Internet and Technology

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The good news is that the price tag for major infrastructure upgrades at Bruce Telecom are cheaper than anticipated.

The better news is that the company does not have to borrow money to complete the project.

That was the word from president and chief executive officer Eric Dobson who presented a five-year forecast to Kincardine council in the Bruce Telecom boardroom last night (June 30).

Dobson said the upgrades are required to meet the unrelenting thirst for more bandwidth for high-speed Internet and Digital television services.

The existing technology can provide only 24 megabytes per second (Mbps) which has limited bandwidth and is not meeting the need, he said. The solution is to convert to the latest and greatest copper technology - VDSL2 - which provides up to 100 Mbps.

In addition, shorter copper loops can provide fibre farther out, said Dobson, with connections through Fibre to the Neighbourhood which is cheaper than Fibre to the Home.

Through a phased approach, the company can halt, speed-up or slow-down progress of the project, said Dobson.

"We plan to focus on high-density, highly-competitive areas in this phase," he said, which will give a faster return on investment.

The risk is reduced, said Dobson, because other companies, such as Amtelecom and Hurontel, are already using this new technology. Bruce Telecom is also looking at a vendor that can upgrade the VDSL technology, when necessary.

The estimated cost of the upgrades was $6.2-million, said Dobson. However, following a Request-for-Proposals process, the actual cost came in at $5.57-million.

Originally, the company thought it could upgrade service to 8,500 homes for $6.5-million, but in reality, it can service 8,000 homes for $4 million, Dobson said. In addition, the Fibre to the Neighbourhood solution costs about $500 per house, compared to the Fibre to the Home which cost about $3,500 per house.

"We're providing significantly more bandwidth for one-seventh the cost," he said.

That is for Phase 1 which will begin this year and run to 2012. From 2013-15, the company will concentrate on Phase 2 which is to service higher-cost rural areas. Dobson said he hopes to find a more cost-effective solution during the three years it takes to complete Phase 1.

"We are asking council's approval only for Phase 1," he said. "That will be for the high-density areas in our territory."

He would not say specifically what towns or villages would be serviced due to the competitive nature of the business.

Phase 2 will include one street yet to be completed with Fibre to the Home in Southampton, he said.

So, for this year, Bruce Telecom is looking at $2.1-million (of the $4-million total cost) for the upgrade project, plus other capital projects, for a total cost of $4.07-million for 2010.

Next year, $1.4-million will be put toward the upgrade project, while another $1.6-million goes toward other capital projects, for a total cost of $3-million.

The final amount for the upgrades will be included in the 2013 capital total of $2.5-million. And that $2.5-million capital budget will continue through 2014 and 2015, said Dobson.

He noted that Bruce Telecom is going to face stiff competition for telephone service as more people dispense with land-lines in favour of cellular service and Internet phones.

The company projects growth in TV subscribers and expects to hold its own in the Internet field.

Dobson said the company's cash position is higher than anticipated - at about $3-million - which also bodes well for being able to pay for the upgrades without borrowing money.

Bruce Telecom will continue to pay a dividend to Kincardine of $800,000 this year, $800,000 next year and then $1-million in 2013, $1-million in 2014, and fully restoring the amount to $1.2-million by 2015, said Dobson.

Using a valuation model that takes into consideration depreciation and amortization, Dobson said spending $4-million over two years to upgrade the system, will increase the value of the system by $10 million.

The company's board and CEO will be at the July 7 council meeting, requesting approval for the infrastructure upgrades at $4-million; and for the total 2010 capital budget of $4.078-million, said Dobson.

During questions from council and the press, Dobson said that all new homes in urban areas of this region are still putting in land-lines for local telephone service. He said Bruce Telecom has about 40 per cent of the Internet business in Kincardine, but a higher portion in Port Elgin.

Once competition in the local telephone service comes in next year, it will be a whole different game, he said.

As for cellular phones, Ray Majury, vice-president of marketing, said Bruce Mobility will be offering pre-paid cellular service, as well as cellphone plans.

When asked if Bruce Telecom ever considered not paying a dividend to Kincardine, Dobson said that was never a consideration.

"The residents and taxpayers of the Municipality of Kincardine depend on Bruce Telecom to bring funds to the municipality," he said. "It's one of our responsibilities to continue to pay that dividend, even if it's a reduced dividend for a few years. We feel an obligation to continue to honour that responsibility. And we hope the taxpayers will continue to use our services."

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Wednesday, June 30, 2010