Broadband expert Dave Burstein has recently indicated that Google can be profitable by offering a 1Gbps fibre connection for $70 (R582), assuming they get a decent take-up rate. However, Burnstein highlighted that the “payoff requires thinking more than three to five years ahead”.
Burstein said that the cost of deploying and operating a fibre network is dropping. “Bell Aliant in Western Canada has now passed over half a million homes with fiber-to-the-home. Their latest financial report showed capex of less than $500 per home passed,” said Burn
Burstein added that the equipment needed to connect a home to a fibre network is also declining fast: “Early Verizon gear cost $300-400/home, but today they are probably paying half that. Very large fiber builds in China are paying less than $100/home”.
However, he warns that rural areas with fewer houses can be expensive to connect. “Fiber itself costs $20,000 or so per mile; mostly labor. Rural areas with fewer homes per mile can be brutally expensive – often $3,000 to $5,000.” Having to go underground with the fiber also adds to costs, said Burstein.
Bandwidth is cheap
Burstein said that bandwidth isn’t free, but it’s darn cheap. “A moderately sized carrier pays less than $1/month/customer,” said Burstein.
“Bandwidth use goes up only modestly with higher speeds; the industry rule of thumb is about 1/3rd more usage if you give the customer higher speeds,” he said.
According to Burstein, line maintenance and repair should be extremely modest, and support costs for broadband have gone down dramatically.
High take-up rate crucial
Burstein highlighted that the cost per home passed is very different to the cost per paying subscriber.
“The majority of the cost is building the network, not the home hookup. If you have only a 20% take rate, the per-home passed figure has to be multiplied by 5. At 33%, that drops to a multiplier of 3,” explained Burstein.
“At $600 per home passed, it costs $1,000 to $1,500 per subscriber in Australia [with an expected take-up rate of 70% to 80%] , $2,000 to $3,000 per subscriber with a 33% take rate (Google’s hope for Kansas City), and $4,000 to $5,000 per subscriber if you only get 20% of the market.”
“These numbers vary enormously depending on neighborhood conditions and the efficiency of construction. Australia’s NBN budgeted $5,000 per home and is already over budget,” said Burstein.
South African situation
Numerous South African companies are currently dabbling with the idea of rolling out fibre to the home (FTTH) networks, but most operators have indicated that the finances do not make sense.
Dark Fibre Africa CEO Gustav Smit said that their fibre network already passes thousands of businesses and homes, creating an opportunity for Internet Service Providers to connect customers to their fibre network fairly affordably.
“There is no doubt in my mind that, as far as fibre availability is concerned, the infrastructure is in place [to deliver high speed broadband to businesses and consumers],” said Smit.
“There are access points into our network (manholes or hand holes) every 200 meters. Any building / customer can therefore be linked. Should there not be fibre in any street, and any ISP has a customer there, DFA is also prepared to build what is necessary, as long as it makes commercial sense to us,” said Smit.
Smit is calling on service providers to deliver broadband speeds of at least 10Mbps to residential customers and 40Mbps to businesses.
“For 40Mbps dedicated broadband, a fibre link into every business building is needed. That does not exist in SA at the moment,” said Smit.
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