Report
C. Council Communication, Resolutions Authorizing a Cable Television Rate
Increase in the Telecommunications Fund and Surcharge on Electric
Accounts
In compliance with the Americans with Disabilities Act, if you need special assistance to
participate in this meeting, please contact the City Administrator's office at (541) 488-6002 (TTY
phone number 1-800-735-2900). Notification 72 hours prior to the meeting will enable the City
to make reasonable arrangements to ensure accessibility to the meeting (28 CFR 35.102-35.104
ADA Title I).
VI. NEXT MEETING(S)
VII. PUBLIC INPUT
VIII. ADJOURNMENT
In compliance with the Americans with Disabilities Act, if you need special assistance to
participate in this meeting, please contact the City Administrator's office at (541) 488-6002 (TTY
phone number 1-800-735-2900). Notification 72 hours prior to the meeting will enable the City
to make reasonable arrangements to ensure accessibility to the meeting (28 CFR 35.102-35.104
ADA Title I).
AFN OPTIONS COMMITTEE MEETING
AUGUST 15, 2005- PAGE 1 OF4
OF
H L A N:�W,�
AFN Options Committee Meeting
Draft Minutes
August 15, 2005, 7:30am
Siskiyou Room, CDES Building, 51 Winburn Way
CALL TO ORDER
Lee Tuneberg, Administrative Services and Finance Director called the AFN Options
Committee meeting to order at 7:35 am on August 15, 2005 in the Siskiyou Room of the
CDES Building, 51 Winburn Way Ashland, Oregon.
ROLL CALL & INTRODUCTIONS
Committee members Barth, Collins, Donovan, Mace, Mackin, and Shultz were present.
Councilor Russ Silbiger was present.
STAFF PRESENT: MIKE FRANELL, CITY ATTORNEY
MICHAEL AINSWORTH, CABLE TV MANAGER
RICHARD HOLBO, TELECOMMUNICATIONS ENGINEER
C I N DY HANKS, PROJECT MANAGER
BRYN MORRISON, ADMINISTRATIVE ASSISTANT
ELECTION OF A CHAIR, VICE -CHAIR
Paul Mace volunteered to be chair, Kevin Shultz second. Paul Collins nominated
Michael Donovan/Rick Barth second.
Committee voted for Donovan for chair: Barth, Collins, Donovan, Mace, and Mackin all
Ayes. Motion passed. Mace will be vice chair. The Committee discussed the duties of
the chair and vice chair and determined that the Committee will set the agendas with
support from staff.
REVIEW COMMITTEE MINUTES
Approval of minutes from August 2, 2005 meeting.
Mr. Donovan/Mr. Mackin m/s to approve minutes as presented. All Ayes.
PUBLIC INPUT
Ed Kennedy- Mr. Kennedy stated that a marketing plan is needed. His concern is that there
needs to be a strategic marketing plan and there is no leadership. He felt AFN will continue to
lose money and the consumer doesn't understand the product. He would like to see it work
and the City keep AFN.
AFN OPTIONS COMMITTEE MEETING
AUGUST 15, 2005- PAGE 2 OF4
Thomas Gaffey, 680 Oak St- He stated that the City doesn't have a generally accepted
accounting principal operating statement for AFN and using the figures that the City has is
dangerous. He stated the operating statement needs to be analyzed and the City needs to look
at sales rather than marketing.
Art Bullock, 791 Glendower- He stated he is grateful to the Committee and they have difficult
and important work. He is hopeful that they will produce realistic projections and sound
financial models. He hopes they will produce what it is really going to cost, and who will
benefit. He stated it is the Committees job to identify alternate financial options for AFN.
Written testimony was submitted into public record.
LEGAL TRAINING & DISCUSSION
Mike Franell, City Attorney spoke to the public meetings and records laws. He stated that any
time there is a quorum, it is subject to public meeting laws and there must be a notice provided
to the news paper and minutes must be taken and produced in writing. He added that any
notes taken are also public record.
The Committee asked if would be appropriate for a smaller group to get together to discuss
these issues. Mr. Franell responded that it is appropriate if not doing so as an official
subcommittee. He also explained that it would be limited to hold an executive session and
there is no provision for one. The Committee questioned if they would be able to discuss the
possible sale of AFN. Mr. Franell responded that they could.
The Committee questioned if there are restrictions for management personnel talking to third
parties and proposing deals. Mr. Franell responded that they cannot make any binding
commitments unless Council had authorized the manager to do so. The Committee questioned
the fairness requirement for AFN and if a manager wanted to offer a new service. Mr. Franell
responded it would be subject to public bidding requirements and AFN must go out for a
request for proposal (RFP).
The Committee asked if there were restrictions on things that could be in the public bidding
process. Mr. Franell responded that there is not and there are no restrictions on the sale of
public services. The City only cannot sell for less than the fair market price. The Committee
asked then how free months of service is given. Mr. Franell responded that it is legal if they
show it as common practice in the industry.
The Committee discussed one option to place AFN under another administrative body. Mr.
Franell explained the relationship between the City and the Mt. Ashland Ski area and the
Ashland Community Hospital. Mt. Ashland is a private not for profit, and are not required to
abide by public records laws. If the City structured AFN this way they would be required to
have a public process. He added that there would be more stringent rules for a for profit
agency. The Committee questioned if the City would be liable for the hospital new construction
debt. The City would be first then the insurance would provide second.
AFN OPTIONS COMMITTEE MEETING
AUGUST 15, 2005- PAGE 3 OF4
The Committee questioned if the City supported the hospital with direct fund transfers. Mr.
Tuneberg explained that there is no trading of dollars and the City would be able to issue
bonds to the hospital if needed. The Committee questioned if the same would be true for Mt.
Ashland. Mr. Franell explained that there is a statute that allows the financing for the hospital
but there is not one for the ski area.
The Committee questioned if AFN was put into the same arrangement as the hospital, if it
would be possible to transfer monies and what the reporting requirements would be. Mr.
Franell responded that they could transfer funds and there would be a reporting requirement
however the City does not monitor how funds are expended. Mr. Franell clarified that the City
does not own all the assets of the hospital only the land and buildings. The City owns the land
and most of the fixtures at Mt. Ashland. If the ski area adds additional fixtures, they would
become property of the City. The Committee asked if the City could sell the ski area. Mr.
Franell responded that they could not, but could sell the assets.
The Committee discussed that the debt could be included if AFN was placed under another
administrative body and spoke to the benefits of site visits.
REVIEW DOCUMENTS
The Committee asked about the progress of hiring an Information Technology Director
and if the person would be hired before the Committee had made its recommendation.
Mr. Tuneberg responded that the City is currently reviewing applications and no
interviews had been set. The candidate will most likely be hired after the Committee
had finished its work.
The Committee discussed the items presented in the packet. They spoke to the
Navigant study and questioned if AFN had implemented any of the suggestions made
and how much the study cost. Mr. Tuneberg responded that the study cost $90,000.
Michael Ainsworth, Cable TV Manager responded that all of the suggestions were
implemented however some were not realistic for Ashland. He added that they would
have liked to have had a full time sales person to go door to door and the study found
nothing that AFN was doing grossly wrong, just items that needed adjustment.
The Committee questioned if cable rates had been increased and when. Mr. Tuneberg
responded once in June 2004, 8% and once in February 2005, 6.6% and they are now
looking at another increase. Councilor Russ Silbiger added that it was recommended
that internet be raised 25-30%. The Committee discussed that they would like a report
from staff with the results of the recommendations from Navigant that were
implemented by the City. The Committee discussed the overall market as well and
would like staff to present a competitive market analysis.
The Committee discussed the possibility of AFN becoming a retail Internet Service
Provider (ISP). Richard Holbo, Telecommunications Engineer responded that the City
would be able to provide the service with additional staff. Staff will present to the
Committee the revenues and expenses associated with becoming a retail ISP. The
AFN OPTIONS COMMITTEE MEETING
AUGUST 15, 2005- PAGE 4 OF4
Committee questioned why the City had not before. Mr. Tuneberg responded that the
City originally entered into a partnership with the ISP's for the customers benefit and top
management made that determination.
The Committee discussed the possibility of implementing Voice over Internet Protocol
(VoIP). Mr. Holbo stated that it would require a partnership for the City with another
entity and they have tentatively explored the possibility with a couple of firms. He added
that if the City wanted to move in that direction, they should have entered into it a few
years ago and feels that it would be difficult to justify the expense now. Mr. Ainsworth
agreed. The Committee would like staff to provide an operating statement showing the
possibility.
The Committee discussed that they should review how the market has changed since
the Navigant study and would like staff to prepare the following:
1. Cost analysis of becoming a retail ISP
2. Cost analysis of VOI P
3. Possibility of a conversion to dct5000 plus or similar product and the cost over a
three year period
4. Possibility of Video On Demand
5. Results of the recommendations from Navigant that were implemented by the
City
6. Competitive rate analysis
7. Summary list of contracts for AFN
The Committee discussed the benefit of having Dick Wanderscheid and Gino Grimaldi
attend the meetings and asked that they be invited to the next meeting.
The Committee discussed the Programming Committees responsibility. Mr. Silbiger
responded that they make recommendations at the tier level.
NEXT MEETING(S)
The next meeting will be September 8, 2005 at 7:30 am in the Siskiyou Room of the CDES
Building.
ADJOURNMENT
The meeting was adjourned at 9:23 am
Respectively Submitted,
Bryn Morrison
Administrative Assistant
Administrative Services Department
Internal AFN Development Opportunities
1) Develop a set of customer service guarantees backed by payment to customers if
AFN fails to meet the standard.
AFN has promoted this guarantee through print ads without a backing it by a payment to
customers.
2) Continue to pursue sales (door to door) programs fro residential customers.
We continue to utilize 3 direct sales personnel for this task. Any new customer that
leaves UB without signing up for AFN is targeted for a follow up within a few days by
one of these people. Also, they are directed toward new developments as soon as
occupancy certificates are issued and AFN services are available to these new residences.
3) Develop accurate up to date target lists, based on accurate up to date information
on current and non -subscribers for both CATV and Cable Modem.
With the addition of a full time Network Administrator, we have made great strides in
this area and have much better information.
