Broadband Modernization Impact on the Communication Industry - PowerPoint PPT Presentation

Broadband Modernization Impact on the Communication Industry CostQuest Associates January, 2013

Panel Agenda • Introduction January, 2013 • NBP • Developments • Drivers Property of CostQuest Associates, Inc. Any use without permission is strictly prohibited • Industry Response • Government Response • Replacement Cost impact • Impact on Valuation 2

Our Panel • Charles Burkhardt, ASA CAE • Charles Burkhardt is a Senior Consultant with CostQuest Associates. He is an ASA appraiser with the American Society of Appraisers, and a CAE from the International Association of January, 2013 Assessing Officers. He has 35 years of appraisal experience in valuing utility property and negotiation and litigation of values for property taxation. He previously was a manager in the Verizon Property Tax Group. • Robert M. Garringer Jr., ASA • Robert Garringer is a property tax manager for Verizon Communications located in Irving, Property of CostQuest Associates, Inc. Any use without permission is strictly prohibited Texas. His current primary areas of responsibility include completion or supervision of all property tax functions (including compliance, appraisal, negotiation and litigation) in the southeast region and Mid ‐ Atlantic seaboard of the United States. He began his career with the State of Indiana as a personal property auditor, leaving five years later as the Utilities Director to join GTE Corporation’s tax department. He has continued his career in appraisal and taxation with Verizon Communications. He is a graduate of Ball State University in Muncie, IN with a B.S. degree in accounting. He holds the ASA Senior professional appraisal designation from the American Society of Appraisers in the Machinery & Technical Specialties discipline with a specialty in Public Utilities. • Mike Wilson • Mike Wilson is Vice President of professional Services with CostQuest Associates. He focuses his work efforts on Broadband Mapping and Planning initiatives, as well as mobile wireless regulation and economics. • James Stegeman • James Stegeman is President of CostQuest Associates. He is recognized around the world as 3 a leading expert on network cost models used for regulatory, management, and tax purposes.

INTRODUCTION Property of CostQuest Associates, Inc. January, 2013 4 Any use without permission is strictly prohibited

National Broadband Plan “Connecting America” • National Broadband Plan • Goals January, 2013 • At least 100 million homes having affordable access at 100 megabits per second download and 50 megabits per second up loads • US should lead world in mobile innovation • Every American should have affordable access to robust broadband service • Every American community should have affordable access to 1 gigabit per second Property of CostQuest Associates, Inc. Any use without permission is strictly prohibited broadband service to schools, hospitals, and government buildings • To ensure the safety the safety of the American people, every first responder should have access to a nationwide wireless broadband public safety network • Ensure America leads in in the clean energy economy • Key Objectives • Move money from the Universal Service Fund to a new Connect American Fund to help support the National Broadband Plan in unserved areas • Create a Mobility Fund to ensure the wireless network nationwide 3G coverage • Develop plans to give access to broadband for low income Americans • Launch a National Digital Literacy Corps to train youth and adults digital literacy skills • The impact of the National Broadband Plan is to make the United States a 5 world leader in providing internet communications nationwide

Current Telco Broadband Property of CostQuest Associates, Inc. January, 2013 6 Any use without permission is strictly prohibited

Current Cable Broadband Property of CostQuest Associates, Inc. Any use January, 2013 7 without permission is strictly prohibited

Current Fixed Wireless Broadband Property of CostQuest Associates, Inc. January, 2013 8 Any use without permission is strictly prohibited

Current Wireless Broadband Property of CostQuest Associates, Inc. January, 2013 9 Any use without permission is strictly prohibited

Broadband Penetration Property of CostQuest Associates, Inc. 10 January, 2013 Any use without permission is strictly prohibited

Broadband Obstacles Property of CostQuest Associates, Inc. 11 January, 2013 Any use without permission is strictly prohibited

Industry Developments • Wireless • The U.S. is the first country to deploy 4G wireless at scale and is January, 2013 home to most of the world’s LTE subscribers • Wireline • ~80% of homes are passed with broadband networks capable of Property of CostQuest Associates, Inc. Any use without permission is strictly prohibited 100Mbs >> nearing the world lead • Verizon plans • Local exchange • Increase use of the fiber network • Converting customers • Retiring copper • Using wireless to augment non ‐ fiber areas • MCI with higher speed in the network, call server voice architecture • Wireless continues to expand 4G 12 • Purchased cable owned spectrum for $3.6B

