Tuesday, January 10, 2017

Rural Markets Remain Best Niche for Municipal Broadband

Generally speaking, specialists occupy niches in the telecom business that tier one suppliers find difficult to address. Value added resellers in the small business information technology space provides one example. Metro fiber access or transport providers provide other examples. Culture or language focused mobile virtual network operators also do so. Telecom cooperatives, independent rural telcos and municipal internet access providers provide other examples of niches.

For the most part, municipal ISPs and triple-play providers operate in small community niches where either the local telco is capital constrained. Generally speaking, cable TV companies manage to compete against municipal providers better than telcos.

In Opelika, Ala., Opelika Power Services serves 11,000 households with a triple-play services that has about 30 percent market share. Loma Linda Connected Community Program operates in a California community of 9,000 households and has about 1600 customers, representing market share of about 18 percent.

The Vernon Gas & Electric Department Fiber Optic Division reaches about 31 households in Vernon, Calif. It is hard to see how that ever produces much revenue, and scant profit, if any.

NextLight, serving Longmont, Colo., selling gigabit internet access for $50 a month to some potential 33,400 homes, claims to have gotten take rates  of 56 percent, extremely high for any overbuilder. The caveat is that NextLight sells both voice and internet access, so it is not clear whether the 56-percent take rate means homes buying at least one service, or the total number of units sold, divided by homes passed.

OptiLink serves Dalton, Ga., with a triple play service, and some argue OptiLink has take rates as high as 70 percent, having been in operation for more than a decade. It never is completely clear what “take rate” means, in this context, as OptiLink does not disclose its take rate, or how it measures.

Oftentimes, take rates are measured in terms of “services purchased” rather than “account homes.” In other words, a take rate of 70 percent could mean 23 percent of homes buy a triple play or that 70 percent of homes buy at least one service.

In Bellvue, Iowa iVue, the internet and video provider owned by the municipal utility, passes 966 homes. The key point is that these municipal ISPs mostly operate in rural and other hard-to-reach areas where neither the local telo or cable TV company has been willing to invest in higher-speed internet access or more-robust video services.

Google Fiber’s recent experience demonstrates how much harder the business model might be in larger cities where cable TV and telco providers are willing to invest.

Though many are hopeful that these experiences can be replicated more widely, the business model seems to remain a challenge, as few overbuilders in major markets are able to get enough market share, and sustain that share, to successfully challenge cable TV providers, the market leaders in most areas. It might arguably be easier to displace a local telco, as possibly has happened in a few instances.

Still, so far, no independent ISP has been able to displace either a cable company or a telco in a major market.

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