The Bottom Line:

Analysis of a series of high-level generic next-generation access business models suggests that on the basis of the current generation of services, the revenue-generating opportunity will not offset the costs in a reasonable amount of time for the vertically integrated service provider deploying it. Opening the network to competitive or new service providers is one of the solutions to solve that conundrum.

Executive Summary

The business model for fiber to the home (FTTH) is a tough one to make fly. Despite the increasing pressure (competitive and political) for wireline copper operators to upgrade their networks to FTTH, the economics of the business model scare both the telcos themselves and their shareholders or financiers. This report examines the greenfield deployment business model in depth and looks at how it might be optimized.

The base model analyzed in this piece uses two fixed parameters (cost per home connected at $1,000 and cash margin for FTTH at 45 percent) and two variables (ARPU and takeup). It calculates the number of years it takes for the invested capital to be fully paid back by the profit generated. The results are represented graphically in Exhibit 1 and show that:

• The model is a lot more sensitive to takeup than it is to ARPU. In other words, it’s more important to connect a high proportion of the customers targeted by the network than to make them pay a lot for it.
• It’s virtually impossible for FTTH to pay for itself in less than five years unless takeup is at least 30 percent, and even then a time frame of seven to eight years is more realistic considering