Agilent Technologies, Inc. · NYSE:A
Agilent Technologies — Palo Alto Fiber Network — Investor Presentation (February 1999)
54 slides from Agilent Technologies's investor presentation, Feb 25, 1999
Slide 1: Palo Alto Fiber To The Home Trial
Palo Alto Fiber To The Home Trial Contributions From: ----------- Peter M. Allen Terry Andre Keith Cooley Margaret Cooley Michael Eager Rick Ferguson David Harris Warren Kallenbach Marvin Lee Ken Poulton Frank Robles ----------- The City of Palo Alto Utilities Staff (C) Copyright 1999 Palo Alto Fibe
Slide 2: Outline
Outline • Goals • Benefits • System Description • Cost Recovery • Risks • Summary 2
Slide 3: The Long-Term Goal: A City-Wide Palo Alto Fiber Network
The Long-Term Goal: A City-Wide Palo Alto Fiber Network 3
Slide 4: Existing City Policy Objectives
Existing City Policy Objectives * ”Accelerated deployment of a broad range of advanced broadband telecommunications services to all of the citizens and businesses in Palo Alto” * ”...an extension of the City’s long-standing policy of providing utilities infrastructure for the citizens and businesses
Slide 5: Palo Alto Fiber Network Objectives
Palo Alto Fiber Network Objectives • Serve the community. – Build the new roads of the Information Age – Enable better community communications. – Provide bandwidth to end the World Wide Wait. – Promote communication instead of commuting. • Minimize financial risk to our city. – The customer pays fo
Slide 6: Residents' Contributions to the Utilities Department's FTTH project
Residents’ Contributions to the Utilities Department’s FTTH project • Initial idea for FTTH project in Community Center • Publicity • Increasing participation rates • Reviews of and contributions to the FTTH proposal: technical, economic, organizational • Wrote the Technical and Budgetary Report on
Slide 7: What is a Network? What is the Internet?
What is a Network? A group of devices that can talk to each other within a policy boundary. What is the Internet? Networks that have agreed to communicate with other networks. 7
Slide 8: Revolutions of This Century; Beneficial Monopolies in the Last Mile
Revolutions of This Century • Industrial Age: • Cars, trucks, Mechanical and airplanes, cinema, Electrical. radio, TV. • Information Age. • Computers and the Internet. Early in this century, cities with the best transportation infrastructure became centers of commerce. History is repeating itself wi
Slide 9: Do Homes Really Use the Internet?
Do Homes Really Use the Internet? 50 45 40 35 Percent 30 25 20 15 PC Households 10 Internet Households 5 0 1994 1995 1996 1997 1998 1999 2000 2001 * US home Internet use is approaching PC penetration. * 80% of Palo Alto homes have at least one computer. => 2/3 of Palo Alto homes (16,000) are connect
Slide 10: The biggest Internet problems: Bandwidth, Bandwidth, and Bandwidth
The 3 biggest Internet problems: Bandwidth, Bandwidth, and Bandwidth • Use is growing: New users and more frequent use. • Richer content: graphics, sound, video, data bases. These trends create a push by producers and a pull from consumers for more bandwidth. The biggest bottleneck is in the Last Mi
Slide 11: Is Fiber Optic Service a Good Value?
Is Fiber Optic Service a Good Value? Yes! It is the ultimate in speed and value; It will not become obsolete; Fiber is secure; Fiber is unaffected by electric fields; Fiber does not radiate. Performance to Price Map 250 Worst 200 150 $/Month Fiber -100Mb/s --->> 100 Fiber -10Mb/s Cable Modem 50 ADSL
Slide 12: Is Fiber Optic Service a Good Value? Log Map
Is Fiber Optic Service a Good Value? Yes! It is the ultimate in speed and value; it will not become obsolete. Fiber is secure; Fiber is unaffected by electric fields; Fiber does not radiate. Performance to Price: Log Map 10000 Worst T1 C able M odem T elep hone Mod em 1000 $/Mo nth AD S L Fiber - 10
Slide 13: Why Ethernet?
