1. Alameda Power & Telecom An Enterprise of the City of Alameda FEASIBILITY STUDY AND BUSINESS PLAN DEVELOPMENT

2. Vision National Information Infrastructure National Information Infrastructure Telecommunications Transport System Utility Network -Monitoring & Control -Energy Services -System Automation -Auto. Meter Reading Residential Network -Residential Services -CATV/HSD Services -Information Services -Security Systems Community Network -Government Offices -Libraries -Schools and College -Hospital Enterprise Network -Industrial -Financial -Commercial -Information Providers A Municipally Owned Broadband Network...Reliable Telecommunications... Lowest Cost... Universal Access... Variety of Services... Source: Businness Plan Figures 1.1 and 1.2

3. 1998 Electric market deregulation, general economic downturn – desire to diversify Telecom deregulation – consumer demand for competitive services, including community broadband Fiber-optic network – electric command and control and telecom services Unresponsive incumbent CATV provider

4. Industry Driving Forces Providing Choice and Quality Telecommunication Services Satisfying an Existing Market Need Building a Solid Customer Base Providing a New Revenue/Profit Source to the City of Alameda + + Properly Designed Strategies Around the Positive Industry Driving Forces Will Lead to Success

5. 2004 Consumer demand for competitive broadband services Demand for advanced broadband services (“triple play” of voice, video, and data) Demand for community broadband continues Increased municipal funding concerns

6. Choosing a Proficient Consultant “Experience, experience, experience” Retain legal counsel with telecom expertise to negotiate contracts Incorporate flexible terms in contracts to respond to changing competitive environment Use contractors with prior telecom design, construction, and operations experience Include performance incentives and penalties

7. How We Built It Turn-key partner first 3 years –Brought design, operation, and corporate credit Assumed control to complete build out –Experienced personnel became available –Grew in operating experience

8. Value Chains Distribution Support Services Support Services Marketing Programs Signal Reception Signal Reception Customer Service Customer Service Generation Transmission Electric Cable TV Electricity SBU Telecommunications SBU -Construction -Dispatch -Restoration -Complaints -Warehousing -Finance -Accounting -MIS -Billing -Cashiering -Information -New Service -Change Service

9. Business Plan Preparation Identified competitive advantages –Lower rates  more disposable income –Local employment opportunity –Improved customer service Experience and knowledge of the community Incorporate feasibility data Market research –Local focus groups

10. Business Plan Summary Own and operate hybrid fiber-coaxial network Provide TV and data (Internet) services Build to provide alarm monitoring and telephony Priced below competition –Administrative efficiencies with electric utility –Marketing advantage – local ownership, no stockholders –Newer plant means lower maintenance costs

12. Capital Costs Fiber-optic network Electric distribution system command and control (SCADA) Municipal Area Network (MAN) (city facilities and libraries) SchoolNET (all school district facilities 860-MHz hybrid fiber coaxial (HFC) system Headend (HFC, satellite/antenna farm, periodic upgrades) Cable Modem Termination System (CMTS) Nodes Fiber-coaxial distribution system – single-family dwellings, multi-unit dwellings, and commercial Lateral service extensions – underground areas Customer premise – converters and cable modems

13. O&M Staff recruitment, developing methods and procedures, training In-house and contract technicians/installers (plant maintenance/upgrades and residential installations) Traffic coordination/dispatch Installation costs Customer service staff (24x7x365) in-house and outsourced call center

14. O&M (continued) Internet service provider - modem provisioning and customer technical support (24x7x365) Customer information and billing system Acquisition of programming - NCTC Connection to POP/Internet Operating costs allocated to support services (warehouse, accounting, legal, HR, etc.) Sales, marketing and customer acquisition (door-to- door sales, advertising, campaigns/promos, direct mail, affinity programs, community events, and public relations)

15. Validating the Customer Survey 1997 -Business Plan and market survey (marketplace ripe for an overbuild); validated by third party and focus groups 1998/1999 -City Charter revision - Measure A Development of implementation plan; retained consultant, secured financing, and built MAN 2000 -Business Plan update, system design and construction started. Marketplace surveys, focus groups, reassessment of competitive landscape, to determine channel lineup, HSD services, price points 2001 -Video service launch 2002 - Data service launch 2001/date -8,300 video customers and 4,000 HSD customers. Validation of business plan and refinancing of project.

16. Projecting Revenues Develop penetration goals (video and HSD) Match construction rollout with customer acquisition targets Speed to market critical - delays will disappoint potential customers Determine price points and design service tiers and bundles Differentiate offerings from CATV incumbent, ILEC and DBS Develop initial “core” offer Develop “Plan B” for competitors matching or exceeding offer Understand customer acquisition costs and most effective methods

17. Competitively Pricing Services Goal – flexible options and packages Establish and protect margins – know and appreciate programming license fees Competitive but differentiated channel line-ups and packages Bundling Know the expectations of your customers – market research –Price is the bottom line –Competitive response to your success –Clear, concise, understandable pricing structure – no fine print, asterisk-free

18. Developing Realistic Penetration Rates Know the difference between homes passed and serviceable homes CATV goal = 30%; actual = 36% of serviceable homes Data goal = 12%; actual = 16% of serviceable homes Anticipate challenges to achieving goals: –Customer resistance to “switching cost” –Difficulty acquiring MDU and HOA access agreements –Level of affinity with community (“build it and they will come” is not necessarily true) –Competitor retention offers - price motivates the consumer –Successful sales and marketing strategies (leverage existing customer relationship, door-to-door sales, campaigns/promos, direct mail, advertising, community events, and public relations) –Must be responsive to changing business environment

19. Legal Issues Authority to offer telecommunication services City Charter Validation action Franchise obligations (PEG, leased access) First amendment, obscenity, and public control of programming Public sector/private sector competition Open meeting and open records laws

20. Economics 2000 -$10 million equity (early startup costs) $16 million construction loan (P & I) 2004 - $33 million BANs, tax exempt –$16 million earlier loan repayment –$11 million capitalized interest – $5 million construction 2004 -$2.2 million interfund/cash loans 2007 - Cash flow is positive 2008 - $3.9 million positive cash flow 2009 -System refinance, tax exempt

21. Marketing Structure and Goals Unique selling proposition –117 years of electric utility service –Local ownership and control –Superior technology Market penetration –Neighbor-to-neighbor connection Market pressures and competition –Meet industry specials with responsive service and understandable pricing

22. Cable Subscriber Acquisition Strategy

23. Internet Subscriber Acquisition Strategy

24. Marketing Tools Direct marketing Events Affinity Community-based Promotions Public relations In-house sales Door-to-door sales

25. Developing the Schedule “Everything is within walking distance If you have the time.” - Steven Wright) Speed to market is critical Buy-in from the community Carefully manage customer expectations (under-promise and over-deliver, link construction plans and consumer demand) Legal and regulatory issues Public contracting process Competitor opposition efforts Development of franchise agreement Development of contractor agreements Acquisition of programming and retransmission agreements