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Business Plan Summary: May 7, 1999
The Berkshire Regional Planning Commission
and
The Massachusetts Technology Collaborative and Berkshire Connect
PREFACE
Berkshire Connect is being organized to ensure
that a reliable, technologically sophisticated, competitively
priced telecommunications infrastructure is developed and
sustained within Berkshire County to nurture economic growth
and cultural and educational development throughout the County.
This Plan outlines the business, market,
technical and regulatory factors inherent in making the Berkshire
Connect concept a reality. It is important to recognize, however,
that this Plan is only a point of departure for what will
necessarily be a dynamic process in a rapidly changing market.
Indeed, one of Berkshire Connect’s main goals is to create
change in the Region by fostering economic growth and
development. While the authors of this Plan have exercised
diligence in their efforts, and are confident that the scenarios
described herein are reasonable and feasible, we have not
carried out the final negotiations, agreements and other detailed
steps that will be necessary to implement the Plan.
It is likely, therefore, that the implementers
of the Plan will be faced with opportunities and decisions
that will differ from the exact conditions and precise sequence
of events we have described.
This Plan was prepared under the direction
of the Berkshire Regional Planning Commission, the Massachusetts
Technology Collaborative and with the guidance and invaluable
assistance of the Berkshire Connect Task Force, Steering Committee,
and sub-committees by:
Flack + Kurtz Consulting
Engineers, LLP
Information Technology Department
475 Fifth Avenue
New York, NY 10017
Table of Contents
1.0 Executive Summary *
1.1 Objectives *
1.2 Mission *
1.3 Keys to Success *
2.0 Organizational Summary *
2.1 Ownership *
2.2 Locations and Facilities *
3.0 Services and Products *
3.1 Product Description *
3.2 Competitive Comparison *
3.3 Technology *
3.4 Future Services and Products *
4.0 Market Analysis Summary *
4.1 Market Segmentation *
4.2 Target Market Segment Strategy *
4.2.1 Market Needs *
4.3 Industry Analysis *
4.3.1 Industry Participants *
4.3.2 Main Competitors *
5.0 Strategy and Implementation Summary *
5.1 Competitive Edge *
5.2 Marketing Strategy *
5.3 Pricing Strategy *
5.4 Sales Forecast *
6.0 Financial Plan *
6.1 Capital Funding Requirements 28 *
6.2 Important Assumptions *
Appendix A
– Network Description
Appendix B
– Financial Statements
1.0 Executive Summary
Berkshire Connect is a regional telecommunications
effort. It is being established to satisfy a growing demand
for reliable, affordable, high quality and high capacity telecommunications
services in the Berkshire Region. Berkshire Connect's constituents
will include an existing base of information-dependent businesses,
educational, government and cultural institutions. It is also
expected that Berkshire Connect will help to generate new
and significant economic activity in the Region, where small,
sophisticated businesses that are dependent on the most up-to-date
technologies are emerging. The Berkshire Region provides these
businesses with the ability to maintain a high quality of
life while competing in global markets.
These new businesses and other potential
customers operate with the expectation that a full-fledged,
high-speed telecommunications infrastructure is a prerequisite
for operating a modern business or institution. However, because
the Region is somewhat isolated and relatively rural in nature,
telecommunications capabilities within the County are costly
and not as extensive as those in major urban areas. Improved
telecommunications are needed to further enhance the many
advantages of living and working in the Region.
In late 1997, Berkshire Connect was formed
to make this economic development initiative a reality. The
Berkshire Regional Planning Commission (BRPC), together with
the Massachusetts Technology Collaborative (MTC) and in conjunction
with the Department of Economic Development has led the effort
to improve the capability of Berkshire County's telecommunications
infrastructure. With initial State funding and the ongoing
work of Berkshire Connect Task Force, Steering Committee,
Critical Users Subcommittee, Education Subcommittee and many
other stakeholders, the organization has:
- Identified the Region's major telecommunications and
information service users.
- Organized the users into groups and identified their
common needs.
- Examined the current telecommunications infrastructure
in the Region and identified near-term and long-term opportunities
for enhancing it in a timely and cost effective manner.
A more complete description of the
initial work performed by Berkshire Connect can be found in
the Berkshire Connect Assessment and Recommendations
Report dated July, 1998. This Business Plan is an outgrowth
of that effort. It builds on the work of Berkshire Connect
participants and carries the process to the next logical stage
by providing a plan for designing, building, operating and
maintaining the required telecommunication infrastructure.
In addition to achieving the goals established for the Berkshire
Region, the Berkshire Connect initiative directly supports
the stated national goal for developing an advanced Rural
Information Infrastructure (RII) as promulgated by the National
Telecommunications and Information Administration.
Berkshire Connect will be challenged to provide
services that are either not readily available, or are not
available at reasonable cost or within a reasonable timeframe
from Bell Atlantic, (the Incumbent Local Exchange Carrier
-- ILEC), or from Competitive Local Exchange Carriers (CLECs).
To meet this challenge Berkshire Connect will:
- Leverage the best of current technology to create a top-quality
network that is reliable, capable and cost effective.
- Exploit the benefits of new wired and wireless technologies
that are not widely employed by the ILEC
- Take advantage of available excess capacity on ILEC,
CLEC or other existing networks
- Partner with business, government and/or third party
service providers, as appropriate
- Carefully select target market segments and tailor the
range of products offered to those markets
- Establish credibility, confidence and long-term customer
loyalty by fostering the rapid development of a fully-redundant,
high-capability initial network that is specifically designed
for phased and orderly expansion as demand builds
Unlike the ILEC, Berkshire Connect
will have no mandate to provide universal service or a specific
range of products, nor is it burdened by a need to operate
and maintain an installed base of "legacy" facilities. Accordingly,
Berkshire Connect will be free to focus all its efforts and
resources on achieving the specific goals of this Business
Plan.
Our main objective will be to offer telecommunications
transport services to end users, other telecommunications
carriers and information "content" providers such as Internet
Services Providers (ISPs), Interexchange Carriers (IXCs),
and Cable TV (CATV) operators. In particular, Berkshire Connect
does not intend to compete directly with the content providers.
Rather, Berkshire Connect hopes to enhance and support their
operations and to benefit from their roles as potential demand
aggregators for the network.
1.1 Objectives
Berkshire Connect has the following objectives:
- To obtain commitments for the necessary "seed" capital
by July 1, 1999.
- To obtain all necessary licenses, rights-of-way and permits
by September 1, 1999.
- To complete initial buildout and facility leases by December
31, 1999.
- To begin providing service to selected critical users
immediately thereafter.
- To complete full system buildout by June 1, 2002.