Why Ethernet? • It’s the standard - used in most offices in the world – 10 Mb/s is the least expensive kind of network now – Familiar to all ISPs • It’s easy to upgrade later – Many companies are creating new Ethernet products – 100 Mb/s will be cheap in 3 years, 1000 Mb/s in ~8 years • It meets the
Slide 14: What use is all that bandwidth?
What use is all that bandwidth? Example: A music CD contains 66o Mbytes of data. How long would it take to send this from Palo Alto to San Francisco? Method Transfer Time 56 Kilobits/second PC Modem 26.2 Hours 500 Kb/s Cable Modem 2.93 Hours 1.5 Mb/s Commercial T1 Service 59 Minutes 55 MPH Automobil
Slide 15: What will be the benefits of FTTH?
What will be the benefits of FTTH? • Better Communication - Within the community, between homes and employers, worldwide. - Better Quality as well as Quantity - Fast both directions - allows people to be providers, not just consumers. • New Ways to Work - Telecommuting, even for high-bandwidth tasks
Slide 16: Who will benefit from FTTH?
Who will benefit from FTTH? An estimated 16,000 Palo Alto homes use the Internet today. Over 1000 want FTTH now as indicated by a one shot CPAU ‘survey’ via utility bill insert (8/98). • Homes, Schools, Libraries, and Businesses will gain true high-speed Internet and community information access. •
Slide 17: How does CPAU benefit from owning the FTTH system?
How does CPAU benefit from owning the FTTH system? FTTH brings the city many of the same benefits as the Fiber Ring. Quoting from the Fiber Ring proposal approved by the City Council on February 26, 1996 (CMR:150:96): • Diversification of the Electric Utility's revenue streams into a growth market.
Slide 18: Existing Palo Alto Fiber Ring: Route Map
Existing Palo Alto Fiber Ring: Route Map 18
Slide 19: The Proposed Palo Alto Fiber Network Trial
The Proposed Palo Alto Fiber Network Trial 19
Slide 20: Typical Pole to Home Wiring
Typical Pole to Home Wiring Home installation is similar to cable modem but uses fiber. 20
Slide 21: What are the building blocks of a Network?
What are the building blocks of a Network? • Customers – Residential, Commercial, Academic, Civic, Special Interest • Services – e-Mail, Content, Web Hosting, e-Commerce, Education • Internet Access – Internet Access and Transport • Network Operations – Routing, Traffic Control, Security, Billing, C
Slide 22: Who Does What?
Trial Who Does What? City-Wide • Customers 5000- 160-800 26,000 – Residential, Commercial, Academic,etc homes homes • Services Any ISP Any ISP – e-Mail, Content, Web Hosting, e-Commerce • Internet Access Competing Single – Internet Access and Transport IAPs IAP/ • Network Operations Network Network
Slide 23: Cost of Construction vs. Year of Construction
Cost of Construction vs. Year of Construction 1600 Trial construction costs in $1000s 1400 1200 Electronics 1000 Materials 800 Labor 600 Engineering Total 400 200 0 90 92 94 98 00 96 02 04 06 08 19 19 19 19 19 20 20 20 20 20 Year of Trial Construction The construction cost factors favor doing it rig
Slide 24: Why Now?
Why Now? • FTTH construction cost no longer dropping rapidly – Electronics now only 5% of system cost • The market is ready – Telephone modems have reached the 56 Kb/s limit – Users starting to move to medium-speed (~1 Mb/s) services • We have a window of opportunity – Cherry-picking of businesses a
Slide 25: Participation Rate
Participation Rate • The offer: – 10 Mb/s service – $1200 install + $10-35/month + unknown IAP charges – A first-in-the world service, not yet demonstrated • The city’s marketing: – A single utility-bill insert and a few ads – Yield: a 4% city-wide signup rate in just 4 weeks, (1% is considered a go
Slide 26: FTTH Trial Cost Recovery
FTTH Trial Cost Recovery Based on Neighborhood % Participation Rates. Installation Fee = $1200 Monthly Subscription = $40. 200 100 0 Trial Cost in $1000s 0 1 2 3 4 5 6 7 8 9 10 11 -100 -200 38% 29% -300 19% -400 -500 -600 Years of Operation FTTH system is profitable in 4-10 years, depending on parti
Slide 27: What are the construction costs of the FTTH Trial?
