Burbank Water and Power
BUSINESS PLAN FOR COMMUNICATION SERVICES AS A UTILITY SERVICE OF
Burbank Water and Power

10/19/94

TABLE OF CONTENTS

1. EXECUTIVE SUMMARY
2. GENERAL DESCRIPTION OF Burbank Water and Power FIBER OPTIC COMMUNICATION SYSTEM
3. THE MARKET FOR FIBER OPTIC COMMUNICATIONS
   1. Local Area Network (LAN) Integration
   2. Video Transmission Capability
   3. Dark Fiber
   4. Post Production Review and Control
   5. Telephone PBX Interconnect
   6. Future Markets
4. THE FIBER OPTIC SYSTEM PLAN
5. STRATEGIC ANALYSIS AND CONSIDERATIONS
   • A Bias Towards Action
   • A Simple Organization Structure and Lean Staff
   • Continued Contact With Customer
   • Productivity Improvements from Within the Organization
   • ONE Key Business Value
   • Emphasizing Doing What the Firm Knows Best
   • Focused Yet Loose Controls
   • Competition and Growth
   • Special Strategic Consideration
6. FINANCIAL PROJECTS FOR BWP FIBER OPTIC SYSTEM
   1. SALES FORECAST
      • LAN Integration
      • Video Transmission
      • Dark Fiber
      • Production Review and Control
      • Telephone PBX Integration
      • City, Schools, and Utility Services
      • Combined Sales Forecast
   2. CAPITAL REQUIREMENTS AND ANNUALIZED EXPENSES
   3. OPERATING RESULTS
7. IMPLEMENTATION OF COMMUNICATION SERVICES

EXECUTIVE SUMMARY

Fiber Optic communication technologies are revolutionizing the communications industry because of their high performances and low costs. In addition to their performance and cost advantages, fiber optics are not affected by electric voltages or currents. Its immunity to electricity makes fiber optics an attractive communication technology for an electric utility such as Burbank Water and Power. The communication system (copper wire) currently used to monitor and control Burbank Water and Power facilities can be subject to failure during electrical disturbances because of its conductive nature.

Power utilities throughout the country have and are installing fiber optic communications to control, monitor, and operate their power systems. Los Angeles Department of Water and Power, Southern California Edison, and Pacific Gas and Electric as well as local municipal utilities have begun to install fiber optics. For example, the City of Anaheim has just begun a planned three year construction program to build an extensive fiber optic system for its municipal utility and other city services.

These power utility fiber optic applications have been justified on the basis of improved communications for the control of the electric utility and other City or utility uses. Reduction in costs of fiber and fiber equipment has made fiber optics less expensive over the years now making it a cost effective technology for utilities, such as ours.

In August 1992, then Vice Mayor, George Battey asked if it might be possible for Burbank Water and Power to make communications services available to others. The timing of this inquiry proved most fortunate. Changes in communication technology and regulation have made the concept of constructing a public fiber optic network feasible. Further, Burbank's entertainment companies need for such systems are rapidly growing as digital technology becomes the typical form for film and video production. A public network that would be locally controlled and thus able to quickly meet specific needs of our customers would be very desirable for these customers.

The City in conjunction with Sammons Cable Systems is developing a video with data network called I-net that will link governmental and school units in each of the two cities. The I-net system fiber optic requirements are proposed to be provided by both Sammons and Burbank Water and Power. By operating this Sammons fiber facility in conjunction with Burbank Water and Power system a wider area, more powerful, network with other capabilities may be constructed at a low cost. This development will be part of the Sammon's franchise agreement with the City of Burbank.

It has taken a year and a half to review and consider the market for this technology. We have found that fiber optic cable is the cornerstone of this technology. It is a relatively stable technology that is well suited for utility applications and also capable of providing the types of services desired by the entertainment element of our business community.

Our plan calls for us to build an initial fiber system, with some networking, operating at high speeds. This requires the installation of fiber optic cables and electronic devices to convert the electrical signal to light and back to electrical signals at the receiving sites. Building on this base, as the applications improve and customer usage increase over time, will allow us to take advantage of maturing technologies early in their application.

This plan does not provide for commercial cable television applications, however, such applications may be considered and accommodated in the future when digital technologies are more widely used for such applications. Our plan takes advantage of our existing management structure and capabilities of our current personnel. Our marketing representation will require strengthening in the second year. Technical design and project management skills may also be needed. However, we may begin now with little change in existing staffing levels.

This plan calls for us to provide retail communication services. The Burbank City Charter allows broad definition of utility services, beyond water and power, including any utility service. Communication technology no longer requires a monopoly utility service. Fiber optic network will help improve communication technology where available. We would provide this service at cost, without long term subsidies by electric customers.

It is the intent of this plan to provide a broad range of communication services and attract new service and service providers, starting with the simpler applications and expanding into the more complex.

The plan calls for us to work with other communication companies to provide services in a cost efficient manner. Such companies as Pacific Bell, and new phone companies such as Teleport and Metropolitan Fiber System, specialized service providers, and the City can both compete and cooperate in bringing modern communication services to the City at a competitive price. We have developed a cooperative arrangement with Teleport that is an example of how we can work with other systems.

The system will be constructed over time. Initial coverage is designed to provide services to our electrical facilities. This will allow the linkage of the media district, the airport, and downtown.

Future loops will be constructed as needed and feasible. City-wide communication services have not been considered at this time. However, no applications have been identified, future applications may identify such needs, and technology will likely reduce costs thus making the likelihood of a city-wide network possible in the future.

