30% Lower FTTH Costs Change Payback Models

Some parts of the U.S. digital infrastructure market will get a boost from new federal funds to support fiber access networks. Thost subsidies might mean a reduction of capital investment to build new access networks of perhaps 30 percent. 

Such subsidies are part of a wider movement by internet service providers to reduce the capital expense of building advanced fixed access networks, and efforts by governments to incentivize deployment.

Co-investment, by definition, spreads risk and cost for any single investor, if it boosts customer adoption by single digits, in some cases. Fiber-to-home never has been an easy business case, and is dramatically more challenging in any market with at least two rivals.

For that reason, many investors (operators and financial entities alike) believe the optimal business case is for an owner of the first fiber-to-home network in any area, using a wholesale model that encourages most or all of the other contenders to lease capacity rather than build their own infrastructure.

For large operators in urban markets as well as small operators in rural markets, much depends on cost containment, as revenue increases are tough in competitive markets. But capex is the first hurdle.

According to some small community or co-op internet service providers, the total cost to build fiber-to-home systems in rural Vermont is about $26,000 per mile, including drops and customer installs for six customers per plant mile. 

Assuming 12 potential customers per plant mile, that implies a take rate of 50 percent by the end of third year of sales. Other studies suggest a per-mile cost closer to $56,000, with 22 potential customer locations per mile. 

That implies a per-location cost of about $2545, and a per-customer cost of $5091, with monthly revenues possibly in the $50 range. Assume take rates of 50 percent. 

If the free cash flow ratio is about 13 percent (after payroll, taxes and all other cash expenditures)--assuming any rural internet service provider has the same cash flow margin as a telco, capital can be obtained at five percent interest rates, cash flow increases three percent per year, there is never a payback on investment.  

Traditionally, that shortfall in rural areas has been covered by subsidies of one sort or another, plus rigid cost controls. 

If the cash flow ratio (not including operating expenses) is about 29 percent, payback is at least 21 years. Subsidies that effectively reduce invested capital expense by 30 percent help. 

In the above case, assume the ISP has a subsidy of 30 percent, resulting in per-location cost of $1782 and per-customer cost of $3564. Then the payback period drops to 16 years. 

Keep in mind, payback means that the owner only has reached breakeven on the cost of the network. 

A tier-one ISP able to leverage scale in its buying costs would fare better. Assume per-location investment of about $800 and per-customer cost (including drop cost and installation of $300 per location. Others might note that costs can range up to $600 per location) of about $1900.

Assume monthly recurring revenue of about $960, with the same 29 percent cash flow margin, borrowing costs of five percent and three percent annual revenue increases.  Assume a 50-percent take rate. 

If cash flow then is $278, the payback period (breakeven) is about six years. In practice, the payback period is probably a bit longer, as this analysis assumes the telco gets 50 percent take rates, while present take rates are in the 40-percent range. 

If one uses the 40-percent take rate, then per-location costs of $800 work out to about $2000 for customer capex, plus $300 for installation, for a total of about $2300 per customer. Then payback is about 7.5 years, based on cash flow. 

A large telco also has other upside, though, serving business accounts that boost average revenue per account. A large telco with its own mobile operations also benefits from the ability to use the fiber network to support its mobile operations as well. 

Of course, that is cash flow, not profit. Cash flow is working capital, not profit. But in many cases free cash flow margin is about equivalent to profit margin. 

Still, the point is that any new subsidies that lower upfront capital expense by 30 percent are going to positively affect the payback model. And the payback model supports profit generation. 

If an ISP can get funds from the government to defray as much as 30 percent of capex, many projects that might not have been undertaken would be feasible. 

AT&T Gigapower Joint Venture Raises Questions

The Gigapower joint venture between AT&T and BlackRock is one more illustration of how the local connectivity business model is evolving. First of all, the venture will operate on a wholesale basis outside AT&T’s core fixed network footprint. AT&T will be an anchor tenant on the network.

