Business Plan

This section should describe the reason for the project and outline key factors and components of the financial business case. This section may also include why the ISP wants to service the area and why the area needs service.

This section should outline the parameters to be covered by the proposed project. This should discuss two major categories:

• The description of the physical target area; communities, geographical area, terrain description and highlights
• The description of the potential user base; numbers of homes and businesses, population density and demographic information

Every possible user entity within this service coverage area is included in the total possible market for the broadband service.

This section should include some indication of how the size of the market is determined. For instance, is every household and business determined to be part of the sizing or has some subset of the geography or demographic been chosen, and why? Such factors are important as they provide an indication as to what type of analysis the ISP has used and what factors are considered in determining the forecasted user penetration for the network (which determines revenue and long-term sustainability).

This portion of the total market (how much of the total market will have access to broadband services) is called the addressable market. Note – rarely is the addressable market equal to the total market.

If there are any constraints (e.g., technical issues) on providing service to customers in specific localities, these issues should be identified here.

This section should be a continuation of the previous section but with emphasis on the actual anticipated penetration or take rate of the network. This should consider two primary factors:

• The expected service take rate for homes and businesses based upon ISP and other experiential statistics
• The presence of service competitors

In order to calculate their market share, the ISP should identify any existing or potential competitors in the area and indicate what share of the addressable market they believe they can capture. There are very few scenarios where an ISP can capture the entire addressable market if there is even one other player, even if the service is not exactly the same (i.e., satellite versus terrestrial based wireless).

The market share forecast and user take rates should be forecasted over a three to five year timeframe, with the expectation of growth in the number of users over time.

This section should describe how the ISP plans to promote the services leading up to network deployment, as well as on an ongoing basis. Despite an understanding of existing market demand, it takes active marketing to turn demand into customers, especially if there is competition. The marketing plan should describe the methods to be used by the ISP to achieve the forecasted user take rates in the preceding section.

The ISP should have existing marketing strategies in place for other regions that it serves. The ISP should describe how these will be leveraged for marketing in the new service area, and discuss any new initiatives, such as advertising or special promotions. In addition, the ISP should identify how sales activities will be carried out in the service area, especially for attracting new business customers.

This section should describe how the ISP will deliver service in order to support new customers joining the proposed network. This will most likely be a description of existing methods for such services provided to existing customers in other service regions, and would include:

• Customer service – how customers receive service from the ISP for requests and how such requests are made.
• Billing – how the ISP handles billing of customers and how billing support is provided.
• Technical support – what capabilities will be provided to receive and respond to technical issues and questions from customers.
• Installation – procedures that will be used for on-premise installations for service, if required.

In all cases, there should be some indication of support service availability and performance metrics, such as hours of operation (e.g., 24/7 telephone support), expected timeframes to respond to installation requests, etc.

This section should describe the factors associated with costing the broadband service. This should align with the technical plan, as all technical costing would be a set of factors in this section. However, this section should include all costs elements associated both with deploying the network and with operating the network. The cost elements should include:

• Costs of network deployment, including equipment and labour.
• Per user installation costs, which may include both equipment and labour, and which may be different for homes and businesses.
• Annual customer support costs, including customer service, billing and technical support.
• Annual network operating costs, including maintenance and operations, equipment renewal and replacement, leasing costs, and other such operational costs.
• Annual promotion costs, including sales, marketing, and advertising within the market area.

Costs for these cost elements should be forecasted over a three to five year timeframe. Additionally, if the ISP anticipates any significant network upgrades to support market growth in this timeframe, these should also be identified and included.

While municipal funding may not contribute to all of the ISP’s ongoing costs, they are important to understand. It is these ongoing costs that will determine the long-term sustainability of the project, because once the capital investment is made, the ongoing costs must be less than total revenue. Although justification for all costs is not required, you may benefit from learning and understanding them.

Two points should be noted here with respect to cost information to be provided by the ISP. First, such information is generally considered very sensitive by ISPs and must be treated with a high degree of confidentiality. There may be reluctance to provide some information, but a solid partnership relationship coupled with confidentiality procedures in handling information should accommodate receiving sufficient cost information from the ISP. Their ability and willingness to provide cost information is also a strong indicator of their level of operational effectiveness. Second, some of the costs can be incremental to existing ISP operations. For example, if the selected ISP has existing networks and customers in other areas, they should be able to leverage existing staff and systems for customer service, billing, and support, as well as some aspects of network operations, sales and marketing. This should be factored into cost estimates.

This section should first detail the services and service packages to be offered by the ISP and the associated pricing for customers. Service pricing should be separate and clearly articulated for each category of customer (typically, business versus residential).

Service descriptions should reflect the factors that define the service from the customer perspective, such as Internet access speeds (upload, download), monthly data transfer limits, and any other associated features (e.g., email accounts, hosting, security). The price levels will then be associated with each different service description.

Service price structures for each service and customer category should include:

• Monthly service fee
• Installation fee
• Equipment rental fees (if applicable)

The intent is for the ISP to clearly indicate what a typical service configuration would contain and what price this would be to the end customer. Any additional items not supplied or not included (towers, pole mounts, etc.) in the basic service pricing should also be identified and priced. If not already indicated in Market Share section, the ISP should detail here how many customers they believe would require these additional items.

If price level guarantees are required for price stability over time, this should be specified and formalized within the contractual agreements between the lead organization and the selected ISP.

After detailing all pricing scenarios, the ISP should then indicate revenue by customer type based upon the user take rate forecast previously described. This will provide a revenue forecast by customer category over a three to five year timeframe (the first two years should be detailed on a month by month analysis).

The financial analysis is the core of the business case for the project that brings together the cost and revenue forecasts to indicate the financial viability of the ISP plans. This analysis is critical to understand the long-term financial sustainability of the network and consequently the importance, type, and level of municipal and other investment in the project.

This analysis is often referred to as a “pro-forma” business case, which is simply a projection over a multi-year timeframe (preferably five years) of costs and revenues to determine net revenues (costs), payback period, and return on investment. A typical business case will show the following breakdown of financials, but other variations on this example, with additional cost and revenue breakdowns, may also be acceptable:

Note: this simplified example does not include taxes, debt financing costs, or depreciation on equipment and is for illustrative purposes. It is not the intent of this document to prescribe how the ISP should develop and represent its financials, but to provide an understanding of what to expect.

As previously indicated, it is preferred that the financials be detailed on a monthly basis for the first two years. The first two years are critical as the ISP needs to obtain as many customers as it can to attain a sustainable position. However, depending on the amount of capital required, it may take up to five years for an ISP to reach a payback position. This is a state where they are no longer paying for the original investment and all revenues are only paying for ongoing costs. This is not to be confused with profitability, which is achieved when total revenue exceeds total costs over the operating period to that point (i.e., cumulative revenue equals cumulative costs).

Thus, the overall five-year set of financials should be presented to include all the cost factor groups and revenues over the five-year period. Payback point should be indicated and the point at which this new local network is considered sustainable by the provider. These are considered financial milestones.

This section may also include the ISP’s description of how much financial support they expect from the municipality. They may also indicate what strategies they would recommend in applying any financial support received, such as offset of capital costs, subsidizing initial customer installation costs, etc.

The ISP should provide an assessment of risks to the project based upon both the results of the analysis contained as well as the level of uncertainty in the analysis (e.g., sources of data, assumptions, variability in forecasts such as take rates). They should also provide recommendations for mitigating the risks.