AN IN-DEPTH LOOK AT CLICK! FINANCIALS Ma May 20, 20 20, 2015 15 - PowerPoint PPT Presentation

AN IN-DEPTH LOOK AT CLICK! FINANCIALS Ma May 20, 20 20, 2015 15

AGENDA • Bac ackground an and 1997 T Telec elecommunicatio ions S Stu tudy y (Bob Ma Mack ck) • Wh What h has c s changed? (B (Bob ob Ma Mack ck) • Sm Smar art meter er t tec echnolo logy ( (Joe e Tellez ellez) • Click! k! f finan ancials ials: C Cost allocatio ation (Bill B l Berry) y) • Moss A Adam ams, LLC revie iew ( (Julie D ie Des esim imone) e) • Clic lick!’ !’s reven enues es d do not c t cover er its its c costs ts (Bill ill B Ber erry) • Su Summary (Chris is R Robin inson) 2

Section on 1 Bob Mack Deputy Director for Government Affairs How w Click! go got its s start, a and nd ho how t the he 1997 telecom ommunications st study use used to o laun unch Click! c comp ompares t to o actua ual gr growt wth • Some objectives reached (competition, enhanced services). Others were not (# of cable customers, revenues, profits) • Always anticipated Click! would recover its costs, including Click!’s share of original capital investment

BACKGROUND • By By 1996, T TCI I was s the on only cable T TV provider, w with 3 h 36 c cha hannels • No o other v viable p provider of of In Internet or or T TV • No o viable p provider of of high gh-speed d data se service for or Tacom oma P Power’s (C (City Li Ligh ght) sy system c con ontrol ol 4

TACOMA’S IDENTIFIED NEEDS Cable T TV co competiti tion, with u upgr graded s syst ystem • Bro roader er a and greater er Intern ernet s service f e for • busines esses es a and r residen ences es (Frank Russel ell, et et al.) .) Taco coma ma Power ( (City ty Light) s syst ystem m • improveme ments ts and nd syst ystem co m cont ntrol, r reliability ty and e an effic icie iency Tw Two-way c communic icat atio ions w with P Powe wer • cust cu stome mers 5

1997 TELECOMMUNICATIONS STUDY Pr Prepared b by o outside team, with TPU TPU s staff • assi sista stanc nce Repo port i include ded: d: • Review of the telecommunications industry • Survey of other cities • Local communications business plan • “The Residential Market” - Market Data Research Corp. • “The Current Business Market” - Market data Research Corp. • “Future Market to Serve” - APEX Business Solutions • “Telecommunications and Economic Development” - Bruce • Mann and Sue Heath “Economic Development in the Greater Tacoma/Pierce County • Area” - APEX Business Solutions Project Team 6

CUSTOMER RESEARCH - 1996 Residential c cust ustom omer sur survey - 606 h house seholds 78% of Tacom oma househol eholds have c e cable T e TV • 44 44% wou ould ld p pic ick Click! C ! Cable T e TV – if if op options a and • prices es w were s e similar. Mor ore wou ould ld sw swit itch if if Click! C ! Cable T e TV had more • options ons a and l lower er pric ices Business a ss and Inter ernet S t Survey 200 businesse sses s surveyed d – 61% 1% u use e Internet net • (limited ed a acces ess) 18% 8% of ho households onl nline • 7

1997 PUB/COUNCIL PRESENTATIONS Id Identified benefits t to o “C “City Li Light” System “co control a and nd out utage ge repor orting ng” • Performanc nce “ e “moni nitor oring ng and prevent ntive e • maintenan ance ce” Cost t estimate for the t he two items a above - $15 $15 • million on Inter eractive e “commu mmunicat cation l link t k to custome mers” • Bet etter er services es than n competitor ors • Hi High-spe speed, , low-cos ost I Inter erne net • Regiona onal econom onomic d devel elop opment nt • Additiona onal revenu enue t e to C City Light ht a and Ci City • 8

IDENTIFIED RISK FACTORS • “Fail t to gai gain market s share” • No Non-co comp mpetit itiv ive p product ct • “Constr truction a and O O&M costs sts substantia ially lly e exceed e estima mates” 9