The open access network initially will target about 1.5 million locations outside the 21-state AT&T fixed network footprint. AT&T might not traditionally have been a fan of wholesale local access, but the capital requirements to build out networks in 29 states where it has no existing fixed network operations is daunting.  

Cost sharing appears to be the way AT&T has concluded it must operate to expand its own retail operations in those 29 states, as a fixed network services provider. \

T-Mobile also is reportedly looking at some form of joint venture to start building its own fixed network capabilities. Cable One also looks to use joint ventures to fund its own ISP footprint out of its current footprint. In the United Kingdom Virgin Media O2 likewise has chosen to create a joint venture to build new facilities out of its current footprint.  

Other service providers are taking other steps to boost capacity and internet access revenues outside their core region. Verizon is using fixed wireless for that purpose, as is T-Mobile, which historically has had zero fixed network assets able to provider customers with internet access. 

Many independent ISPs are building their own networks as well. The point is that huge amounts of capital are required to expand fiber-to-home networks and it no longer appears ISPs can do so by themselves. 

In the mobile segment of the business, though facilities-based competition has been the norm, there are some moves towards single-network patterns where wholesale access to a common platform is viewed as the only way, or the best way, to ensure rapid uptake of 5G and future mobile platforms. 

Difficult business models for facilities-based competition are part of that analysis. 

The growing joint venture movement in the fixed networks business also suggests a model change. At least where it comes to building out-of-region networks, full network ownership might not be viewed as the best strategy. But if the alternative is full wholesale, which might not be viewed so favorably, either, the alternative of owning some of the infrastructure might be viewed as a reasonable compromise. 

That hybrid approach--own some of what you need or sell--could be an important developing trend, compared to the alternative of “own 100 percent” of what you need or sell. Even if desired, competitive market dynamics might make that solution unobtainable. 

Business strategies that are more asset light have been proposed and considered for some time. In some markets, structural separation creating a wholesale-only model sets the ground rules. In the mobile segment of the business, asset disposals have become common, as mobile operators conclude they can monetize some of their infrastructure without sacrificing competitiveness.  

The broad issue is how far this reevaluation of asset value can go. It is one thing to spin off tower assets. It is another to use joint ventures to expand into new geographies. It might be quite something else to conclude that the actual access network provides so little value that it can be procured using wholesale mechanisms, and that network ownership confers less competitive advantage than it once did. 

It is too early to say a tipping point, in that regard, has been reached. Out of region, capital requirements are large enough that partial ownership might be the only alternative. 

In region, leading access providers still prefer to own their core access infrastructure. But change is happening. How much change is possible is the next question.

In the End, Value Matters More than Physical Media

We often assume that people using fiber-to-home networks is mostly a matter of supply: build the networks and demand should be obvious. In other words, build it and they will come. It is rarely that simple. Even where FTTH is available, take rates are lower than many of us would have predicted. 

In many European markets as well as the United States, take rates approach 40 percent of holmes passed, and that only after a few years worth of marketing. Analysys Mason analysts estimated take rates at about 41 percent in Europe in 2020, for example.  

source: Analysys Mason 

AT&T has approached 40 percent take rates for its FTTH footprint in 2022. In some markets, including the United States, where cable operators have 70 percent of the installed base, and have, for two decades, gotten nearly all the net new account additions. FTTH purchases are lower because other viable options exist. 

The point is that customer demand also matters, not simply supply. Policymakers might well content themselves to drive policies that make FTTH available, or that make capacity available, irrespective of the platform. 

Rarely, if ever, are goals set for specific levels of adoption. That makes sense, if one assumes the government policy interest in precisely in ensuring availability of services, not forcing people to buy. It literally is up to internet service providers to make the case for value.  

source: Statista 

But physical media and platform statistics are only so valuable. What arguably matters more are actual value propositions, as only a small percentage of potential customers actually buy the fastest-available or most-expensive service packages. 

