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«Delivered to | Northern Communications Information Systems Working Group c/o Government of Yukon Delivered by | Nordicity Date | Foreword The Project ...»

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, the 2023 broadband penetration target is 96.2% for 1.5 Mbps +; for UBB (e.g., 9 Mbps+), the 2023 penetration rate is 77.1%. Also, the 2013 broadband ARPU is estimated to be $60, while the 2023 ARPU is $97.25 (without subsidies).6 Adding satellite redundancy to the upgraded network raises the primary network CAPEX cost to

–  –  –

* Fast roll-out scenario.

** The required fnancial incentive is equal to negative value of the NPV generated by the fnancial model.

3.3 Nunavut Figure presents the annual FCF that the incumbent operator would experience under each of the four applicable scenarios. The signifcant negative FCF results in the early years, 2014 to 2016, are on account of the network upgrade CAPEX spread out over three years. The magnitude of the negative FCF in the early years depends on the particular upgrade scenario. In later years, the FCF for all the scenarios converge to some extent. Scenarios 1 through 3 still display negative FCF of $118,000 to $1.6 million in 2023. For Scenario 4 (based model + NEW fbre build) the 2023 FCF is negative $10.7 million.

Figure : Annual FCF, Nunavut (fast rollout scenarios) (50) (100) (150) $ Millions (200) (250) (300) (350) (400) Source: Nordicity estimates Over the entire forecast period, 2014 to 2023, the total CAPEX for the primary network upgrade in is $533.77 million. An additional CAPEX of $3.29 million is also required to expand customer access to the upgraded network in base case and all.

In all, the NPV is negative; and therefore, implies that a fnancial incentive is required, because the present value of incremental revenue is not expected to completely ofset the upfront CAPEX, and ongoing OPEX and administrative costs of the upgraded network. The required fnancial incentive in the is $473.60 million.

In addition to the fnancial incentive required to attract the incumbent operator to invest and operate the network, household subsidies of $7.29 million, or $0.91 million annually, would also be required to maintain afordability for Nunavut households. These household subsidies include payments to ofset the higher cost of UBB service as well as additional subsidies for low-income households.

In, the 2023 broadband penetration target is 89.2% for 1.5 Mbps+; for UBB service (e.g., 9 Mbps+) the penetration rate is 68.5%. Also, the 2013 broadband ARPU is estimated to be $60, while the 2023 ARPU is $97.25 (without subsidies).

Adding satellite redundancy to the upgraded network raises the primary network CAPEX cost to $578.24 million. The access network cost remains at $3.29 million. In fact, it is unchanged across all the scenarios.

, the higher CAPEX costs result in a negative NPV, which entails that the required fnancial incentive is $535.69 million.

the primary network upgrade costs to $1,067.54 million, and the required fnancial incentive to $963.71 million. The with 100% satellite redundancy is, by far, the costliest to implement in terms of both CAPEX and required fnancial incentive.

When, the primary network upgrade CAPEX is $416.16 million and the required fnancial incentive is $502.22 million.

Table : Nunavut Financial Model Summary

–  –  –

* Fast roll-out scenario.

** The required fnancial incentive is equal to negative value of the NPV generated by the fnancial model.

4. FINANCIAL MODEL ROLL-UP: ALL THREE TERRITORIES

Table presents the rolled-up results of the fnancial modelling and represents the result for all three Territories combined. The fnancial modelling indicates that total CAPEX for the network upgrade ranges from $622.68 million to $2.2 billion,. The CAPEX associated with network access equipment adds another $16.08 million to these CAPEX.

The required fnancial incentive to attract the incumbent to invest in the upgrade and operate the network ranges from $547.23 million to just under $2 billion, depending on the.

In the s without fbre builds, the required fnancial incentive is less than the primary network-upgrade CAPEX. In, the opposite is the case. The additional fnancial incentive would cover the present value of these future FCF defcits.

In addition to the fnancial incentive, there would be a household subsidy requirement to ofset the higher cost of broadband. For the 2016-2023 period, this household subsidy is estimated to be $35.39 million or $4.42 million on an annual average basis. Determination of who would be responsible for this subsidy is one of the activities the Broadband Implementation Task Force proposed in Chapter 5 would oversee.