Constructing a communication system with sufficient capacity to meet the needs of the utility and others require larger capability than we would construct for our own needs, however, building the initial system at the larger capacity increases the cost by less than $50,000. Other municipal utilities have each recently installed fiber optic systems solely for their own needs. They now wish they would have spent the little extra required for a larger system. In order to add this capacity after construction they would duplicate many expenses. It is far less expensive to build surplus capacity into a new system than to add capacity to an existing system.

This business plan shows that constructing a municipal fiber optic communication system simply for telephone services would be a marginal and risky venture. In order to be a prudent undertaking a need such as monitoring and controlling an electric utility operation must exist. It is doubtful that municipalities who do not have electric operations would find our plan attractive.

The key elements of this plan are the following:

1. Construct a fiber optic communication system which can control and monitor the electrical facilities of Burbank Water and Power during electrical disturbances with little risk of failure.
2. Construct sufficient capacity in the fiber optic communication system to accommodate future needs of the utility and the community including portions of I-Net for the City of Burbank and Burbank Unified School District.
3. Provide specialized communication services at a rate sufficient to generate revenues to pay for the system without long term subsidies by electric or water customers.
4. Provide communication facilities for a fee to communication companies and communication services providers to encourage a competitive market for communication services that enhances the desirability of Burbank for communication dependent businesses.

With the consent of the City Council, Burbank Water and Power will begin the construction and operation of the proposed communication system.

The following activities will be required:

• Parties who have expressed interest in services that could be included in the initial construction phase will be contacted and their requirements incorporated and included in the construction plan as required.
• The City Attorney will review any regulatory or legal considerations associated with providing services to others.
• Any significant service contract or agreement for construction of this system will be brought to the City Council for its approval.
• Any rates and regulations for services will be brought to the City Council for its approval.

The initial system will be funded by Burbank Water and Power and will be constructed over a twelve month period at an initial system cost of $915,000. It will be managed as its own cost center, so that the cost of contracting and maintaining the system can be "billed" to its utility and non-utility users.

GENERAL DESCRIPTION OF BURBANK WATER AND POWER FIBER OPTIC COMMUNICATION SYSTEM

The fiber optic communication system is needed to provide a communication network that will be immune to electrical faults and be capable of carrying a large variety of communication traffic required to safely and efficiently operate Burbank Water and Power (BWP) utility services. In addition, the system shall provide communication services for the community that will retain and attract new businesses and business lines. The system will be developed over time as required and feasible so that all City facilities, and our residents, will have access to our system and communication services from others throughout the City.

Burbank Water and Power's current communication system consists of copper wires with some limited fiber optic applications. The fiber optic applications were first installed in 1987 for the purpose of linking Burbank Water and Power to the City Hall and its computer system. Fiber optics are also used to monitor and control the City's microwave system from BWP's communication shop and to extend a local area network.

The copper communication system is extensive and is used for specialized telephone, data, control and electrical system protection device applications. The copper communication system has experienced problems during severe electrical outages. Often, large electrical currents and voltage fluctuations are present when an electrical outage occurs.

These currents and voltage fluctuations can cause the loss of communications at a time that such service is important to restore electrical power. Burbank Water and Power has taken the measures necessary to reduce these undesired effects, however, they cannot be totally eliminated from a copper communication system. Communication companies, such as Pacific Bell, are aware of these problems and simply refuse to bring their copper communication lines directly into an electrical power facility.

Fiber optic communication systems are generally unaffected by electrical disturbances. The fibers do not conduct electricity and the electronic devices connected to the fibers may be battery powered, and thus isolated from the electrical power grid. Many electric utilities are implementing fiber optic systems which provide better control and protection of their power systems than copper may provide. Southern California Edison Company, for example, has a large fiber network in operation for its utility.

It will take time, experience, and resources of the BWP in order to replace and improve our communication system with a fiber system. Our objectives can be staged so that we can gain experience as the system grows and better control our use of BWP resources.

Technology improvements are reducing the cost of fiber optic terminal equipment regularly. By staging our implementation over time, we may take advantage of these cost reductions in the future.

Our first objectives will be the following:

1. Connect the fiber optic communication system (System) to major electrical facilities.
2. Construct an initial loop of the System so that it is near significant early users of the system including City and school facilities for I-net applications.
3. Develop interconnections with regional communication companies to provide the effective and desirable communication capabilities for our users by making a significant market available to them without duplicating an extensive fiber system within Burbank.

The first loop will connect our major electrical facilities. These facilities include our offices, SCADA center, switching stations, power plants and seven distributing stations.

This first loop passes near City facilities, the major studios, a major medical facility, numerous production companies, large office complexes and many City facilities. The final route may be adjusted or expanded as required to meet the needs of others that are not now included.

We recognize that it is important to be able to provide broadband communications beyond the boundaries of Burbank. We have opened discussions for such interconnections with others such as AT&T, Pacific Bell, Teleport Communications Group and Los Angeles Department of Water and Power. Each of these parties have unique strengths and weaknesses. Others, such as Sprint, MCI, Metropolitan Fiber Systems, Sammons Communication Systems and Southern California Edison are also possible carriers.

Pacific Bell has shown support for interconnection with our System. Its initial Information Super Highway development will not travel directly through Burbank, but Pacific Bell does have an existing fiber optic communication system in Burbank that may possibly connect to our system and by 1996 made part of their statewide Information Super Highway. Its system and our system can enhance one another. These combined facilities will ensure an abundance of fiber from more than one provider of services, creating a competitive environment.

