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For the purpose of this discussion I have created an overly simplified
business model to describe how the numbers look based on several
assumptions.
First off, let's take a look at what the pricing looks like as it sits currently.
$25.00/month - telephone This does not include long distance or optional services. $15.00/month Dialup Internet no allowance for a second line or services like CallWave $30.00/month Satellite or Cable TV admittedly this provides for more than basic service.
$70.00/month Total for all of the above services.
If we include Broadband in the above equation the numbers would be increased by approximately $20.00/month bringing the monthly total to roughly $90.00/month.
In Vermont our typical population pattern is dispersed in the following
manner. We have a small town with a number of homes clustered together
in the center and then roughly 10 miles of very few homes per mile
until we hit the next town. For the purpose of this explanation I will
assume that each town has a population of 200 homes (average) and for
every 10 average sized towns we have one "city" with a total population
of 1,000 homes/businesses. I beg your indulgence, I know this is not
accurate but it does give us a framework to base this business model
on. We will also stipulate that in every community this service is
deployed in there is very close to a 100% service adoption rate.
Considering that Adelphia charges up just under $60/month for high
speed Internet access only I can tell you without reservation that I
would take this service in a heartbeat if it was available to me.
So,
starting in the "city" we connect 1,000 homes/businesses to our fiber
at an internal cost of $11,000/mile plus $1,800 per individual
building. We will also have to make the assumption that in this city we
have a density that equals 20 homes per mile (average) and that this
would give us a figure of 50 wireline miles inside the city borders.
(Please note I have assigned these numbers as estimates and are for
illustrative purposes only. Since every area will be different I have
based these numbers on a worst case scenario, within reason.)
$ 550,000 - fiber backbone for the entire city (50 miles at $11,000/mile) $1,800,000 - total install cost for last mile (1,000 buildings at $1,800/building) $2,350,000 - total investment to connect the city
Let's look at those numbers, shall we?
Using
a mortgage calculator based on a 6 percent loan on a 20 year
amortization schedule we find the total monthly payment (including
interest) works out of be $16,836.13/month or $16.84/month per
subscriber to pay off the loan. If we assume that VoIP (not unlimited
calling) has a cost factor of $10/month and base Internet has an
additional cost of $5/month in bandwidth costs based on a massive
oversubscription rate we then have to add in television. I am going to
assign a cost for basic television that adds in $10/month but this
number is dependent on a number of variables including what we include
in the basic service package. If you are willing to accept the numbers
I provided, this is what everything now looks like.
$16.84 - debt service. $10.00 - VoIP costs $10.00 - Television $ 5.00 - Internet bandwidth costs. $41.84 total monthly cost on basic package.
$59.99 basic package retail price $41.84 monthly cost to provide services
$18.15
net however, there is overhead and additional expenses which need
to be accounted for. Let's not forget there are businesses that will be
charged a higher monthly fee while the costs will stay close to the
same and that a fair portion of residents will also opt for premium
services and we can now offer additional services (security, remote
backup/data storage, 4.9MHz public safety, advertising supported Hot
Spots, VoIP over WiFi, etc.) that will generate additional revenue
streams. We also can leverage the ability to supply one $1,800 Customer
Premise Equipment for Multiple Tenant Units - where more than one
customer is connected using one device because they share the same
building. This also changes the numbers in our favor.
Now, let's look at the numbers when we factor in the smaller towns.
As we defined earlier, each small community is 10 miles away from the next or the city to keep this example simple.
So
this would mean we have 10 miles times $11,000 per mile or $110,000 to
run the backbone from the city into this smaller town. Additionally, we
will set a constant of 5 homes per mile along the way that need to be
connected.
This is what the breakdown looks like in this case.
$110,000 fiber backbone (10 miles at $11,000/mile) $110,000 run fiber through 10 miles of the town based on 20 homes per mile. $360,000 200 homes connected last mile $ 90,000 50 homes connected along the 10 mile backbone $670,000 total cost to connect this small town
$4,800.00 total monthly payment for infrastructure based on 20 years at 6% $19.20/month debt service per customer figured on 250 homes.
Now the model looks more like this in this case.
$19.20 - debt service. $10.00 - VoIP costs $10.00 - Television $ 5.00 - Internet costs. $44.20 total monthly cost on basic package.
$59.99 basic package retail price $44.20 monthly cost to provide services
$15.79 net - with additional expenses not accounted for.
Looking
at the totals I have provided here (who knows if this is reality) this
is how I see a very small network of one city and ten towns adding
up. $18,150 monthly from the city. $39,475 monthly from 10 towns
$57,625/month revenue - with some but not all expenses accounted for.
Please
keep in mind there is no charge included for installation in this model
and I would think this is something that should be factored in even
if the installation fee is financed over several months or years. I can
also see a minimal monthly rental for the set top box and the SIP
router or outright sale of these items that would add to the bottom
line.
Let's look at some of the specific options and discuss the relative value.
In
the above model we allow for each service to be added in as necessary
and we will assign a retail pricing for each of the following services
at the following rates.
$35.00/month Broadband Internet service entry level tier (5 Mbps symmetrical). $15.00/month Telephone service unlimited in-state but limited long distance calling. $10.00/month Basic television package to be determined.
Upgrades would be available for services as the customer wishes.
For
example, should a customer wish they can decide to drop the telephone
service included in this package ($15.00/month) and opt for Packet8 (or
a competing company) they would now be able to make unlimited calling
anywhere in the US or Canada for $20.00/month (only raising their total
monthly bill by $5.00/month) as opposed to Verizon's Freedom package which costs $59.95/month for roughly the same level of service.
A
customer could choose to opt out of the television package and save
another $10/month on their monthly service bill allowing them to
receive Broadband as a platform to take advantage of competing services
at a price that is competitive with industry standards.
However,
this would be selling the infrastructure short and ignoring many of the
services that might be provided including telecommuting, video
conferencing, streaming video, Video on Demand, distance learning,
remote medical diagnostics, remote security along with many services
that will soon become available if the necessary infrastructure is in
place.
Please note- I readily admit that this model is not
complete but rather built to demonstrate the validity of the concept. I
have tried to present what I see as the underlying financial model that
allows this project to work. I also carefully omitted any monies that
might be made available through RUS grants or the impact that private
investment would bring to this model.
I would like to clearly
state for the record that I believe the dynamics of this deployment
could be dramatically changed if a hybrid fiber backbone/wireless last
foot delivery system was employed. If, for example, we were to employ
the newly FCC approved 3650 band for last foot delivery a significant
reduction in the investment necessary to connect the end user could be
realized where we might be able to drop the installation cost per
building connected from $1,800/unit to well below $600/unit.
One
final thought, this is not something that I conceived of or invented.
This is a business model that is currently in operation and can be
duplicated with very well understood cost factors. The business that I
borrowed this plan from has constructed it in such a way that the
company was Cash Flow Positive within 90 days insuring that this
business is sustainable.
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