1.2 Mission
Berkshire Connect's mission is to ensure
that a reliable, technologically sophisticated, competitively
priced telecommunications infrastructure is developed and
sustained within Berkshire County to nurture economic growth
and cultural and educational development throughout the County.
Berkshire Connect will strive to provide
a carefully selected range of reliable, high capacity services,
primarily digital transport facilities and Asynchronous Transfer
Mode (ATM) switching, capable of supporting a wide range of
voice, data and video services. Although Berkshire Connect's
network will support high capacity voice network services
Berkshire Connect does not intend to directly compete with
the Incumbent Local Exchange Carrier (ILEC) for basic local
switched telephone or low-speed data services, or for residential
customers. Also, Berkshire Connect expects that its higher
capacity data and video-capable services will enhance and
support, rather than compete with, content-based service providers
such as Internet Service Providers (ISPs) and Cable TV (CATV)
companies.
Berkshire Connect will also offer selected
services to satellite office/home office (SOHO) customers
when this can be accomplished cost effectively in conjunction
with the provision of service to higher-volume business, government
and institutional customers. Berkshire Connect may do this
in partnership with service aggregators such as ISPs, CATV
companies or Local Multipoint Distribution service (LMDS)
licensees.
Berkshire Connect will emphasize affordability,
reliability, customer service and responsiveness.
1.3 Keys to Success
The keys to Berkshire Connect's success are:
- Identifying a critical mass of high-probability customers.
- Establishing an appropriate organization and obtaining
necessary financing.
- Staffing the organization with dedicated employees and
managers who have the required technical and business skills.
- Obtaining all necessary leases, agreements, permits,
licenses and rights-of-way in a timely manner and on reasonable
terms.
- Forming partnerships or alliances to share risks and
to facilitate access to facilities, rights-of-way and services.
- Clearly articulating and "selling" Berkshire Connect's
concept to its customers, state and local officials and
the general public.
- Recognizing the potential for, and minimizing the impact
of, all Berkshire Connect activities on the environmental
and scenic resources of the Region.
- Providing timely, reliable and affordable services to
Berkshire Connect's customers.
- Establishing marketing channels and overcoming barriers
to entry.
- Controlling costs to meet or exceed pricing objectives.
- Leveraging the best of current and newly developed technologies
to obtain a top-quality network that can be deployed quickly
and cost effectively.
2.0 Organizational
Summary
Berkshire Connect is being formed as a Massachusetts
business corporation. The Company will register with the Massachusetts
Department of Telecommunications and Energy (DTE) as a telecommunications
service provider. This will enable the Company to function
as a Competitive Local Exchange Carrier (CLEC) within the
meaning of federal and state law. CLEC status will enable
the company to purchase "dark fiber," local loop access and
other network elements from Bell Atlantic at discounted rates.
The Company will emphasize service quality,
responsiveness and customer service. It will use a combination
of in-house employees and sub-contractors, some of whom may
be strategic partners, to provide top-quality service in the
most cost-effective manner.
The company's principal offices will be in
Pittsfield, MA.
Details of the organization, services, and
financial plan are provided herein.
2.1 Ownership
The organizational form of Berkshire Connect
is driven by the need to be licensed as a telecommunications
service provider and operate as a CLEC, to facilitate and
attract private, public, and mixed sources of capital, and
to serve the needs of its potential customer base. A number
of forms would satisfy these requirements, as well as provide
customers, investors, and lenders the continuity that they
would expect, and provide the limitations on liability that
are customary in a business of this scope. They include business
corporations, non-profit corporations, and cooperative corporations.
The choice of form is not determinative of
the goals to be pursued and achieved by the organization.
Far more important in this regard, is the source of capital
to be used for initial plant development and working capital.
Among the possible sources of this seed capital are the following:
Private capital participation via privately
placed stock purchase or partnership interest.
Private capital participation through debentures
or convertible debentures via private placement. For convertible
debentures, this round of funding will have premium conversion
privileges vs. later rounds of "bridge" funding. If a partnership
is later formed, the general partners may contribute capital
in exchange for founder's stock. An initial public offering
is another later option.
Local or state government funding.
Private grants (from foundations or individuals).
Conventional loan sources, either with
or without government guarantees or interest subsidies.
A business corporation is the form that will
provide the most flexibility to seek and accept most of the
above forms of capital. Accordingly, we anticipate, with certain
qualifications, that the Company will be organized as a Massachusetts
Business Corporation or a Limited Liability Partnership and
will be financed primarily by venture capital and debt financing.
Business entities of this type are not required by their form
to make a profit, but would be allowed to do so if required
by business necessity and the requirements of investors or
lenders. Its for-profit status would not prevent it from making
pricing decisions that reflect the particular needs of certain
customer groups (for instance, libraries or schools) if socially
or politically desirable.
A non-profit corporation would have little
if any access to most of the above sources of funds. However,
certain funding sources, in particular some government programs
or private charitable grants, might be more available to a
non-profit entity. If such funds are located, it is highly
feasible to form associated or cooperating entities, one for-profit
and the other non-profit, to take advantage of the different
possibilities. It would, of course, be necessary to segregate
the operations of the non-profit component in such a way as
to protect the tax exemption that such an entity would probably
seek in order to appeal to its particular funding sources.
Thus Berkshire Connect is prepared to form,
or change to, or associate with an entity other than a business
corporation if:
- A desirable capital source is identified in advance which
requires or prefers a different organizational form (for
instance, a non-profit corporation)
- Such a capital source emerges after initial organization.
2.2 Locations
and Facilities
Berkshire Connect is strongly considering
locating its headquarters and one major POP facility in the
General Electric redevelopment site in Pittsfield. Branch
offices and service dispatch facilities will be collocated
with the North County and South County POPs at the Massachusetts
Museum of Contemporary Art (MASS MoCA ) in North Adams and
a planned redevelopment site in Great Barrington. Office and
service facilities space may be leased or provided in kind
by Berkshire Connect Partners. Approximately 2000 square feet
of office and equipment space will be leased in Pittsfield
and 1000 to 2000 square feet each will be leased at North
Adams and Great Barrington. Each POP will contain equipment
for customer service, network management, circuit termination
and Asynchronous Transfer Mode (ATM) switching and concentration.
The North Adams POP will also house microwave radio terminal
equipment. Each facility will provide robust environmental
systems such as HVAC units, fire suppression, generator power
and battery plants.
Collocation facilities will be established
within the Bell Atlantic central offices in the vicinity of
each POP. These facilities will be obtained under standard
collocation agreements with Bell Atlantic and will contain
the equipment needed to hand off services to and from the
Bell Atlantic local loops and backbone network.
