There is an increasingly-good argument to be made that take rates determine the payback from any fiber-to-home investment. Traditionally, that meant the percentage of homes passed by the network that had paying customers connected.
There is an equally-good argument to be made that the payback analysis can no longer be developed solely on the basis of consumer revenues and networks “to the home,” especially when a service provider is supporting both fixed and mobility services.
That tends to make a shambles of the conventional way of comparing access media and platforms (FTTH, hybrid fiber coax, fixed wireless, digital subscriber line upgrades, satellite). That made sense when the “home” was the driver of payback.
That makes less sense when the fiber distribution network is viewed as necessary for supporting the mobile network and a variety of low-latency use cases.
Starting with 5G, and presumably intensifying with each coming mobile next-generation network, some of the value is derived from the backhaul network for mobility services.
Additional revenue might be earned from edge computing, internet of things, “smart” cities, private networks, and additional small business revenues. Those revenue streams can be wholesale and retail; direct or indirect.
So the difference is that FTTH payback arguably is determined by the payback from fixed and mobility services (wholesale and retail) sharing use of the same infrastructure.
Though it might still make sense to evaluate different “last mile” platforms on a fiber-deep distribution network (radio, copper or fiber as the last-mile connection), only fiber is deemed suitable for urban and suburban networks. A greater range of options applies for rural networks.
This is far more complicated than once was the case, as it involves all revenues from all customer segments (enterprise; small and medium business; consumers); any kind of network (fixed and mobile) and any type of service (internet access, voice, apps and content, wholesale, edge computing, internet of things).
To be sure, that means payback models might be quite different for integrated operators and mobile-only or fixed-only assets.
“If the technology penetration rate decreases 60 percent, the cost per subscriber increases 278 percent,” said João Paulo Ribeiro Pereira of the Instituto Politécnico de Bragança, Departamento de Informática e Comunicações in Portugal. “However, if the penetration rate increases 60 percent, the cost per subscriber decreases 39,7 percent.
In other words, the cost of construction and bill of materials arguably no longer determines the payback model, at least in urban and suburban markets.
It is take rates (penetration) that overwhelmingly shapes returns in such areas. On the other hand, construction arguably continues to dominate the payback model in rural areas.
Beyond all that, equity value and deployment assumptions also have changed over the last few years, in at least some markets. Aside from the nuts and bolts of a customer payback model, the equity value of access networks has changed as institutional and private equity investors buy up access network assets as an alternative asset for portfolios.
So FTTH is not only a platform for revenues, it also is a way of creating new equity value. At the same time, there is new thinking about how to leverage joint ventures for new access infrastructure that trade some ownership for more outside investment in access infrastructure.
In other words, telcos, cable companies, mobile service providers and independent internet service providers historically have preferred to own their own infrastructure, even in some markets where wholesale is the infrastructure model.
But there is new thinking about accepting outside investment in exchange for a share of operating profits.
Also, in some cases, assumptions about levels of government support also have changed, as more money is made available to speed broadband deployment. That effectively lowers investment hurdles and payback assumptions.
The point is that our traditional ways of evaluating payback from optical fiber investments in access networks are changing. “Fiber to the home” does not quite capture all the value of a fiber-deep distribution network.
Fiber to the small cell site; fiber to the colocation site; fiber to the enterprise; fiber to the small business and fiber to the home all are parts of the payback analysis. Beyond that, thinking about the financing and ownership mechanisms is changing.
It might make sense to own less than in the past. It might be sensible to trade some revenue and profit for less exposure to capital investment.
The takeaway is that our older payback models make less and less sense.
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