What are the construction costs of the FTTH Trial? Taxes Engineering 3% 11% Electronics Cables 5% 35% Labor 46% Projected fees: $1200 installation, $60/month (including $20/month to the ISP). Construction cost is $4,600 per home for 10 Mb/s service. Total trial is $753,000; $218,000 paid by installa
Slide 28: Didn't the City Manager's Report say FTTH takes too long to pay back?
Didn’t the City Manager’s Report say FTTH takes too long to pay back? December City Manager’s Report: Cost recovery in 40 years January Revision of City Manager’s Report – Construction cost estimate reduced by $74,000 26 years Option: Single-IAP Operation (City’s numbers) – Use IAP’s equipment inste
Slide 29: Can we Reduce the Cost Recovery Period further?
Can we Reduce the Cost Recovery Period further? Cost recovery period is much more sensitive to monthly revenue than to installation fees. At 19% participation, $40/month: 10 year payback Ways to achieve 7 year payback: – Increase user fees to $50/month – Or increase participation to 24% – Or some of
Slide 30: What is the Financial Risk to the City?
What is the Financial Risk to the City? The city will invest 70% of the FTTH Trial cost: $530,000. • Residents pay 30% of the cost up front. Once connected, they will stay with the FTTH system because competing services are much slower for comparable monthly charges. • Cost recovery occurs in 10 yea
Slide 31: What Financial Obligations Are Appropriate?
What Financial Obligations Are Appropriate? • No refund guarantees to residents • Once the system is up, it benefits both the users and the city to keep it running. • The city could sell the trial system to a private operator if necessary. • No property liens to guarantee participation • The users w
Slide 32: What is the Yearly Net Revenue?
What is the Yearly Net Revenue? Case Investment Net Revenue Return Trial, priced for 10-year payback: $530K $71K/year 13% Scale up to a city-wide system: $18M $2.2M/year 12% City-wide system, with 50% participation: $18M $6M/year 30% 32
Slide 33: Set the Fees to Reach the Desired Recovery Period
Set the Fees to Reach the Desired Recovery Period Payback period is most sensitive to monthly payment and participation rate. • Council chooses the payback period (7-10 years). – Too short will increase risk of losing participants. • Monthly rates are set to achieve the chosen payback period. • Publ
Slide 34: What's the Competition for FTTH?
What’s the Competition for FTTH? • Other Technologies: cable, DSL, wireless, satellite • FTTH has 10-100x more bandwidth per user than competing technologies for the foreseeable future. • FTTH is less expensive to upgrade than other technologies. • FTTH monthly fees are comparable to other services.
Slide 35: Consumer-Level Internet Access Technologies vs. Year
Consumer-Level Internet Access Technologies vs. Year Any technology will need considerable new infrastructure investment to go much beyond 2 Mb/s per user. 35
Slide 36: City Ownership Enables Competition
City Ownership Enables Competition: • multiple Access Providers • multiple local Service Providers 36
Slide 37: Why should the City be involved in FTTH?
Why should the City be involved in FTTH? • Fulfill the City’s telecom development policies: • Accelerate deployment to the residents. • Use the city’s lower installation costs to decrease costs to the users. • Provide additional means of revenue for CPAU. • Enable competition • Multiple IAPs • Local
Slide 38: Why Should the Trial Include Both Neighborhoods?
Why Should the Trial Include Both Neighborhoods? • Fairness – 2 areas chosen by staff because of local initiative -> high participation -> good economics – Avoid appearance of a North-South preference • No public discussion of the best size for the trial – Telecom Advisory Panel discussed a 1% trial
Slide 39: How Big are Other Telecom Trials?
