Bad News: Cost and Regulatory Uncertainty Could Threaten Fiber Projects
“RLECs have shown tremendous progress in broadband availability in the past year.” It feels good to hear that, right? NTCA’s annual Broadband/Internet Availability Survey Report for 2011 was released on March 29, 2011, and the findings affirm that despite the tumultuous year RLECs forged ahead with broadband projects. The most significant result of the survey is undoubtedly that respondents increased their broadband take-rate to 66%, up from 55% the previous year.
114 NTCA members responded to the survey, and a whopping 100% of them provide broadband in some form—up from 58% in 2000. The survey respondents averaged 4,745 residential and 1,736 business access lines. The breakdown of broadband technologies provided by the respondents illustrates that RLECs will do what it takes to provide broadband in rural areas. Of the technologies provided, 80% used DSL/copper, 64% used FTTH, 29% used FTTN, 14% used unlicensed wireless, 14% used licensed wireless, 11% used cable, and 5% used satellite. These numbers show that some companies likely deploy a variety of broadband technologies that best fit their unique geographic and demographic conditions.
The report’s findings on competition were also interesting. 97% of the respondents faced some kind of competition, up from 66% in 2003. RLECs have responded to market forces by “taking numerous steps to increase broadband take rates, including free customer premise equipment installation, bundling of services, price promotions, free modems, free introductory service and free education and training.” Competition comes from WISPs, large ISPs, and cable companies; but not surprisingly the survey found that most of the competition is in areas with higher population. “Seventy-three percent of those respondents facing competition indicated that their fixed service competitors were serving only the cities and towns in their service areas, while 27% said that competitors were serving customers in other portions of their service areas as well.” The respondents found that it was difficult to compete on price, with their prices ranging from $29 to $54 per month depending on the service. NTCA concluded that competition is significant, but “in many instances, the rural LEC is the only broadband option available to the residents and businesses in most of the rural areas of the country.”
The survey focused heavily on fiber deployment plans and challenges. 58% of the respondents plan to offer FTTN to more than 75% of customers by the end of 2014, but “deployment cost remains the most significant barrier to widespread deployment of fiber, followed by regulatory uncertainty, long loops, current regulatory rules, obtaining financing, obtaining cost-effective equipment, and low customer demand.” The estimated cost to bring all customers served by the respondents up to 25 Mbps ranged from less than $1m to over $50m, with 35% of respondents reporting the cost would be between $1m and $10m.
In addition to cost, regulatory uncertainty is of course a significant barrier to fiber deployment. NTCA concluded that regulatory uncertainty is preventing companies from taking risks, but “once RLECs have a better idea of what the future regulatory landscape will look like, they will be able to resume their long-term planning efforts.” The problem, of course, is that no one knows how long it will take for the FCC to resolve the impending regulatory issues, or if the issues will be resolved in such a way that RLECs will be able to access capital and resume fiber deployment plans. Comments by respondents reflected these fears—one member said, “We need regulatory certainty. There appears to be no way to recover our cost to expand our FTTH network to the outer edges of our study area.” Another commented, ”Current and uncertain regulatory rules all have to be clear such that a normal person understands and knows what to expect going forward.”
All told, the survey results should give RLECs something to be proud of—increasing broadband availability, speed, and adoption is no easy task for a small company during an economic downturn with overhanging regulatory storm clouds constantly threatening to wash away any progress that has been made in the last few years.