4) Programming Committee should work with AFN staff to incorporate "business case"
methodology into its channel lineup decisions.
This was discussed with the Programming Committee on January 27, 2005.
5) Provide additional training to customer contact staff (customer service representative and
field installers) in basic sales skills.
This training is ongoing with the latest version being provided by an outside vendor in
Late January, 2005.
6) Advertise the total prize that the customer pays avoiding any other fees or added charges
that others might hide or touch on.
This has been emphasized a number of times in print ads over a few months.
7) Create more public ambassadors who will unflinchingly advocate AFN as the right
choice for its citizens and who are constantly asking individuals they know to join AFN.
Elected officials have done this to a limited extent in the last few months but other than
that no efforts have been devoted to this.
8) Continue AFN's emphasis on print media as acost-effective advertising tool with low
CPM rates that CATV customers also say is highly effective.
We continue to advertise AFN in the Ashland Daily Tidings, the Medford Mail Tribune
and the Sneak Preview. Total print advertising equals about $45,000 per year.
9) Promote end of month advertising through customer acquisition promotions and
specifically the "invite a friend" detailed in the Market Development document.
This was addressed as a part of the Market Development Opportunity discussion.
10) Spend an increasing part of advertising on call to action promotions.
The bundled rate offered in Sept -November was a call to action promotion. Also, the
direct mail invite a friend will be a call to action. The free movie coupons to enable pay
per view also falls in this category. We hope to continue this kind of promotion in the
future. We must be careful to time these promotions so they don't conflict or dilute each
other.
Business Plan Development
11) Updating the business plan should be pro -active, on a scheduled basis, that may also be
tied to the budget review.
The new AFN spread sheet developed by the Finance Director is a great tool that
accomplishes this task. When it has been fully developed and the numbers are finalized,
it will be a great management tool to guide AFN operation and decisions.
12) Replace one of the DS3's that AFN uses with a fractional DS3 or it s equivalent form a
CLEC. Move a router to Medford to facilitate redundancy and back up.
One of our DS3 contracts expired in December 2004 and we are currently exploring
various options to replace that service. Initial discussion indicate magnificent savings
can be made by replacing this service and appear to be in the $6,000-$9,000/ month area.
13) Add an additional .SFTE technical support to fill a variety of technical disciplines.
Last year's budget process resulted in an additional 1.5 FTE added to AFN Staffing.
14) Require developers to install AFN conduit during construction so that AFN system passes
new homes and businesses and not just existing one.
The initiative has been accomplished and developers are now installing AFN supplied
conduit in new developments.
Navigant Report
Market Development Opportunities
Results Update
The following items were recommended for implementation by Navigant. We have detailed the
action and attempted to estimate the actual results as compared to the Navigant estimate.
1)
2)
Raise CATV and Cable Modem Rates
These rates were increased in June 2004 and again in February 2005.
Navigant Projection Actual
$165,000/year (Initial) $330,000/year
$130,000/year (2nd Increase) $208,000/year
CATV Prouammini! and Tier Alignment
a) Offer 10% discount for one, when movie channel package is ordered.
Navi orqnt Proi ection A rt» a l
e
158
b) Collapse Tier to get 90% penetration
This was implemented in January, 2005
Navi _ ant Projection
$92,194
To be implemented Feb/March 05
Actual
$80,000/year
Note: Navigant did not recommend pursing this option but staff initiated this in another manner during the
last tier re -adjustment and rate increase.
3) Customer Acquisition Promotions
Offer 1 month of CATV free if customer signs up for 12 month of CATV service and also give a
free month of service to customers who sign up a friend.
Navigant Projection Actual
s
180 Invite a Friend will be offered via direct
$60,178 (Revenue) mail in Feb 05, 12 month initiatives will be
$45,767 (Costs) offered after the Invite a Friend promotion.
$14, 416
4) Migrate Expanded Basic customers to Digital Plus Service.
This was pursued through television advertising on AFN.
Navigant Projection Actual
91 New Tier 4 customers 24 (June —Dec 31) New Tier 4 customers
$10,549 (Revenue only) $31490
5) Enable PPV Purchases
Facilitate customer's ability to make impulse Pay -per -view services, without having to call AFN.
This was implemented by mailing out coupons for free movies to all customers with a set top box. About 2700
coupons were mailed out in June 2004 and 27 customers responded. Since then, we have continued to give out
coupons with each new install. About 10-15 additional coupons have been redeemed. Our Pay -Per -View
offerings have also been promoted via AFN ad insertions. This process has been negatively impacted by the
limited pay per view offerings that our vendor was offering. This will be remedied in February, when we
switch to "In Demand", a different pay -per -view vendor with much better product offerings and a Preview
channel to generate more viewer interest. In conjunction with this change, we hope to do renewed marketing
and try to enable more viewers and get more movie purchases.
Navigant Projection
Aot»al
Page 1 of 3
170 New Pay per view users 37 pay per views (coupon redeemed)
$11,796 (Revenue)
$ 5,360 (cost)
$ 61436
6) Customer Upgrade Promotions
Offer AFN's Expanded Basic subscribers with set top boxes upgraded service at no extra charge for one
month.
Navi ant Projection Actual
91 to Digital Plus Currently being offered by installers during the
$10,549 (Revenue) initial install of AFN CATV.
7) Bundle CATV and ISP for a Discount
Offer a one-time promotion for a limited period of time for new residential customers who subscribe to both
AFN CATV and cable modem service. The City offered this program in Fall 2004 for the return of the SOU
students. We gave a free month of cable TV to new customers who purchased both services from AFN.
Navi ant Projection Actual
164 New CATV subs 3209-3099 = 110 (Aug 1 —Dec 31)
218 New CM Subs 3 718-3470 = 248 (Aug 1-Dec 31)
$107,017 (Revenue) These are total new subs for each service.
$ 74,220 (Cost) A total of 77 new customers took advantage
$ 32,797 of this bundled offer.
8) Intermediate Cable Modem Offering
Offer a Cable Modem offering with price and value in between the current residential and business offerings,
which gives the customer the option of either a permanent IP address or upload speed to 1MB.
Navi ant Projection Actual
118 buyers of service 7 buyers of service
$45,000 (Revenue)
$10,000 (Costs)
WOO
9) Enhances Standards for Retail ISP's
AFN establishes specific standards which retail ISP's must meet. It also establishes a higher `Gold' Standard
for voluntary achievement.
These new contracts were offered to AFN ISP's in May 2004 and were signed and made effective in July 2004.
Ashland Home Network has applied for and received Gold Standard distinction. Infostructure has recently
applied.
Navi ant Projection Actual
94 (31718-3,435) = 283
July 1 to Dec 31
$6,000 Net Revenue How many are attributable to this is unknown
10) VOIP to Public and Institutional Customers
Pursue "Reseller" option described below as a low priority, targeting largest institutional and governmental
accounts first.
Navi ant Projection Actual
$17,000 Net Revenue We have not been able to work on the initiative
11) High Speed Data Connections for Multi -Point Businesses in Ashland
AFN partners with another party to connect Ashland businesses with their sister offices throughout the Rogue
Valley through a high speed fiber Network.
Navi ant Projection
Page 2 of 3
In reviewing the Navigant Report, it appears that there was an assumption of 9 new High Speed customers and
8 direct customers along with additional transport fees.
They projected:
9 New AFN High Speed Customers g $615/month $ 66,420
8 New Point to Point Customers g390/month $ 37,440
Transport Revenue $ 17,280
$1211140
Actual
We currently have 16 point to point customers in conjunction with Hunter Communications. They are billed
by Hunter and we in turn bill Hunter a fee. Current monthly revenue from this source is about $3,000.00.
12) Rebroadcast CATV Pro$!rammin$! to Municipal overlay systems outside Ashland
AFN provides the head end programming for other communities who have either private or city funded overlay
cable system. AFN provides wholesale single only, and is not involved in any network build out, installation or
customer contact in other communities.
Navigant Pro'ect
City A=$115,000 Net Revenue
City B =$ 20,000 Net Revenue
Actual
No opportunities to implement this have
appeared.
Page 3 of 3
To: AFN Options Committee
From: Richard Holbo
Operations Superintendent
Subject: Cost Benefit Analysis requests
Attached lease find the cost benefit analysis's that were requested in the Aug. l 5th
p y
meeting. Please understand that these are not "complete' analysis, but rather a broad
overview of the major expenses/revenue sources to see if further review is deemed
necessary. .Also I AM NOT AN ACCOUNTANT, so these represent a hopefully
common sense view of the business opportunities. Please forgive the misuse of terms
such as revenue and capital if the do not meet with AICPA definitions of those terms.
In response to the Cost/Benefit of Video on Demand, we have not seen any service
provide us with an estimate that breaks even, let alone turn a profit. The only possible
benefit of current VOD technology deployment would be customer maintenance.
As usual if you have questions feel free to email me or give me a call:
Richard Holbo
holborLd,'ash.lc,-ind1--iber.net
541.552.2308
AFN ISP Analysis
$/25/OS
This analysis attempts to quantify the revenue that could be generated from AFN being
an ISP along with its current ISP partners. I did not run numbers on AFN being the only
ISP as I believe that that (while being financially a good thing) would go against the
public interest. I would also like to point out to our ISP partners that this does not
represent the fully loaded costs of us being an ISP as most of the fixed expenses and
personnel costs for this endeavor are already covered elsewhere in tasks we are already
doing (mail servers, web servers, support trips). I.E. this would not work if we needed to
start from scratch, but we're already 95% of the way there.
The numbers used assume a starting customer count of 20 and an ending count of 355
after 36 months. Assume a conservative price of $35 which is slightly lower than our
current ISP, s average, and a capital investment of $5000 per year.
There would need to be some allocation for fielding customer support calls, which I have
budgeted at $4 per customer per month, and I use a number of $8 per month for other
overhead.
I have also added in a conservative Value Added line which would be supporting
customers with problems that were not related directly to their ISP service (virus
removal, etc. etc.) This is factored at 5% of customers per month at a $35 per call charge.
Using these numbers, the Revenue after expenses is, Year 1: $33,610.00 Year 2:
$75,808.75 Year3: $92,267.50.
