Because we feel it’s futureproof, OTELCO is working to not only deploy new fiber, but to replace old copper technology with fiber infrastructure when possible. With service footprints in 6 rural states, fiber deployment can be a challenge. As much as we’d like to build fiber to every location in every state, it’s just not feasible from a business perspective.
Consider the following:
- What does a project cost?
- How many locations can be served?
- How many of those locations will buy the service?
- What is the return on the investment of a project?
What does fiber infrastructure cost?
There are many factors that impact the cost of building fiber infrastructure. One variable is whether the infrastructure aerial or buried? Buried fiber costs more to construct, however, pole mounted aerial fiber can have additional associated costs.
For an aerial build: If the poles are owned by the provider building the infrastructure, there is no attachment fee, but if the poles are owned by another utility, usually a power company, the Internet provider needs to get permission to use the poles and pay a recurring pole attachment fee to the pole owner. When pole mounting cable, another factor is what other pole attachments are in place and whether they need to be relocated or will need some other consideration when installing the new fiber infrastructure.
Based on these variables, a good estimate of cost range for the fiber infrastructure is between $18,000 and $22,000 per mile.
Making the Connection to the individual homes
Getting the fiber cable from the pole or pull box (if underground) requires additional equipment both at the pole and on the house. The cost of that equipment can cost between $500 and $750 per average location. Extremely rural locations can cost substantially more to connect depending on how far the home or business is away from connections at utility poles or pull boxes.
How does a provider decide where to build?
It’s all about return on investment (how quickly can the company get its cash investment back in order to reinvest in additional projects), and ability to grow the company.
Let’s look at a simple example making the following assumptions:
- $20,000 per mile for fiber infrastructure cost
- $600 per home to deliver service from the street
- 13 homes per mile (our typical service area has between 10 and 15)
- Average monthly cost for the provider to actually deliver the service after installation is $32 per month
- The subscriber pays $65 per month for the service
- Net revenue per home is $33 per home
For a one mile build with 13 homes, the total project cost would be $20,000 PLUS the $600 for each home that connected to the service, about $2,140 per home – assuming that every home took service. If only 7 of those homes sign up for service, the cost per home served jumps to $3,460. By dividing the cost per home by the net revenue per home of $33, you’ll see that it will take nearly nine years for the provider to break even on the investment.
With such a poor return, why and how would any business make such an investment?
They likely wouldn’t or they would build very little if it weren’t for funding assistance from other sources. The FCC Alternate Connect America Model (ACAM) provides financial assistance to providers that agree to invest their own capital and deliver service to underserved (as determined by the FCC) census blocks. OTELCO participates in the ACAM program and has a commitment to build fiber to the premise for approximately 13,400 unserved locations in a 10 year period. Our ACAM commitment is our first priority as we determine where to invest in fiber infrastructure.
If ACAM comes first, what about everyone else?
Many ACAM eligible locations are extremely rural, and at the end of the line –one might say the last few feet of the last mile. In order for OTELCO to build to these locations, we, in most cases, have to pass many ineligible, yet underserved, locations. We make sure to build the infrastructure that allows us to offer services to the ineligible locations that we pass. An ACAM build to 30 eligible homes in Gray, allowed us to offer FTTP to an additional 88 locations that we had to pass on the way.
Where else does OTELCO spend capital funds?
Any funds that remain after the ACAM commitment is met each year are divided between network maintenance and small fiber projects for Community Anchor Institutions (CAIs). When a large business, school district, medical facility, or other institution contracts with OTELCO to construct infrastructure and deliver FTTP, we construct with the intent to offer the service to locations that we pass along the way. We were able to do just that in Vermont where recently completed projects for the local school district allowed us to offer FTTP to the approximately 188 homes we passed to get to the school locations.
What prevents OTELCO from building elsewhere?
No surprise here, it’s budgetary. Most of our capital dollars are earmarked for ACAM, maintenance, and those small CAI projects. In order to expand the budget for fiber infrastructure investment, we need the folks where our infrastructure is available to sign on for service, which will allow us to reinvest into further expansion.
If we did have additional funds to expand our fiber network, where would we spend it?
That’s pretty simple; we’d build where we know people are likely to sign up for the service. The example we cited above is based on a 54% take rate, meaning that 54% of the locations eligible for service will purchase it. The higher the anticipated take rate, the more likely we are to build in an area because it will likely provide more capital to invest in other projects.
Check to see if OTELCO Lightwave Fiber is available in your neighborhood.