Other network facilities will include microwave
relay sites on Mt. Greylock, Mt.Tom and Warner Mountain, and
a POP in Springfield. The microwave relay sites will make
use of existing towers and the associated equipment will be
located within the facilities of WTEN, Channel 40 and Century
Berkshire Cable respectively. The Springfield POP will be
physically collocated in a Bell Atlantic central office (CO),
thus reducing the local loop costs associated with connecting
to other carriers and service providers. Berkshire Connect
will also consider locating the Springfield POP within a "collo
hotel" established by one of the major inter-exchange carriers
(IXCs) such as MCI Worldcom, but it is not expected that this
arrangement will provide better rates or technical capability.
3.0 Services
and Products
Berkshire Connect will strive to provide
a carefully selected range of reliable, high capacity services,
primarily digital transport facilities and ATM switching,
capable of supporting a range of voice, data and video services.
Although Berkshire Connect's network will support high capacity
voice network services, it does not intend to directly compete
with the Incumbent Local Exchange Carrier (ILEC) for existing
basic switched telephone or low-speed data customers. Berkshire
Connect will provide bulk voice and data services such as
DS-1s, Local Area Network Emulation (LANE), Internet Protocol
(IP) and video for larger end-users and service providers.
3.1 Product
Description
Berkshire Connect will provide reasonably
priced, reliable, high capacity telecommunications services
to its target market of customers. Some customers may be partners
with the organization.
User surveys indicate that there are clusters
of users in the Region that need, but cannot easily obtain
the services Berkshire Connect will offer. Even when the required
services are available from the ILEC, they may not be obtainable
at reasonable cost or in a timely manner.
Berkshire Connect intends to provide precisely
the types of services demanded by these users when and where
needed and at a reasonable cost. Specific services to be provided
will initially include switched virtual connections (SVCs),
permanent virtual connections (PVCs) and LAN Emulation (LANE)
using Asynchronous Transfer Mode (ATM) switching and concentration
and a combination of Synchronous Optical Network (SONET) and
Bell Atlantic Time Division Multiplex (TDM) transport technology.
This arrangement will allow us to provide a wide range of
user interfaces equivalent to DS-0 (64 kb/s), DS-1 (1.544
mb/s), DS-3 (44.736 mb/s), OC-1 (55 mb/s), and OC-3 (155 mb/),
as well as direct support of Ethernet, Frame Relay, video
and Internet Protocol (IP). A more detailed discussion of
the technologies to be employed is provided later in this
document.
3.2 Competitive
Comparison
The primary competition throughout the Region
is Bell Atlantic, the ILEC. Other potential competitors are
Richmond Telephone, an independent LEC serving a small part
of the Region, Time Warner Communications and possibly QWest
and Williams Communications, who will probably construct facilities
in the Region in the near future. Berkshire Connect believes
that there is a good potential for partnering, rather than
competing with, these entities. The only other significant
high capacity telecommunications services available are a
few private networks operated by some large users. These networks
are not available to the general public and, for the most
part, make use of leased Bell Atlantic facilities.
Major Competitive Access Providers (CAPs),
Interexchange Carriers (IXCs) and Competitive Local Exchange
Carriers (CLECs) such as MCI Worldcom, Sprint and AT&T
have not yet established facilities in the Region, although
some are reported to be considering doing so. Currently, the
nearest major Points-of-Presence (POPs) for such carriers
are in Springfield, MA and Albany, NY. Based on the remoteness
and low population density of the area, other carriers have
apparently not made serving the area a high priority, although
they could enter the market on relatively short notice.
As noted above, the Region's three CATV operators
are another potential source of competition. The North County
area is served by Adelphia Cable, the Central area is served
by Time Warner, while Century Berkshire serves the South County.
(Century Berkshire and Adelphia Cable are in the process of
merging). All three systems in the County are being upgraded
to provide data services, with Adelphia reportedly already
providing their PowerLink data service in parts of Adams and
North Adams. Time Warner plans to introduce its Road Runner
data service in the Pittsfield area and the recent agreement
between AT&T and Time Warner could lead to offering of
voice services over cable as well. Although CATV-based voice,
data and video services have traditionally been aimed at the
residential market, (one that is not considered a priority),
Time Warner is reported to be developing a business-oriented
data service called Road Runner Level 3 and may introduce
it into the Region. This will require a substantial investment
on their part and their franchise area only covers the central
part of the Region, but the introduction of this service could
represent significant competition in a major part of Berkshire
Connect’s market.
Our preference will be to partner with, rather
than compete with the CATV providers. Berkshire Connect hopes
to share facilities with Century Berkshire in the Great Barrington
- Lee area and sees CATV providers as potential customers
and traffic aggregators.
The Region currently has approximately 11
local Internet Service Providers, including Berkshire County
Network, Berkshire Net, Crocker Communications, Excell Net,
I-Net/CMA, Inter-Access of the Berkshires, JavaNet, Mid-Hudson,
Shays Net, Taconic Telephone and LogicalNet. Since Berkshire
Connect does not plan to offer Internet service, or other
"content" directly, Berkshire Connect views the local ISPs
as potential partners, rather than competitors.
Conventional Time Division Multiplex (TDM)
services from DS-0 to DS-1 are the high capacity services
most readily available from the ILEC. These services tend
to be very expensive. Pricing for DS-1 service, for example,
averages about $1,500 per month, depending on mileage charges.
Fractional and multiple DS-1 service (up to DS-3) are proportionally
priced, if available. Bell Atlantic Synchronous Optical Network
(SONET OC-1 to OC-48) services are not currently provided
to users in the Region.
Bell Atlantic Integrated Services Digital
Network (ISDN) services are available, but newer high speed
subscriber services such as xDSL (x Digital Subscriber Loop)
are not widely deployed in the Region. Availability of Bell
Atlantic DSL is constrained by the condition of the ILEC local
loop and an 18,000 foot distance limitation between the customer
and the central office. xDSL services are also non-standardized,
making some customers reluctant to invest in the technology.
Local Internet Service Providers (ISPs) are
hampered in terms of the cost and level of services they can
offer because of the local loop limitations and the need to
back-haul to major hubs in Springfield, Albany, Boston or
New York City. Again, ISPs are not seen as direct competitors
Conventional CLECs typically look for either
heavy concentrations of business users or will want their
cables to pass 30-40 homes per mile before considering the
construction of such facilities. Although the population of
the County is only about 135,000, spread over 945 square miles,
and there are few large concentrations of business users,
there are "clusters" of users, especially in Pittsfield and
in the North and South county areas. Based on the research
and findings of the Berkshire Regional Planning Commission
and Berkshire Connect collaborators, Berkshire Connect should
be able to supply reasonably priced services to selected user
clusters by exploiting an optimal combination of leased optical
fiber backbone, (where available); owned optical fiber and/or
microwave backbone and local loop facilities, and; wireless
services based on leading edge Local Multipoint Distribution
Service (LMDS) technology at a later time. A more detailed
discussion of the technology mix and options is provided in
a later section.