Los Angeles Department of Water and Power has a fiber optic system which extends into Burbank near the Media District and also has terminations at its Toluca Receiving Station, our electrical interconnection point for outside power imports. It has a capacity that could be used to reach downtown Los Angeles and the West Los Angeles areas.

Our long term objectives are:

1. Secure a very reliable two-way communication path to effectively and economically control and monitor our electrical facilities and load. Provide City I-net services in conjunction with Sammons or others in an economical manner.
2. Continually improve our communication services to maintain excellent, high quality state of the art service.
3. Interconnect with other communication providers and/or users to provide low cost, effective long distance communication services.

We will first approach these objectives by providing communication services using simple fiber optic strands connected between points. These strands will be strung in 96 strand cables that will be installed in our existing overhead and underground electrical facilities. We may also provide communication services from digital communication hubs which will allow for greater reliability and better use of cable resources.

By using our existing underground and electrical facilities we may install fiber optic cables easily and at a much lower cost than if we were required to install new poles or underground conduits. For example, the most basic of underground conduit for communication service costs approximately $20 per foot, plus the cost of the cable ($4 to $8 per foot installed). By using our existing facilities we can build our system for less than half the cost that it would cost others. Sammons could build at a cost comparable to us but they are limited in the services that they may provide.

Wholesale marketing of communication services will be an important marketing channel. This channel would provide communication services to such communication retail companies as Pacific Bell, Teleport Communication Group, or Los Angeles Cellular. Reseller marketers of a specialized service may be important wholesale customers of our system. For example, a firm providing specialized high resolution, low distortion video feeds for professional level applications could use our system to make this service available in our service area.

Some retail marketing is feasible. Examples of specific market segments for direct sales to end users are the studios and post production companies. The entertainment industry is rapidly using digital methods for producing video and composing film and special effects.

We have discussed these services with Disney, Warner Bros., NBC and several post production companies and have found specific needs where we could be of assistance. Smaller production companies have expressed interest in cost effective solutions, but details have not been discussed sufficiently to determine such solutions.

We would fold these services into our electric business line, much like we have combined the reclaimed water program with our water supply services. As these services become significant we would form a separate division for its operation. There would always be some overlap as communications are vital to power system control. Operation and communication lines would be initially constructed and maintained by our electric field personnel, however utility communications and applications could be a separate division.

Project management would be provided by Ron Stassi, General Manager of BWP; Fred Fletcher, Power System Manager; Greg Simay, Electrical Services Manager; Sam Mahsoul, Senior Electrical Engineer; Chuck Beller, Supervising Electrical Engineer; John Cassidy, and Jerry Recker Electric Services Engineers; Richard Andersen, Electrical Test Coordinator; Chuck Herron, Electric Distribution Supervisor and Hanes Isaacs, Electric Shop Supervisor.

Ron Stassi who is the Department Head would oversee the operation and provide general management and oversight as he does for other BWP activities in Burbank Water and Power's operation. Fred Fletcher would direct the business line, Greg Simay would direct construction. Sam Mahsoul would coordinate the technical design and review the construction. Chuck Beller would assist Sam and integrate the fiber system into our electric utility operations. John Cassidy and Jerry Recker would design the fiber optic lines and feeders. Chuck Herron would supervise the crews that construct the fiber optic lines and feeders. Hanes Isaacs would supervise the crews that terminate, secure and maintain the fiber optic station end points. Richard Andersen supervise those who would test the lines, maintain switching devices and make connections with customer equipment.

In addition to this management team, two additional positions may be required as the enterprise grows. These positions are a communications engineer and communications account representative. The communications engineer would be responsible for the technical operation of our communication system and the interconnection agreements with other communication companies and resellers. He would be familiar with digital networks and be able to resolve problems with such systems. The communications account representative would be responsible for the implementation of our marketing plans and addressing customer concerns. This employee would implement marketing efforts in conjunction with our agreements with other communication companies and resellers.

THE MARKET FOR FIBER OPTIC COMMUNICATIONS

The market for fiber optic communication services is broad and developing rapidly. Prices for fiber optic technology are in decline and the availability of fiber for long distance communication is rapidly growing.

Because of the large percentage of entertainment industry companies in Burbank and because these companies are located relatively close to one another, we have focused on this market group. Fiber optics is well suited for digital applications. The entertainment industry has recently begun to use digital technology in an extensive manner. Digital video and film application are rapidly replacing traditional methods. For this reason fiber optics is well suited to interconnect the production facilities of this industry.

Burbank has large, small, and medium sized entertainment companies. Determining their needs can be difficult. Some are very knowledgeable of technology, others are not. Some find interconnection with other companies to be very important to their growth while a few do not see such interconnections to be an advantage. Many of these firms are most interested in producing high quality profitable media products and view communications as an outside service in order to not detract them from their primary business. Determining their needs can be difficult if not impossible.

We held a fiber optic exposition in Burbank at our Administration Building to identify some of the interest in fiber optics in the entertainment industry. Attendance was excellent, over 120 entertainment managers and technicians attended the event. We gave little advance notice and provided a unique demonstration so as to attract those who can act with some speed and recognize a unique application of technology when presented.

Contacts developed at this show have been used to understand the significant market segments in the entertainment industry. We found the following applications to be important to the market in Burbank. They have been ranked according to estimated market size.

1. Local Area Network (LAN) Integration.
2. Video Transmission Capability.
3. Dark Fiber.
4. Production Review and Control.
5. Telephone PBX interconnections.

These services would use well developed technologies and have low technical risks associated with their implementation. Services requiring specialized technology would be provided by others willing to provide and maintain the specialized equipment. We would simply sell communication services to such providers of such specialized technology.