According to Openvault, even where gigabit-per-second service is widely available, about 15 percent of U.S. households actually buy it. Most customers buy service at lower speeds. As the headline speed increases to multi-gigabit ranges, that will likely remain the case. At first, only single digit percentages of customers will buy the fastest tier of  service. 

Most customers will continue to buy service someplace in the middle: not the slowest, nor the fattest speeds. 

At some point, where it comes to optical access infrastructure, we will stop focusing on availability and we will pay more attention to the actual services customers buy over that platform, or any other competing platforms. 

In the end, physical media will not matter. We will care about demand for capacity at various levels, and the value and revenue that generates.

Fateful Choices, Unforseen Outcomes

We often do not see clearly enough that when the global communications industry chose TCP/IP as its next-generation network architecture, it also chose a business model based on layers, permissionless app development and ownership, an open ecosystem rather than a closed pattern. 

That was perhaps not intentional. The bigger drivers were the relative cost and ease of operating a network using IP, rather than the rival asynchronous transfer mode network, its main rival as a solution. 

In doing so, connectivity providers decided all networks would be computing networks. But where is value created on a computing network? By users, at the edge, running applications deemed to provide utility, connecting buyers and sellers, trading partners, friends, relatives, colleagues. 

The network itself is a functional “dumb pipe,” supplying transport. That is essential, to be sure. But value lies in “ enabling connections to be made.” Beyond that, the network is not essential for computing functions, application development or deployment. All that happens “at the edge.”

That’s just another way of saying people, companies, institutions or groups can create value, use cases and apps that use communication networks without the permission of the network owners. That is the complete opposite of the case before IP networks were the norm. 

It was inevitable, if largely unforeseen, that most applications and network-delivered products could be, and would be, created and owned by third parties not under the ownership and control of connectivity providers. 

These days, nearly all communications over public and private networks are connectionless, a far cry from the situation four decades ago, when most sessions were connection oriented. That is another way of saying the way we communicate now uses packet switching.

source: TechTarget

Connection-oriented protocols were characteristic of the telephone voice network. Connectionless is the way modern data networking and internet protocol work. 

In that regard, and with passage of more than two decades, it might be worth noting that all global public communication networks operate on the same principles as computer networks: connectionless. 

Another way of saying this is to note that communications are essentially edge to edge, and not deterministic in the core transport network. We might also say such networks are essentially dumb, not “smart.”    

More than two decades ago, some debates were held on the merits of “smart” networks versus  stupid networks. A smart or “intelligent” network was touted by those who believed it best supported a range of applications where predictability and therefore quality assurance was important. 

The “dumb” network was preferred by data professionals, since it was the way computer communications occurred. Back then, the general framing was whether either IP or asynchronous transfer mode was the better choice for wide area and public network communications. 

Local area networks might have used routers or switches to connect LAN segments. So, as applied to the WAN, telcos proposed adding an ATM transport function, partly for quality assurance, partly for capacity. At the time, ATM could support faster speeds than IP could (though obviously that changed). 

 Data networking professionals asked “why?” Simplicity is more valuable than determinism, they argued.  But all those debates were over technology choices. 

source: Shanker presentation 

The debate seemingly over technology was much more than that, though perhaps little understood at the time. We might argue, persuasively, that the global IP networks are precisely “stupid” or “dumb” networks. In the IP framework, the transport network routes packets. 

In that sense, smart network elements are essential, and used. But all applications are created in an independent manner, even when directly owned and supplied by a connectivity provider. That is simply the way software works these days. 

Connectivity providers can build features that are more deterministic, such as layering on multi-protocol label switching to add more predictable transport quality. But so can edge devices owned by third parties or enterprises directly. 

Virtual private networks can be created to enhance security. But those features can be created either by transport providers or edge hardware and software owned directly by  enterprises. Service businesses can create such networks and make them available to consumers as well. 

Those entities can include--but are not limited to--transport service providers. Even now, most VPNs are created and sold by third parties, not transport service providers. And much of the activity by service providers are entities separate from the major transport providers. 

