Last week a wireless company published a study about the cost to reach all the Unserved and Underserved. They estimated we need $307 billion to reach everyone. Similar reports have come out before. Generally they make a case that BEAD will run out of money, so the federal government should settle — for wireless technology, or FCC subsidy programs outside the scope of BEAD. Like previous versions, this one too doesn’t represent the real situation. We have
Fascinating stuff. Curious what you think what the states could do to encourage competition between ISPs, per takeaway #4. Assuming we have the flexibility at the state level, we want to know what can be done.
Apr 26, 2023·edited Apr 26, 2023Liked by Mike Conlow
Mike,
Great work!
Both your analysis and Tarana's suffer from the faulty assumption that location density is a good proxy for cost. Unfortunately, it's a lot more complex than that.
Field conditions, including topography, geology, aerial vs. underground infrastructure, condition of existing poles, special situations like railroad and water crossings, and clustering are first-order affectors. A mile of fiber in the Mississippi delta costs a lot less than a mile of fiber in the Rockies. The marginal cost of a passing is less when locations are clustered than when they are more-or-less distributed along a roadway.
Costs vary by provider. Incumbent telcos and MSOs have a huge cost and schedule advantage insofar as they have existing pole attachments, strand and frequently usable duct, as well as buildings and cabinet sites. Tier-1 and Tier-2 incumbents also enjoy volume purchasing power, master service agreements with contractors, and other economies of scale, pre-existing capital overhead (like tools, trucks and software) and will have optimized their deployment processes. To varying extents, their matching contribution can come from retained earnings rather than debt, so their cost of money is low. Some of them have publicly disclosed their cost per passing, and of those, the average is in the range of $600 to $900 -- much less than CostQuest's $5,589 (and yes, those numbers do exclude locations that they consider economically infeasible without subsidies). Of course, electric coops and munis have their own cost advantages -- especially the fact that their ROI requirements are much less -- but those typically will be overcome by the structural advantage enjoyed by incumbents.
The point here is that we really won't be able to have a reasonable estimate of cost distributions until all the bids are on the table. This doesn't help states in setting their high-cost thresholds. