Innovative Bandwith Arrangements - Appendix 3: Cost-benefit Analysis of Fibre Optic Investment by the Commission Scolaire des Affluents

La Commission Scolaire (the School Board of) des Affluents was recently formed by merging the school boards of des Manoirs and Le Gardeur.  The combined region is north of Montreal in Quebec Province.  The combined board comprises 54 primary schools, 15 secondary schools, two adult centres, two professional schools and two administrative centres.  The 75 educational centres are housed in 70 buildings.  Of the 3000 PCs, 20 per cent are used for administration and the remainder for teaching purposes.

The pedagogical requirement was for Internet access to all schools, sharing of software and databases plus online access to the pedagogical software and applications.  Administratively, all schools needed to be networked – with emphasis on provision of an e-mail system plus a variety of human resources management systems.  The technical requirement was concluded as calling for:

• Support of multiple transmission types (video, voice and data);
• High bandwidth (> 10 Mb/s) for the support of distributed video transmission;
• Support of multiple physical connections by interfacing with local area networks; and
• Easy upgradability – particularly noting the need to cope with future educational applications of increasing throughput.

Apart from a single fibre optic link and a small microwave radio network between a few schools, the existing telecommunications service was being met with managed services from a carrier.

The des Affluents Board decided that optical fibre was the only medium without capacity limitations, and that Fast Ethernet was the least expensive technology in terms of maintenance and upgradability.  The chosen architecture comprised three levels:

Access: Users within each school are connected via twisted copper pair cabling to a 10BASE-T LAN, providing a nominal capacity of 10 Mb/s.

Distribution: Selected schools also serve as distribution centres that house the switches managing the virtual networks (VLANs).  The links back to the Access level are 10BASE-F (nominal capacity 10 Mb/s) and those up to the Core level are 100BASE-F (nominal capacity 100 Mb/s) – both utilizing optical fibre.

Core: The two Core (administrative) centres are connected to the Web via 1 Gb/s links.

Figure 4: Ethernet Network Topology for CS des Affluents

A total of 170 km of fibre (6 strands) links the 70 buildings, with 80 per cent installed on power poles, i.e. aerially.  The fibre would be ‘dark’, in that the school board would light it without a carrier deriving managed services for sale to the Board.

Fibre construction and maintenance costs were apportioned, according to their respective fibre strand requirements, amongst three other parties:

• The municipalities of Ville de Terrebone and Ville de Repentigny; and
• The post-secondary college of Cégep Régional de Lanaudière.

The following tabulation of capital and recurring costs omits those of the transceivers and switches at the Access level (i.e. in individual schools) as they were regarded as sunk costs.  Before moving to a fibre solution, the combined Board employed 40 technicians, on the basis of one per 1,000 students.  Much of their efforts were dedicated to LAN support.  The Board estimated that the net effect of adopting a single VLAN solution would be a 20 per cent reduction in technician support – hence 32 persons are costed.

Table 14: Cost Profile for Dark Fibre Solution

Note: As a rough guide, multiply Canadian dollars by 1.25 to convert to Australian dollars. 

The framework for undertaking the cost-benefit analysis called for relevant costs and benefits to be applicable under equivalent conditions (in this case they were all assessments prior to construction, as post-construction costs were then unavailable), methods of dealing with uncertainties as well as intangible costs and benefits, plus accepted criteria for assisting a decision recommendation (viz. absolute best alternative; highest net benefit; break even point).

The alternatives to a dark fibre solution were:

• ADSL services to each school site, leased from the local carrier; or
• To defer adopting either the Dark Fibre or ADSL solutions as of now, until either a superior technology or better price or both arise, but eventually proceed with a carrier-based solution (called the ‘Wait & Switch’ strategy).

Each ADSL service provided by the carrier could provide maximum speeds of up to 2-8 Mb/s per school and was costed at about $400 per month per site, including network access, data transmission and Internet access.  Each school LAN, though considered as a sunk cost, nevertheless would still require the original level of technician support.

Table 15: Cost Profile for ADSL Solution

The study considered the relative advantages and disadvantages offered by both the Dark Fibre and ADSL solutions, by way of future technical capability, risk and other strategic considerations.

The Wait & Switch strategy assumed that competition among carriers would eventually lead to affordable access to managed services delivered via either commercial fibre or wireless networks.

To make a valid comparison between the Dark Fibre and the ADSL solutions, the capital cost of the fibre ($1,528,880) was annualised over a period of 20 years (in consideration of the engineering lifetime of fibre and the non-taxpaying status of the school board) using a 9.08 per cent discount rate (considered applicable for such entities in Canada at the time).  The comparison gives the Dark Fibre solution a $330,000 per year advantage as shown in the following table.

Table 16: Cost Comparison of Dark Fibre and ADSL Solutions 

On further considering the administrative, pedagogical and technical requirements of the School Board, the study concluded that the Dark Fibre solution had an absolute benefit over the ADSL alternative.

Finally, the study concluded that the Dark Fibre investment presented a break-even point of 44 months in comparison to the Wait & Switch strategy.  After that period, the School Board would be financially ahead of all considered alternatives and would be in control of a private optical fibre network with effectively unlimited transmission capacity.

The untapped potential of such capacity on future educational applications was noted to be an intangible but significant benefit in a pedagogical sense.

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