So layers, open, permissionless, connectionless, disaggregated, at the edge, over the top and dumb pipe are some of the common realities of the modern computing and connectivity functions and industries. The transport function ideally is transparent to all the other layers and functions. 

But that also has other implications. The value of “communications,” while remaining essential, arguably gets devalued, as sources of value move to the edge, and away from transport layers of the full solutions stack. 

More than two decades after a ferocious attack on the notion that the best network is a “dumb pipe,” isn’t that precisely what we now have, for the most part? 

Granted, one can still argue that service provider apps such as voice and text messaging or video entertainment or home security are applications that still require some amount of “intelligent” control in the “core” of the network.

But most of the bandwidth now carried on any network consists of internet or other Internet Protocol traffic, by definition edge-to-edge routed load. 

Even two decades ago, we might have all learned faster if the debate had been about connectionless versus connection-oriented networking. `We might have gotten a better grip on what a “layered” architecture  would mean for business models. 

We might have seen the “over the top” business model coming. We might have foreseen what “permissionless” ability to create products and reach users and customers directly would do for, and to, business models across the ecosystem. 

We might have gotten glimpses of new models for value creation and hence monetization. But what seems quite obvious in retrospect was anything but clear at the beginning.

Altnets Dispute Openreach Discounts

Openreach discounts for new fiber access contracts, which essentially offer wholesale customers lower prices, are viewed as a competitive threat by facilities-based competitors of Openreach. The new proposed tariffs, for example, only offer discounts in areas where there is competition from rival facilities-based fiber access providers. 

Where Openreach is the sole provider of optical fiber access, the program and discounts do not apply. Some might say that is a typical response by a dominant provider to maintain or gain market share. 

Competitors might see it as a way to drive competitors out of business using price mechanisms. At some point, that might be viewed as predatory behavior by regulators, as Openreach supports perhaps 600 retail ISPs. Up to this point, Virgin Media 02 has been the main facilities-based rival to Openreach, having perhaps 20 percent of the installed base. Up to 75 percent of the retail home broadband connections use Openreach. 

source: Ofcom  

Other small facilities-based ISPs have the most to lose. The big problem with building a rival access network are the stranded assets. If any provider in a competitive market manages to get 20 percent share, that also means 80 percent of the locations generate no revenue. As a general rule of thumb, 30 percent share is likely a lower boundary for sustainability in a competitive, facilities-based access market. 

Openreach could make that a difficult target to reach, in markets where Virgin Media o2 also operate, alongside Openreach. 

Marginal Cost Pricing and "Near Zero Pricing" are Correlated

Digital content and related businesses such as data transport and access often face profitability issues because of marginal cost pricing, in a broad sense. Marginal cost pricing is the practice setting the price of a product to equal the extra cost of producing an extra unit of output.

Of course, digital goods are prime examples. What is the additional cost of delivering one more song, one more text message, one more email, one more web page, one more megabyte, one more voice conversation? What is the marginal cost of one more compute cycle, one more gigabyte of storage, one more transaction? 

Note that entities often use marginal cost pricing during recessions or in highly-competitive markets where price matters. Marginal cost pricing also happens in zero-sum markets, where a unit sold by one supplier must come at the expense of some other supplier.

In essence, marginal cost pricing is the underlying theory behind the offering of discounts. Once a production line is started, once a network or product is built, there often is little additional cost to sell the next unit. If marginal cost is $1, and retail price is $2, any sale above $1 represents a net profit gain. 

Of course, price wars often result, changing expected market prices in a downward direction. 

But marginal cost pricing has a flaw: it only recovers the cost of producing the next unit. It does not aid in the recovery of sunk and capital costs. Sustainable entities must recoup their full costs, including capital and other sunk costs, not simply their cost to produce and sell one more unit. 

So the core problem with pricing at marginal cost (the cost to produce the next unit), or close to it, is that the actual recovery of sunk costs does not happen. Sometimes we are tempted to think the problem is commoditization, or low perceived value, and that also can be an issue.

