Subject: [pafiber] LocalNet's Fontana Community FTTH Project update

From: <[email-masked]>
Date: Thu, 17 Mar 2005 15:07:51 -0800

Hello my Friends in Palo Alto

At the Sigma-Homega 2003 Net@Home conference in Nice (France) in December, I
introduced to the attendees a large (but at that time anonymous) cooperative
opportunity that I knew was pending decision in California.  There has been
positive progress to date, but as we are all quite familiar with municipal
decisions, still more time is needed before anything really gets started.
Here is what I can share with you at this point.

Please funnel your interest through LocalNet or SAIC rather than try to make
direct contact since the City staff is relatively small and definitely
focused on mission critical issues.  There is NO open solicitation to 3rd
party vendors.

For the last several years, the City of Fontana (in California's San
Bernardino County, ~60 miles east of Los Angeles) has been evaluating its
prospects for building a large-scale, full city FTTH backbone
infrastructure.  The incumbent carriers have been slow to release any form
of broadband service (SBC only hit 80% accessibility for DSL in Jan 2005 --
and the Mayor's residence in a new home development can ONLY subscribe to
digital cable from Adelphia), cell phone service is inconsistent, and yet
Fontana has been in the Top 10 Fastest Growing list of cities in the US for
several years!

In Dec 2002 a stimulating feasibility study was provided by Nortel Networks
that gave the City Council the necessary confidence to go further.  See
http://www.fontana.org/main/mgmt_serv/fiber/fiber_ph1.pdf for this report
(177 pages as pdf).

In 2003 the City of Fontana conducted background due diligence and solicited
proposals from qualified 'general contractors' to provide detailed strategic
plans for the FTTH infrastructure called the ACES Network (Advanced
Community and Education Services Network).  See www.fontanaACES.org for
current information and background references.

After analytical and economic evaluation and physical demonstrations by team
members including LocalNet (advanced versions of the Bern Beecham Challenge
demonstration for Palo Alto reported in the PAWeekly), the City of Fontana
selected a team led by SAIC (www.saic.com) over teams led by IBM, SBC and
Alcatel.  LocalNet was one of several specialist sub-contractors within the
SAIC team providing key deliverables to the ACES Phase 1 Business Plan study
by SAIC.

Throughout 2004 the SAIC team assembled a comprehensive report that provided
Fontana with the necessary information and tools to go forward with a
non-tax funded deployment and new business launch.  See
http://www.fontana.org/main/mgmt_serv/fiber/bus_plan_final.pdf for this Jan
2005 report (72 pages as pdf).

The overall deployment cost was estimated at ~US$100M over 3 years, to serve
a City of ~175,000 residents (55,000 homes and 7,000 businesses) with 100
Mbps typical bandwidth.  The predicted revenues from wholesale leases of
bandwidth to commercial carriers (TV, phone, Internet) under open access
procedures was forecasted to be sufficient to cover the interest charges on
the construction financing.   The SAIC team included bond and legal
specialists as well as equipment, fiber and content services providers (e.g.
LocalNet).

One of several LocalNet primary deliverables focused on the considerable
"other" and supplemental funding and revenue opportunities that were readily
available to a cooperative venture operating in Fontana (the detailed
confidential report is not available but LocalNet's normal business includes
this focus).

Rather than approve a specific contractor to begin construction and services
deployment, the City of Fontana has for the moment chosen to evaluate its
OWN resources to obtain sufficient funds to begin construction of the ACES
backbone infrastructure.  Using a small local grant, they have reorganized
their existing grant funding staff to address a specific funding goal in the
next 90 days, rather than enter the commercial bond market for funds, for
example, even though Fontana's General Fund and is well-financed and rapidly
growing.

As a result, all further activity by the SAIC team --- and all independent
interest from 3rd parties --- is suspended temporarily until Fontana can
bring its internal funding results before the City Council and obtain
approval to go forward.   Until the City of Fontana has cleared itself with
sufficient funds to proceed, there is no direction forward we can share with
you.  Nevertheless, I wanted to keep you abreast of the current situation.

LocalNet has proposed a consulting project to Fontana to pursue the "other"
and supplemental funding we identified and quantified for them in our ACES
Phase 1 deliverables --- specifically as part of a cooperative, cost-shared
development venture.   So my message today is the same as my message to the
audience in Nice in December:   Is there well-grounded interest in helping
LocalNet glue together a worthwhile bundle of consumer services (beyond raw
bandwidth access which will be the City's own contribution in kind) --- to
launch and sustain a financially self-sufficient new local business?   The
incumbent carriers will certainly benefit, but the expected new business
structure will be owned (and operated) by local stakeholders and
stockholders --- aha, actual e-democracy.

This update to you is therefore both a news item and a solicitation to
respond with favorable interest in participating in a cooperative
development project --- with financial and/or technical resources.
(Innovative financing considerations will receive immediate attention of
course!).

LocalNet estimates that the gross $100M construction costs presented to
Fontana by SAIC may be financed on a shared-cost basis by cofunding
stakeholders from Health, Education, Public Safety, Energy, and Special
Interest groups that directly benefit from being able (at last!) to USE a
ubiquitous high-speed network backbone without traffic disruptions to reach
their entire audience --- continually and simultaneously -- rather than
paying separately for temporary access to a restricted service from the
non-fiber incumbents.   Their individual cost SAVINGS versus using incumbent
services exceeds the construction cost EACH YEAR, so the prospect of joining
a living coalition of other cofunders for a fraction of the price is itself
a justification.

As a consulting service, LocalNet routinely provides the strategic and new
business operational plans for a locally managed community 'information
concierge' utility service in the $80-100K price range.  Further, LocalNet
can offer a live, working consumer engaging turnkey pilot to ~1000 homes
that will cost another $800K-$1M to launch and maintain for 12-15 months --
enough time to establish tangible experience and proof of locally reliable
INCOME streams as well as operational costs, as well as demonstrate actual
'content automation' services applied to the whole neighborhood --- and we
can get started using existing infrastructure!   This means the whole
community actually sees, feels, and lives with the new local business
operation without a massive investment or risk.   We believe in physical
examples being used by ordinary citizens (any one, any where) as the real
test of 'take rates'.   Our experience suggests even a small pilot will
likely be self-sustaining within that first year (a smaller pilot of ~100
homes in suburban San Diego was self-supporting after 90 days, and 300-homes
large and still growing) and the business design becomes a high-return
investment when ~10,000 participants are cross-connected.   At these price
points, it makes sense for private investors to take an equity interest in
the formation of a LocalNet in Palo Alto -- or Fontana.

I look forward to your continued interest and positive response.

Best regards

Craig McAllister
Managing Director & CEO
Local Information Networks, Inc.
[email-masked]
415-453-4211
www.localnetinc.com

LocalNet (tm) is a special kind of systems engineering and consulting
company - we help a community design, implement and commercialize a LOCAL
new technology business that re-distributes all kinds of information among
everyone in that community - effectively building an intranet for the
community as the enterprise.  This new business is a true information
utility.  LocalNet provides detailed specifications, tangible local
demonstrations, turnkey pilot projects, and turnover of functioning,
self-sustaining new, locally-owned operations.  We've brought ubiquitous and
easily shared collaboration technology into everyday, purposeful usage.  Ask
about how fast we can do it for you.

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