Craig Settles’ Broadband Question of the Day (July 27)

Today’s question comes from David Allen of Midwest Energy Cooperative

What is the minimum customer density per mile necessary to get attractive financial results for a fiber project?

I would actually come at this question from a different perspective. Determining financial sustainability based on population density assumes a community is banking on subscriptions from consumers being enough to sustain the network.  I strongly believe this is the weakest pillar holding up your business plan, whether you’re a private or public sector organization.

The two reasons a residents-first strategy is shaky is that 1) consumers can be expensive to close, plus they’re difficult and expensive to retain, particularly once a competitor comes into the market; and 2) in many rural areas, even with concentrated pockets of homes, the total number of houses may be insufficient to cover CapEx (buildout) and OpEx (operating/upgrading costs).

The real question you want to ask is, “do we have enough potential customers of high-end services identified and pre-committed to subscribing to monthly services?” Maybe some are even committed to investing to some of the CapEx costs on top of subscriber fees. I’m talking about the usual suspects: local, county and state governments; businesses including your two or three largest companies; institutions such as hospitals and colleges; and any large organization your local real estate people can entice into the area.

These are the customers who will pay premium prices for services (within reason – if you’re smart and you’re part of the community gouging isn’t practical). They are reluctant to switch unless Quality of Service (QOS) and customer service sucks. These anchor tenants are also good at drawing similar organizations into communities.

Once your base is in place, then you can look at residential to figure out what they need, how much they’ll spend, etc. If the infrastructure you build for the high-end services can be designed so your backhaul cabling and the main fiber offshoots from this pass relatively close to many of your residential areas, your breakeven for residential customers could be considerably lower than a fiber to just the home (FTTH) project.

This question came from my Webinar “12 Steps to Move Broadband From Ideas to Execution.” Don’t miss my next Webinar, “Finding the Right Business Model for Community Broadband.”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: