The Electronic Frontier Foundation (EFF) has an interesting article on broadband, profitability and net Neutrality. They report….
ISPs misrepresent to policymakers the true cost drivers of broadband deployment as a way to stave off pro-consumer protections. In fact, the biggest cost barrier for an ISP’s creation is the initial construction of the network (as opposed to its future upgrades) and the civil works that entails. That is what the Google Fiber deployment has taught us and that is what studies in the European Union concluded when analyzing how to improve the market entry prospects of ISPs.
Some estimates suggest the cost of deployment can be close to 80 percent of the entire cost portfolio of an ISP. Note that means operations and maintenance of the network (that includes all of the broadband usages of its customers) could be as little as 20% of the ISP’s costs. This is acutely true when it comes to a fiber to the home deployment where the infrastructure (fiber optic cable) is effectively future-proof and can be upgraded cheaply with advances in electronics.
EFF maintains that there are providers that can make profit and adhere to net neutrality principles…
EPB Fiber Optics, a community broadband company run by Chattanooga, Tennessee, offers both gigabit broadband and 10-gigabit broadband as well. A decade of their financial information, including how much they invest, how much the network costs, and how much profit they are making, is available here.
The EFF article details the financials but the gist is…
EPB is able to deploy a 21st Century ISP with the world’s fastest service with just 90,000 customers today while following network neutrality and forgoing extra profits from monetizing personal information like web browsing history.
They also mention Sonic…
Being able to provide affordable high-speed Internet for a profit while respecting network neutrality and user privacy is something the competitors to the incumbents have repeatedly demonstrated. Take regional provider Sonic for an example and their Brentwood, California deployment where the city’s infrastructure policies eliminated a majority of the costs of building the ISP. Right now Sonic sells gigabit broadband in the city of Brentwood at $40 a month, one of the lowest priced offerings for gigabit service. Again, they are doing this for a profit all while following network neutrality and protecting their customers’ privacy (Sonic regularly supports laws codifying their commitments as well).
I’d maintain that we don’t have to go that far to find examples of providers that are able to serve rural areas and remain profitable. Last year I spoke with HBC and Paul Bunyan about how they were able to offer FTTH in rural areas – here’s what they said.
What is the business case that makes sense for them?
They have done the numbers and have found that they are able to go into an area if the cost per passing is $1500 in a rural area or $1000 in a town. In a rural area, there is little competition so they have found that the are able to get 90-95 percent take rate, as opposed to 70 percent in town.
The real costs often surpass $1500/$1000. Rural areas can be tough for deployment. Some areas are built on stone, some are in valleys. The terrain can be more challenging than the distance. So they need a partner to help offset that cost. The partner could be the community or a grant like the Border to Border grant or a combination of both.
What is the business case?
Paul Bunyan is not focused on high or fast profit margin. They’re goal is to break even in 10+ years. Their investment is in the community as well as the business – supporting customer retention also supports business (and resident) retention and economic development for the community. Federal support, largely in the form of RUS (Rural Utility Service) low interest loans have made a difference. The Minnesota Border to Border grants have been essential for the very hard to each places.
Paul Bunyan has received Minnesota grants and without them probably would not have been able to make the business case to go into areas south of Park Rapids or Northern Itasca County. Paul Bunyan (and Minnesota) are getting to the stage where a larger percentage of unserved areas are unserved because they are the highest cost areas – due to distance, population density, difficult terrain, natural barriers and permitting issues (dealing with railroad crossings, forestry issues…). In those cases the state funding is necessary.
I was just in Austin talking about the case studies we did last year showing that a community benefits when it has broadband – to the tune of $1850 annually per household. That money goes to the household, not the provider but it does help secure a customer, maybe encourages some recruitment to the area maybe even big businesses – it may create more business and that helps the business case.