Thread by @ishaheen10

Fiber backed securities: the key to unlocking a $100 bn market driven stimulus that will

1. Deliver a 9% return to investors (4% annual cash coupon, 5% capital gains)

2. Make fiber Internet accessible to 50 million low/mid income American households for $9.25/month

How it works: investors will subscribe to shares of a NewCo. NewCo will use cash to invest $2,000/home as growth capital in several homes to pay for a last mile fiber connection. In exchange NewCo gets fractional share in multiple homes + $6.5/mth/home cash dividend.

When a fiber connected home is sold, NewCo can exercise its tag along right to sell along with home owner OR continue to stay in the property to keep earning a 4% coupon. Worth noting that Fiberizing a home causes its value to experience a one time bump of 3-7%!

Once a home is fiberized, home occupant will sign on to a $9.25/month Internet service. $6.5/month will be allocated to investors who paid for fiberization to deliver a 4% cash coupon. $2.75/month will be allocated to partner ISPs willing to share their fibre infrastructure.

Why would ISPs agree to $2.75/month? Marginal cost of handling additional traffic is zero on a fiber based network. If users take care of 100% capex themselves, then this $2.75/month will flow straight to a fiber owner’s bottom line. This is actually free cash flow!

Why is marginal cost to handle more traffic close to zero on fiber? Fiber is an extremely big data pipe. If DSL is the length of an A4 paper, then fiber’s paper length will run from earth’s surface to the Sun! These guys show this in a cool video. openfiber.net

Why $9.25/month? There are 38 million low income households in America who are eligible for a Lifeline program per which the Federal Govt is willing to pay $9.25/month for Internet service. Unfortunately current service offered at this price is of fairly low quality.

So in theory, low income households can avail fiber Internet for $0/month by applying for the Lifeline program. Federal Govt backed payments will be considered reliable. NewCo issue subscribers will view the 4% coupon as quite reliable. NewCo issue will get a fair credit rating.

Lifeline program sign ups have been limited. Only 25% of eligible households subscribe. That’s partially because the service quality isn’t great. When it’s fiber internet on offer, the interest levels will change.

How will investors get a 9% return? Real estate avg returns over 5 decades is 5%. Combined with 4% coupon, investor realize a 9% return.

Would home owners agree to sell a fractional share in their home? Several well funded start ups are offering fractional share services. Point, Noah, Unison, Hometap to name a few. Point being there’s enough interest out there in fractional ownership.

Yes but these companies serve urban areas, not rural ones because rural homes don’t sell very fast? If an investor has exposure to millions of homes, likelihood of no home sales happening is quite low. Fiber backed securities will give exposure across multiple homes.

What if it costs more than $2,000 to connect a home? Some homes will cost more than $2,000, some less. @fiberopticassoc says $1,750 / home is a good average to use. I’ve added some buffer and made it $2,000.

What if there are no open access middle mile fiber networks nearby? At present, 40 million homes in America have been “passed” but 20 million are connected. So at least 20 million homes won’t have that problem. For the rest, electric grid fiberization will bridge the gap.

Next step for NetEquity: prove out the fractional ownership, growth capital model with a few homes.

Drop me a line if this resonates. My mission is making Internet for all a reality. This video describes my story and why I keep writing about such things

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