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Rural Broadband:Rural Broadband:Rocket ScienceRocket Science
OrOrDark Art?Dark Art?
FTTH Council 19th February 2013 Broadway Partners
AgendaAgenda
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….
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
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
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
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
CorporatiseCorporatise
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
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%
16%-33%IRR
Risk/costof money
Opportunity
Cashflow
The Challenge
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
Expensive
Not expensive
£1,500/home
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
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
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!
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
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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