Table : Financial Model Summary – Rolled-Up Analysis

–  –  –

* Fast roll-out scenario.

** The required fnancial incentive is equal to negative value of the NPV generated by the fnancial model.

5. POTENTIAL SOURCES OF FINANCING FOR A SUSTAINABLE

FINANCIAL MODEL

As discussed in the introduction to this Chapter the fnancial resources of stakeholders in the Territories are likely to be inadequate for the recommended network upgrades and that some outside funding of an initial capital investment would be necessary. Benchmarking of best practices for connectivity in rural and remotes areas in leading OECD jurisdictions indicate that federal authorities have taken a leading role in developing connectivity and in ensuring a





sustainable fnancial model. To cite but three examples:

In Australia: the ‘National Broadband Network’ (NBN Co.), a public corporation that funds broadband projects. NBN Co. is administered by the Department of Broadband, Communications and the Digital Economy (DBCDE);

In the US: the Federal Communications Commission (FCC) administers the ‘Connect America Fund’ (CAF) which expands broadband availability Americans in rural areas currently without broadband; and, In the UK: the Department of Culture, Media and Sport (DCMS). Administers the ‘Broadband Delivery UK’ (BDUK) plan, which provides guidance and planning, with a particular emphasis on increasing the availability of broadband in rural areas.

This does not negate the possibility of fnancial contribution from other sources of fnancing including: operators, end-users, territorial governments etc., as well as fnancial models such as Public-Private Partnerships (PPP).

6. CONCLUSION For Yukon, the required fnancial incentive is less than the network upgrade costs because the incremental operating revenue generated by the upgraded network is expected to ofset part of the operating costs in future years. However, subsidies will be required to ofset the costs faced by subscribers and thereby maintain afordability for households. The average annual subsidy for households is estimated to be approximately $1.6 million. This is less than the annual household subsidies required for NWT, which is estimated at $1.9 million. Nunavut will require annual household subsidies at $900,000 to keep rates afordable.

For the Northwest Territories, the fnancial incentive requirement is higher than the total CAPEX in, but lower in the other two.

, the required fnancial incentive is 5% to 10% more than the network CAPEX cost.

, the required fnancial incentive is less than the network CAPEX, but still very signifcant.

For Nunavut, the required fnancial incentive is less than total CAPEX in all four due to the relative size of the upfront CAPEX and the operating losses in future years. Nevertheless, the CAPEX costs or required fnancial incentives are signifcant: in excess of $500 million in all and approximately $1 billion, in particular annual household subsidies are estimated to be $900,000.

On a pan-Territory basis (e.g., the results of the rolled-up analysis), the network upgrade CAPEX is estimated to be between $622 million and $2 billion. The required fnancial incentive is less than the CAPEX in all except the fbre-build. The required fnancial incentive ranges from $547 million to $2 billion. On top of this fnancial incentive, household subsidies of $4.4 million would be required on annual basis to keep broadband service afordable for residents in the Territories.

When interpreting the pan-Territory results, however, it is important to keep in mind that they refect the aggregation of the fnancial modeling results for the three Territories. For that reason, the pan-Territory results do not directly take into account the potential for cost efciencies that could accompany the implementation of a pan-Territory network. The design, procurement and construction of pan-Territory network may cost less in terms of CAPEX than the sum of the three territorial networks.

Furthermore, when interpreting the results across the four, it is important to keep in mind that while certain may entail less CAPEX or fnancial incentive, they may not provide the same potential for future scalability of the network. For example, the new fbre build may allow for lower cost upgrades to network bandwidth capacity in the future than the upgrade based largely on a combination of microwave and satellite infrastructure.

Chapter 4: Economic and Social Benefits Assessment This chapter highlights the economic and socio-economic impacts of increased connectivity, in line with this report’s recommendations, in the three Territories. Implementation of the broadband standards recommended in Chapter 2 – Recommended Service Standards and Network Modeling - would lead to signifcant additional Gross Domestic Product (‘GDP’), employment and consumer surplus impacts in the Territories, as well as have impacts on society as a whole in terms of, for example, healthcare delivery, better education and more efcient government operations.

