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, November 16, 2009

Lessons from the land of cheap broadband in Hong Kong

[Excerpts from CNN article. While HK density is a factor, it still does not account for the huge price differential in Internet pricing between HK and elsewehere in the world. I love the quote "The telecom industry tends to commoditize people. Our strategy is to commoditize bandwidth". - BSA]

Lessons from the land of cheap broadband in Hong Kong


City Telecom's 400,000 customers pay $13 a month for 100 megabit synchronous broadband. And they get a money-back guarantee: If they don't clock 80% of the promised speed, the company pays them twice their monthly fee.

If you live within coverage area of Verizon's FiOS
service (VZ
), you pay as much as $150 a month for up to 50 megs downstream and 20 upstream.

How can City Telecom possibly offer service that's more than twice as fast at less than 10% of the price?

Density is a blessing

It's partly geography and partly vision. While Hong Kong has 7 million inhabitants, only a small fraction of the island's mountainous terrain is developed, which means everyone basically lives on top of each other. The population density is 16,380 people per square mile – versus 640 in Japan and 80 in the US. That makes every customer far cheaper to serve. "We have a phenomenal network built at $200 per home. Verizon is talking about a cost of north of $1,000 per home,"
Lai says. "We built ours at one-fifth the cost."

Of course building the network in the first place required vision.
City Telecom was founded 17 years ago as an international calling-card company by two cousins who plowed in 100,000 Canadian dollars to get started. They could have leased lines to get into Internet-service business the way many carriers do, but that would have meant encountering the same last-mile bottleneck. So, they built their own $400 million network over a decade.

And now the company is on a tear. The largest IP service provider on Hong Kong, PCCW , has about 1 million customers, according to Lai, but is growing at a fraction of the pace. It added only 3,000 in the last six months, compared to 41,000 for City Telecom. PCCW recently slashed its prices to match City Telecom, but still can't come near the speeds. But can City Telecom really make a business out of cheap broadband?

Innovation trumps incumbency

Lai insists the company already has. "The network is cash flow positive since 07. We're debt free with 10% revenue growth and 30% EBITDA growth," he says. "Our stock is up 200% in 12 months, and the market is starting to realize what we're doing."

All that success, Lia adds, is a result of having a Big Hairy Audacious Goal and doing everything possible to achieve it. "The telecom industry tends to commoditize people. Our strategy is to commoditize bandwidth, to make 100 megabits the industry norm in Hong Kong," he says. "Our plan is to win by offering the best service at the lowest possible cost structure. Thirteen dollars is not a lot, but if you scale it and drive your cost base down, it's a beautiful business to be in."

If only some US telecom executives felt likewise.

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