Berkshire Connect's goal will be to offer
services initially at a target price as low as $600 per DS-1
equivalent channel per month for backbone transport. This
price point is preliminary and may vary as market conditions
require. This price will be significantly below the average
ILEC rate of $1,300 - $1,500 per DS-1 per month typically
charged in the Region. Location, volume and revenue requirements
will determine specific pricing for each cluster of users,
but Berkshire Connect should be able to price services below
the ILEC and offer many services not readily available from
the ILEC. The combined use of wireless and dark fiber technology
in the backbone will permit Berkshire Connect to establish
initial service quickly and at minimum cost. It is also important
to note that Berkshire Connect is not burdened by the necessity
to maintain and operate an extensive installed base of "legacy"
facilities nor is it under any mandate to provide universal
service or any particular type of service as is the case with
the ILEC and other established carriers. This is a clear competitive
advantage in allowing Berkshire Connect to target the customers
and exploit the technologies and services most compatible
with its mission.
3.3 Technology
In an earlier phase of the project, Berkshire
Connect and its consultants explored a wide range of technology
options for delivering the required services. Candidate technologies
included:
- Satellite based systems
- Terrestrial point-to-point radio (microwave)
- Terrestrial point-to-multipoint radio (Local Multipoint
and Multichannel Multipoint Distribution Services (LMDS/MMDS)
- Direct Sequence Spread Spectrum radio (DSSS)
- Leased or owned optical fiber
- Leased ILEC services (such as DS-1 or DS-3)
- Leased capacity on Cable TV systems
- Various types of Digital Subscriber Lines (xDSL)
Berkshire Connect evaluated and compared
each type of technology in terms of its relative capacity,
"scalability", reliability, cost, technological risk, deployment
lead time and any special characteristics that would tend
to enhance or impede its use given the unique requirements
and conditions in the Region.
Based on this assessment, Berkshire Connect
determined that the initial backbone network should be constructed
using a combination of existing dark fiber, microwave and
leased Bell Atlantic services. Subsequent phases of the network
will involve the construction of new optical fiber plant along
selected rights-of-way and a migration away from leased services
and facilities.
Asynchronous Transfer Mode (ATM) technology
will be used for all backbone switching and concentration.
An ATM network provides significant advantages over conventional
packet or circuit switched technologies, including:
- Ability to concentrate traffic more effectively using
available bandwidth.
- Ability to reroute traffic in the event of a failure,
using diverse media.
- Support of a wide range of end-user services, including
voice, data, LAN traffic and video.
An ATM switch will be located at each
Berkshire Connect hub facility and at the point of network
egress in Springfield. These switches will provide backbone
connectivity and will constitute the platform for end user
services.
Another key aspect of the network is collocation
at Bell Atlantic Central Offices. Collocation will enable
Berkshire Connect to lower transport costs between main locations
and to lower local loop access charges for end-user traffic.
Berkshire Connect will connect to selected Bell Atlantic COs
using fiber pairs and will use SONET equipment to transport
traffic between Berkshire Connect hubs and the COs. SONET
provides a flexible and cost-effective transport technology
for handoff of circuits to the Bell Atlantic network.
Local loop services will be provided by using
existing or newly constructed optical fiber to large users
where possible and existing Bell Atlantic local loop facilities
for more typical users. In later phases, Berkshire Connect
will introduce additional fiber construction, xDSL and possibly
wireless solutions such as LMDS/MMDS or DSSS to reach additional
and more remote users.
Berkshire Connect believes that this strategy
provides the best balance in terms of cost effectiveness,
speed of deployment, reliability and scalability. A more complete
discussion of these technology issues can be found in the
Berkshire Connect Assessment of Technology Options
(Final Draft) dated November 19, 1998.
The primary point-to-point microwave technology
will be SONET-capable radio equipment operating in the 6 GHz
band. (For very short links (2-5 miles) Berkshire Connect
may consider using similar equipment operating in the 18 GHz
band). In both cases, the microwave systems are based on the
latest technology and are capable of transmitting one OC-3
payload (155 Mb/s) per radio channel. As many as seven radio
channels (an aggregate of 7 OC-3s or 1.085 Gb/s) can be provisioned
in a single radio cabinet operating over one or more links.
As a practical consideration, however, it is assumed that
there will be no more than two OC-3s per link.
The reliability of the radio equipment is
inherently very high and it will employ 1-for-N "hot standby"
redundancy on all links to provide an effective Mean Time
Before Failure (MTBF) measured in years. All equipment will
be remotely monitored and controlled from one of the POPs
using a sophisticated alarm and control network. Radio links
will be engineered for propagation reliability of at least
99.999%. The high MTBF and propagation reliability, when combined
with features such as Adaptive Transmitter Power Control (ATPC),
Forward Error Correction (FEC) and Anticipatory Errorless
Receiver Switching (AERS) will provide users with very high
reliability for this portion of the network.
Appropriate towers, and radio frequency licensing
and possibly, environmental permits, are required for all
microwave links. Berkshire Connect anticipates collocating
on existing towers or structures and anticipates no unusual
problems in obtaining licenses.
In certain cases, Berkshire Connect may use
Direct Sequence Spread Spectrum (DSSS) radio technology to
provide up to DS-1 service over limited distances to individual
or multiple users. DSSS is an unlicensed radio service that
can provide limited capacity and good reliability over short
distances and is primarily applicable to use in the local
loop.
Berkshire Connect will also consider using
Local Multipoint Distribution Service (LMDS), a licensed service
operating in the 28 GHz band. This is point-to-multipoint
technology providing up to 1 Ghz of bandwidth within a cell.
Typical cell radius will be three to five miles and space
diversity may be used within a cell. LMDS cells will be engineered
for at least 99.99% availability, including rainfall-fade
effects. LMDS cells may be operated in an asymmetrical mode
or a uniform bi-directional mode, depending on needs. Berkshire
Connect may operate LMDS facilities directly or partner with
a third party, such as Berkshire Wireless. Berkshire Connect
will also investigate using Multichannel Multipoint Distribution
Services (MMDS) to provide similar capabilities.
