The Business Challenge of Fiber to the Home

http://www.heraldextra.com/content/view/263223/18/

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

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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.

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