If you are the sort of person who has followed the investment case for fiber to the home over a long period, you are well aware that payback periods are moderately long. You might also profess a reasonable belief that the payback analysis has gotten more complicated of late.
Among the reasons: more of the payback might come from business customers, arguably less from consumer customers. More of the payback might come from attributed value for owners of mobile access services and less from services for customers of the fixed network.
There are new investors in digital infrastructure whose estimations are financial rather than as operators of such assets. Such financial investors might not be as riveted on longer-term operating value but rather a chance to boost the valuation of assets before selling to longer-term investors.
All of that requires a more-complicated analysis than was the case 30 years ago, when the analysis might generally be more simple: expected revenue gains from consumer services.
It no longer is so clear that a quick, high level analysis still hinges largely on consumer revenue per account, for example, even if that might represent the principal direct revenue sensitivity.
For example, where it once was possible to estimate consumer account revenue at perhaps $120 a month, as was the case for internet service providers selling home broadband plus entertainment video plus voice services, many ISPs now report that typical recurring home broadband revenue is more on the order of $50 to $70 per month.
So revenue sensitivity also is potentially different for firms with other contributors, whether that is the value for mobile revenue generation, business services or wholesale upside. Pure-play home broadband ISPs almost always must contend with lower revenue per account than multi-play service providers with meaningful voice, video or other revenue drivers, including incremental revenue from mobile services that the FTTH investment supports.
Some multi-play providers, including cable companies, also must contend with a major platform change similar in magnitude to a copper access telco upgrading to FTTH, though always with higher per-account revenue assumptions than a pure-play home broadband supplier.
If we assume that home broadband is the sole revenue driver, and that customers will routinely buy service plans at the upper range of available service plans (gigabit per second or multi-gigabit service plants), the payback models are a little more stringent.
The payback models are worse if the typical ISP has only home broadband as the primary revenue source and recurring revenues are at the lower end of what investors expect, about $50 per customer account, to start with, growing over time to higher levels over time, allowing for some annual increases in revenue per account.
The payback case might be longer if one has to include borrowing costs to acquire assets and then invest in FTTH. And one might argue that no private equity firm will hold assets for the full period required to earn an expected return.
Among the obvious other imponderables are the differences in asset valuation that might be the driver, not the payback period or the typical recurring revenue, but mainly the arbitrage on assets whose value is boosted.
Competition, demand assumptions and therefore revenue-per-account expectations are different. The implied value for supporting core mobile operations now is a factor. Business revenue arguably is more dynamic.
And investment objectives are a new issue for some classes of investors.
The upshot is that FTTH payback models are much more complex than was the case 30 years ago.
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