Both LMDS and MMDS promise to provide high
data rate local loop service at very economical cost compared
to conventional wired local loops, but the technology is so
new that there are few systems in operation and few suppliers
of the necessary equipment. An LMDS license is currently available
for Berkshire County. MMDS licenses should also be available.
This technology is expected to mature quickly however, and
may play an important role Berkshire Connect's operations
over the next three to five years.
In instances where Berkshire Connect installs
its own optical fiber, it will seek to use existing pole line
facilities, available rights-of-way (including high tension
electric transmission towers) and/or direct burial. In some
cases, Berkshire Connect will explore the use of Air Blown
Fiber (ABF) when future right-of-way access is a problem and
there is uncertainty in the future buildout requirements.
3.4 Future
Services and Products
As discussed in the technology section, LMDS,
xDSL, DSSS and/or MMDS will be the most likely near-term and
future service additions. Other new services will primarily
be enhancements of initial services and facilities.
As the network matures, the most likely need
will be for increased capacity and reliability. Berkshire
Connect will meet this need by expanding the network to evolve
from a "ring" to a "mesh" physical network architecture. This
will provide additional pathways and additional capacity between
POPs, thus significantly enhancing reliability, efficiency
and overall capacity.
Berkshire Connect will also consider introducing
Dense Wavelength Division Multiplexing (DWDM) on selected
existing optical fiber links to significantly increase link
capacity as needed.
All elements of Berkshire Connect’s initial
and subsequent network design anticipate the need for planned
and orderly growth and easy adaptability of changing market
needs.
4.0 Market
Analysis Summary
Berkshire County is experiencing a shift
in business activity away from traditional large-scale industrial
manufacturing to niche manufacturing players, service and
knowledge-based businesses, and high-technology multimedia
and software companies. Berkshire Connect will work to continue
the progress made to date to attract these new business players
in to the Region. Berkshire Connect will focus efforts to
serve these existing and new entrants with the telecommunications
services needed to enable these companies to be competitive
with companies from other regions. Other important market
segments to be served by Berkshire Connect include a vast
array of educational and cultural users as well as an emerging
segment of service provider businesses. These businesses include
enhanced service providers, such as ISPs, enhanced voice mail
providers and long distance carriers.
4.1 Market
Segmentation
The Berkshire Region has a population of
approximately 135,000, generally clustered in the North, Central
and South County centers of North Adams, Pittsfield and Great
Barrington respectively. Approximately 21% of the population
has a college degree and the median income in 1993 was $33,000.
Once dominated by industrial manufacturing, the Region experienced
a decline of over 26% in such activity between 1990 and 1995.
Although paper and plastics have grown, other manufacturing
sectors continue to decline. There is a growth in service
sector employment of 6% and an increasing diversity in the
economic base. Emphasis is being placed on smaller, knowledge-based
businesses employing 20 to 99 employees. Besides manufacturing,
major employment clusters include:
- Multimedia, Software and Communications
- Healthcare
- Hotel/Restaurant/Tourism
- Financial Services
- Niche Services
- Culture and Arts
Many of these companies and organizations
are dependent on advanced information technology and telecommunications
services.
Besides the geographic and demographic market
noted above, Berkshire Connect sees its markets segmented
into user categories. These are existing end users, service
providers and growth users, which are discussed below.
End users:
- Critical users - the largest businesses and organizations
that depend on telecommunications
- Education users
- Municipal users
- Library and public access users
- Other users - satellite office/home office (SOHO), and
others
Besides end users, Berkshire Connect
sees telecommunications and information services providers
as an important market segment. These include Interexchange
Carriers (IXCs), Internet Service Providers (ISPs), Alternative
Service Providers and possibly CATV and/or LMDS operators.
Berkshire Connect will market bulk connectivity to these customers
on a "wholesale" basis. They will use Berkshire Connect’s
facilities to reach their customers in the Region more
easily and cost effectively. In addition, local ISPs
will use Berkshire Connect’s facilities within the Region
as a means of reaching upstream information sources outside
the Region.
As Berkshire Connect becomes increasingly
successful in serving the needs of the selected user and provider
market segments, a third segment will emerge. This is the
growth segment. This segment will consist of businesses and
other user organizations that are formed, or who re-locate
to the Region in order to take advantage of the Region's many
benefits, including Berkshire Connect's advanced telecommunications
facilities.
4.2 Target
Market Segment Strategy
Berkshire Connect is focusing on the market
segments identified in the previous section for several reasons.
The Critical Users Group is an obvious priority.
This group is the largest and most telecommunications-dependent
segment in the Region. According to surveys conducted by Berkshire
Connect during 1998, these users are dissatisfied with the
cost, quality and capability of the Region's telecommunications
infrastructure. Eighty four percent of the critical users
expressed an interest in joining some sort of regional initiative
or cooperative-type venture in order to obtain improved services.
For a more complete description of the surveys see Berkshire
Connect Assessment and Recommendations Report dated
July 1998.
The other identified user groups also represent
priority target markets, but will be somewhat more difficult
to serve initially due to the greater diversity or their needs
and greater geographic dispersion.
The service provider market segment is also
an obvious priority. Service providers such as AT&T, MCI
Worldcom and UUNet have numerous customers in the Region but
lack the high capacity network facilities required to deliver
the highest quality services to them. Regional ISPs such as
Berkshire County Network and Berkshire Net share the problem
of service delivery within the Region and also pay substantial
rates to access major upstream information sources outside
the Region.
By focusing on these two major user and provider
market segments, Berkshire Connect will be able to support
the development of a highly capable basic telecommunications
infrastructure that can be expanded incrementally to serve
the new user segment and additional members of the major user
and provider segments.
4.2.1 Market
Needs
The primary market needs of the Critical
Users group are: better access (connectivity) to information
resources within and outside the Region; higher reliability;
more timely delivery of services, and lower cost. There is
a perceived need for greater bandwidth than is now available
to access remote resources. Critical users do not feel that
they can be competitive with their counterparts in better-served
regions unless these needs are addressed. Berkshire Connect
intends to offer precisely these kinds of services on a timely
and very price-competitive basis.
IXCs and ISPs have numerous customers within
the Region, but lack the Points of Presence and local loop
facilities in the area that are needed for efficient delivery
of their services to their users and sustained growth of their
markets. Berkshire Connect will address this need by providing
backbone connectivity into and within the Region and by making
available additional local loop options such as xDSL, DSSS
and, potentially LMDS.
Local ISPs have regional and local loop connectivity
needs similar to those of the IXCs and national ISPs. In addition
they need better access to upstream information resources
that are currently only available through major POPs in cities
such as Springfield, Boston, Albany or New York. Berkshire
Connect's facilities will facilitate both backbone and local
loop access for the local ISPs.
