Thursday, January 14, 2016

Cost Structure Really Does Matter

British Internet service provider Gigaclear has gotten a €25 million (£19 million, $27.3 million) loan from the European Investment Bank, a move it reckons will help boost its rural broadband network for perhaps 40,000 homes.

Rough math: including overhead and debt service, that implies the cost of rural U.K. fiber to the home of no more than $682 per location. That appears breathtakingly low, and far less than BT costs to deploy fiber to the home.

With estimated average cost in excess of £2000, with a variable distance charge, an abandoned plan for fiber to home might imply BT transport and drop minimum costs of $2880, before the applied variable distance cost.

At an “average” distance of 1,000 meters to 1499 meters, that adds an extra £2500, for a total cost of £4880, or about $7,028 per location. Costs such as those explain why BT abandoned that particular plan.

But those cost differences also explain why, in some cases, ISP with dramatically-lower embedded costs can build gigabit fiber facilities when a tier-one telco cannot. Cost structure matters.

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