How to finance a rural fiber project at $10,000 / Household Connected without subsidies- a thread.
$10k / HHC is considered extremely difficult because payback on such a cost at $50 monthly revenue is well over 30 years. Unfortunately many areas in America fall within this extremely rural category and are therefore neglected.
For context, the @fiberopticassoc considers $3,600 as a complex rural deployment. Implying that $10,000 would be quite outrageous.
If you try to compute payback at $50 ARPU, obviously this $10,000 / household won't work. However, if you break this number down you will see that 50% is middle mile and 50% is last mile drop. The middle mile can be financed through a project finance deal with an electric utility
Consider the coverage area of Wheatbelt Public Power District. 5,000 customers and over 3,000 kms of power lines. Wheatbelt may become willing to lease 3,000 kms of fiber along its grid for $ 2 mm / year (market rate) but can never become willing to pay for a $50 mm project.
Under a project-finance structure, a $25 mm middle mile project will require $5 mm / year of cash flow to satisfy investor needs + opex. This means that the project finance deal we have has a $3 mm short-fall even if Wheatbelt signs a lease deal.
This remaining short-fall can be lowered by leasing the same capacity to cell towers that are grid connected and to ISPs. But this too won't close the funding gap altogether. So the deal is still not bankable.
However, if the 5,000 customers of Wheatbelt become willing to pay $50 / month as a fixed fee to connect to Wheatbelt's middle mile network, then short-fall disappears. Trouble is that gaining access to this $3 mm cash flow will cost another $25 million capital!
This is where a home equity share agreement can work. Assuming home owner does not want to pay $5,000 upfront for the fiber connection, a home equity share investor should be willing to invest a fractional stake on the premise money will be used to fiberize.
It is well documented that fiberizing a home causes its value to rise by 3% or more. This means a $200k home will appreciate "more" than the cost to pay for the last mile drop. ting.com/blog/fiber-con….
End result:
- Utility gets to lease a $50 mm asset for $2 mm /year
- Home owners see home values rise + get fiber Internet for $50/month + become owners of last mile fiber
- Equity investors realize a mid-teens IRR
- Schools and clinics get fiber Internet
All without subsidies!
The trouble with market forces assuming demand risk is that then cost-based pricing does not become feasible. This is where the Universal Service Funds of various American states can play a meaningful role in creating back-stop arrangements in the initial years.
If the Nebraska USF agreed to back-stop the middle mile project finance deal, then as more users connect to this fiber network, the price per user will keep declining. Building such incentive structures can create even more incentive for reverse urbanization to happen.
Perhaps this is how we create fiber cooperatives across rural America and fiberize this county the same way it was electrified a century or so ago.
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