ORGANIZATION OF TELECOMMUNICATIONS UTILITY “The T Telecommunications P Pro roject … … shall be a an integra ral Light Division o opera rating respo ponsibi bility a y and f functi tion.” .” Cit ity L Lig ight o operates Clic lick! • ISPs Ps s solic icit ited t to p provid ide In Internet se servi vice • Financing After c consid idering ing b both b bond nd i issuanc nces a and Light ht D Divis isio ion n • investme ment nt, d determi minatio ion w n was t to f financ nce with L h Light ht Divis isio ion a n advanc nces “Expens nses” l ” list p present nted to C Counc ncil il inclu luded “ “Debt • Service ce” “Pro F For orma I Incom ome St e Statem emen ent” p proj ojec ected ed “ “Incom ome e • Availa ilable le f for P Plant nt S Servic ice, D Debt R Retir ireme ment nts” a ” at $1.4 millio llion f n for 1 1999-3rd y year o of o operatio ion ( n ($14 m millio llion i n in 2015) 10

CROSS-SUBSIDY ISSUES Proj oject “s t “shall b be e op opera erated ed in in a busin iness-like manner… er…” ” • (C (Cou ouncil p pres resenta tati tion) • Assum umed ed net et p prof ofit b by 1 1998 98 – 2nd y year o of o f oper eration If op oper erated ed “in “in a a busin iness lik like e ma manner, th the e sys ystem em • would g d generate sufficient re revenues t to make the system self elf susta tain ining.” (C (Cou ouncil p pres resenta tati tion) On Only ly “cu “custome mers wh who o choo oose t to o buy” ca y” cable le T TV “w “wou ould ld b be e • charged f for or th them. em. No o ta tax mon money w wou ould ld b be e used ed and you our elect electric r rates es w wou ould ld not t in increa ease b beca ecause of of th this is new ew sy syst stem…” (C (Cou ouncil p pres resenta tati tion) 11 11

ORIGINAL COST ESTIMATES • June ne 1 1996: : $45-55 m million • September 1 1997: : $96 million • Oct October 1 1997: : $99.4 .4 million 12

1997 PROJECTIONS VS. ACTUAL Few ewer er cable c e customer mers than projected ed ISP cust stom omers vs. s. proj ojected 30,000 50,000 25,000 45,000 40,000 20,000 35,000 30,000 15,000 25,000 20,000 10,000 15,000 10,000 5,000 5,000 - - Actual CATV Subscribers Projected CATV Subscribers Actual ISP Customers Projected ISP Customers Lower r revenues th than p projected Higher er programmi mming c costs $60 $70 $60 $50 $50 $40 ill Bill $40 Average Monthly B $30 ions $30 illio Mill $20 $20 $10 $10 $/ Av $- $0 Actual Revenue Projected Revenue Actual CATV Programming Cost Projected CATV Programming Cost 13  The projections are from an appendix to the 1997 financial statements  The 1997 projection brought to current dollar values using core CPI from the Bureau of Labor Statistics

Section on 2 2 Bob Mack Wha What ha has c cha hang nged in n 20 y years? • Did not anticipate decline in cable TV use • Advent of broadband Internet, social media, mobile devices, over-the-top content amid rising cable costs have accelerated change • Hybrid business model prevents Click! bundling and benefitting from margin on broadband Internet

TELECOMMUNICATIONS GROWTH TRENDS 1998 TO 2016 Ca Cable T TV & & ISP Cust Customer Co Coun unts 30,000 25,000 Customer Counts 20,000 15,000 10,000 5,000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Cable TV ISP 15 15

1998-2000: CABLE TV GROWTH MODE Clic lick! C Cab able TV V in introduced in in 1998 to s o stimulate co competiti tion, n, imp mprove ca cable & & teleco com m service ces s loc locally ally, an , and buil ild f fou oundatio ion for or smart g grid id • Decision made to employ hybrid business model: Click! Cable TV and private Internet – no bundling • Tacoma City Light believes cable to the home is the best way to establish the smart grid • ISPs begin offering Internet to stimulate competition locally • Roughly 36% of Americans report using the Internet in 1998 (Pew Research Center) • Nearly 70% of U.S. household subscribe to cable TV (Nielson) 16 16

2001-2003: INTERNET, ISP GROWTH MODE Bo Both Cl Click! Ca Cabl ble T TV and d ISP ISP c customer ba bases gro row a as I Intern ernet becomes es m mainstrea ream • August 2000 – 50% of people use Internet • Broadband begins in 2000 with 3% adoption • Dial-up access peaks in 2001 with 41% of Internet users • By 2003, dial up in permanent decline as broadband grows • Google becomes popular as a search engine • Video on demand (VOD) & Digital Video Recorders (DVRs) introduced • Industry first move to bundled packages 17 17