Executive Summary

One of the significant challenges facing network operators today is the high capital cost of deploying next generation broadband network to individual homes or schools. Fiber to the home only makes economic sense for a relatively small percentage of homes or schools. One solution is a novel new approach under development in several jurisdictions around the world is to bundle the cost of next generation broadband Internet with the deployment of solar panels on the owners roof or through the sale of renewable energy to the homeowner. Rather than charging customers directly for the costs of deployment of the high speed broadband network theses costs instead are amortized over several years as a small discount on the customer’s Feed in Tariff (FIT) or renewable energy bill. There are many companies such as Solar City that will fund the entire capital cost of deploying solar panels on the roofs of homes or schools, who in turn make their money from the long term sale of the power from the panels to the electrical grid. In addition there are no Energy Service Companies (ESCOs) and Green Bond Funds that will underwrite the cost of larger installations.

For further information and detailed business analysis please contact Bill St. Arnaud at bill.st.arnaud@gmail.com.

Monday, August 18, 2008

The Business Challenge of Fiber to the Home


A good summary of the business case challenges of FTTH regardless of whether you are a municipality or a telco


In 2003, when an 18-city consortium began organizing UTOPIA's build-out, the $400 million network was glowingly seen as serving nearly 249,000 residences and 34,580 businesses. Eventually, the projections were cut roughly in half. Eleven cities in Utah, including Orem, Lindon and Payson, committed to the bonds, pledging $202 million in sales tax revenues over 20 years to pay them back.

Now, unexpectedly low subscriber counts and revenue shortfalls are threatening UTOPIA's ability to continue to make its bond payments. Tax revenues haven't been tapped yet, but if UTOPIA fails, the 11 cities could be on the hook for up to the full $202 million, the Utah Taxpayers Association warns.

To avoid that, UTOPIA wants to refinance. It is asking the cities this week to increase their sales tax pledges and extend their guarantees to 33 years.

The question facing city councils this week is whether UTOPIA's track record gives them enough confidence of future success to commit taxpayers for three decades.

UTOPIA had projected it would bring fiber connections to as many as 70,000 households and businesses in its six member cities, and achieve a subscription rate of around 40 percent by 2008. To date, it has passed fiber connections to about 42,000 households and businesses, with only about 7,200 paying customers. On top of weak customer response, the network's construction costs are above what it had projected.

In iProvo's case, Provo officials had projected that 75 percent of customers would sign up for its top-end "triple-play" -- meaning TV, telephone and Internet services in a single package. They also expected the network, which was built on $39.5 million in sales-tax revenue bonds, to break even when it reached 10,000 subscribers.

Instead, the iProvo triple-play take rate was closer to 17 percent, not 75. And while the network passed the 10,000 subscriber mark late last year, city officials now say they may need as many as 15,000 subscribers to break even because of revenue shortfalls.

Now the city's fiber-optic network is $10 million in the hole, and critics are calling for the struggling venture to be sold.


1 comment:

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