Approving a business case for building fibre to the home (FTTH) isn’t a binary choice: yes or no. Some parts of a city are easy to justify; other parts are more challenging.
We have seen this with a number of new fibre builds. In Kansas City, Google says “You can only get Fiber if enough people in your fiberhood sign up.”
It is important to keep this in mind when considering the statement by Minister Navdeep Bains in rejecting Bell’s appeal of the CRTC’s wholesale decision on FTTH.
Each of these projects were in the order of $1B. That is a billion dollars for each of the cities. Keep in mind, that this isn’t a matter of making a decision and writing a single cheque to enable the buildout of fibre. Each block, each neighbourhood might be a different project, with different work teams, different authorizations to go ahead. To proceed, presumably the engineering groups will have to show a positive business case to justify spending money for each of these piece parts.
There will be areas or even specific buildings that have strong, solid positive business cases and other areas that are still positive, still in the black so to speak, but less solid, more like shades of grey, driven perhaps by higher costs per household, or perhaps softer demand for fibre-based services.
A business case looks at the potential revenues and balances that stream against the costs. That is basic engineering economics. The business cases with mandated fibre resale will look different from business cases without such a mandate. The capital investment for a neighbourhood may be constant, but the revenue and expense lines will be different. In densely populated areas, the overall business case for FTTH will likely remain positive, but will it cover the same geography? What happens to the fringe areas?
There can be little doubt that lower retail revenues will shrink the areas the areas that are solid black and make the business cases more challenging for more households. How many homes are in neighbourhoods that no longer have a sufficiently positive business case? In places like Ottawa, where the city boundaries include large areas of low population density, mandated wholesale access to fibre will most likely lead to fewer homes getting upgraded fibre facilities.
We still don’t know what the wholesale rate will be for independent ISPs to access telco fibre. As such, it may be premature to start reworking the business cases for these multi-billion dollar builds. It may be close to a year before those wholesale rates are set.
In his press release denying the Bell appeal, Minister Bains stated “we will continue to foster a strong investment environment for telecommunications services to keep Canada at the leading edge of the digital economy. We are encouraged by the many recent private sector announcements about investing in fibre in Canadian cities”.
Clearly, the Minister was thinking about the billions of dollars of fibre to the home construction announced last summer. How will the business plans change? What will be the impact on construction programs for fibre in some of Canada’s biggest cities?
These questions and more are certain to be explored and discussed at The 2016 Canadian Telecom Summit, taking place June 6-8 in Toronto. Have you registered yet?