Educational Users have many of the needs
that critical users have. In addition, especially at the college
level, the emergence of Internet2 will create even greater
demand for high bandwidth access among Educational Users.
Without this capability, academic and research-oriented users
of Internet2 and its associated Very High-speed Backbone Network
(vBNS) will be at a distinct disadvantage compared with their
counterparts in better-served areas. Berkshire Connect's OC-3
backbone will provide this capability and will be capable
of increasing its capacity as necessary.
The other user segments described in the
previous sections also need regional and global access, but
at generally lower bandwidth. Berkshire Connect will serve
these customers either indirectly through partners and other
service providers or directly, depending on the individual
customer's location, connectivity and bandwidth requirements.
Individuals and firms relocating to the area
also tend to be information-driven and they bring with them
very high expectations regarding the quality, cost and availability
of the appropriate telecommunications services and facilities.
Berkshire Connect's services will both attract and serve these
customers.
4.3 Industry
Analysis
The telecommunications industry is made up
of numerous service providers with a wide array of service
offerings. The following section analyzes the industry and
categorizes service providers in basic groups for analysis
purposes. In addition, competition within the industry and
within the County is summarized below.
4.3.1 Industry
Participants
Telecommunications providers are traditionally
segmented into four main categories as described below.
- Incumbent Local Exchange Carrier (ILEC) – typically the
local Regional Bell Operating Company (RBOC) or independent
phone company that provides local services.
- Long Distance or Interexchange Carriers (LD, IXC) – Companies
that transport telecommunications across LEC boundaries,
such as AT&T and Sprint
- Competitive Local Exchange Carriers (CLECs) – Companies
formed to compete in the local loop for business and/or
residential services. This segment includes wireless (some
cellular, PCS and LMDS) providers.
- Enhanced Service Providers – Any number of companies
who provide enhanced services such as ISPs, voice mail and
"find-me" service providers, data storage service
providers, and others
- Cable TV (CATV) operators – Originally providers of entertainment
TV programming, these companies often now provide data and/or
voice services.
It is important to note that these
distinctions are no longer clear. Companies are moving into
new service offerings and merging with other providers to
create conglomerate service providers who provide "soup
to nuts" in their service portfolio. One good example
is Worldcom, now MCI Worldcom. Worldcom, which began as a
long distance telephone service provider, now owns or controls
major Tier 2 ISPs (UUNet), metropolitan CLEC operations (MFS),
data networking providers (MFS Datanet), regional CLEC operations
(Brooks Fiber), and major LD companies (MCI), to name a few.
4.3.2 Main
Competitors
Berkshire County is dominated by the presence
of the ILEC, which is Bell Atlantic, and there are no other
major carriers. There are no Points-of-Presence (POPs) for
any other major telecom player within Berkshire County. Enhanced
services are offered by regional ISPs within the county and
from national ISPs through interconnection outside of the
county. The following describes the competitive environment
within the area.
ILEC:
- Bell Atlantic – Bell Atlantic is the predominant incumbent
provider. Bell Atlantic and Richmond Telephone, a small
independent, are currently the only providers of local switched
voice services and data services. Given that there are no
other major carriers within the county, Bell Atlantic connects
its local customers to these other carriers by providing
leased, dedicated circuits to areas outside of Berkshire
County. Bell Atlantic offers a frame relay service that
could be used as an alternative transport means for some
services.
- Berkshire Connect will be offering services that compete
with Bell Atlantic. Among other services, Berkshire Connect
will compete for Fractional DS-1s, DS-1s, and higher services
that require transport from customer premises within Berkshire
County to egress points in Springfield or other towns.
LD Carriers:
- No Long Distance carriers have POPs within Berkshire
County. End-users within Berkshire County access LD carriers
either through locally switched lines from Bell Atlantic
or from dedicated trunks from Bell Atlantic that transport
the users long distance traffic to Springfield or elsewhere
for interconnection with LD carriers.
- AT&T: There has been speculation that AT&T is
planning to establish a POP within Berkshire County in Pittsfield.
This has not been confirmed.
- It is likely that, at some point, AT&T and other
providers will establish POPs within the county. It is a
matter of timing. Berkshire Connect is working to establish
a presence and top-rated hub facilities within the county
before carriers locate POPs within the county. This will
encourage carriers to collocate within Berkshire Connect
hub and use Berkshire Connect network. In this scenario,
LD carriers are customers of Berkshire Connect.
Other Long Distance and common carriers include:
- NEON: North East Optical Networks is a common carrier
with a northeast network that extends from New York to Portland,
ME. NEON provides regional connectivity by providing dark
fiber or optical carriers (OC-3, OC-12) between regional
centers. For instance, NEON could interconnect a CLEC’s
service areas in two cities, such as Providence and Boston.
NEON does not provide local loop service except to interconnect
major hub facilities within a city. NEON is primarily a
carrier’s carrier, not offering services to end users. Given
its size and northeast focus, it is conceivable that NEON
could become a competitor of Berkshire Connect by establishing
a hub facility and bringing fiber into Berkshire County.
NEON could be an aggregation point for local traffic and
provide outbound connectivity to Springfield or other locations.
Berkshire Connect should move quickly to preempt NEON and
pull NEON in as a partner instead. NEON works closely with
CTC Communications (see below).
- QWest: QWest is a nation-wide provider of carrier services.
QWest has fiber running along the Conrail ROW from Albany
to Westfield, through Pittsfield. Similar to NEON, QWest
provides dark fiber and optical carriers (OC-3, OC-12) to
other carriers. QWest’s extensive infrastructure is very
capital intensive and it is costly for QWest to add new
nodes onto their network. It seems unlikely that QWest will
add a new node in Pittsfield and become a competitor since
they are focusing their efforts on major metropolitan areas
nation-wide.
- Level 3: Similar to QWest, Level 3 is a carrier’s carrier
and also a Second Tier ISP. Level 3 is building an extensive
nation-wide network with both regionally connectivity and
local loop. They are currently considering building fiber
from Albany to Boston via the Massachusetts Turnpike and
Route 102, and are therefore a potential competitor/partner.
- El Paso Energy: El Paso Energy is a new entrant in the
telecom market that owns gas pipeline rights-of-way in a
national network, including a portion from Albany to Springfield
via Pittsfield. El Paso Energy (a portion of which includes
Tennessee Gas Pipeline) is reported to be developing its
business case for entry into the telecom market. A likely
scenario is that El Paso will undergo a joint construction
effort along with at least one other major telecom player
to provide fiber and capacity along its ROW. The Albany
to Boston corridor will be a top priority, and is expected
to be complete in 2000-2001. Berkshire Connect has met with
El Paso Energy to initiate discussions for securing dark
fiber along this corridor to Springfield.