Industry Developments • AT&T • Project Velocity January, 2013 • Local exchange to expand U ‐ verse • Non U ‐ verse areas to be candidate for Fixed Wireless • Wireless continues to expand 4G • Continued acquisition of spectrum (ATNI purchased within the last week) Property of CostQuest Associates, Inc. Any use without permission is strictly prohibited • Comcast • Replacing usage cap with data usage management approach • Increasing broadband internet speed tiers • CenturyLink/Windstream/Frontier • FTTT – Fiber to the tower to support wireless bandwidth demand • Consolidated/Surewest • Continuing aggressive broadband penetration plans • Deploy capital for backhaul and other wholesale opportunities • Google • Building it’s own high ‐ speed broadband network – Google Fiber 13 • Google Fiber plans include TV and Video Services

Economic Value Add Property of CostQuest Associates, Inc. 14 January, 2013 Any use without permission is strictly prohibited

ROICs Property of CostQuest Associates, Inc. 15 January, 2013 Any use without permission is strictly prohibited

ROICs Property of CostQuest Associates, Inc. 16 January, 2013 Any use without permission is strictly prohibited

Government Developments • FCC • Revisions to the universal service January, 2013 • Connect America Fund – Focus is on Broadband deployment in high cost areas via landline and wireless technologies ‐‐ $45B over 10 years Property of CostQuest Associates, Inc. Any use without permission is strictly prohibited • Broadband Acceleration Initiative • Lowers the cost of stringing new fiber on utility poles and reducing the wait times for cell tower approval • Spectrum expansion (wireless and wifi) • 35% increase in unlicensed 5 Ghz band for Wifi • Broadcaster incentive auctions for white space (120Mhz in the 600Mhz band, estimate of $22B) • Allowance of DISH to use S band for terrestrial service 17 • First Responders network

Government Developments • States/Cities • ID, AL, WY, WI, etc… January, 2013 • States are looking at economic development plans and the cost to deploy • Cities are encouraging fiber deployment Property of CostQuest Associates, Inc. Any use without permission is strictly prohibited • Chattanooga and Kansas City have built out fiber networks that have gained attention • Other cities have plans: Cleveland, Lafayette, LA, Chicago, New York, Seattle to name a few • In all, 42 communities in 14 states have access to “ultra ‐ high ‐ speed” fiber providers that reach a gigabit • Various states are looking at revamping their state specific USF programs 18

Government Developments • Gig.U • The University Community Next Generation Innovation Project, or January, 2013 Gig.U, is a broad ‐ based group of over 30 leading research universities from across the United States • Drawing on America’s rich history of community ‐ led innovation in Property of CostQuest Associates, Inc. Any use without permission is strictly prohibited research and entrepreneurship, Gig.U seeks to accelerate the deployment of ultra high ‐ speed networks to leading U.S. universities and their surrounding communities 19

Driving the Need… • Smartphones/Smart Devices/Tablets • Demand growth January, 2013 • Apps • Internet is ever increasing part of life Property of CostQuest Associates, Inc. Any use without permission is strictly prohibited • Audio/Video (65% of peak traffic*) • Hulu/Amazon/Netflix/YouTube/SmartTvs • Netflix accounted for 33% of all downstream peak traffic in the fall of 2012 – up from 20% in 2010 • Hulu and Amazon are only at 3.2% • Increased exclusive content • Increased demand for over the top video • Peer to peer 20 * http://news.cnet.com/8301 ‐ 1023_3 ‐ 57546405 ‐ 93/netflix ‐ gobbles ‐ a ‐ third ‐ of ‐ peak ‐ internet ‐ traffic ‐ in ‐ north ‐ america/

Driving the Need… • Home Security • Security/Monitoring cameras January, 2013 • Health Care Expansion and Digitization • Online Education Property of CostQuest Associates, Inc. Any use without permission is strictly prohibited • Machine to Machine • Monitoring, Information flow, sensors • Cloud Computing/Storage and Big Data 21

Driving the Need …. Property of CostQuest Associates, Inc. 22 January, 2013 Any use without permission is strictly prohibited