Local area networks can be connected with simple LAN fiber optic repeaters. A more versatile approach would be using a router or bridge to connect LAN's as required. In the longer term, more advanced network switching methods could be used. We will first implement this service using simply fiber optic cable and later, after we have greater experience with more complex connections, provide progressively more sophisticated connections.

We have experience in interconnection of computer systems using fiber repeaters. The service is very reliable, fast and simple to implement. Linking LAN'S with two strands of fiber is simple. It does, however, require the exclusive use of the fiber with which it is connected.

Multiple Local Area Network interconnections over a single pair of fiber strands is proposed under the Asynchronous Transfer Mode (ATM) standards being developed by the telecommunication industry. However, these standards are not yet complete. Initial LAN interconnections would be done by dedicated fiber and later transferred to ATM hubs when available.

Because of the technical nature and need for specific market knowledge regarding this application, a reseller approach to this market segment should be developed. Choosing the most effective proprietary system is difficult for the best. A reseller approach to this market segment would transfer the technology applications risk and customer contact to a reseller.

Our initial approach to this market is to provide fiber optic interconnections and deploy more advanced connections later after we have gained experience. Fortunately, our community has many firms quite capable of connecting their own video equipment to our fiber optic strands that we would lease. Video can, however, be sent over fiber using compression with good results. Compressed video in what the industry refers to as DS-3 (about 45 million bits per second) and DS-1 (about 1.5 million bits per second) channels is very practical from both wholesale and retail standpoints. The Wiltel Company product group called Vyvx provides such services nationwide and is available in Burbank. We could provide services to Vyvx on a wholesale basis, thus making Vyvx services more widely available in Burbank. We could also provide DS-3 or DS-1 interconnects within Burbank for local video communications.

Local video services would be useful for security reasons. Firms could use the fiber to monitor remote locators in Burbank via fiber.

In conjunction with Sammon's Cable TV franchise and I-net network capabilities it may be possible to offer analog video communication services. This application is possible under this business plan but the preliminary engineering associated with its design has not yet begun.

Dark Fiber service is not well suited for general service as it may not be available at many locations and length limitations may make it unfeasible. But for many applications with relative short spans near our fiber loops, Dark Fiber service would possibly be a viable option.

Dark Fiber service would be an excellent choice for a large company with multiple buildings requiring many types of services. The company could secure Dark Fibers to construct their own fiber network and run their own networks.

The City could use Dark Fiber to support its share of the "Smart Highway" program or to interconnect its offices. Disney, Warner Brothers, or other companies with multiple locations throughout the City may also wish to use the Dark Fiber service.

Dark Fiber service is the simplest and easiest service that we will be able to offer to potential subscribers.

For example, a television station may wish to have an outside firm create a 10 second promo for a late night show that uses footage recently taped from the show. The footage would be physically sent to the production company who would then compile the promo. The producer of the show could review the drafts of the promo over the fiber system and make any recommendation. When the promo meets with the producer's approval, it would be finalized and immediately physically shipped to the station for use. This process speeds final production, but the tape must be physically transferred to the post-production house and back to the company.

Approval Quality review is a low cost video link from the output of a video editing machine to another location. The quality is sufficient for the producer's review. The quality is not sufficient for broadcast. A broadcast quality video link would be more expensive that an Approval Quality Link.

This application has become very popular with many firms offering specialized gear for this application. We will provide the fiber optic interconnections between these specialized devices that our customers have secured. As we gain more experience we may offer more advanced methods to interconnect this equipment.

The customer's telephone PBX equipment must have fiber optic ports in order for us to link their equipment. A review of PBX vendors and some of our potential customers found that such ports are available. We would simply link these devices with fiber optic cables. Later, for added reliability and better use of fibers we would integrate these applications with a network. By linking office phone systems, common local office phone switch intercoms, inter-office numbering schemes and uniform phone features can be maintained. It can also provide a single point of control for telecommunication services.

This market segment is a retail market that is important to some of our potential customers. By providing this service, we help the customers and provide them better service. It is a service we will use in our utility operation in the form of our substation phone system that is referred to as "country phone" by our BWP personnel.

THE FIBER OPTIC SYSTEM PLAN

Fiber optic cables are usually composed of fiber optic strands arranged in even multiples of six. Fiber optic strands are primarily classed as either single-mode or multi-mode. The strands may be further classed according to the glass formation and the subsequent cladding (protective cover) process. Some strands are best for digital signals, others are best for analog signals. Single-mode or multi-mode designations are very specific classes and are not compatible. Digital fiber and analog fiber may be interchanged but will experience some loss of performance.

Our system would be primarily composed of 96 strand single-mode fiber cables. Ninety-six strands will allow us to link applications point to point simply using fibers. Other municipal systems have used 24 or 48 strands only to find considerably less capacity for system growth than they foresaw. The larger fiber counts are needed to distribute the fiber signals to other points and facilities as needs arise.

The cable would first be strung along our existing pole lines and in underground conduits. The initial route would link the Ralph Foy Park area, the Media District, and the Downtown area in a loop configuration. This initial loop would connect our Valley, Lincoln and Olive Switching Stations, Golden State, Hollywood Way and San Jose, Burbank, Town, Alameda and Naomi Distributing Stations, BWP Administration, Olive Power Plant, Magnolia Power Plant, City Hall, the SCADA Center and Los Angeles Department of Water and Power Toluca Receiving Station (our point of electrical power interconnection for outside power).

The McCambridge, Victory and Flower Distributing Stations would be connected to the system after the initial loop is completed. Customer stations will also be considered and installed as appropriate, depending upon our requirement.