Quick and Dirty
AFN ISP
Anal sis
Month Customers
Gross Inc Expenses
Value Add Capital
1
20
$700.00
$240.00
$35.00
2
40
$1,400.00
3
60
$2,100.00
$720.00
$105.00
4
80
$2,800.00
$960.00
$140.00
5
100
$31500. 00
$1, 200.00
$175.00
- 6-
- 120--
--$4,200.00 -
$1,440.00
$210.00 $5,000.00 i
7
140
$4, 900.00
$1, 680.00
$245.00
8
160
$5,600.00
$1,920.00
$280.00
9
180
- $6,300.00
$2160.00
Personei
$4.00
PerCust
Overhead
$8.00
PerCust
---- Price
4Value
$35.00
Month
Add
$35.00
PerCall
%Value Add
5.00%
10 - 200 $7,000.00 $2,400.00�. $350.00 Revenue after Expenses
11 220 $7,700.00 $2,640.00 $385.00 -
12 240 $8,400.00 $2,880.00 $420.00 $33,610.00
13
240
$8,400.00
$2,880.00
$420.00
14
-- --
-- - 250 -
-- - _
$81750.00
$3, 000.00
$437.50
-
15
255
$8,925.00
$3,060.00
$446.25
---
16
260
$9,100.00
$3,120. 00
$455.00 f
f
17 265 $9,275.00 $3,180.00 $463.75
18
- - - 270
$9,450.00
$3,240.00
$472.50
19
275
$91625.00
$3,300.00
$481.25
$5,000.00
20
280
$9,800.00
$3 360.00
$490.00
21
285
$9,975.00
$31420.00
$498.75
22
290
$10,150.00
$3,480-00
$507.50
- -- --- -
23
-
295
$10, 325.00
$3,540.00
$516.25
�
24
300
$10,500.00
$3,600.00
$525.00
$75,808.75
1
25
300
$10, 500.00
$3,600.00
$525.00
26
305
$10,675.00
$3,660.00
$533.75
F
--
27 -
-
_. --------------
310
- ---- --
$10,850.00
-- --
$3,720.00
--
$542.50
-- __
--- -- -�-- ____-
-- 28
- 315
$11 025.00�
$3 780.00 �----_.
�
$551.25
--
29
320
$11,200.00 �--
$3 840 00
�
4 - -
30
-- - -
325
$11, 375.00
_ --
$3, 900.00
- _-�
$568.75
---
$5, 000.00
----�--
---- -----
31
330
$ 11 550.00 � __---$3
960.00 +----
$577.50�--_
_-------_-- _-�-
32
335
$11,725.00
$4,020-_00_ �-----$586.25
33
340 ;
$11, 900.00
$4, 080. 00
$595. 00
34
345
$12,075.00
$603.75
�
35
350
$12,250.00
-$4,140.00
$4,200.00
$612.50
36
355
- 425.00 --
$12,
___.$4,260.00 �
$621.25
--
$92,267.50
- ---
Cost Benefit of VOIP on AFN's Network
8/25/05
Disclaimer: these are all guesses based upon assumptions, numbers can change
significantly if those assumptions are changed a little bit.
Scenarios:
l . AFN resells DSO local loop service to a CLEC and does some type of revenue
sharing.
2. AFN provides complete end to end services for telephone connectivity.
3. AFN cooperatively markets with one of the "established" VOIP providers.
Assumptions:
Market Penetration numbers:
All scenarios use the following penetration schemes.
Year 1 : 0-425 customers
Year 2 : 425 -- 750 customers
Year 3 : 750 — 1050 customers
Scenario 1
According to the most recent information I have:
Qwest authorized resellers can provision DSO lines for a minimum of $20 per month.
CLECs can rent a copper pair from the CO to CP for a minimum of $14 per month.
So from a strictly monetary sense if we resell something akin to a DSO local loop the cost
must be significantly less than $14. Probably a best case maximum of $10-11 per month.
Given that standard phone service is running $24 a month per line. Inexpensive VOIP
services are running $14 a month the margin for the CLEC will be anywhere from $4-14
month gross. If we figure %50 margin on their side, they are making between $2-7 a
month per customer, so we'll use $5.
Given the above penetration numbers (spreadsheet attached, probably optimistic), the
CLEC will make revenues of: Year 1 $9,775.00, Year 2 $36,625.00 and Year 3
$54,750.00. Assuming a $50 CPE device this will translate into Year 1 01.75, Year
2 $8,900. Year 3 48,650.
Assumptions:
Revenue per cust= $10.00
CPE Cost = $0.00
FTE= $120, 000.00
Num FTE= 0.25
Upfront Capital= $30,000.00
Given those same numbers, to minimally support this level of service AFN will incur
fixed costs of between $20,000430,000 depending on how creative we can be in
technology implementation (router interfaces, QOS upgrades). The ongoing costs will be
incremental, but assume .25 FTE for additional support calls between CSR and Tech
Support ($30,000 per year), and figure a 30% of initial per year technology investment.
The revenue per year will be: Year 1 (40,450 ), Year 2 ( 6,200 ), Year 3 $64,300.
Now the struggle becomes, how do we make ourselves an attractive a partner. If we
cannot guarantee some level of secure revenue, at a best case maximum of perhaps
$60.000 a year in year 4 and we allow dilution of that revenue stream by multiple
providers, how do you convince anyone to partner with you?
Scenario 2
We could probably charge $20 per line if we had the right combination of services.
In. order to provide end to end telephone connectivity we would need to invest in a
telephone switch to provide the interface between the POTS (Plain old Telephone
System) and the VOIP system. The cost of this switch has come down significantly, and
to support 5000-10000 lines/numbers we could probably do so with $70,000 to $80,000.
Additionally we would need to do the aforementioned upgrades to the network for router
interfaces and QOS so another $30,000. Tech refresh is plugged in at 10% of initial.
CPE devices would run $30 - $75, so figure $50. Personnel Costs would probably be
1.25 persons, 1 person to run the switch and manage telephony issues, and the .25 to do
CSR and Tech support.
Assumptions:
Revenue per cust= $20.00
CPE Cost = $50.00
FTE= $1201000.00
Num FTE= 1.25
I Upfront Capital= $100,000.00 1
This results in a Year 1 of (. 232,,15 '), a Year 2 of ( 261.900) and a Year 3 of
( 217.1)00).
Scenario 3
In this scenario, we would partner with an existing nationwide provider such as Vonage.
I would assume that we would work out an arrangement where we would retail their
equipment, take a cut of that, and get a percentage of revenue for each customer,
probably not more than $1 or $2 per month. We would not need to invest in upgrades to
our system for this service as it is designed to run across the existing broadband
networks, and the customer expectation is that there may be "some" issues with the
services.
tinder these circumstances any revenue generated is profit.
For AF-N Options committee:
Richard Holbo,
Operations Superintendent
Quick and Dirty Spreadsheet for costing VOIP on AFN (Scenario 1)
Month
Customers
Revenue
CPE invest
Capital
Personel
$0.-00---
1
2
$20.00
$30,000-00'
2
----------- -- 4
$40.00
3
8
$80-00
4
16
$160.00
5
32
$320.00
6
64
$640.00
— ---------
7
128
$1,280.00
8
256
$2,560-00
9
300
$3,000-00
- _-
.. ..... ... 10
320
$3,200.00
11
400
$4.000.00
---- -------12
425
$4,250.00
$0.00
$30,000.00
13
450
$4,500.00
$9,000.00
14
500
$5,000,00
15
525
$5,250.00
16
550
$5,500.00
17
575
$5,750.00
18
600
$6,000.00
19
625
$6,250,00
20
650
$6,500,00
21
675---
$6,750. 00
22
700
-
$7,000.00
23
725
$7,250.00
24
750
$7,500.00
$0.00
$30,000.00
25
775
$7,750.00
$9,000.00
26
8 00
$8,000.00
27
825
$8,250.00
28
850
$8,500.00
29
875
$8,750.00
- - - -------- 30
900
$9,000.00
__
31
925
$9,250-00
32
950
$9,500-00
33
975
$9,750.00
1000
$10, 0 0 0. 0 0
-34-
35
1025
-
$10,250.00
36
1050
$10,500.00
$0.00
$30,000.00
Revenue per Gust 00
CPE Cost = �I $0.00
FTE= $120,000-00
Num FTE- 0.25
Upfront Capital= $30,000-00
Revenue = Gross revenue/Expenses
($40,450)
($6,200)
$64,300
Quick and Dirty Spreadsheet for_costing VOIP on AFN (Scenario 2)
Month
Customers
Revenue CPE invest Capital Personel
0
0
$0.00
1
2
$40, 00 $100, 000. 00
2
4
$80.00
Revenue per cust=
$20.00
3
- - ---8
$160.00 � -----------�--_ - - .
_ CPE Cost =
$50.00
..._....__...
4
_
16
-
$320.00
FTE=
$120,000.00
5
32
$640.00
Num FTE= 1.25
6
64
$1,280.00
Upfront Capital= $100,000.00
7
128
$2,560.00
Revenue = Gross revenue/Expenses
8
256
$5,120.00
9
300
$6, 000.00
11
400
$81000.00 {
_ ---_ - - 12
- 425
$8, 500.00 $21, 250.00 $150, 000.00
($232,150)
13
450
$9, 000.00 $10, 000.00
14
500
$10, 000.00
- -' _
15
525
$10, 500.00
- -- 16 �-----
550 �
$11, 000.00
17
575
$11, 500.00--
18
600
$12,000.00
19
625
$12, 500.00
- -- - 20
650
$13, 000.00
21
675
r
500.00 '
$13 ,--
22
700
- - ----- ------ --
$14, 000.00
23
725
$14, 500.00 _ —
_
24
750
$15, 000.00 $16, 250.00 $150, 000.00
($261, 900)
25
775
$15, 500.00 $10, 000.00
26
800
$16 000.00
27
825
1
28
850
$17,000.00
------------- --
- - ---29
- 875
$17,500.00
- 30
900
$18,000.00
31
925
$18,500.00
32
950
$19, 000.00
_
a
33
975
- _ -- ---- -- - - �- — --- - ----
$19, 500.00
--- - - -- - — --- -,
— - - —34 µ
1000
- - ---- — -- --- ---
$20,000.00
35
1025 1
$20, 500.00
36
1050
$21,000.00 $15,000.00 + $150,000.00
_
($217,900)
Cost Benefit of Settop Replacement on AFN's Network
8/25/05
Currently AFN has around 3000 settop boxes in circulation.