One arguably sees this problem in wide area data transport and internet transit pricing, for example. 

Software suppliers have an advantage, compared to producers of physical products, as the marginal costs to replicate one more instance are quite low, compared to the cost of adding another production line or facility; the cost of building additional access networks or devices. \\A company that is looking to maximize its profits will produce “up to the point where marginal cost equals marginal revenue.” In a business with economies of scale, increasing scale tends to reduce marginal costs. Digital businesses, in particular, have marginal costs quite close to zero.

source: Praxtime

The practical result is a drop in retail pricing, such as music streaming average revenue per account, mobile service average revenue per user, the cost of phone calls, sending text, email or multimedia messages, the cost of videoconferencing or price of products sold on exchanges and marketplaces. 

Of course, there are other drivers of cost, and therefore pricing. Marketing, advertising, power costs, transportation and logistics, personnel and other overhead do matter as well. But most of those are essentially sunk costs. Many of those costs do not change as one incremental unit is produced and sold. 

Which is why some argue the price of digital goods tends toward zero, considering only production costs. Most of the other price drivers for digital goods might not be related directly to production cost, however. Competition, brand investments and bargaining power can be big influences as well. 

Still, marginal cost pricing is a major reason why digital goods prices can face huge pricing pressure.

"Churn and Return" is a Big Reason Why Video Analog Dollars Become Digital Dimes

“Churn and return” seems to be a key part of the reason video streaming business models have become more challenging. In a nutshell, the problem is that customers sign up on any particular service to watch a new hit series, then churn off once they have finished watching it. 

That, in turn, is related to the traditional difficulty of creating a hit series in the first place. No single streaming service has found a way to consistently produce new “must see” content on a repeatable basis. And if that is what drives subscriptions and retention, no single service is going to have predictable cash flows. 

The older model is the “catalog” approach, which relies on a deep, broad catalog of archived content to anchor customers and create some amount of loyalty (repeat buying). 

The exceptions are the video streamers that have some other business model. YouTube makes money from advertising, not subscriptions. Amazon Prime arguably makes money from e-commerce. Apple makes money selling devices. In all those three cases, there is some other business model that streaming helps support, but without the full requirement to throw off enough cash to be a significant and stand-alone revenue driver. 

Netflix is changing its revenue model to incorporate advertising revenue. Warner Brothers Discovery has to find a balance between subscriptions and advertising, as do the other smaller providers. 

The point is that the subscription-driven services have work to do, to compete with the “I have some other revenue model” providers.

Was There Ever a Strategy That Could Have Saved AT&T, MCI or Sprint?

I realize it is a contrarian and extreme minority view, but perhaps no company I have followed for decades has had more notable “failed” growth strategies than AT&T, even when the broad strategy was undeniably correct. We might blame execution, but the big problem always seems to be the debt load required to implement the strategy.

In other words, AT&T was right about the strategy, perhaps ineffective at tactics, but in the end simply could not afford to implement the strategy without incurring debt loads so heavy the investments had to be unwound. 

As they say in sports, “a win is a win,” a loss is still ultimately a loss, as there are no “moral victories.” 

Most recently, AT&T has “shed” its ambitions in content ownership, linear video and video streaming by spinning out DirecTV and Warner Media. Keep in mind that AT&T shareholders still owned about 70 percent of each asset after the spinouts. 

That is universally described as a move by AT&T to get out of content and video and focus on its mobility and fixed network business. That is true in a large sense. Where I disagree is with the characterization of the strategy of getting into linear video, video streaming and content ownership as a “wrong strategy.”

AT&T made a similar huge move into the cable TV business two decades ago, as a way of getting into the local access business at a time when it was essentially only a provider of long distance telephone service, albeit a provider with a huge brand reputation. 

All that likewise was unwound as the debt burden became the issue, not the strategy. But the success of cable operators in seizing overwhelming and leading market share in the home broadband business, as well as healthy shares of the landline voice business and a rapidly-growing share of the mobile business, suggests that the strategy of building an advanced “communications” business on the cable platform was not wrongheaded. 