Our line distribution personnel have successfully installed fiber optic cables in the past. The oldest application is the fiber link from BWP to City Hall. This application has been in operation for over seven years and has been literally trouble free. Two years ago we installed fiber lines to monitor and control the City's microwave system. The most recently constructed fiber system links were Water Division's Control Stations. Our field crews are familiar with fiber optic cable handling, termination, set up, and trouble shooting. The handling requirements are no more strict than the strict handling requirements of high voltage underground cables.

Each segment of the loop would terminate in a Burbank Water and Power or City facility onto a panel that will allow optical termination of each strand of fiber. These panels will allow the strands to be connected in a variety of ways to form the communication network.

Located at these termination points will be specialized fiber optic switching devices called repeaters, hubs, or cross connects which route lines and communication paths as required.

Repeaters are the most simple devices. They cost a few hundred dollars to a couple of thousand dollars. They are specialized devices that transfer a certain kind of signal across a fiber optic strand. These devices are typically used to extend or link local area networks.

Hubs are multi-port devices that connect several devices to fiber strands. Hubs may link many terminals to a mainframe computer. Burbank Water and Power computer terminals are connected to the City's computer over a hub.

Hubs might also act as bridges or routers. Bridges and routers allow for a connection between computer networks or systems. Some of these devices are quite fast and able to connect a large number of network users. Others are low cost, simple systems allowing different network or devices to communicate.

Under development are Asynchronous Transfer Mode (ATM) hubs that will allow a low-cost connection of networks at a very high speed. These hubs are expected to be very useful and widely used. There are new devices with fewer than 500 in service. Once these devices have been proven, they may have use in our system.

Hubs vary greatly in price. Simple hubs might cost only $1500 to $2500 in the form of bridges. Router hubs cost between $2000 and $10,000. ATM hubs cost between $10,000 and $80,000.

Cross connect equipment connect fiber lines and communication paths as required. Such devices are called SONET hubs and digital cross connects. SONET hubs are capable of rerouting communication paths or lines in the event of failure and allow for fast multi-use applications. Digital cross connects connect fiber lines to one another as required.

Cross connects and SONET hubs cost as little as $25,000 for simple terminals to a few million dollars for complex systems used to drive transoceanic fiber networks. For our applications, these devices would cost between $25,000 and $90,000.

Costs are declining for these devices priced at the high end. The low end of the market is increasing in performance rather than in the lowering of price.

Our electric power system control and protection should be secure and capable of withstanding single line or equipment failure or removed from the system for maintenance, testing, or upgrade. This application is best met by a SONET network. Such a network would require at least three nodes. These nodes would likely be at Valley Station, Hollywood Way Distributing Station and the BWP yard.

At least one DS-1 (1.5 million bits per second) channel will be available to each facility from the SONET network. The DS-1 channel at a facility would be divided into 24 DS-0 (64,000 bits per second) lines. This will allow control, protection, monitoring and voice communication for each facility. The DS-1 would be modified from the Bellcore Standard so it would be switched much faster then other DS-1's in the event of a loss of signal. This modification is required for power system operation.

In the future, the use of local area network repeaters, simple fiber strands, SONET terminals and multiplexers may permit us to provide the communication needs for the electric utility and the specific markets we have identified.

ATM communication technology may be available in less than two years and will allow switching of the broadband channels. This will open new application and markets. ATM is best deployed on OC-48 and higher SONET networks. For this reason most broadband community and regional information networks are operated at OC-48 levels. The "OC-48" designation refers to a speed of 2600 million bits per second, a speed faster than virtually any single computer.

Operation at OC-48 is clearly the best technical path, but it costs more than OC-12. Operation at OC-12 initially, upgrading to OC-48 in two years and redeploying the OC-12 equipment in neighborhood loops is a sequencing plan that is likely to lower our costs. Interconnection at OC-48 with other companies allows for more reliable and less costly interoperability. Specific operation level determination is not practical at this time. Budget estimates are based on the less expensive OC-12 level.

Operation of other specialized networks or applications within our fiber system is practical. For example, Sammons, the current cable TV operator, may want to integrate its needs into our system. In order to do so, we might lease it fiber strands that meet its requirements for facilities which are installed and maintained in our right-of-way. In a similar manner, we might lease fiber strands to Disney and Warner Bros. for private networks for their individual operations. Operations between the various private networks, the utility system, and the City's I-net system may also be made possible as desired.

STRATEGIC ANALYSIS AND CONSIDERATIONS

The purpose of strategic analysis and consideration is to examine the opportunities, objectives and capabilities of the business plan in a synergistic manner. This approach will use some management concepts and business development models to frame the business plan in a strategic manner.

Prior discussion has outlined the objectives, market, and technical considerations. This section will consider the fit of these elements in conjunction with Burbank Water and Power and refine the business plan to augment our strengths and avoid our weaknesses.

Using a model developed by McKinsey & Company, we will now consider those the factors defined by McKinsey & Company to be attributes of good organizational strategies of well run companies as they relate to this proposal. These firms relied on simple organizational structures, strategies and goals. They had the following characteristics:

1. A bias towards action.
2. A simple organization structure and lean staff.
3. Continued contact with customer.
4. Productivity improvement from within the organization.
5. Operational control and entrepreneurship at the lowest levels.
6. ONE key business value.
7. Emphasizing doing what the firm knows best.
8. Focused yet loose controls.

A Bias Towards Action
Successful organizations have a bias towards action in specific areas. However, such action must be directed toward the strategic objective of the business line. Burbank Water and Power has a bias towards action in the establishment of electric service and the return of electric service in the event of outage.