Newer settops would provide access to expanded services for HDTV and PVR
capabilities.
We can purchase Motorola DCT 6200 with HDTV for $365 each.
We can purchase Motorola DCT 6412 with HDTV and PVR for $542 each.
Simplistically replacement of all 3000 boxes with 6200 would cost $1,095,000.
Replacement with 6412 will cost $1.626,000. However we will assume a gradual
replacement as customer demand grows, to a max of 700 customers in year 3.
In order to provide HDTV services we will need to downlink and retransmit HDTV
signals from satellite. This will cost approx $5000 per channel for the equipment plus
programming costs. This will also need to be done with the blessing of the Programming
committee as they will need to suggest and approve the channels. I will use $50,000 for
Headend Equip costs.
Programming costs are not covered in this analysis, and the assumption is that there will
g .
be at least a 50% margin in programming, and that charges for HDTV signals will be in a
package that runs $15 per month, so $7.50 per month per sub.
I would also suggest that the need for a HD only box is slim, and that any customer who
has HD would want the PVR also, so we will use the $542 per box number.
Spreadsheet giving the particulars is attached, but Assumptions are:
Tier Cost= $15.00
Revenue/exp= 50%
Box Cost= $542.00
Box Rent= $7.00
This nets in Year 1 ( 5,6 ". 50), in Year 2 ( 106,047. 0) in Year i (I' 10"' .00).
All things being equal, in order to break even in year three the tier cost for the service
would need to be $47 per customer.
Quick and Dirty HDTVIPVR settop Box Analysis
Month
Customer
Gross
Revenue
Box Rent
Capital
0
s
$50,000.00
<- Initial Capital for Headend
1
10
$150.00
$75.00
$70.00
$5,420.00
Tier Cost- $15.0
2
20
$300.00
$150.00
$140.00
$5,420.00
Revenue/exp 50 0
3
25
$375.00
$187.50
$175.00 Y
$2,710.00
2.00
Box Cost= ! 54
Box Rent= 7.0
4
30
$450.00
$225.00
$210.00
$2,710.00
5
30
$450.00
$225.00
$210.00
$0.00
40
$600.00
$300.00
$280-00
$5,420.00
Revenue after expenses
7
50
$750.00
$375.00
$350.00
$5,420.00
8
55
$825.00
$412,50
$385.00
$2,710.00 -�
-9
-- - 60--+
$900.00
$450.00
$420,00
$2,710.00
1-0 µ
- _..65- - ---
$975.00 -
- $487.50
$455.00
$2,710.00
11
70
$1,050.00
$525.00
$490.00
$2,710.00
12
- - 80
$1,200.00
$600.00
$560-00
$5,420.00
(85,602.50)
13
95
$1,425.00
$712.50
$665.00
$8,130.00
_
14
110
$1 650.00
$825.00
---- -
$770.00
$8,130.00
15
120
$1,800.00
$900.00
$840.00
$5,420.00
16
140
$2,100-00
$1,050.00
$980.00
$10,840.00
17
160
$2,400.00
$1,200.00
$1,120.00
$10,840.00
18
180
$2,700.00
$1,350.00
$1,260.00
$10,840.00
19
200
$3,000.00
, $1,500.00
$1,400.00
$10,840.00
a
20
220
$3,300.00
$1,650.00
$1,540.00
$10,840.00
21
250
$3,750.00
$1,875.00
$1,750.00
$16,260.00
22
280
$4,200.00
$2,100.00
$1,960.00
$16,260.00
23
310
$4,650.00
$2,325.00
$2,170.00
$16 260.00
24
340
$5,100.00
$2,550.00
$2,380.00
$16,260.00
(106,047.50)
25
370
$5,550.00
$2,775.00
$2,590.00
$16,260.00
26
- --- - 400..�
$6,000.00 -1
$3,000.00
$2 800.00
$16,260,00
27
430
$6,450.00
$3,225.00
$3,010.00
$16,260.00
28
460
$6,900.00
$3,450.00
$3,220.001
$16,260.00�*
29
490
$7,350.00
$3,675.00
$3,430.00
$16,260.00
30
520 -
$7 800.00
$3,900.00
$3,640.00
$16,260.00
31
550
$8,250.00
$4 125.00
$3 850.00--$16,260.00
32
- - 580
-----------
$8,700.00
$4,350.00
$4,060.00
$16,260.00
-
33
- --- ----+
610
$9150.00
4 �$4,
$, ,575.00
270.00
$16,260.00
------
34
640
$9,600.00
$4,800.00
$4,480.00
$16, 260.00
35
670
$10,050,00
$5,025.00
$4,690.00 -
$16,260.00 -
36
700
$10, 500.00
$5, 250.00
$4, 900.00
$16, 260.00
(102, 030.00)
VIDEO ON DEMAND
Video On Demand ("VOD") services for residential cable television customers is being
promoted by national programmers and cable systems as progressive technology or
"something new and exciting".
In fact the fundamental technical infrastructure has been in place and evolving in the
hotel industry for over a decade. In the most simplistic technical sense, providing VOD
services to 3,000 homes in Ashland is no different than providing VOD services to guest
rooms in the Bellagio Hotel in Las Vegas. (One's a horizontal application and the hotel
example is a vertical one.) AFN staff has past experience with VOD apps at Time Warner
with servers in several Waikiki hotels back in the early 90's.
AFN staff had conversations with a handful of VOD providers approximately nine
months ago and information provided below is a result of these interactions and past
experience.
Consumer benefits
Using their Remote Control, Cable TV customers have the ability to select from hundreds
of titles covering all genres of interest, and then order and view the movie of their choice,
instantly, or "on demand."
Industry surveys have shown that VOD returns are three to four times more buy rates
than traditional Pay Per View. (Presently AFN is breaking even on PPV).
Well know secret, consumers like PPV and VOD because they can record the movie
(instead of purchasing the $18 DVD at Walmart or Costco).
PPV Business Model
For small cable operators, the business model is tilted in favor of the suppliers
(MSO's also own content and distribution and essentially pay their corporate siblings.)
Content drives consumer "buys" and is controlled by film studios (copyright holders)
Monthly library consists of 3 0% fresh titles, 3 0% older titles, 3 0% adult, and 10% other
(HBO, etc.) Fresh titles defined as 45 days after last theater showing.
"Partners" consist of delivery vendor, content vendor, and billing vendor who are first in
line for "revenue sharing." Cable system gets paid last.
Studios are paid movie right fees per movie (per title)
Nine out of the ten major studios are currently on VOD (exception is Disney)
Initial one time outlay in excess of $100,000 and nine months ago AFN staff estimated
$150,000 to get into the VOD business with TVN.
Equipment required include
Video Servers (MPEG2 Video "pumpers")
Video Storage (to hold the monthly movie inventory)
TVN's delivery works with AFN's current DCT 2500 Set Tops
Software and tasks required include
Business Management
Content Ingestion (Bring movies down from satellite to video pumpers)
Content Management
Subscriber Management (disables non paying customers)
Bandwidth Management (typically 400 available streams for a system our size)
Each video stream has a one time cost of approximately $90 (sox 400 = $36,000)
Client support (System technical support)
Billing Interface (Method to bill customers)
Guide service
Future of VOD
At current resolution MPEG2, High Definition VOD will require additional expense for
3 times larger file size
3 times more stream capacity
3 times more storage Requirements of the cable system
In my opinion, within 5 years studios such as Disney will stream first run movies directly
to consumer's PDA's and home devices bypassing cable systems and movie theaters
altogether.
Bend and Tacoma Click are in the VOD business and staff can certainly learn more from
on site visits and further discussions with vendors. Staff has been directed for the past
couple of years not to spend money (understandably due to the debt load) and VOD
information I recently gathered was primarily out of professional curiosity to stay in step
with the rest of the industry.
TIVO
From the individual TV viewer perspective, the deployment of PVR (Personal Video
Recorder) or "TIVO" essentially gives the residential user some form of personal VOD
application (albeit without the fresher movie title content library).
Michael Ainsworth
Competitive Analysis Cable TV
The formation of AFN created technically robust networks and an ultra competitive
telecom environment in Ashland.
Consumers continue to enjoy benefits including competitive rates and value added
product offerings unique to Ashland.
AFN's Cable TV goals are to offer the best product value and local customer service
excellence in our community.
Factors affecting consumers' buying decisions include:
Product
Price
People (Customer Service)
AFN's Cable TV product line is created solely by an appointed Citizen's Programming
Selection Committee. This dedicated group selects programming for AFN that meets the
interests of our community.
There is no "one size fits all" product in the cable TV industry and in the last decade
MSO's around the country have "super sized" product offerings (`more channels') to
compete against DBS's offerings.
Via some cable systems and DBS's marketing efforts, consumers are trained that "more
channels" are a good thing, although national studies indicate that in a 100 channel
environment, consumers primarily watch only 9 channels. The "one size fits all" tactic
goes out the door as there are no universal 9 channels that everyone watches. (Or will
admit to watching!) Hence the super sizing tactic in an attempt to be "everything to
everybody."
Prior to launch, AFN's marketing efforts promoted "More channels. Less money". Rule
#1 in marketing is that you advertise to your competitor's first. I.e. Your competition is
paying very close attention to your advertising. Hence AFN's competitor responded with
the "More channels. Less money" campaign and vastly supersized their lineup and
created a special, Ashland -only package and rate to freeze their customer base. Nothing
radically new there, as this inertia brake is a fundamental tactic to retain customers.
Charter actually had more people selling their services in Ashland, than AFN had
employees and Charter walked out ahead of AFN's well -publicized build out schedule
and froze their customers with a 118 channel package (including ll channels of
Starz/Encore) for $30.51. Customers are still paying this rate five plus years later.
(I have a copy of a July 2005 Charter bill to support this claim.)
