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economics
Content tagged with "economics"
Op-Ed: In Minnesota, a de facto limit on broadband
Brigham City Develops Alternative Method to Finance Publicly Owned FTTH
The Commons
CNET's Real Deal Video - On Broadband Networks
Lafayette and Incumbent Responses to New Networks
“Cox froze the cable rates in Lafayette, and they didn’t freeze the rates in other areas,” said Terry Huval, director of LUS, a municipally owned utility company which fought major incumbent opposition before building an FTTH network in Lafayette and starting to offer service earlier this year. “We figured our citizens saved over $3 million in cable rates even before we could offer them service.”I have yet to see a cable company leave a market or reduce investment following the introduction of a public competitor. The opposite tends to happen - they increase investment and often drop prices or leave them lower than in surrounding, non-competitive areas. Often, the rates are not really advertised but if you call from the competitive area, they will offer a better deal:
Trae Russell, communications manager for EATEL, the local telephone franchise in Ascension, La., and some surrounding communities, had seen the same thing happen in his area, when EATEL started offering FTTH-based services in 2006. In fact, EATEL went so far as to take out an ad in the Lafayette newspaper, alerting cable customers there to the discounts that Ascension customers were getting and forecasting similar lower rates in Lafayette once the LUS network was in the works. “It was an incredibly bold move on our part,” Russell said. “Cox came in with an incredibly aggressive promotion for TV service with every bell and whistle you could imagine. We couldn’t figure out how they could even make money on it. So we took out an ad in the Lafayette newspaper that basically said, ‘Hey Lafayette, look at the great prices you are going to get from Cox.’ Cox was not amused.”This is also a lesson for those who want to build a public network. Don't expect to win just because you have a better service and you offer lower prices from what was available before a competing network is built. The incumbent has often already paid off its network. Additionally, incumbents are often larger companies that pay less for their television contracts, so they can lower prices farther than one might expect initially.
Charter to Cleveland, TN: You Are Not Sufficiently Profitable
Not too far away from Chattanooga, Tennessee, (home to the largest muni fiber network in the U.S.) lies Cleveland (Tennessee). Five prominent residents asked why they cannot get broadband:
The homeowners have discussed the problem with Charter Communications Director of Government Relations Nick Pavlis three times.
Pavlis said in a telephone interview it would cost the cable company $130,000 to run an underground cable 2 1/2 miles and “it’s just not a reasonable payback.”
He said the company spends $500 per house as a general rule, which gives them a 36-48 month return on investment.
Yet Charter has no problem lobbying the states to prohibit publicly owned networks. Tennessee probably has more fiber-to-the-home initiatives than any other state - perhaps it is time Cleveland looked into their own or cajoling a nearby network into expanding.
100 Mbps to everyone for $350 billion
Want to provide 100-Mbit/s broadband service to every U.S. household? No problem: Just be ready to write a $350 billion check. Federal Communications Commission (FCC) officials shared that jaw-dropping figure today during an update on their National Broadband Plan for bringing affordable, high-speed Internet access to all Americans. The Commission is schedule to present the plan to Congress in 141 days, on Feb. 17.Don't get me wrong, I agree that $350 billion is a lot of money. On the other hand, we spent nearly $300 billion on surface transportation over 4 years from 2005-2009. $350 billion buys a fiber-optic network that will last considerably longer. Additionally, such a network will generate considerably more revenue than a highway. In fact, these networks will pay for themselves in most areas if they can access to low-interest loans. Consider the comments of Deputy Administrator Zufolo (of the Rural Utilities Service) from my recent panel at NATOA:
Zufolo explained the RUS decision to use its $2.5 billion in funds primarily to subsidize loans and not provide grants, as the agency's best opportunity to make the more efficient use of the federal money and have maximum impact. Because the default rate on RUS loans is less than 1% and the subsidy rate is also low, only about 7%, it costs the government only $72,000 to loan $1 million for rural network development, she said.Let's say that RUS decides to embark on getting 100 Mbps to everyone in a rural area - some of the projects will be riskier than the standard portfolio, so let's assume it costs the federal government $100,000 to loan $1 million (makes it easier math too). In order to spur the $350 billion investment for these networks, the government would have to put up $35 billion.
How Publicly Owned Networks Start
It’s important to understand that while it costs a lot of money to create a broadband network, over a five-to-ten-year period, it costs even more to operate that network than to build it. Say it costs $1 million to build a wireless network. During the municipal wireless heyday, it was estimated to cost 20% of buildout expense to operate the network annually – to pay for customer service, maintenance, upgrades, etc. That’s $200,000 a year.This is a great intro article for those who may not be used to thinking about the economics or business plans networks need. For the rest of us, it is a strong reminder of how many networks start (and a good path for those who want to create a network):
Santa Monica, California, had a legacy PBX phone system and slow connection circuits from incumbents. The city pooled money it was already paying for voice and data services, using this capital to build a fiber network and implement new communication technology. City CIO Jory Wolf states, “By switching to fiber we realized a $500,000 savings in data circuits and $250,000 savings in voice circuits, all of which stayed in our fund. Ongoing savings enabled us to provide our police with video streaming in their vehicles. We have excess bandwidth, so we provide (a) large number of sites with free wireless access.” Wolf said that the city is also selling companies fiber lines that haven't yet been turned on. “Our network budget is self-sustaining,” he said, “and I have $2.5 million in capital.”I remember Tim Nulty saying that Burlington Telecom started the same way. They figured out how much they were paying each month for telecom as a city.
FTTH: Making That Business Model Work
A one hour slideshow discussing the economics of FTTH - unfortunately it seems to have rudimentary controls that do not allow fast fowarding or rewinding, so pay attention! You can also read the bullet points to get a sense of whether you will be interested or not.
Fiber to the Home: Making That Business Model Work This slideshow is no longer available.
View more documents from Yankee Group.
Spring Issue of NATOA Journal
- Universal - everyone should have access at affordable rates
- Open Access - it must encourage competition, not stifle it
- Future Proof - the technology must be built to last and meet needs currently unforeseen
- Financial self sufficiency - this can be done and the political culture suggests it must be done