The establishment of electric service is done in a direct manner, using a minimum of paperwork, by employees who do several such jobs each month. It is an operation done primarily by those directly involved with the process. Improvements in electric service technology are made in an orderly manner by those directly involved with the evaluation and implementation of the improvement. Management reviews to ensure customers are being well served.

Outages are handled by those performing the work. Paperwork is very minimal and done after the work is complete. Outage review is conducted by field supervisors and engineering. Concerns are for fast, reliable and safe repair and restoration of service.

Our strategic implementation for this business line and service should be based on the speed and methodology used for the establishment and restoration of electric service.

A Simple Organization Structure and Lean Staff
A business unit requires different approaches and structures in order to meet the different problems associated with the phases a business experiences as it develops. The initial organizational structure calls for an entrepreneurial structure. As the technical and marketing functions develop, a need for functional organization occurs and the entrepreneurial structure becomes too restrictive and slow. Then, as the business develops a variety of distinct and separate products or services, it develops a need for a divisional organizational structure. A divisional structure might consist of a division manager directing fiber communication, local area networks, commercial networks or other service.

Our strategic approach, in order to assure a simple and lean organization, is to implement an evolving structure that is prepared to change its form as it grows.

Our initial structure will use the entrepreneurial structure using existing staff. This initial staff should include provisions to secure a professional technical employee and a marketing or customer relations employee. As the technical and marketing needs develop, the technical and marketing roles will become functions led by a technical section manager and a marketing section manager.

If other separate services develop or if other services are assigned to this group, a divisional structure may be developed. The separate services of the division should be relatively the same size.

A uniform accounting system should be used throughout BWP. Using a variety of accounting systems makes it difficult to utilize accounting methods to monitor the utility's performance or effectiveness.

We should use existing field personnel under the current organizational structure and deviate from it only when it is an effective measure in terms of customer service and price. If it is possible to use our current electric service designers to perform communication related service drops we should do so, if practical. However, because of work load outside contractors may be required.

Our strategic implementation of this business line in terms of organization is to establish an initial organization using current budget positions with provisions for a communication engineer and a communication customer support representative. We will keep the organization as simple as possible by using common accounting methods.

Continued Contact With Customer

Upon identification of our market segment interest we compiled listings of customer and specific individuals within those companies who are responsible for using communication services. We held a fiber optic technology exposition which further helped us identify individuals and their interests.

An informal network has been formed to facilitate communication with potential customers. Linkage among the interest group will be arranged on the Internet, a widely used computer and e-mail network. The informal group's role is to provide Burbank Water and Power input and provide a forum for application development and deployment.

The larger studios in town have identified needs and application that require multiple addresses throughout the City. Other Media District companies are considering expanding their offices to other locations in Burbank which would require a reliable large capacity communication between various points. This informal group serves as a method to address these needs both as a group and individually.

These groups provide the necessary input and close working relationship with our customers that is so important to all of us.

Productivity Improvements From Within the Organization
Productivity is improved in communication services by the following:

1. Expanded availability of service points.
2. Lower prices, or cost per unit of service.
3. Improved applications.
4. Redevelopment of switching capability.
5. Multiple use of facilities and channels.

All of the above factors are to some degree dependent upon internal development. Availability of service points and prices can be managed and developed internally. Improved applications come from working with application developers and our customers.

Switching capability allows customers to be interconnected with one another, much like the phone system. Its availability is dependent on the development of the standards for this service and then the hardware. Still, even without the standards and hardware, switching capability could be developed using video switching equipment, fiber line switching or operator arrested communication path switching. This productivity improvement is an important element for many applications and therefore is an important development for many applications and companies.

The key to low price and improved application is multiple use of facilities. Our staff will have to work to ensure facilities are used to their fullest extent. Early users should be capable of being transferred to multiple use technologies at a later date as technology develops.

All of these factors are improvements to be made by our organization. We can not rely on others to show us how our system might use technologies and applications. It is therefore important that our organization take advantage of the experience and knowledge of our employees familiar with cables, underground facilities, customer facilities and joint pole usage. We must also take advantage of the experience and development of our customers who have expertise in communications.

ONE Key Business Value

Price is important, but in developing markets price is a hygiene factor, too high a price will reduce market share, but low prices may not increase market share unless the application is developed and fiber simply improves its feasibility. The important factor is delivery of state-of-the-art broadband communication service at a reasonable price. It must be state-of-the-art that is practical. It cannot be soon-to-be state-of-the-art, as such technology is often problematic.

Technology has high risks. We do not want to continually be taking high risks. Therefore, in order to provide state-of-the-art service we may decide to allow a private firm to provide the technology and use our system to reach the customer. The important point is using our fiber system to bring state-of-the-art communication services to our customers.

Our price may be inherently low, unfortunately our service territory is quite limited in terms of a communication company. We must work with others. Since many applications in fiber are yet undeveloped and are developing, it is important that we adopt our "one key business" value as that of providing state-of-the-art broadband communication services.

Emphasizing Doing What the Firm Knows Best

Burbank Water and Power's strength is attention to reliability through attention to technical issues. The Department works full time making reliable connections to our electrical and water systems and taking measures to ensure they operate at all times. This is done by simple tree trimming to reduce tree caused outages to sophisticated insulation testing of high voltage bushings.

These skills are done in a low profile manner. Like electrical and water systems, a fiber communication system must be safe, protected, and maintained. The links must be safe from animals, vandals and accidents. The electronic equipment must be maintained and have back-ups. When there are failures the problem must be corrected and the failure examined carefully so the cause of the failure might be eliminated and better controlled. Similar activities are undertaken by our Water and Electric Divisions on a continuing basis.