- Williams: Williams Communications Solutions, WCS, is
pursuing a network build in the area as part of a nation-wide
network to provide a carrier’s carrier network. A possible
route would extend from Albany to Boston via Conrail, which
extends through Pittsfield. Williams has approached Berkshire
Connect with discussions of dark fiber, ROW issues, and
collocation facilities. Williams is a possible candidate
for a dark fiber egress to Springfield.
CLECs:
There are no CLECs with a presence in Berkshire
County. A number of CLECs have shown interest or are likely
candidates for establishing a presence within the county.
Again, timing is key. Berkshire Connect intends to establish
a presence and then may encourage other CLECs to become strategic
partners for providing services within the area. A partner
could help to improve or expand Berkshire Connect service
offering in many ways. For instance, Berkshire Connect could
reduce recurring operating expenses by teaming with a larger
entity. As another example, a partner could move Berkshire
Connect into a new service offering such as xDSL services
or provide a less expensive egress network. In any event,
a CLEC could choose to work with Berkshire Connect or could
develop a competitive business plan. Likely CLEC entrants
include:
- CTC Communications: Provider of long distance and data
services and local switch resale services. CTC is a strong
and emerging company in the NorthEast corridor with a very
strong and talented direct sales force. CTC is non-facilities
based meaning that they do not own outside plant, and as
such are a good potential partner for Berkshire Connect.
- Time Warner Communications: TWC is the CLEC arm of Time
Warner Cable company. TWC operates CLEC companies throughout
the U.S. including a strong TWC branch in upstate New York.
TWC typically offers fiber based telecom services to business
customers, similar to the market plan of Berkshire Connect.
When teamed with Time Warner’s cable TV presence in the
Pittsfield area, Time Warner becomes a formidable competitor
or strategic ally depending on how the relationship unfolds.
- Time Warner Cable: Time Warner Cable and AT&T are
entering a relationship whereby the cable TV infrastructure
will be used to provide local phone service for AT&T.
It is unlikely that this relationship will affect Berkshire
County in the near term given that the initial focus will
be in more dense areas.
- Hyperion: Hyperion is a sister company to Adelphia Cable,
which operates in the North Adams/ Adams area. Hyperion
offers competitive telecom services to business customers
similar to those services offered by Time Warner Communications.
Hyperion has a network in Southern Vermont and as such,
could be a player in Berkshire County. Currently, they are
not viewed as being as strong a potential partner/competitor
as Time Warner.
- COVAD and NorthPoint: Covad and NorthPoint are xDSL service
providers who use the ILEC local copper loop to provide
high-speed data services to end-users. Both companies have
a presence in the Boston area, and both are focusing their
efforts on large metropolitan areas. The technology and
service offerings are new and complex. Once the technology
is more stable, Berkshire Connect should consider partnering
with one of these companies in order to provide high-speed
data services over the Bell Atlantic copper loop.
- Cellular, PCS and other wireless providers: Berkshire
Connect offers an alternative mechanism for these providers
to interconnect with regions inside and outside of Berkshire
County. These providers may choose to use Berkshire Connect
network for egress access to Springfield or other towns
in the area. Future partnerships with these providers may
enable Berkshire Connect to play a more active role in the
delivery of these services. Berkshire Wireless has approached
Berkshire Connect regarding possible cooperation in local
loop services using LMDS technology.
- Other Major CLECs: Other CLECs include: Teleport Communications
Group (now AT&T Local Services), Metropolitan Fiber
Systems, MFS, (now part of MCI/Worldcom), Brook Fiber Systems
(now part of MCI Worldcom), Intermediate Communications
Group, ICI, and others. These CLECS are not expected to
play a large role in Berkshire County given that they are
focusing efforts in other areas of high concern. Many are
under tight financial performance pressures and will not
dedicate resources to a county network the size of the Berkshire
network.
Enhanced Service Providers:
- Regional-County ISPs: As discussed earlier, a strong
base of approximately 11 regional-county ISPs currently
exists in Berkshire County. Their primary access method
is through dial-up connections from Bell Atlantic. It is
anticipated that the Berkshire Connect network will foster
the growth of these regional players by providing first-rate
collocation facilities and lower access charges to Springfield.
- National and Regional ISPs: As with other types of service
providers, Berkshire Connect offers an alternative mechanism
for these providers to access customers within Berkshire
County. Berkshire Connect expects to foster relationships
with these providers to enhance service offerings within
the county.
- Other Enhanced Service Providers: These include enhanced
e-mail and voice mail providers, data storage providers,
and Internet2 access providers and a host of other service
offerings. Berkshire Connect will work to foster the establishment
and growth of these new service providers within Berkshire
County by providing first-rate collocation facilities, affordable
access to end-users via fiber or Bell Atlantic circuits,
and affordable egress to Springfield or other towns.
5. Strategy
and Implementation Summary
5.1 Competitive
Edge
Berkshire Connect’s competitive edge stems
from its desire to make superior services available to its
constituents in a timely manner and at prices far lower than
the competition has traditionally been able to offer.
Bell Atlantic is obligated to serve a very
broad market and is not at liberty to optimize its efforts
to serve the specific niches that Berkshire Connect has identified.
This puts Bell Atlantic and similar providers at a comparative
disadvantage in Berkshire Connect’s selected markets. Because
ILECs must continue to maintain and operate a large installed
base of "legacy" systems and fixed plant, and are
obligated to serve "all who apply," they have comparatively
limited flexibility in pricing, service delivery and responsiveness
to specialized customer needs.
Unlike the ILECs, Berkshire Connect’s potential
CLEC competitors are free to exploit the same advantages Berkshire
Connect has, but none have done so to date. With its roots
in the Region and its initial advantages in timing, technology
and aggressive pricing, Berkshire Connect will strive to quickly
establish loyalty among its customers and build sustainable
value, thus preserving its unique competitive edge.
5.2 Marketing
Strategy
Berkshire Connect’s marketing strategy is
built around the competitive advantages described in the previous
section. Berkshire Connect will respond with speed and agility
to market opportunities and it will avoid competing in areas
where it can offer no clear value advantage. To accomplish
this, Berkshire Connect will do the following:
- Demonstrate to customers that Berkshire Connect is using
the latest technology to provide a top-quality network that
is reliable, capable and cost effective.