AT&T later became the largest linear video subscription provider when it acquired DirecTV. And AT&T essentially emulated the successful Comcast model in acquiring Warner Brothers for its content capabilities. Comcast now has distinct revenue streams as a content producer, content distributor and communications provider. 

AT&T was simply following that playback in amalgamating content, video distribution and local access network assets. 

All those initiatives were eventually reversed because the company could not bear the debt burden. One might argue that the strategy was wrong in all instances precisely because AT&T could not take on the debt to do so. Or, one might argue the strategy was correct, but execution wrong, as some lower-debt option had to be undertaken.

But it can be argued there simply was no “manageable debt” option. In fact, AT&T eventually failed outright as a stand-alone entity because it could not create some sustainable means of evolving from a long distance voice provider into something that looked more like Comcast. 

As it turned out, AT&T sold itself to SBC, so the whole company “failed,” living on only  because the brand name was adopted by SBC.

As with MCI, AT&T’s main competitor that also went out of business, being acquired by Verizon, or Sprint long distance, which was acquired first by T-Mobile and then essentially given away to Cogent, none of the three big long distance service providers managed to save themselves. 

Perhaps one might argue there was no strategy that would have worked. Perhaps all three were destined to be acquired as long distance voice ceased to be the industry revenue driver, and none of those firms had the capital to build or acquire their own local access facilities. 

I would agree that “no possible survival strategy” is an apt “in retrospect” assessment. I do not know what else they could have done other than harvest revenues for as long as possible before selling. 

That noted, the only conceivable survival strategy was that embraced by AT&T several times: acquire big stakes in existing businesses with sufficient cash flow to offer a hope of paying back borrowed money. 

Sure, it never worked. But I’ve never found other “strategies” for any of the firms that did not involve selling the companies or their asset bases, with one exception. Sprint eventually became a mobility company that also owned wide area network assets. But Sprint never found a way to break into leadership of mobile service provider market share. 

To reiterate, AT&T’s strategy was not conceptually flawed. It simply could not generate enough cash flow, fast enough, to handle the debt it took on to drive the strategy. One might well argue AT&T essentially had no strategy. And that is fair enough. But no public company executive can actually say in public that “the company is doomed and our only long term option is to sell the assets.”

Lack of Profits Drives Video Ecosystem Evolution

Professionally-produced long-form original video content is expensive to produce. Combine that with high promotion costs and small audiences and you have economic pressures that are very simple to understand, whether you are in the production, packaging or distribution parts of the ecosystem (studio, network or internet service provider). 

Big audiences are required to generate the big revenues that support big production budgets and lots of productions. Small audiences can only be supported if subsidized by profits from serving big audiences. 

And if profit margins get squeezed at every segment of the ecosystem, the profits to subsidize niche programming go away. 

There’s no point in lamenting this fact. It is simple economics. Whatever participants once believed, video streaming seemingly is a case of exchanging “analog dollars for digital dimes.” Revenue does not match cost, it has become clear. So video streaming suppliers are retrenching on the amount of money they spend to create original programming.

That leads observers to lament the content cutbacks. Similar concerns often are raised about the costs of internet access or linear video packages, but cost pressures related to programming rights play a role there as well. 

You might complain about the “below the line” surcharges on a linear video bill for the cost of carrying local broadcast signals, but those charges are a significant and growing part of the cost of gaining rights to retransmit that programming. Sports content is a key part of that cost structure. 

source: Bloomberg  

Costs to carry local TV stations likewise have been rising rapidly for two decades. Costs for a cable operator for local ABC, CBS, FOX, and NBC broadcast stations grew more than  600 percent since 2006, one observer noted in 2019. And that has happened as broadcast audiences shrink. 

