The economics of a fibre rollout: demographics, competition, aerial space, are key

Consumer demand for bandwidth and more efficient network builds are allowing Bell Aliant Inc. to roll out its fibre-to-the-home network in communities that were previously seen as not a viable investment, said Andre LeBlanc, the company’s vice-president of residential markets. “We’ve learned a whole lot as we’ve built,” LeBlanc said in a telephone interview in December. “You’re just getting more efficient with your build teams, your suppliers, trying to squeeze out costs in every possible home passed, and then often that’s given us the opportunity to go back and build in subdivisions we never even thought were attractive before.” Just over three years ago the company began deploying its next-generation fibre to the home network, branded FibreOp, in Fredericton and Saint John, N.B. Bell Aliant has spent nearly $500 million on the country’s largest fibre-to-the-home operation, also the second-largest in North America. Faster, fibre-to-the-home networks extend fibre optic lines through “the last mile,” or all the way to customers' homes, costing telecom companies hundreds of millions of dollars to build out. They are faster and have more bandwidth capacity than less-costly fibre-to-the-node networks, which extend fibre to neighbourhood nodes and from there connect to older wireline infrastructure. Bell Aliant, a 40 per cent-owned subsidiary of BCE Inc., said last year that, by the end of 2012, its network would cover 650,000 homes and businesses, predominantly in Atlantic Canada. Its goal is to stretch the footprint to more than one million homes. LeBlanc identified five main factors used to determine which communities to prioritize in its network expansion, which are related to cost, revenue and competition issues. The primary issues related to costs are a community’s population density, its proximity to other markets, and whether authorities will allow the company to hang its fibre infrastructure on telephone poles instead of the more costly process of digging trenches and burying them underground. He said building out in more densely populated areas is cheaper because it reduces the company’s costs of building backhaul infrastructure to carry Internet traffic between communities. “Looking at a percentage of a community that’s aerial is very important in making a business case ,” he said, noting that a “very high percentage” of Bell Aliant’s FibreOp infrastructure is aerial, strung between poles. Bell Aliant also considers what percentage of a community’s population is likely to subscribe to its services before extending the network into the area, LeBlanc said. He said the company looks at a community’s primary industries, as well as demographics like age, income and unemployment statistics, to determine demand. “When you’re looking at putting in such a significant investment, you want to make sure that you have a healthy, vibrant, growing population that’s going to sign on,” he said. The company considers what local competitors are doing in each community to help forecast penetration rates and identifies areas where it may need to upgrade its legacy infrastructure to avoid losing existing customers. “This is a two-horse race, and the cable guys have invested in their infrastructure,” he said of the Atlantic Canada market for Internet and TV services. “That’s why we made this investment. We saw the customer demand and the competitors were there.” LeBlanc said the rise of online video and demand for Internet bandwidth has made the company more confident in its ability to attract enough customers in smaller communities to make its fibre-to-the-home rollout worthwhile. The rising number of households with multiple users watching online video on computers, tablets and other connected devices are a “game-changer,” he said. “We’re always looking for communities where there’s going to be multi-user or even single-user households with an interest and a demand for bandwidth,” he said. The company has increased its build efficiency over the years as infrastructure costs come down and fibre-to-the-home networks spread in North America, he said, contributing to greater economies of scale. “As we get more customers on board, and as demand increases, we expand into new, nearby areas,” LeBlanc said in a follow up email. As examples, he cited, Hampton, N.B., about 30 kilometres from Saint John, as well as Riverview, Dieppe and Shediac, near Moncton, N.B. David St. John, head of public and media relations for the non-profit organization Fibre-to-the-Home Council Americas, said the cost of fibre optic infrastructure has fallen since Verizon Communications Inc. started building its fibre-to-the-home service, branded FiOS, in 2004. This has allowed many smaller U.S. providers to build fibre-to-the-home networks in rural communities where it may not have been viable a few years ago, he said. “The cost of deploying per home has come down over 10 years, particularly with economies of scale with the Verizon buildout,” St. John said. “It has to be a densely packed or suburban market in order to bring them fibre to the home.” Bill Kula, director of communications for wireline services at Verizon, said infrastructure costs started falling in 2002, triggering Verizon’s decision to build its FiOS network. Verizon remains committed to an initial plan to roll out the network to 18 million homes within its traditional footprint, he said. The company has not yet considered going back into communities skipped by the initial rollout, he said. Kula said Verizon typically rolls out its fibre network in areas where it can obtain a “local franchise agreement” to offer TV broadcast distribution services, and said many larger communities skipped by its FiOS network would not allow Verizon to obtain a franchise agreement. “There’s still the opportunities for there to be some additional expansion, but it would require us to either have a video franchise agreement … or it would be that costs would further decrease, making it more financially prudent for us to expand the build out,” he said. —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca. news@thewirereport.ca

The economics of a fibre rollout: demographics, competition, aerial space, are key

News | January 7, 2013

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The economics of a fibre rollout: demographics, competition, aerial space, are key

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