MEMO

The AFN budget for next year includes $160,000 for capital expenses for FY05-06. These monies will be used for replacement of network and cable TV equipment and also to fund AFN infrastructure construction that is being done in both new construction and for other extensions of network facilities. The amount spent is usually contingent on both the pace of new construction and also potential failure of various network components. While this amount appears to be adequate based on past experience and the age of our equipment, the amount doesn't address the changing nature of the telecommunication industry and the need to stay current with emerging technology. Interestingly enough the area of the network where new technology could have the largest potential fiscal impact is on the TV side not the data side.

Emerging TV products like HDTV, TIVO, Digital Video recorders, and Video on Demand services are being rolled out by the large multi system cable systems including the local incumbent. Internal operational equipment like a headend controller or a Video on Demand server could increase productivity, efficiency and profitability. To keep AFN current with these trends would require additional capital expenditures beyond the currently budgeted amount which isn't adequate to fund these additional expenditures. AFN advisory committee member and ISP owner Jim Teece and AFN ISP owner Alan Oppenheimer have both suggested to staff that AFN needs to establish a separate fund beyond normal capital amounts to deal with this technology refresh issue.

They have suggested that by budgeting this money AFN would be able to quickly adapt to changes in technology and possibly take advantage of good deals in a more timely manner than the normal budgeting process would allow. A suggestion would be to set aside $100,000 for this purpose. This would then allow AFN to begin adopting these new innovations and keep current with emerging trends. This approach would allow AFN the flexibility to spend money on an as needed basis to continue to provide competitive products. This money has not be included in the proposed AFN budget for next year and would need to be discussed and added to the budget by the budget committee during the upcoming process if warranted.

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