The whole idea behind subsidies for communications in rural areas is that there is, in effect, no viable business model without the subsidies, at least where it comes to cabled networks with provider of last resort (universal service) obligations. An analysis by CostQuest suggests the capital investment per customer location, for conduit and poles, is approximately 5.6 times higher in rural areas as in suburban areas.
For fiber optic cable, the capital investment is approximately 4.2 times higher in rural areas as in suburban areas. Those two expenses account for 66 percent of total capex.
Ignoring for the moment the thorny issue of costs for different types of platforms (mobile, fixed wireless, cable hybrid fiber coax, fiber-to-home, digital subscriber line), overhead and public policy choices, fixed networks in rural and isolated areas are quite expensive to build.
Recently, a Frontier Communications executive even said the firm’s business model was unsustainable. That might well the case elsewhere as well. That includes areas of low population density but also in highly-urban areas such as Singapore. But Southeast Asia also is an area where the business model is becoming unsustainable.
It is becoming clearer that the fixed network telecom business is losing its ability to sustain itself, as it becomes harder to generate core revenue. The point is that, over time, a greater number of service providers might well find their business models are becoming unsustainable
In other words, one might argue, the core business model is failing. That is why firms such as Frontier Communications now are in greater danger of bankruptcy. Windstream and its facilities unit Uniti might also face bankruptcy danger.
A difficult business model is why Verizon and AT&T (and other telcos and internet service providers) are looking to fixed wireless as an alternative to fiber to the home.
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