There are no apples to apples comparisons between AFN's, Charter's, and DBS's product
offerings. (A separate Excel document was created to help display these offerings in
spreadsheet form.) Advertised, "special promotional offerings" change weekly. In fact
MSO's have billing system IS "buckets" of various rate codes for CSR's (customer
service reps) to deploy at their discretion.
Much like the jewelry, automotive, and furniture retail industry, the private sector uses
dozen's of transactional offers to "close the deal." The cable business is a subscription
based service with dozen's of transactional offers much like Time Magazine uses to
entice readers (read those insert subscription cards, no one pays cover price.)
As an entity of the City, AFN's rate structure was created so that all customers pay the
same, consistent rate.
Although I created this written comparison spreadsheet in response to a request by one
member of the Options Committee, as AFN staff, it goes against my core values to
document and distribute any of our competitor's offerings and pricing. (Just as the
Tiding's doesn't do an article that compares the number of daily column inches ("value")
their reader receives for the 50 cent cover price versus the Oregonian's at an identical
price.)
As AFN staff responsible also for marketing, we do not promote "the number of channels
for this rate." tactic. It's meaningless. Instead we promote Ashland exclusive channels
which the Citizen's Programming Committee took great care in selecting for our
community such as Wisdom, NASA, Classic Arts Showcase, Free Speech TV, and
others. We promote AFN's unique four tier levels of service and then assist our
customers in selecting the product that fits their needs and budget.
Ultimately the educated customer makes their own decision.
Please refer to Excel "CATV Comp" for our competitor's rates and offerings for public
consumption. (ouch!!)
Final thought on the comparison:
Not everything that counts can be counted:
AFN's staff and their families live, work, shop, dine, play, and go to school
in our community.
Local Service. Local Support. Local Commitment.
Ashland Fiber Network.
Michael Ainsworth
"Broadband" Internet Comparison
Mike Ainsworth 9/2/2005
Preface:
This comparison attempts to compare "apples to apples" services; however that is not
necessarily how customers will pick their broadband internet service. In our experience
customers generally fall into three categories:
Price point: This customer will pick a service based upon price alone. The thought
process is, "Anything that's faster than dialup is great, and I don't want to spend any
more money that I have to." 50 %
Technology: This customer will pick a product based upon the price/performance ratio of
the product. 35%
Customer service: This customer is mostly concerned about customer service and local
support, and will spend slightly more money than they must to get what they perceive to
be a value added service. 15%
As you can see, the apples to apples comparison will not necessarily win either the price
or customer service groups for us. We can easily compete on a technology product
comparison, and can do pretty well on the value added customer. However we will
always struggle to acquire the price based customer.
AFN
(Averages)*
CHARTER*`
QWEST*'
DSL
AFN ISP"
DSL
Installation Fee
Monthly Fee
Modem Purchase
Special romotional offer value
$30.00
$37.00
$60.00
$35.95
$70-95
$124.71
$49.99
$44.99
$59-99
$40.00
$45.00
$42.95
$89-95
First yearly cost of Service:
Following Years:
$534.00
$444.00
$377.64
$431.40
$609.86
$539.88
$650.35
$515.40
Download Speed (Advertised
Max)
Upload Speed Max
5Mbps
256Kbs
3Mbps
256kbs
1.5Mbs
896 Kbps
1.5Mbs
896Kbps
' Since AFN does not set it's retail prices, these are averages of our 2 highest volume ISP's pricing.
CATV
Channel Lineup Comps
Number
Advertised
Add'1 Total
Ashland
of
Monthly
Monthly Monthly
Rate
channels
......................................................................................................................................................................................................................................................................................................................
Rate
Fees Fee
Customer P
AFN COMMUNITY
13
$9.04
inclu'd
$9.04
$9.04
AFN BASIC
35
$14.40
inclu'd
$14.40
$14.40
CHARTER BASIC
31
$14.07
$2.13
$16.20
$13.30
Includes Set Top @ $1/month
Promo
AFN EXPANDED
77
$34.83
inclu'd
$34.83
$34.83
CHARTER EXPANDED
53
$32.40
$2.40
$34.80
$34.80
AFN DIGITAL PLUS
100
$46.95
inclu'd
$46.95
$46.95
CHARTER ASHLAND PACKAGE
118
$34.31
$2.51
$36.82
$36.82
Current offer is $36.82 and includes:
Promo
Starz/Encore $10.47 value
"Digital Premium Package"
CHARTER CUSTOMER FREEZE OFFER 118
Promo inclu'd $30.51
5+ year old special offer includes:
Starz/Encore $10.47 value
"Digital Premium Package"
DIRECT TV "Total Choice" Package 135
g
$56.96
DISH Top 60 Package 60..........................
$31.99
Offer: Free install & equip, 4 rooms, 6 months HDTV, free HBO
......... ......... ........ ......... ......... ......... ......... ........ ......... ......... ......... ......... ......... .........
& Showtime& local TV nets.
........ ...................
DISH Top 120 Package 120
....... $37.99
$30.51
Promo
$49.50*
$34.80
National
Average
Customer Pc
...................................................................
.................
................
.................
................
.................
$47.72 * *
$57.47 $55.82
(w/Premiums) (w/Premiums)
$57.47 $55.82
(w/Premiums) (w/Premiums)
free DVR
....
$19.99..............................................
First 3 months
......... ......... ......... ........
$42.99
w/local TV nets
Note Charter customers may receive a discount up to $10 from total monthly Internet & CATV bill for Bundled services and/or a disincentive of an additional
$10 for NOT having both services. All depends on the transactional deal made via door to door or call center sales.
*Based on actual Charter customer bill
** National average of $45.32 Based on 70 channels PLUS fees (of approximately $2.40/month) Nat'l stats published at end of each year 12/31/04.
Note Advertised PROMOTIONAL OFFERS change constantly. Monopoly MSO's have 12+ transactional promo rates
Michael Ainsworth9/2/2005
City of Ashland
AFN Revenue Contracts
Customer Monthly Rate
Highspeed:
City of Ashland
Project A, Inc.
Ashland School Dist.
OSFA
SOU
Ashland Comm. Hospital
Open Door Networks, Inc.
Manmohan Patel
Scott -Edelman Supply
Ashland Home Net
Hunter Construction, Inc.
Vortx, Inc
Sky, LLC
Joe K Andrews
Brammo Motorsports, LLC
Notes:
5,000.00
806.00
1,000.00
651.00
1,500.00
500.00 There is a signed contract for increase services once the line is engineered
600.00
651.00
600.00
600.00
1,800.00
400.00
400.00
400.00
700.00
Totals $ 15,608.00
City of Ashland
AFN Revenue Contracts
Bulk Cable TV Contracts
Customer Contracts Dates
Ashland Springs Hotel
Stratford Inn
Holiday Inn Express
Plaza Inn and Suites.
Roger Ledbetter
Innfuture (Palm Motel)
6/1 /2000
5/31 /2007
7/1 /2001
6/30/2006
5/30/2001
4/31 /2006
6/15/2002
6/14/2007
Month to Month
2/1 /2004
1 /31 /2007
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Council Communication
AFN Report — 4th Quarter FY 2004-05
Meeting Date: September 6, 2005 Primary Staff Contact: Lee Tuneberg
Department: Administrative Services E-mail: tuneberl@ashland.or.us
Contributing Departments: NA Secondary Staff Contact:
Approval: Gino Grimaldi E-mail:
Estimated Time: 15 Minutes
Statement:
This is the AFN Quarterly Report covering April 1 to June 30, 2005. This report's format was
developed for FY 2004-05 and this is the fourth in that series.
Background:
This report covers AFN's customer counts and financial status for the 4t" Quarter of FY 2004-05. The
information provided herewith are preliminary numbers for the end of the fiscal year and are unaudited
and unadjusted.
All Navigant recommended activities were completed in some form during the year. Results compared
to projections based upon the report are:
➢ Actual Cable TV numbers were 3,170 at the end of June while the target was 3,532.
➢ Actual Cable modem counts were 3,686 at the end of June as compared to the target of 3,850.
AFN Financial Narrative:
The cash balance increased from $564,996 on March 31 to $773,349 on June 30. The large balance
is due to the refinancing and subsidy. The cash flow is fairly equal the rest of the year for operating
cash in and cash out.
The Debt refinancing was approved by the City Council in FY 2003-04 and the $200,000 subsidy was
approved in June 2005.
Related City Policies:
Ashland's City Council identified as a goal to improve the performance of AFN. Quarterly reports
were identified as one tool in keeping Council current on operations. The format of subsequent
reports may change under the direction of the Information Technology Director or based upon work of
the AFN Options Committee.
Council Options:
Not applicable.
Staff Recommendation:
Accept this report.
Potential Motions:
Council moves to accept this report.
Attachments:
AFN Quarterly Report
a fVAV
The target numbers are
from the Navigant re-
port. However, those
have proven unattain-
able. The ending num-
ber count of connec-
tions is SO (1.6%
growth) over last
year's, despite a rate
increase. Note the sea-
sonal change between
the three summer
months and rest of the
year.
rz��orzT
EOY
July
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
Actual 3,120
3,113
3,099
3,182
3,210
3,202
3,209
3,210
3,193
3,214
3,200
3,207
3,170
Target 3 100
3 136
3 172
3208
3 244
3 280
3 316
3 352
3 388
3 424
3 460
3 496
3 532
On the Internet side,
we have 251(7.3
growth) more resi-
dential cable modern
accounts. Also shown
on this graph is sea-
sonal changes. Please
note the similarity in
activity with the
above chat.
EOY
July
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
Page 1 Actual 3,435
3 451
3 470
3 575
3 648
3 699
3 718
3 705
3 697
3 735
3 734
3 709
306
Target 3,435
3 470
3 504
3 539
3 573
3 608
3 642
3 677
3 712
3 746
3 781
3 815
3 850
2 f Vk0of
Tz�1�DT_�>'T-
cAsh F-Low
Cov�.pa r�sow
There are two high cash ins.
The first one is due to the
refinancing and the second
one in June, is from Electric
Fund for the subsidy. The
rest of the year is fairly
equal in operating cash in
and cash out.