Focused Yet Loose Controls

Tight controls over certain elements of the enterprise are vital. For this business it is important that controls over the following be carefully maintained.

1. Dedicated fiber usage.
2. Routes and expansion of routes.
3. Station equipment.
4. Rates.
5. Interconnections with other communication companies.

Loose controls can be applied to:

1. Customer equipment, provided it meets interoperability standards.
2. Equipment maintenance.
3. Applications using standard telephoning broadband fixed path connections.
4. D. Customer extensions done at customer expense.

These concerns requiring tight controls will be addressed by management in a forthright manner. Loose controls means that records are maintained and the equipment maintained are operated in a prudent and safe manner, subject to strategic or budgetary control.

Competition and Growth

Our business is a unique market niche. Our objective is to provide broadband communications in a relatively small geographic area in conjunction with our electrical facilities. This is not the typical corporate objective of a communication company. Usually, such a company serves a much larger geographic area and increases in territory over time. Our focus is on a specific set of customers in our community. Therefore, we are not competition to the larger communication companies. We can, in fact, feed them business. Our growth comes from the development of broadband applications in Burbank. This growth comes from the development of applications by others. To a degree this is something like the development of our electrical grid. Our electric system developed over time to provide power to appliances and equipment our customers secured. In a similar manner, our broadband communication system will develop over time to interconnect communication equipment that our customers acquire.

Horizontal integration may be an effective strategic growth path. Such growth would be implemented by providing a variety of communication services. Such a variety is important to this plan. This strategy allows us to use our resources in a more effective manner.

Vertical integration is not seen as an effective strategy from our view point. Other firms may better serve these needs. Vertical integration strategies could take our attention away from our focus on the community and our customers.

Special Strategic Consideration

Connections to regional, state, national and international broadband communication networks is very important for effective communications. Burbank has some large companies who are very significant users of national and international communications. Many communication companies have fiber optics in Burbank. These fibers could be available for local use by developing a fiber connection with these nearby systems.

These networks are not to be confused with the National Information Infrastructure Committee, otherwise known as the Information Highway. The fiber networks located in Burbank are for telephone and specialized broadband communications applications. Connections could be made to the proposed Information Highway if it is available and applicable for our uses.

This business plan follows the developing broadband communications technology in conjunction with existing and developing communications infrastructure and evolving markets. Applications such as regional retail markets are probably beyond the practical limits of Burbank Water and Power. Our applications will tend to be local.

FINANCIAL PROJECTIONS FOR BWP FIBER OPTIC SYSTEM

This section outlines the financial projections. The section is divided into four parts: Sales Forecast, Capital Requirements, and Operating Results. Operating Results combine sales, operating expenses, and capital requirements.

1. SALES FORECAST
   Sales are projected along the five major service offerings. There may be other possible services, which may be added in the future. The services considered are:
   1. Local Area Network integration
   2. Video Transmission
   3. Dark Fiber
   4. Production Review and Control
   5. Telephone PBX interconnection
   6. City and Utility Services

   LAN Integration
   The large studios have a number of local area networks (LAN) utilizing nearly all popular network conventions. These networks are located throughout the city and are generally not interconnected. Where they are currently interconnected the costs can be high and the performance limited to a fraction of the network's capability because of the cost traditional telephone lines and services and their slower speed.

   The initial service offering will be for the integration of these networks. These services are expected to use ten fibers in the Media District and six fibers in the airport and downtown areas. These initial services are expected to generate $5000 a month in sales. These services are expected to grow at a rate of a new customer or connection every six weeks, or nine a year.

   In 1996 these services would be transferred to a hub service to make better use of available fiber capacity and make switch services a possible service. By 1998/99 this service is projected to generate $120,000 to $150,000 a year in revenues.

   Video Transmission
   This service could be offered through a reseller or may be developed in conjunction with other systems such as Pacific Bell. It is a product discussed quite frequently by those in the entertainment industry. However, this is a new technology and it is in the earliest stages of a product life cycle. Sales revenue for us is expected to be marginal, but we should experience rapid growth after 1996. No sales are anticipated in the first year. Sales are expected in the second year to be $30,000. By the end of 1997 sales are expected to be $60,000 a year. Growth beyond 1997 is very dependent on our network capability and is difficult to project.

   Dark Fiber
   Dark Fiber has several potential customers. We could easily deploy this service using radial extensions from our main loops. This would allow customers to use their own equipment to communicate point to point.

   Initial sales are expected to begin in the first year the service offered. Sales by 1997 are expected to be $50,000. Growth should be comparable to LAN integration with a new service every six weeks. Some LAN integration could be done with Dark Fiber service.

   Production Review and Control
   This approach to remote editing uses less fiber spaces than dark fiber so more signals can be sent per fiber. Because of the need to review and control production throughout, it is a likely candidate for joint services with other communication companies such as Pacific Bell, AT&T, or Teleport. Because of our lower communication channel costs, this market should grow faster in our area than other areas. Initial revenue expected from a few hookups in 1995/96, is expected to total $12,000. Growth is very dependent on developing joint services with other communication companies.

   This application differs from dark fiber in that the service providers must provide specialized equipment, service, and training for the customer. Our role would be in linking such equipment together using our system.

   Telephone PBX Integration
   This product has strong potential. In it's simplest form it is likely to generate perhaps $15,000 to $25,000 a year in revenue. The development of this market is very dependent on future developments.

