USA - the economics of rural FTTH

Rural FTTP 'perfectly economical,' says muni fiber veteran

The notion that fiber-to-the-premises is economically prohibitive in rural areas is a myth, according to Dr. Timothy Nulty, director of ValleyFiber, a nonprofit organization focused on bringing municipal fiber to towns in Vermont’s Upper Valley.

“It’s nonsense,” he said, addressing the Broadband Properties Summit today. “It’s perfectly economical.”

Nulty helped oversee the municipal FTTP network in Burlington Vermont, which is on track to become fully cash-flow positive (with revenue exceeding all costs, including debt service) by January 2009, four years after it secured initial financing. He left his position as general manager of Burlington Telecom to try to duplicate its success elsewhere in Vermont, retaining universal access as a goal, and he says the model is just as viable in rural areas.

Fiber triple-play deployment costs generally come in three categories: the hub, the hook-up and the pass. Building a hub is actually less expensive in rural areas because real estate costs are lower there, Nulty said. “Building a hub in a cow pasture is cheaper than doing it downtown.” Hooking up rural houses is more expensive, but not much, he said, partly because fiber costs have come down considerably. Vermont spends about $1600 per home connecting subscribers in the city and about $1800 per home in rural areas.

The biggest cost gap is in passing homes, since there’s so much more space between homes in rural areas (though rural areas have more aerial, pole-based networks, which are easier and less costly than the underground networks in cities and suburbs.) Vermont towns contain more than 100 houses per square mile, but its rural areas can contain about 12 houses per square mile. As a result, Vermont spends about $250 per home in the city on this part of the project and $1100 per home in rural areas.

However, passing homes is a small part of the overall cost of fiber deployment, Nulty said. And rural areas see higher service take rates because there’s less competition there. In rural towns due to get municipal fiber, Vermont is seeing 50% of the market presubscribe for its services, and Nulty expects that rate to reach 75% or 80% by the time funds are secured.

“Is rural fiber deployment more expensive?” he said, “Yes, but not dramatically.”

In fact, Nulty said, as Vermont towns roll out fiber in rural areas, they may deploy fiber drops to every house, even in advance of service orders—a reversal of the order typical in the private sector. Given the marginal added cost and the high expected take rate, he said, “We might as well have the same crews do it while they’re out there.”