July
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
Cash In 4201593
868,760
1861421
217,394
2271320
195,564
196,895
1811613
2671969
2169005
2041047
4599919
Cash Out 426,260
226,443
2361078
218,281
2021741
2611355
1531498
2401233
2391491
2151262
1921042
2641313
movtGrCe
Cash F>aCakize
This chart compares actual
Ending Cash Balance (bold
line) by month with the Target
Cash Balance (dash line) ex-
tending to June 30, 2005. The
large increase is due to the re-
financing and subsidy.
On a budgetary basis, we did
not meet the target cash bal-
ance which is needed to meet
future cash requirements.
July
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
Ending 1,181
643,498
593,841
592,954
617,533
551,742
595,139
536,518
564,996
5651739
577,744
7731349
Target 600,000
600,000
610,000
622,750
639,006
659,733
686,160
719,853
762,813
817,587
887,423
976,464
Page 2
2 f V ,
T-K-7,11E P 0 rzT
mowtK� Ratio o f
.saes to Expewd�tu.res
This chat shows the ratio
dropped in part due to end of
year accruals. Expenses grew
faster than revenue during the
year.
July
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
Percent 0.49
0.96
0.98
1.3
1
0.8
1.07
0.83
1.21
0.96
1
0.85
Target 0.95
0.95
1
1.04
1.07
1.1
1.14
1.2
1.27
1.36
1.48
1.63
operatLowaL Revewu.es
to expewses covupan-
sow
This chart provides a look at
what is recorded each month.
For a better comparison, bor-
rowing (revenues) and issu-
ance/debt service costs
(expenses) have been re-
moved.
Revenue continued to be at or
below expenses throughout
the year.
July Aug Sep Oct Nov Dec Jan Feb Mar Apr May June
Revenues 2081954 208,547 2081760 216,951 231,675 217,311 2141567 1951910 2211094 2271959 2281552 228,568
Page 3 Expenses 202,455 218,147 208,549 166,723 231,450 273,191 200,583 236,157 182,811 237,176 228,345 267,417
TIN
zoHLAN
Council Communication
Resolutions Authorizing a Cable Television Rate Increase in the
Telecommunications Fund and Surcharge on Electric Accounts
Meeting Date: September 6, 2005
Department: Administrative Services
Contributing Depts: N/A
Approval: Gino Grimaldi
Statement:
Primary Staff Contact: Lee Tuneberg, 552-2003
tuneberlkashland. or.us
Estimated Time: 30 Minutes
This communication provides options to Council for changing cable television (CATV) rates and
establishing a surcharge on electric utility accounts to meet AFN financial requirements.
Background:
Better financial stability of the Telecommunications Fund was a key discussion during the FY
2005-06 budget process held in April and May of this year. Everyone's goal was to establish a
means of providing adequate fiscal support to the Ashland Fiber Network (AFN) for FY 2005-06
while Council considered what changes are needed for its telecommunications system that was
begun in the Electric Fund in FY 1998-99.
To date AFN has been funded by two bank loans and internal borrowings for construction and
operational costs that were rolled together in a $15.5 million refinancing done in August of 2004.
Construction of the system, where financially practical, was considered complete in FY 2003-04.
This means that the City has only one complete year of operational history available for
comparison purposes. The refinancing included monies to be set aside, helping to pay the first
debt service however, $200,000 was needed as a subsidy from the Electric Fund to provide
sufficient cash to meet the July 15th payment of $802,000. The $200,000 was provided in June.
The budget for FY 2005-06 was created relying on the $200,000 subsidy mentioned above to be
included in the balance carry forward with remaining bond proceeds from FY 2004-05, a
$500,000 operational transfer from the Electric Fund balance as a subsidy and additional
revenues through rates and fees of $200,000. This would result in a $70,000 ending fund
balance and a carry forward into FY 2006-07 of $210,000 if no contingency was spent during
this year. The long-term budget shows the following years requiring 10% increases in revenues
each year and subsidies increasing for several years to balance. The Electric Fund, as the
original guarantor of AFN was identified as the provider of subsidies even though the 2004 bond
covenants specify that any unrestricted resources could be employed as Council chooses.
AFN's operational revenue for FY 2004-05 totaled $2.6 million. Operational expenses
(excluding bond issue costs) were about the same. Projections for FY 2005-06 are $2.835
million in operational revenues (including added revenue from rate increases and excluding the
subsidy transfer of $500,000) and $4.220 million in expenses (including $140,000 in
Contingency but not including depreciation and amortizations totaling $500,000). The shortfall
is $1.395 million and the long-term budget reflects that amount reduced to $890,000 through the
subsidy transfer and the balance covered by a carry forward of $963,000. The amount needed is
$738,000 for FY 2005-06.
In order to meet or exceed the target of at least $70,000 fund balance carry forward on June 30,
2006, a combination of actions must take place to provide $738,000 in the remaining 9 months.
These actions include rate increase(s), a subsidy or subsidies and cost savings. Narratives of
these follow.
Rate Increases:
AFN has raised cable television rates twice in the last 15 months. The increases for cable
television (CATV) were 8% in June 2004 based upon a consultant study and 6.6% in February
2005 to provide revenues to offset those not generated by other initiatives. Although there have
been some changes in the CATV line-up, the overall package is relatively the same as two years
ago. AFN's CATV rates are thought to be 25 — 30% below national averages, the range
depending on how dissimilar tiers and line-ups are factored.
Charges for cable modem services were raised significantly during the same time period and are
now thought to be priced competitively and should not be raised.
Initial discussions included increasing CATV to the national average. Such a change is
significant and may best be managed in steps or done at the least sensitive time.
The attached July 19, 2005, memo to Council addresses many of these concerns. Attached is a
chart showing connections in the prior year. The cycle of connections in the fall, with fewer
disconnections in the spring, is thought to be consistent with seasonal changes and television
viewing. Approximately two years ago the City discussed that the appropriate time for annual
rate increases should be around January to best coincide with this cycle and marketing.
Comparisons of a 15% (step approach toward market) and 25% (at or near market in one step)
are provided, both being done effective January 2006 to allow product or line-up improvements
to minimize the advantage afforded competing systems.
Subsidy:
The first direct subsidy was the $200,000 done last June from the Electric Fund to provide cash
to pay July's debt service. In the budget is an additional $500,000 transfer from the Electric
Fund balance. An electric rate increase was deferred in that the fund balance is above the
targeted minimum and the only need for the proposed rate increase was perceived as generating
funds for AFN. Additionally, an increase in electric rates would have benefited the General
Fund through user tax and franchise fee revenue. The budget reflects that impact but the
$150,000 impact on the General Fund is offset by a projected larger carry forward from FY
2004-05.
Instead of a direct transfer a surcharge has been recommended whereas a set amount ($3 -$10 per
electric account per month) could generate sufficient revenues directly to AFN without any
added fee or tax going to the General Fund, similar to existing taxes and surcharge.
2
To meet the overall needs of AFN there is a need to identify whether a surcharge is in addition to
or replaces the operational transfer. A surcharge of $5 per electric account will generate
approximately $50,000 per month, and if established effective October 1 would provide
$450,000 to AFN in this fiscal year. Six dollars would provide $540,000, seven dollars equates
to $630,000, etc.
Cost savings:
Not having to spend all appropriation levels can be beneficial as long as important expense such
as staffing, marketing, capital refresh investments and debt service are met. Included in the
calculations above is an amount for unidentified expenses called Contingency in budgeting. Any
of this not utilized improves the bottom line and carries forward to the subsequent year. AFN
spent 98% of the original appropriation levels for FY 2004-05 and left $57,000 in Contingency
unused. The above calculations are done assuming that all budget appropriations and
Contingency are consumed.
Fiscal action(s) needed:
The budget established was predicated on fiscal steps being taken in the current year. The
Electric Fund balance that is currently available for use will not be there in following years
without increased electric rates. This establishes the need to establish a surcharge to subsidize
AFN related costs as needed. The tools Council uses to balance the Telecommunications Fund
for FY 2005-06 can change for following years as operating AFN changes.
Provided in the options section of this report are a few of the things that could be done. With the
many variables and preferences that come into play, utilizing different elements of the options
provided can satisfactorily meet fiscal requirements. Timing of the changes can impact the
proposed options such as implementing rate changes sooner may provide more revenues by end
of year at a smaller percentage increase.
Significant changes now will affect things that may be proposed later either by the new director
or arising through the Options Committee. The City must anticipate that customers and citizens
will combine any rate increase with any surcharge to evaluate the value of the service provided
for the total cost paid. The surcharge proposed, as with any subsidy transferred, is partially
funded by some citizens who still cannot receive all of AFN's services.
For comparative purposes, staff is providing tables showing a 15% and a 25% increase in
January and potential impacts to the end of FY 2005-06. This is based upon preliminary FY
2004-05 customer counts, revenues and expenses and projecting into FY 2005-06 the potential
range of impacts a significant CATV rate increase include:
15% Increase in CATV Rates as of January
Impact On:
Customer Counts
37200
37040
21880
27720
21560
Change in Counts
0%
-5%
-10%
-15%
-20%
Revenue
$ 657855
$ 397995
$ 141115 $
(11,530)
$ (37,430)
Expenses
$ -
$ (187158)
$ (367360) $
(54,342)
$ (72,544)
Net Impact
$ 657855
$ 58,153
$ 501475 $
42,812
$ 351114
The previous table shows the possible impact on AFN finances with a 15% CATV increase and a
range of percentages representing zero to 20% reductions in customer counts. It should be noted
that in FY 2004-05 the number of customers increased by 50 despite the above mentioned
increases however, it is difficult to predict sensitivity to increases as AFN's rates approach
market and it is equally difficult to accurately estimate the number of new customers that went
with competing systems or technology after comparing price and line up.
25% Increase in CATV Rates as of January
Impact On:
Customer Counts
3,200
3,040
21880
27720
23560
Change in Counts
0%
-5%
-10%
-15%
-20%
Revenue
$ 1097725
$ 81,716
$ 537605
$ 257785
$ (21350)
Expenses
$ -
$ (187158)
$ (367360)
$ (547342)
$ (723544)
Net Impact
$ 1097725
$ 993874
$ 897965
$ 807127
$ 703194
A comparison of local rates for CATV tiers reflecting a 15% and 25% increase to Ashland
customers is as follows. Discussions regarding national rates included Ashland existing rates
being 25 to 30% less so an Outside the Area column is provided.