One might well note that it is precisely those shrinking audiences--with revenue implications--that have caused local TV stations to lean on cable operator fees to compensate for the lost revenue. 

source: Armstrong 

All those costs get passed on to subscribers. Blame the cable companies if you want, but they must pay broadcasters for those content rights, whether the charges appear above the line or below it. And so long as marketing battles pivot on content and price, and so long as search engines can rank services by price, every service provider has an incentive to quote the lowest-possible price. 

So those content fees get shown below the line, as add-on fees, and not as part of the headline monthly recurring cost. We might all agree it is a bit deceptive. But we might also agree that there are clear business reasons why the policy exists. 

Music streaming provides an analogy, but one that will be hard for video programmers to support: buy the song, not the album. That shift to “a la carte” generally is resisted by networks and distributors alike. 

Such distribution wrecks havoc with brand investments, reduces the profit upside of bundling and reduces the power and leverage of networks. So do not count on a la carte (“buy the song; buy the movie, the show or episode”) becoming ubiquitous. Still, the pressure in that direction remains. 

Linear video subscriptions are losing distribution share because the value proposition keeps getting worse, in comparison to video streaming alternatives. So value propositions will evolve; content strategies will shift; bundles will be redefined; business models will have to change.  So long as professional content production remains expensive, it is inevitable.

Risk of Stranded Assets Now Looms Large

Stranded assets--capital deployed in infrastructure that does not produce revenue--now have become a key business issue for internet service providers upgrading their networks. 

As a rule, policymakers tend to overstate customer demand for high-speed internet access. “Everyone” laments slow speeds or non-existent service. But even when service availability is high, and speeds similarly are at gigabit levels, actual customer demand is relatively low for those headline speed services. 

In a capital-intensive business such as access networks, it is dangerous to deploy capital to create facilities that are too far ahead of expected demand. Some of you might remember the overspending on spectrum that happened in Europe around 3G spectrum, for example. Others will remember the vast overspending on wide area optical networks that happened around the turn of the century. 

That is not to say policymakers are wrong to push for ubiquitous availability and quality speeds. It is to note that policies can push beyond actual customer demand, and endanger the sustainability of the internet service providers charged with delivering the services. 

Note, for example, the share of home broadband accounts now supplied by upstarts and attackers, compared to incumbent “telcos.”  In a variety of markets, attackers hold close to 40 percent share on the low end, and nearly 90 percent share on the high end. 

The United States and India have the greatest amount of share held by attackers. The point is that capital investment has to lead demand, but not by too much. Among the reasons are stranded asset dangers. Where share is less than 40 percent, 60 percent of invested assets are stranded (do not produce revenue). In markets where share is 10 percent of less, 90 percent of investment might be stranded. 

source: Ofcom 

According to Ofcom, giagbit per second home broadband now is available to 70 percent of U.K. residences. The issue now is what percentage of homes actually buy service at gigabit speeds. Not all that many, it appears. According to Ofcom data, uptake at gigabit speeds might be as low as one percent to two percent. 

About 42 percent of U.K. homes are passed by fiber-to-home facilities. Where fiber-to-home service is available, about 25 percent of homes buy the service. Only nine percent of those customers buy service at the fastest-available speed, however. 

source: Ofcom 

That relatively-small percentage of customers buying the fastest home broadband service is not unusual. Across a range of nations, uptake of gigabit services tends to be in single digits to  low-double digits. 

source: Ofcom 

All of which should remind us that there is a big difference between making a product available and demand for those products. Broadband policy success might be defined as supplying X amount of bandwidth to Y homes. 

It is less clear that “success” can be measured by the degree of uptake of services at any given level. Customers still have the right to buy the products they believe represent the best overall value proposition. In most cases, that means buying a level of service someplace between the lowest and highest speed tiers. 

For policymakers, making service available is what matters. Uptake is a matter for customers to decide. Take rates for the fastest speed access services always have been lowish. So the risk of ISPs over-investing is quite significant. 

Policymakers who are unrealistic about customer demand can jeopardize the sustainability of their ISPs. ISPs who over-invest can put themselves out of business.