   City, School, and Utility Services
   This sales segment is our largest customer. While the specifics related to the design of the I-net system for the City will not be known until the Sammon's franchise is finalized, an estimate was developed based on very general requirements. Two fibers were assumed to be required and no special lines or equipment were considered. The utility services were priced at a $100,000 which is 40% lower than the annual costs of a dedicated utility system.

   The City I-net sales are estimated to be $25,000 per year. This estimate is based on links to seven buildings. These buildings are City Hall, Fire Station 12, Fire Station 15, Library-Ralph Foy Park, Fire Training Center, Public Works Yard, and Water Treatment Plant. These buildings were chosen as a representation of the portion of I-net that would use City rather than Sammon's facilities. Actual usage and buildings connected may vary.

   Utility Service sales are projected at $100,000 a year. This will provide the utility with a very reliable communication network that will allow for data, voice, and specialized carriers for power line protection. This is less than the cost of the utility of providing a communication network for their exclusive use.

   Combined Sales Forecast
   Combining these five products the following sales forecast can be produced:

   Combined Sales Forecast
   	1995/96	1996/97	1997/98	1998/99
   LAN Int.	$30,000	$70,000	$100,000	$150,000
   Video	0	30,000	60,000	60,000
   Dark Fiber	12,000	24,000	50,000	50,000
   Production	5,000	12,000	30,000	40,000
   Telephone	3,000	7,500	15,000	20,000
   City Svc.	$25,000	25,000	25,000	25,000
   Utl. Svc.	$100,000	100,000	100,000	100,000
   	-------	-------	-------	-------
   TOTALS	$175,000	268,000	380,000	445,000

   These forecasts will require an effective implementation in order to be achieved.

   ---

2. CAPITAL REQUIREMENTS AND ANNUALIZED EXPENSES

   The cost to install the initial loop is expected to be about $900,000. This will provide 96 strands of fiber and three hub OC-12 SONET network. An OC-12 network operates at nearly 680 million bits per second and may carry as many as 10,000 voice channels. This will link many of our electrical facilities and integrate our SCADA and power plant operations. It will also allow for improved data and telephone communications between facilities.

   The fiber optic cables have a life of 20 years. The SONET equipment has a life of 10 years. The fiber optic cable is expected to cost $425,000 installed. The SONET equipment and installation will cost about $80,000 per hub, or $240,000 for three hubs. The specialized utility equipment will cost about $250,000.

   The total depreciation expense including specialized utility equipment, is $70,250 per year. The cable and SONET equipment needed for the system portion of this Initial system is $45,250 per year. The specialized utility equipment for utility needs are projected to have a depreciation expense of $25,000 per year.

   Operating expenses are low for this equipment. However, system reconfiguration, engineering, and management can be significant. This will require approximately three employee years in order to support this system. For estimating purposes this plan projects three employees each at $60,000 per year in salaries and $25,000 per year in overhead. An additional $60,000 in salaries and $25,000 in overheads is assumed for other departmental support. Actual salaries will be determined upon detailed job analysis.

   Outside professional and contracted services are expected. These services will be estimated at $30,000 a year. This will allow for the use of some outside help for special problems or concerns that are not known. Travel and training expenses are estimated at $10,000. These are also general estimates.

   These expenses will be phased in as the system grows. The following expenses are estimated:

   Cash Expenses
   	1995/96	1996/97	1997/98	1998/99
   Salaries	$120,000	$170,000	$210,000	$240,000
   Benefits	50,000	75,000	85,000	100,000
   Outside Services	0	15,000	30,000	30,000
   Travel & Training	5,000	8,000	10,000	10,000
   	-------	-------	-------	-------
   TOTALS	$175,000	$268,000	$335,000	$380,000

   
   
   

   These expenses are for the initial system only. It does not include any enhancements that are not discussed specifically in this report. The initial system is composed of a fiber optic cable, three SONET hubs, and connectors at the major substation and offices of Burbank Water and Power.

   ---

3. OPERATING RESULTS

   Combining the revenues, depreciation and expenses the following income statement can be estimated.

   	Pro Forma Income Statement for Communication System
   	1995/96	1996/97	1997/98	1998/99
   Revenue	$175,000	$268,000	$380,000	$445,000
   Expenses	$175,000	$268,000	$235,000	$380,000
   Depreciation	$ 45,250	$ 45,250	$ 45,250	$ 45,250
   Cash Flow	0	0	$45,000	$65,000
   	--------	-------	-------	-------
   Income	-$45,250	-45,250	$250	$19,750

   The operating results improve over time, as is the case with many ventures, before becoming profitable.

IMPLEMENTATION OF COMMUNICATION SERVICES

In order to make utility communication services available, Burbank Water and Power must establish the necessary facilities, agreements, rates, and procedures to operate effectively. Generally, the procedure and policies will be those similar to that which are established for water and power.

The City Attorney will review the regulatory requirements that might govern municipal telephone or other utility communication services. This review would not consider municipal cable TV operations. Wireless utility communication services may be considered in the future but will not be part of the initial system.

Burbank Water and Power will negotiate agreements with other communication companies for mutual services. Pacific Bell and Teleport Communications Groups have expressed interest in such services. These will be developed, set in agreement form, and brought to the City Council for review and approval.

Burbank Water and Power will develop network agreements with customers who require linking a number of facilities in Burbank into one system. These agreements will be brought to the City Council for review and approval.

Burbank Water and Power will develop rates for communication services and submit these rates to the City Council for approval. In addition, Burbank Water and Power will develop fees for establishing service and modifying existing services.

Burbank Water and Power will support the Information Services Division in arranging for this incorporation of communication services billing into the billing and accounting processes.