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O-NET seeks approval for $8-million loan

O-NET is asking Olds council for help in obtaining an $8-million provincial loan that would allow the community-owned Internet service provider to connect the rest of the town to its fibre optic network.

O-NET is asking Olds council for help in obtaining an $8-million provincial loan that would allow the community-owned Internet service provider to connect the rest of the town to its fibre optic network.

The request came during O-NET's delegation at council's policies and priorities meeting on Feb. 18.

There are three areas in Olds yet to be serviced and O-NET would spend more than $1.9 million of the loan on construction to hook them up.

Altogether 11 areas throughout the town will be connected by the end of this year, said Mike James, O-NET's director of architecture and technology services.

Olds Fibre Ltd., which operates O-NET, also needs $5.38 million for additional capital investments and to cover operating shortfalls from 2014-15.

Another $680,000 would be needed for contingency costs.

According to the town's chief administrative officer, Norm McInnis, council must pass two bylaws: one authorizing the town to borrow from the Alberta Capital Finance Authority. The second would allow the town to lend the money to the Olds Institute for Community and Regional Development.

Those bylaws must go through first reading by council and will then be advertised for two weeks and will be open to petition from the public for 60 days, he said.

If 60 days pass without a successful petition, the bylaws go before council for second and third reading, McInnis continued.

Financing for the loan will not come from municipal taxpayers, he said.

"No, it's borrowed money so we borrow it from the Alberta Capital Finance Authority," he said. "The loan agreement is that the principal and interest payments are repaid by the Olds Institute.

"So no taxpayer money involved and the security for the loan is the assets that have already been built. We've got about $12 million of assets that are on the balance sheet of O-NET now."

If the bylaws pass, O-NET's total investment in Olds would be valued at $21 million.

This is not the first time the company has borrowed money.

In 2010, council passed a loan bylaw where $6 million in provincial cash was lent to the Olds Institute for the O-NET project. The principal and interest payments from that loan are due to be paid back over a 10-year period.

So far, $900,000 of that loan has been paid back, said Stirling McLeod, O-NET's director of financial management.

O-NET's financial projections were also discussed during the Feb. 18 meeting.

During the presentation to council, James said positive cash flow would start in 2016.

O-NET would have an operating shortfall of $5.04 million in 2014 and $333,000 in 2015.

Much of the shortfalls would be due to capital investment, which McLeod predicts will decrease over the next few years.

McLeod said when new customers sign up, O-NET must make an initial investment in terms of paying for labour and building the infrastructure in and outside of the home that allows customers to access services.

"Because it costs money to get the contractor to go out and plow the ground in, put in the drop and run a piece of fibre all the way back," he said. "And it has to be fused to both ends."

"Then inside there has to be modems, has to be set top boxes and… the labour to go in and fix them up. And often we have to go into the house and do some wiring because the wiring in some of the older homes won't handle the level of signal we're providing."

It takes time for the company to earn the money back, as the customer begins paying monthly for a package of services, he added.

All of this must be done when weather conditions are favourable for construction, thus making much of O-NET's work seasonal.

"If somebody signs up in January, we're not going to get revenue from them probably until May or June," McLeod said.

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