At chapter end, we also explore the consequences of status quo (doing nothing) on connectivity in terms of economic and socio-economic impacts.

The complete economic and socio-economic impact analysis is provided in Appendix 4 Detailed Economic and Socio-economic Impact Analysis.

MEASURING THE IMPACT

THIS CHAPTER IDENTIFIES $GDP, JOBS & CONSUMER SURPLUS GAINS FROM INCREASED

CONNECTIVITY IN THE NORTH. THIS REPORT ALSO IDENTIFIES IMPORTANT SOCIAL BENEFITS.

1. METHODOLOGY Primary research, secondary research (literature review), benchmarking against comparable jurisdictions, and economic impact modelling were done to anticipate the economic and socioeconomic impacts of implementing the recommended starting point service standard of 9 Mbps download and 1.5 Mbps upload.

The relationship between broadband deployment and adoption and the economic variables (e.g., GDP, employment, and consumer surplus) has been the subject of much research incorporated into this report. Since this research is applied to jurisdictions other than the three Territories, adjustments to the results in the model were made to account for the current conditions in the three Territories.

Figure : Methodology This analysis is two-pronged in that it examines (i) the pure economic impacts that deal with real impact fgures like jobs created in the economy, and (ii) the dollar amount gained in GDP as a result of broadband connectivity. The socio-economic impacts are generally more difcult to quantify and frequently rely on indicators of improvements for society, such as increased healthcare quality, better quality of education or enabling better quality of an employee’s work.

The economic impacts and socio-economic impacts analyses each relies on its literature review to contextualize the fnal analysis and results.

Several case studies profling the impacts felt in other jurisdictions as a result of improved connectivity are provided. Churchill (Manitoba), and Australia, highlighted in this chapter, was among the case studies chosen for their similarities to the North.

2. BASELINE STATISTICS

Some relevant baseline statistics are required in order to better understand the future of the North in the context of improved broadband connectivity. Since the analysis details the changes in GDP and employment as a result of changes in broadband activity, Table details the current GDP (as of the most recent years) and employment totals for each Territory. Table also provides the current population of each Territory for context. The GDP and employment statistics are most useful for interpreting the results of the economic modeling contained further in the chapter. 7172737475 Table : Baseline statistics, per Territory

–  –  –

Source: Various estimates from Nunavut Bureau of Statistics, Yukon Bureau of Statistics, and Northwest Territories Bureau of Statistics 2013.

2012.

2010.

2012.

201.

A key input into the economic model used for the calculation of GDP impacts from enhanced7677 connectivity is current connectivity in each jurisdiction 7 We estimated current average broadband speeds for communities that are not currently on fbre networks in the 3 Territories (see Table ): 2.6 Mbps in Yukon and NWT and 1.5 Mbps in Nunavut.7 Our estimates were derived from the latest data from CRTC’s Communications Monitoring Report (2013 household connectivity data) and Statistics Canada (2011) population data. These communities are most pertinent for our analysis and have the greatest connectivity defcit from the proposed 9 Mbps standard. These communities would bene ft the most from the proposed network upgrades and thus would be the focus of the investment.

Table : Average download speed for non-fbre communities in the 3 Territories, 2013 (Mbps) Download Speed (Mbps) Yukon 2.6 Northwest Territories 2.6 Nunavut 1.5 Source: Nordicity estimates 3. ANALYSIS This report’s analysis of GDP, employment and consumer surplus impacts resulting from the recommended minimum starting point download speed of at least 9 Mbps (1.5 Mbps upload) (reached by 2019 for the Yukon and NWT and in 2020 for Nunavut) is projected from 2016and assumes similar incremental growth in download speeds as the rest of Canada. The economic impacts are seen directly after the frst subscribers join the new network in 2016.

This growth estimate is in line with an estimated 30% year-over-year increase in bandwidth consumption evolving on par with the rest of Canada (at 12.796 Mbps).

The inputs for the fnancial model were calculated independently based on network costing analysis.



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