Overbuilder Business Model Still is Tough, Even When You Win

Perhaps few overbuilders have been as optimistic as Google Fiber about prospects for beating cable companies and telcos at the internet access game, but even Google seems to have found out how expensive and difficult the access game can be.

Tucows, an overbuilder constructing gigabit internet access networks in a number of mid-sized towns, believes it eventually will reach 50 percent adoption rates (the adoption, or penetration rate, is the percent of homes in an area that are customers) in its markets after five years, a stunning figure that has been seen once or twice in U.S. overbuilder markets, but an achievement that  remains quite rare.

At that level, an overbuilder would become the likely leader in its market.

Even expectations for the immediate future are healthy. “We expect to see 20 percent adoption among serviceable addresses in a year and 50 percent in five years,” says  Elliot Noss, Tucows CEO. Generally speaking, an overbuilder with 20-percent share and control of its operating costs reasonably can expect to survive.

As was the case for overbuilders in the video entertainment business, and now with triple-play and internet access overbuilders, it has proven difficult to reach 20 percent market share after several years of operation.

As even the most-successful overbuilders have discovered, being the market leader is difficult, as the leader’s market share, in a competitive three-way market, might not exceed 30 percent or so of homes (potential accounts).

EPB in Chattanooga, Tenn., for example, is the poster child for overbuilder hopes, having gotten as much as 45 percent of consumer market share in its service area (with share defined as revenue-generating units, not “accounts” or “homes”).

EPB’s internet access share might be about 27 percent, its video share lower than that. An interesting statistic, in that regard, is that about eight percent of EPB’s internet access customers buy the gigabit service.

EPB’s market share is highly unusual in most overbuilder markets, as EPB arguably competes with Comcast, not AT&T, which has negligible video share in Chattanooga.

In a triple-play market, that is important. Comcast might have 61 percent video share, while EPB might have 36 percent share, leaving only three percent video share held by AT&T. Essentially, EPB has become the number-two provider, relegating AT&T to third place, something that is not the case in most other U.S. markets where three mass market fixed network suppliers compete.

AS well as EPB arguably has done, the overbuilder business model remains challenging. That is why fixed networks in many markets essentially remain monopolies at worst, despite deregulation,  or at best oligopolies.

An important test is coming for overbuilder Ting in its south metro Denver markets, as it will face entrenched competition from both CenturyLink and Comcast, in an area where both those incumbents will be able to offer gigabit per second speeds to consumers.
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