Home Broadband Payback Model Changes Radically When One Subsidizes 75% of the Cost

This is one example of how the business case for fiber to the home and other advanced home broadband networks is changing. Delaware has allocated $110 million to improve home broadband access in unserved and underserved areas, using federal government funds.

The cost of construction will be reduced by about 75 percent for 11,000 locations said to have no fixed networks providing home broadband access. Those locations likely map close to the 11,800 unserved Delaware locations previously identified.  

Comcast won a grant of more than $30 million; Verizon received $11.8 million and Mediacom got $11.1 million. 

For Verizon, the grants mean 940 Mbps home broadband will be made available to 3,000 unserved locations” in Delaware. That implies a subsidy of about $3933 per new line, with Verizon contributing $1311 per line. 

That implies a total cost per new Verizon line of about $5244. 

The awards also imply that 75 percent of the cost per line for the cable companies is about $2275. Assuming Comcast and Mediacom contribute 25 percent of the construction cost, the total cable cost per line is about $3033. 

Network cost is one key element of the payback model; consumer willingness to buy is the other key variable. Consumer willingness to pay is highest at $50 per month and drops off steadily at higher levels. 

source: CTC Technology 

One might infer that at about $100 a month, half the market will not buy. Many studies suggest the U.S. home broadband median monthly price paid is about $60 to $65 or $68 a month.    

Some studies show cable connections are the most affordable, satellite connections the most expensive. Inflation-adjusted prices are lower than $60 per month, some suggest. Analyses can vary based on whether they include additional charges or whether the monthly recurring price reported by a consumer includes those charges. 

Estimates also can vary based on how the analysis is conducted. Comparing posted retail prices is one way; estimating actual prices, including all discount mechanisms, is another way. And some studies weight the results by considering the plans consumers actually buy. 

The key takeaway is that subsidizing 75 percent of the cost of facilities radically changes the payback model for home broadband.