Reporting from the FTTH Conference in Tampa

Bill_ColemanSession 1: Financing Fiber Networks.

The Tuesday morning general session was on Financing Fiber Networks.  Blair Levin was the panel facilitator.

Gillis Cashman (GC) of MC Partners talked about the difficulties in financing networks.  That the revenue streams must be strengthened by revenues from Netflix, etc.

Andy Smith (AS) – CoBank

Have been lending in telecom for 30 years, with $2.4 million in outstanding loans.  Most of what they have been doing lately is middle mile networks that are connecting cell networks.  Recently they have financed a FTTH focused company overbuilder.  Lending against cash flow, they are seeking established, critical mass companies. (This certainly limits the pool of qualified firms!)

Jeffrey Brandon (JB) of Waller Capital  – His top considerations are questions of consumer demand, the quality of the competition and the proposer’s demonstrated  operational capacity.  (One of things I wonder about is that market surveys are often positioned against the incumbent’s current competitive position rather than an anticipated market response.)

Question from Blair Levin: Will incumbents step in?  Why?  Will increased city flexibility on ROW and pole attachments, permitting, etc. incent incumbents to invest??  Will demand for bandwidth require an incumbent response?

JB – not expecting incumbents to act – FIOS/Uverse investments have not been great winners for ROI.

AS – many small LECs have already build this networks.  Everyone agrees that there is a need.  The question is ROI.  They want to be able to provide the services, but….  This is a long term transition from copper to fiber.  50 years to build a copper network, fiber – how long???

GC – Same old thing with deployments as exemplified by cable and cellular – big cities first, rural last!!

There is lots of uncertainty caused by video business models – who is going to get the revenue? There is a need to monetize video entertainment since this is driving the bandwidth demand.  Presently, video over internet is only 5% of video screen time with only growth in the future.  This conundrum applies to all cloud applications.    Consumers pay to get Internet service.  Netflix pays to connect their servers to the Internet.  Netflix drives broadband subscriptions.

Levin – What about Network neutrality?  The FCC rules on network neutrality are now in court.  The tossing out the non-discrimination clause is likely.  Netflix drives demand for broadband, but requires too much bandwidth.  Cable makes huge margins on broadband so should they stop whining?…, but the increasing demand for bandwidth drives capital investment requirements.  Who pays – content providers or customers?

JB – Is net neutrality even important?  Either way the consumer is going to pay – either Comcast or Netflix?  Does it matter?  Some companies also get advertising so should the consumer pay twice?

BL – Is wireless the future?  Verizon investments indicate that they think wireless is where it’s at.  Will LTE be a competitor for fiber?  What about universal service?

AS – new USF rules are affecting rural carriers in a big way.  FACT – rural carriers would not be there if not for the USF and other provisions.  Maybe some combo of fiber and wireless?  Wireless is limited in capabilities – so wireless only is probably not the only answer, especially in denser markets.

JB – wireless has a fraction of capabilities, but is mobile.  Fiber is unlimited, but expensive and non-mobile.  Verizon and ATT are pushing hard to add fiber to their towers with the intention of pulling out their copper and not replacing it.

BL – What will Google be doing?  They have been disruptive in changing the debate?

JB – Not sure Google made the right choices on locations in KC and Austin.  Lots of PR, but skeptical of national impact.  What is the real plan?  Not sure.  Test bed for their own applications and purposes?

AS – Google not likely to go real rural.  How are they monetizing these networks? Highlights the need and benefits of fiber for a national policy discussion.

JB – Google has the cash if they wanted to spend it.  Austin, again, is very well served already .  (I read today that ATT will soon have Gb service in high demand/good demographic sections of Austin.   Time Warner and ATT Uverse plus a third competitor are already there.

Financing advice –

JB – Be able to present to investors – strong market, demonstrate weak competition, combination of factors that would demonstrate ability to execute.

AS – Agree with JB and add incentives to the providers with ROW, pole attachments, ability to lower capital requirements.  Plus demonstrate market demand by getting people to sign customer agreements.  Financial commitment, even small, from customers is great evidence of demand.

GC – Is the community underserved?  If so, you can get to 40-50 % pretty quickly.

Several providers talked about their fiber to the home deployments.

Session 2: Chattanooga Gig City – Katie Espereth

They now only offer two speeds  – 100 Mb and 1 Gb.  1 Gb is $70 unbundled.  While the network was originally deployed for smart grid and is showing its value there in management and repair, the broadband services are now offering financial subsidy to the electric utility rather than the other way around.

A thousand new businesses and 6700 new jobs have been documented.

Chattanooga employees are highly motivated because they feel they are doing great and big things!  We ignore the other providers and always try and take the high road.  They have really focused on being self-sufficient.  Consultants were great to start, but we put an emphasis on learning and becoming expert.

Expect mistakes, learn from them and move on!  (Only 30% take rate which seems puzzling but they still make money).  Smartgrid has been a cool way to manage their network, increase reliability and downtime, and become more efficient..

Cullen McCarty of Smithville Communications – Indiana Digital Gateway talked about their network.  They have been actively marketing to gamers.

Beth Ringley – The Motive Group

Opelka Power Services – 14,000 homes passed.

Key factor – Visionary Mayor!

Linkage to the muni electric is critical!!!  Being the electric utility is an asset – (why do MN muni electrics not do this?????)

Phase one. business, regulatory, finance plans and execution

Phase two – Contracts, fear and politics

Phase three – The REAL preparation, organizational changes, the right people in the right jobs, doing the right things.

Communicate, educate, train.  Processes and systems are critical!

Barry Walton

Bell Aliant provider in Atlantic Canada, Quebec and Ontario  800,000 homes

Fiber installation brought challenges to be in touch with communities and utilities.

“Christmas Day” – every week they have build goals – delivering fiber is like delivering Christmas to customers.  And Christmas is never late!

Started with 33,000 homes in 2009, peaked in 320,000 in 2011.

They closed the presentation with a customer video mashup – A customer submitted a video of himself singing the famous Doors song with a twist – “Come on baby, light my fiber!  Set my net on fire!”

Session 3: An interesting presentation on deploying FTTH by Raf Meersman of Ghent, Belgium.

Lots of good information on targeted investment for early network deployment.  Cool GIS/data tools that identify least cost deployment areas, best customer reach, best demographics and expected take rates all analyzed to see which areas provide best ROI.  Also targeted market segments as key planning tool.  And the analysis of a blend of technologies.  Scenario planning is required to clearly understand the options and make the right choices.

I am not sure much of this goes on in most telecom planning in Minnesota.  If incumbents are doing this type of analysis, we sure never hear about it.  Public networks generally focus on 100% coverage of their geographical area and do not cherry pick.

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