Michael armitage

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Rural Broadband: Rural Broadband: Rocket Science Rocket Science Or Or Dark Art? Dark Art? FTTH Council 19 th February 2013 Broadway Partners

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FTTH Conference 2013 Workshop Investors Day

Transcript of Michael armitage

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Rural Broadband:Rural Broadband:Rocket ScienceRocket Science

OrOrDark Art?Dark Art?

FTTH Council 19th February 2013 Broadway Partners

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1. The lightbulb moment2. Commercial principles3. Identify the projects4. Engage, engage and then engage some more5. Corporatise6. Design the financing7. Apply for Government support8. Raise funds9. Lessons learned10.And finally….

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TheThe LightbulbLightbulb MomentMoment

The Problem: Not Spots

Conventional wisdom:1.“Rural FTTH is too expensive”2.“BT is too dominant”3.“Ofcom is too supine”4.‘Make excuses….’

Unconventional wisdom:If you: 1. Recognise motivations

2. Minimise risk, and3. Get the ‘right’ money

You can ‘make it work’

The solution:Apply scale thinking tocommunity-led initiatives

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Commercial PrinciplesCommercial Principles

• Lots of out-sourcing - most projects have littleambition to remain hands-on

• Design principles:• Predominantly FTTH – fix it once-for-all• FTTC unfinanceable• Wireless as key in-fill technology

• Commercial principles:• Wholesale offering to closely match Openreach• Basic retail offering to closely match National ISPs• £50-£100 connection

£25/month 2-play @ 10Mbps symmetric…. all the way up to Gbps speeds

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Identify the ProjectsIdentify the Projects

• Addressable market: ~3 million rural properties Selection criteria:• Reasonable prosperity, with a mix• Population clustering• High incidence of home-working and/or second-homes• Track record of community project delivery

Launch projects:• Cotswolds – 9,000 properties• North Dorset – 2,000 properties 4,000+• South Hams – 500 properties 1,200

• Total: 15,000+ properties, capex of ca. £12m

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Engage, EngageEngage, Engage

• Full credit to Kees Rovers: proselytise and be locallyrelevant

• Local Government in thepicture and on-side – evenagainst their natural instinctto ‘hire IBM’

• 100% connectivity• Incremental add-ons• Demand stimulation

– keep-it-simple,community champions/heroes

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Community Interest Companies (CICs)?• Right ethos, but capital needs too great

Conventional LLC, with a twist 2 or 3 local directors + 1 from Broadway + 1 to

represent EIS investors EIS-eligibility

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Getting theGetting the ‘‘RightRight’’ MoneyMoney

• REAL challenges – “if it were easy….”• BT effect…. No precedent…. No track record….Dotcom

legacy….Telecoms not a recognised asset class

• Big hooks needed to get investors on board:• RCBF grant – 25% of capital cost• EIS ‘wrap’ – big tax benefits and an established channel• Focusing on investor-as-user

Exit at 9x ebitda, orrefinance at 7%


Risk/costof money



The Challenge

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Mixed Sources of CapitalMixed Sources of Capital

• Public - £300 x 11,400 qualifying premises = £3.4m, or£415/connected

• Private – ca. £1,000/home from investors

Multiple sources:

• Venture Capital• Private Equity• Private investors• Customers• Councils• Government grant


Not expensive


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Government SupportGovernment Support

• If we had known then what we know now….• Five challenges:

• Not thought-through – we’re allstill learning as we go

• Semi-devolved to Councils –not resourced or skilled

• Default is to avoid risk• Monopoly behaviour• Timing is everything

• Value of RCBF?• Cash – ca. £400/connected home, 7pp on IRR• Process – rigour on postcodes, demand assessment• Symbolism – some protection

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TwinTwin--Pronged Investor StrategyPronged Investor Strategy• Rural Broadband EIS Fund

to capture HNWs, nationally• Online offers, also EIS-

compliant, targeted at localcommunities…• Package:

+ ~5% Project+ ~7% RCBF+ ~9% EIS tax= 21% IRR

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Lessons LearnedLessons Learned1. Persistence is key: inspiration + perspiration2. Timing is key – a tipping point?

• iPhone/iPad/Cloud/iPlayer/NetFlix effects• FTTH cost estimate of <€1,000 home• 1% on deposit accounts• Liberty Global/Virgin Media

3. Never underestimate thedetermination of the monopolistto defend itself!

4. Speak softly, and carry a big stick5. Why bother?

Because we’re worth it!

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So, Do You Believe in FTTH?So, Do You Believe in FTTH?

• Then prove it! To invest in any or all ofthese great projects, go to:www.enterprisepe.comorwww.fundthegap.com

• By the way,comes with FREE(1) BROADBAND

• (1) Free: “invest £1,500, net £1,050 – exit with £2,100 in fouryears, a £1,000 profit, or £25/month

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And finally, introducingAnd finally, introducing RuBIRuBI……....

• A variation of the Oxera/VOD co-investment model• Combining Community need….• …. with the Scale imperative• Local investors/users provide initial 3-year equity,

EIS tax-enhanced, and assume all the risk• RuBI Fund provides the efficient long-term financing,

efficient procurement, and optimal exit• The Genius of it:

• Co-investment + pent-up demand eliminates demand risk• £300m ‘seed’ contribution could catalyse £1bn+ investment• Project scrutiny devolved to intermediaries• Government as co-investor avoids State Aid issues

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