How Big are Other Telecom Trials? • Sweden: IP Telephone trial 300 users • Sydney: IP Telephone trial 250 • Netherlands: Lucent cable modem trial 1000 • West Indies: Lucent wireless trial 500 • London: Fujitsu ADSL trial 2000 • Boston: US West video-to-home-computer trial 180 Even the full-size FTTH
Slide 40: Results of the Trial
Results of the Trial • Demonstrate that FTTH is practical and pays for itself. • Refine the construction and operational cost models . • Work out operational details and user support. • Measure user satisfaction. • Start bringing the benefits of office-grade data networks to Palo Alto residents. • I
Slide 41: Palo Alto Fiber Network Phases
Palo Alto Fiber Network Phases • Build the backbone (done!) $2M • FTTH Trial (the next step) $0.5M – Refine cost estimates and design – Measure user satisfaction, participation rate – Make recommendations for a city-wide system • City wide rollout $26M – Market competition – New services – Revenue 4
Slide 42: Summary
Summary • Fiber to the Home provides unparalleled speed and value to the residents. • The proposed trial system is technically feasible. • The cost estimates are conservative and the revenue estimates are realistic. • The financial risk to the City is manageable and reasonable, coming well within th
Slide 43: Palo Alto and the World
Palo Alto and the World Technology Leadership into the 21st Century 43
Slide 44: End: Supplementary Information Follows
End Supplementary Information Follows 44
Slide 45: Recommendations
Recommendations (1) Approve a Budget Amendment Ordinance of $753,000 to fund trial implementation of a Fiber-to-the-Home (FTTH) network as described in CMR:424:98, modified to use a single Internet Access Provider as described in PA-FiberNet’s Technical and Budgetary Report. (2) Approve collection o
Slide 46: References
References • Palo Alto Fiber Network site: www.pa-fiber.net • Slide: “Do U.S. Homes Really Use the Internet?” – See www.cyberdialogue.com/isg/timeline/forecast.html for results of a FIND/SVP survey estimates and projections. This corresponds to the following government survey: – See www.ntia.doc.gov
Slide 47: More References
More References • Slide: “How Big Are Other Telecom Trials?” – http://www.tagish.co.uk/ethosub/lit7/e236.htm – http://www.idg.net/idg_frames/english/content.cgi?vc=docid_9-63300.html – http://www.lucent.com/press/1297/971215.nsb.html – http://www.lucent.com/press/0598/980528.coa.html – http://www.we
Slide 48: Cost Recovery Scenarios
Cost Recovery Scenarios City’s cost recovery calculations Ways to decrease cost recovery time further Costs and Revenues - Both Neighborhoods Dec CMR Revised CMR Ed’s single-IAP $40/mo $50/mo 29% Partic Save $55K Save $150K Combo Homes in Trial Area 836 836 836 836 836 836 836 836 836 Subscription r
Slide 49: What about Fiber to the Apartment?
What about Fiber to the Apartment? In December, a Palo Alto apartment building was directly connected to an ISP using the Fiber Ring. Does this mean private operators will do FTTH for us? This is apples vs. oranges: •single fiber run to one building vs. fiber per home •shorter distances •indoor elec
Slide 50: What is the Universal Telecom Service Request For Proposal (UTSRFP)?
What is the Universal Telecom Service Request For Proposal (UTSRFP)? • A passive approach to residential service. It asks companies: “Tell us what you’d like to build”. • The city’s contribution (the Fiber Ring) is less than 10% of a city- wide residential system. - Little incentive for companies to
Slide 51: What can we expect from the UTSRFP?
What can we expect from the UTSRFP? The Universal Telecommunications Service Request For Proposal (UTSRFP) could gather several kinds of responses: • Wireless - only low to medium effective speed (0.03-1 Mb/s) because it is shared among many users. • Use installed copper infrastructure (telephone wi
Slide 52: How can the UTSRFP fit with the FTTH Trial?
How can the UTSRFP fit with the FTTH Trial? • Proceed with the FTTH Trial – Provides real-world cost, operations and participation data. • In parallel, begin the decision process for a city-wide system: – Confirm that FTTH is the right choice for a city-wide system. – Decide what mix of public/priva
Slide 53: What Should Be in the UTSRFP?
What Should Be in the UTSRFP? • Clear technical specifications: – High per-user (not shared) bandwidth (10 Mb/s) available at the outset – Per-user choice of speeds – Inexpensive future upgrade path to 100 Mb/s, 1000 Mb/s – High speeds in both directions • Operational policy requirements: – Real com
Slide 54: High Participation Density Streets Included in the Fiber to the Home Analysis
High Participation Density Streets Included in the Fiber to the Home Analysis for the Barron Park Region 54
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