- Explain the benefits of new wired and wireless technologies
that are not widely employed by the ILEC or CLECs
- Partner with business, government and/or third party
service providers, as appropriate
- Carefully select target market segments and tailor the
range of products offered to those markets
- Establish credibility, confidence and long-term customer
loyalty by rapidly deploying a fully-redundant, high-capability
initial network that is specifically designed for phased
and orderly expansion as demand builds
As a local initiative, Berkshire Connect enjoys
the recognition and good will of the potential customers and
partners who called for its creation. Berkshire Connect intends
to carry out service and pricing policies that will sustain
and build upon this advantage.
5.3 Pricing Strategy
As noted previously, there is a widely held
perception that the customers in the region pay an inordinately
high cost for high capability telecommunications services,
and that they are at a distinct competitive disadvantage with
respect to their counterparts in better-served areas. Berkshire
Connect will establish pricing policies that directly address
this disparity.
Berkshire Connect has selected its markets
so that it can offer specific services at prices well below
those of the ILEC. In most cases, Berkshire Connect’s prices
will be comparable, or equal to pricing for similar services
in Boston and New York. Target backbone pricing will be approximately
$600 per DS-1 per month. This is substantially below Bell
Atlantic’s typical price of $1,200 to $1,500 per month and
is comparable to the $500 to $700 typically charged in major
population centers.
Berkshire Connect’s costs, and thus pricing,
will vary depending on mileage, local loop charges, volume,
and other factors, but it will strive to maintain relative
uniformity throughout the region so as to create a sense of
good will and equal advantage among its customers throughout
the Region.
Within these parameters, Berkshire Connect
will maintain a range of pricing flexibility so that it can
offer discounts to volume users, resellers and aggregators,
such as local ISPs. This will provide an incentive to these
potential partners and will permit them to control the costs
of their own services. Target prices for collocation facilities
will be approximately $500 per month per cabinet. This is
substantially below typical prices paid in major metropolitan
areas and thus a strong incentive for Berkshire Connect’s
potential partners.
5.4 Sales
Forecast
A demand analysis was performed to determine
the traffic growth and penetration figures for Berkshire Connect.
The demand analysis is provided as an appendix. Sales revenue
projections are provided on the Berkshire Connect Pro-Forma
Statement, included as an appendix. Certain risks apply to
the sales forecast. The primary ones are that competitors
will enter the market before Berkshire Connect can achieve
a critical mass of market share or that the projected growth
rates will not materialize due to economic, regulatory or
other uncontrollable factors.
Assumptions:
- The services offered by Berkshire Connect include network
capacity and collocation revenues (cabinet rental and value
added services). Not all traffic will be in the form of
DS-1s; however, the traffic is normalized to DS-1 equivalents
for business case purposes.
- Using the critical, educational, municipal, and cultural
user surveys implemented by Berkshire Connect Steering Committee
in July 1998, a base demand of end-user DS-1 equivalents
for the initial year was estimated at 90 DS-1s. These include
both data and long distance voice needs.
- The yearly growth rate is estimated at 55% given growth
in existing companies, new entrants into Berkshire County,
and the dramatic increases in Internet traffic experienced
across all sectors.
- DS-1 circuit demand varies with price. The low offering
price for Backbone transport being offered by Berkshire
Connect both increases the demand for DS-1 traffic and enables
Berkshire Connect to achieve high initial and on-going penetration
estimates.
- Berkshire Connect penetration of existing DS-1 business
is estimated at 40%. This relatively high number reflects
the discontent with the performance and the prices of the
incumbent and the lack of other competitive offerings.
- On-going penetration for DS-1 growth is decreased to
33%, reflecting competitive pressures from the incumbent
and the potential for new competitive entrants in the field.
- Other sources of network revenue include traffic from
enhanced service providers such as local ISPs and traffic
from partnering CLECs such as locally switched voice and
data service providers.
- Collocation revenues include cabinet rental fees of $500/cabinet/month
and minimal value added service revenue. These prices are
conservative, as they reflect substantial reduction in costs
for similar services provided in more metropolitan area
Sales Forecast:
The sales forecast below is summarized from
the Pro-Forma Statement provided as an appendix. Note that
all Revenues include revenue generated by installation services.
(In Thousands)
| Sales forecast |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
| DS-1 Equivalents: |
20 |
98 |
192 |
278 |
362 |
447 |
532 |
| DS-1 Backbone and Egress Revenue |
$53 |
$725 |
$1,444 |
$2,119 |
$2,775 |
$3,438 |
$4,101 |
| DS-1 Local Loop Rev |
$13 |
$114 |
$214 |
$313 |
$413 |
$513 |
$613 |
| Total DS-1 Revenue |
$66 |
$839 |
$1,658 |
$2,432 |
$3,188 |
$3,951 |
$4,714 |
| Total Cabinets |
18 |
90 |
90 |
90 |
90 |
90 |
90 |
| Cabinet and Collo Rev |
$64 |
$543 |
$572 |
$572 |
$572 |
$572 |
$572 |
| Total Revenue |
$130 |
$1,382 |
2,230 |
$3,004 |
$3,760 |
$4,523 |
$5,286 |
 |
|
|
|
|
|
|
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6.0 Financial Plan
Detailed financial projections for Berkshire
Connect are provided in Appendix B.
6.1 Capital Funding Needs
- Total capital expenses for the initial build, upgrade
#1, and miscellaneous expenses are $3.35 million.
- The required additional working capital for the first
six quarters is $1 million.
- Other capital funding requirements are:
- Upgrade #2 for year 2002, $106,000 debt financing
- Electronic upgrades in years 2002-2005, $1,120,000 from
operating funds
- DS1 growth and cab equipment, $1.3 million over six years
from operating funds
These capital funding requirements
are based on the following assumptions.
6.2 Important
Assumptions
Revenue and Demand Assumptions:
(See Section 5.4 for detail.)
- Current Sales Base: 90 DS-1s
- Yearly Growth: 55% (reflects lack of competition
& Internet Growth)
- Penetration existing DS-1s: 40%
- Penetration new DS-1s: 33%
- Resulting penetration rate: 5.7 DS-1s / month
- Cabinet Capacity: 30 cabinets per hub (90 total)
- Cabinet Growth: 2 cabs / month
Price Assumptions: (See Section
5.4 for detail.)
- Demand fluctuates inversely with price
- $600/DS-1 for backbone transport is less than half the
going rate
- At this price, penetration will reach demand assumptions
above
- Price is held constant over first six years
Network Cost Assumptions: (See
Network Costs Spreadsheets.)
- See spreadsheet for ROW, Materials, Labor & Bell
Atlantic cost assumptions.
- Realistic assumptions have been made here to design a
network that is realizable in 1999.
- Costs and timeframe associated with network upgrades
are also realistic.
See Appendix A: Network
Description >
See Appendix B: Financial
Statements >
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