CATV Rate Comparison*
AFN
Competitor Existing Rates
Existing
+15%
+25%
In Ashland
Outside Estimate
Community
$
7.87
$
9.06
$
9.84
N/A
N/A
Basic
$
12.96
$
14.92
$
16.21
$ 13.07
$ 20.00
Expanded
$
32.37
$
37.25
$
40.48
$ 32.40
$ 48.00
Digital Plus
$
43.88
$
50.49
$
54.87
$ 38.30
N/A
Premium Channels (2)
$
10.01
$
11.52
$
12.52
**
N/A
*Plus applicable franchise and PEG access fees.
** Included in Competitor's Digital Plus
The reader should note that these comparisons are difficult as program line-ups vary from
community to community and system to system.
Rather than advertise the latest promotional programs for the competition, the table reflects
published rates in town and outside. Since marketing practices are such that private companies
publish their base charges and add on taxes and fees when billed, the comparison is before
franchise and PEG access fees.
Subsidy table:
As you can see there are several combinations of fees, charges and subsidies to meet fiscal
requirements and the elements can be changed between years as need dictates. As shown in the
second column below, a Transfer of $420,000, a surcharge of $3 in October and a rate increase
of 15% in January will provide enough resources to meet requirements for the year.
M
FY 2005-06
Surcharge Amount/month/account
$
3
$ 3
$ 4
$ 4
$ 5
$ 5
$ 6
$ 6
Estimated Shortfall
$
(738,000)
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
Transfer from Electric
$
420,000
$ 400,000
$ 330,000
$ 310,000
$ 240,000
$ 220,000
$ 150,000
$ 130,000
Surcharge Revenue
$
270,000
$ 270,000
$ 360,000
$ 360,000
$ 450,000
$ 450,000
$ 540,000
$ 540,000
Surplus (Shortfall)
$
(48,000)
$ (68,000)
$ (48,000)
$ (68,000)
$ (48,000)
$ (68,000)
$ (48,000)
$ (68,000)
CATV Rate Increase Net Impact
15% increase with 10% fewer customers
$
50,475
$ 50,475
$ 50,475
$ 50,475
OR
25% increase with 20% fewer customers
$ 70,194
$ 70,194
$ 70,194
$ 70,194
The above table shows that not all of the budgeted transfer from the Electric Fund would be
needed with either rate increase in January, even if the surcharge was set at $3. The unused
amount of the transfer and any surplus in revenue generated by the surcharge could be held in
reserve to address capital refresh or costs related to operational changes identified later.
A table showing all comparisons from $3 - $10 is attached.
However, the following table presents the need in FY 2006-07 that must be addressed in time for
the budget process, all things remaining constant. A higher surcharge set in FY 2005-06 will
reduce the amount of the surcharge needed in the following year.
FY 2006-07
CATV Rate Increase Net Impact
Estimated Shortfall
Transfer from Electric
Surcharge Revenue
Surplus (Shortfall)
CATV Rate Increase Net Impact
15% increase with 10% fewer customers
5% increase no change in customers
$ 7$ 7$ 8$ 8$ 9$ 9$ 9$ 9
$ (900,000) $ (900,000) $ (900,000) $ (900,000) $ (900,000) $ (900,000) $ (900,000) $ (900,000)
$ 840,000 $ 840,000 $ 960,000 $ 960,000 $ 1,080,000 $ 1,080,000 $ 1,200,000 $ 1,200,000
$ (60,000) $ (60,000) $ 60,000 $ 60,000 $ 180,000 $ 180,000 $ 300,000 $ 300,000
$ 50,676 $ 50,676
$ 24,710
$ 24,710
$ 50,676
$ 50,676
$ 24,710 $ 24,710
The above table shows that a $7 surcharge would generate $840,000 revenue in FY 2006-07
which approximates the debt service payment for that year. A $5 surcharge for nine months in
FY 2005-06 will provide $450,000 that year and $600,000 in FY 2006-07. If all of the Electric
Fund transfer is used in FY 2005-06, the surcharge could be set at $5 and not be changed for FY
2006-07, estimating that all requirements are met through June 30, 2007.
Related City Policies
In June, 2005, Council accepted a policy to fund cash shortfalls in AFN through the Electric
Fund. Staff requested and Council authorized a $200,000 subsidy from the Electric Fund in June
2005 to assist in paying for debt service.
The FY 2005-06 budget also includes a $500,000 subsidy to AFN in the form of a transfer from
the Electric Fund. On July 19, 2005, Council accepted staff s recommendation to defer an
5
electric rate increase in favor of more information on wholesale power costs. The possibility of a
surcharge for AFN's benefit was also discussed.
With a rate adjustment and a surcharge being approved, no other subsidy or transfer between
funds would be done for AFN without prior Council approval.
Council Options:
To meet financial obligations a combination of changes are needed but the timing and size of
changes are optional. The following represent options currently available:
1. Do not change rates or establish a surcharge until January 1, 2006, allowing the:
a. Options Committee to complete its work.
b. Selection of a new AFN director.
c. AFN staff to develop sufficient changes to CATV services to balance the increase.
The impact of taking this option requires transferring some portion of the budgeted $500,000
transfer, minimized by a larger surcharge (approximately $11/account/month) and the 25%
rate increase to meet the $738,000 need.
2. Establish a surcharge effective October 1 on electric accounts of $3 per month to generate
$270,000 in FY 05-06 with the $500,000 and a $7 charge per month in FY 06-07 to generate
$840,000 the next year, or set the surcharge at $5 for both years with the $500,000 transfer. This
option does not include a rate increase.
3. Raise AFN CATV rates for existing tiers an intermediate amount (15%) with the $5 surcharge
(generating $450,000) to:
a. Generate $35,114-$65,855 in CATV revenue depending on timing and customer reaction
toward the increases.
b. Reduce subsidy from Electric transfer to $222,145 - $252,886 based upon the $738,000
need.
c. Move toward a policy that the city does not subsidize cable television.
4. Raise AFN CATV rates for existing tiers 25% to "market" with the $5 surcharge (generating
$45000) to:
a. Generate $70,194 - $109,725 in CATV revenue depending on timing and customer
reaction toward the increases.
b. Charge more closely what it costs to provide the service.
c. Reduce subsidy from Electric transfer to $178,275 - $217,806 based upon the $738,000
need.
d. Employ a policy that the city does not subsidize cable television.
Staff Recommendation:
Staff believes an argument can be made for any of the four options above for fiscal reasons but
remain cautious about too many changes and processes occurring at the same time. Making
changes to ensure fiscal stability of AFN during FY 2005-06 is necessary, especially as
operational changes are considered.
Staff recommends Option #3 including a surcharge of $5 effective October 1, a rate increase
effective January set at the necessary level and balanced with a change in services and a subsidy
0
transfer from the Electric Fund as needed (estimated at $210,000 - $500,000) for the following
reasons:
1. The community then contributes to the fiscal well-being of AFN and retirement of the
City's debt.
11. The surcharge is set once for almost two years but can be amended if needed.
111. The City moves toward charging for the cost of service of cable television.
iv. Electric reserves are used to soften the impact on customers in the first two years.
Potential Motions:
Council moves to:
EITHER
a. Adopt the attached resolution to establish a surcharge on electric accounts for the benefit
of AFN in the amount of $ (from $3 - $10), or
b. Adopt both attached resolutions establishing a surcharge on electric accounts for the
benefit of AFN of $ (from $3 - $10) AND raising CATV rates % (10% -
30%) or
c. Adopt the attached resolution to increase cable television rates % (10% - 30%) but
do not establish a surcharge at this time.
No motion, Council prefers to defer the surcharge and cable television rate increases for more
information from staff, the new director or information from the Options Committee, etc.
Attachments:
Resolutions authorizing rate increase and/or subsidy.
Memo to Council dated July 19, 2005
FY 2004-05 Cable Customer Count report
AFN Funding Comparison Table
7
RESOLUTION NO. 05-
A RESOLUTION ADDING A SURCHARGE TO ELECTRIC UTILITY
RATES FOR THE PURPOSE OF SUBSIDIZING ASHLAND FIBER
NETWORK
Recitals:
A. The City of Ashland operates Ashland Electric Utility to provide electricity to
customers within the City limits of Ashland.
B. The City of Ashland also operates Ashland Fiber Network (AFN) which uses a
fiber optic backbone to provide cable television and internet services to customers
within the City of Ashland.
C. The Ashland Electric Utility utilizes the AFN fiber optic backbone to transmit data
important to the operation of the electric utility and therefore finds it beneficial to
subsidize the operation of AFN.
D. The City finds it beneficial to establish a surcharge on electric utility customer
rates for the purpose of subsidizing AFN.
THE CITY OF ASHLAND RESOLVES AS FOLLOWS:
SECTION 1. The City of Ashland adopts a $ surcharge on billings for
electric usage to provide a subsidy to Ashland Fiber Network, said surcharge to
begin with Cycle 1 billings prepared on or after October 1, 2005.
SECTION 2. The surcharge revenue is not subject to the Electric Utility Tax or
included in the franchise fee calculation for General Fund Revenues.
SECTION 3. This resolution takes effect upon signing by the Mayor.
This resolution was read by title only in accordance with Ashland Municipal Code
§2.04.090 duly PASSED and ADOPTED this day of , 2005.
Barbara Christensen, City Recorder
SIGNED and APPROVED this day of
Reviewed as to form:
Michael W. Franell, City Attorney
, 2005.
John W. Morrison, Mayor
1- Resolution - AFN Surcharge on Electric Accounts 2005-9-6G:\legal\PAUL\FORMS\resolution form.wpd
RESOLUTION NO. 2005-
A RESOLUTION ESTABLISHING CABLE TELEVISION
AND INTERNET RATES FOR THE ASHLAND FIBER
NETWORK, READOPTING ALL OTHER RATES WITHOUT
CHANGE & REPEALING RESOLUTION NO 2004-40
THE CITY OF ASH LAND RESOLVES AS FOLLOWS:
SECTION 1. The Attached rate schedule is adopted as the rates and fees for AFN
Internet and AFN Cable Television provided by the City of Ashland Information
Technology department, Ashland Fiber Network Division. These rates are effective with
the Cycle 8 Billing in , 200 .
