Wanted: A Few Big Broadband Customers
[imgbelt img=craigglobe200.jpg]For a broadband network to be built and stay in operation requires commitment from major institutional customers. Craig Settles explains how small towns must think big.
[imgcontainer left] [img:craigfibertruck320.jpg] [source]Pulaski (TN) Electric SystemCounty government in Pulaski County, Tennessee, took the lead in installing a fiber broadband network. The new system has already been a boon to schools, business, and locals hospitals.
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.
Whether a community or a service provider takes the lead with a broadband network, any owner will have to generate enough revenue to cover buildout (commonly referred to as “CapEx”) and operating cost (known as “OpEx”) as well. Furthermore, service providers have to generate enough revenue to make a reasonable profit.
With the broadband stimulus grants, you can pay for 80% of the CapEx. The grant applicant has to pay for the remaining 20% of CapEx, plus prove it can pay for the OpEx for at least several years. The latter part of the equation – revenue to cover 20% CapEx and all of the OpEx – becomes problematic when you expect individual subscribers to sustain most of the OpEx.
Assume we’re going to cover a town for $1 million (hypothetically). Every year you’ll need to have signed up nearly 560 individuals or homes at $30/month. If your rural area only has 2,000 people, are you really going to get 30% as subscribers? If you don’t reach that number in year one, then you’re carrying debt while you build a customer base, because the network has to continue operations during this time, and you have to spend a lot to generate individual sales. If you have more people to serve, or the people you have are scattered over a larger geographical area, network costs will be higher and thus you’ll need more subscribers.
Everyone planning to build a broadband network needs to reconsider the equation. Making the network less expensive isn’t a particularly practical solution. You’ll hit a point where it can’t provide fast enough service or service in enough areas to generate sufficient revenue to cover operating expenses. Then, you’ll have to increase revenues, and that’s best done by finding customers you can motivate to spend a lot more money for network services.
Institutional customers, including large companies, are one segment of the community that fits the bill. Imagine if you can get your five largest companies plus the local college, the hospital and three nonprofits each to buy highspeed broadband services totaling $2,500/month. That’s $300,000 annually towards OpEx.
Business customers of all sizes are another target market. Business broadband services cost more than individual subscriber services, usually starting at $79/month, with higher charges for premium services. If you have 100 various retailers, doctors’ offices, service professionals, and others paying $79 a month, that’s $94,800 more towards OpEx. Jackson, Tennessee, has 75,000 people and 16,000 subscribers (21% of population) on its successful fiber network. However, 20% of those subscribers are businesses.
[imgcontainer left] [img:craigglobe200.jpg] [source]Media DailyResidential customers are the “gravy” in a broadband network once business and institutional customers sign on.