SECTION 2. Installation charges, equipment rental, bulk rates, and other charges may
be set administratively. To the extent practicable, such fees shall be set to recover,
over a fiscally prudent period, the incremental cost of providing such service by taking
into account all costs actually incurred.
SECTION 3. Nothing in Section 1 or Section 2 shall preclude AFN staff temporarily
reducing or waiving rates or charges in conjunction with promotional campaigns, 2)
establishing different and nondiscriminatory rates an charges for commercial customers,
as allowed by federal law and regulations, or 3) establishing different and
nondiscriminatory rates and charges for AFN high speed data and wholesale high
speed data commercial customers, as allowed by federal law and regulations.
SECTION 4. Resolution 2004-40 is repealed.
SECTION 5. This resolution takes effect upon signing by the Mayor.
This resolution was read by title only in accordance with Ashland Municipal Code
§2.04.090 duly PASSED and ADOPTED this day of , 2005.
Barbara Christensen, City Recorder
SIGNED and APPROVED this day of
Reviewed as to form:
Michael W. Franell, City Attorney
, 2005.
John W. Morrison, Mayor
CITY OF
AS LAN D
Memo
DATE: July 19, 2005
TO- Mayor and City Council
FROM- Lee Tuneberg, Administrative Services & Finance Director
RE: AFN Cable TV Rate Increase
Staff continues to review AFN operations evaluating the potential to change rates and services, primarily
- p y
on the cable television (CATV) side of business. We intended to have a proposal to Council in July but
feel it important to defer a significant change until other important decisions are made and to allow staff
adequate time to identify potential changes, their timing and balancing charges with service levels.
We recognize that Council and the Budget Committee raised concerns regarding overall AFN financial
health and specifically the amount being charged and the cost of CATV operations however there are
enough unknowns about all the changes occurring and the appropriate size and timing of changes to
compel g
p us to defer these changes.
The major issues are as follows:
A. Multiple increases in a short time: Although it would have been ideal to charge market rates and
better cover AFN' s operating costs from the very beginning, multiple significant increases in a
short period have a risk of alienating customers and may be less effective than anticipated. The
history for AFN operations and the impacts or rate increases is not sufficient enough to predict
the n
sensitivity customers have to rate increases. Thus, staff can only estimate the impact
increases will have on customer counts.
B. Not value added In modeling the financial impact and speculating the effect on subscriber
counts, it is possible that much of the benefit of raising rates a significant amount are minimized
by customers terminating service or not connecting at all. This would be the third increase in
CATV rates in 14 months with no significant product change The end result could be a smaller
increase in the bottom line than hoped. AFN's Marketing and operations managers recommend
strategic changes in line-up, partnerships and tier structure. Such changes are being formulated
but may need to be deferred until input is provided by others, possibly through the Options
P
Committee or the new manager.
C . Benefit to the competitor. Even though there are some positive perspectives to movie to
significantly g
g cantly higher rates the potential for the competition to wait on their increases to garner as
ADMISTRATIVE SERVICES DEPARTMENT
D. L. Tuneberg, Director Tel, 541-488-5300
20 East Main Street Fax: 541-488-5311
Ashland, Oregon 97520 TTY 800-735-2900
www ashland or us
CITY OF
AS LAN D
Memo
many of Ashland's customers as possible based upon price alone is high and the impact could be
devastating to some options being considered. Due to that risk, a smaller increase or series of
increases combined with other changes could be proposed and may be better for retaining
customers.
D. Conflicting_ processes: The city is in the midst of two processes that could be negatively affected
by dramatic changes in mechanisms to fund operations. The city is recruiting for a new director
with more telecommunications and cable television experience to head -up AFN and for a team to
consider options for AFN's future. Significant changes at this time may impact what is or can be
done through both processes.
Additionally, the impact of the City considering a surcharge as the means to provide a subsidy rather
than the operational transfer included in the budget must be viewed in relation to any proposed rate
change, whether there are value-added adjustments to product lines or not.
Staff has been evaluating costs, projecting impacts of rate increases, calculating surcharge amounts and
identifying potential changes in services provided but such reviews are not complete enough to propose
changes in July.
However, staff has also been diligently working on:
1. implementing technology to enable innovative and improved services
2, constructing new subdivisions to obtain customers
3. providing unrivaled services and service to Ashland customers
4. resolving construction issues in the system
.5. implementing required satellite and line-up changes
b. assisting city administration to ensure a smooth management transition
An AFN quarterly report recapping FY 2004-05 and spearing to the activities above will be provided in
August. At that time options will be identified for potential changes in services, charges and their
timing.
Please contact me if you have any questions or comments.
ADMISTRATIVE SERVICES DEPARTMENT
D. L Tuneberg, Director Tel- 541-488-5300
20 East Main Street Fax: 541-488-5311
Ashland, Oregon 97520 TTY: 800-735-2900
www ashland.or us
City of Ashland
Recap of Cable Customers
By Tiers
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
T1
Connects
19
12
20
11
4
10
11
7
9
7
6
13
Disconnects
-11
-7
-13
-5
-4
-6
-9
-7
-11
-5
-9
-17
T1 Total
267
272
279
285
285
289
291
291
289
291
288
284
T2
Connects
22
20
42
30
22
23
33
20
23
21
39
51
Disconnects
-22
-32
-28
-20
-16
-17
-19
-17
-27
-18
-30
-41
T2 Total
689
677
691
701
707
713
727
730
726
729
738
748
T3
Connects
75
89
127
59
49
51
46
50
68
45
53
63
Disconnects
-107
-90
-71
-52
-63
-56
-54
-72
-44
-66
-59
-110
T3 Total
1799
1798
1854
1861
1847
1842
1834
1812
1836
1815
1809
1762
T4
Connects
21
3
17
12
10
13
5
4
12
9
12
17
Disconnects
-4
-9
-11
-7
-10
-11
-12
-2
-9
-7
-5
-13
T4 Total
358
352
358
363
363
365
358
360
363
365
372
376
TOTAL
3113
3099
3182
3210
3202
3209
3210
3193
3214
3200
3207
3170
Disconnect
Reason Codes
1. Not Watching TV
5
7
10
8
8
4
6
5
11
9
11
7
2. Dish
5
2
1
6
4
5
2
2
3
4
0
1
3. Moving -out of Town
53
77
49
22
30
26
32
31
28
41
32
77
4. Upgrade
27
11
17
7
6
6
5
4
17
8
11
22
5. Charter
4
3
7
4
4
4
3
8
4
1
7
3
6. Financial
1
1
0
0
4
2
4
8
1
2
3
2
7. Downgrade
10
8
12
9
4
8
13
10
3
6
8
9
8. Transfer
26
17
19
11
13
9
12
16
7
10
16
22
9. Other
12
5
5
5
0
5
0
0
4
2
3
10
10. Moving -AFN Not Available
0
4
6
3
7
5
1
1
1
4
1
1
11. Non Pay
4
2
1
3
2
2
0
3
2
0
1
4
147
137
127
78
82
76
78
88
81
87
93
158
AFN Funding Comparison Table
Fiscal Year 2005-06 and 2006-07
FY 2005-06
Surcharge Amount/month/account $ 3 $ 3 $ 4 $ 4 $ 5 $ 5 $ 6 $ 6
Estimated Shortfall
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
Transfer from Electric
$ 420,000
$ 400,000
$ 330,000
$ 310,000
$ 240,000
$ 220,000
$ 150,000
$ 130,000
Surcharge Revenue
$ 270,000
$ 270,000
$ 360,000
$ 360,000
$ 450,000
$ 450,000
$ 540,000
$ 540,000
Surplus (Shortfall)
$ (48,000)
$ (68,000)
$ (48,000)
$ (68,000)
$ (48,000)
$ (68,000)
$ (48,000)
$ (68,000)
CATV Rate Increase Net Impact
15% increase with 10% fewer customers
$ 50,475
$ 50,475
$ 50,475
$ 50,475
OR
25% increase with 20% fewer customers
$ 70,194
$ 70,194
$ 70,194
$ 70,194
FY 2005-06
Surcharge Amount/month/account
$ 7
$ 7
$ 8
$ 8
$ 9
$ 9
$ 10
$ 10
Estimated Shortfall
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
$ (738,000)
Transfer from Electric
$ 60,000
$ 40,000
$ -
$ -
Surcharge Revenue
$ 630,000
$ 630,000
$ 720,000
$ 720,000
$ 810,000
$ 810,000
$ 900,000
$ 900,000
Surplus (Shortfall)
$ (48,000)
$ (68,000)
$ (18,000)
$ (18,000)
$ 72,000
$ 72,000
$ 162,000
$ 162,000
CATV Rate Increased Revenue
15% increase with 10% fewer customers
$ 50,475
$ 50,475
None
None
OR
25% increase with 20% fewer customers
$ 70,194
$ 70,194
None
None
FY 2006-07
CATV Rate Increase Net Impact
$ 7
$ 7
$ 8
$ 8
$ 9
$ 9
$ 9
$ 9
Estimated Shortfall
$ (900,000)
$ (900,000)
$ (900,000)
$ (900,000)
$ (900,000)
$ (900,000)
$ (900,000)
$ (900,000)
Transfer from Electric
Surcharge Revenue
$ 840,000
$ 840,000
$ 960,000
$ 960,000
$ 1,080,000
$ 1,080,000
$ 1,200,000
$ 1,200,000
Surplus (Shortfall)
$ (60,000)
$ (60,000)
$ 60,000
$ 60,000
$ 180,000
$ 180,000
$ 300,000
$ 300,000
CATV Rate Increase Net Impact
15% increase with 10% fewer customers
$ 50,676
$ 50,676
$ 50,676
$ 50,676
5% increase no change in customers
$ 24,710
$ 24,710
$ 24,710
$ 24,710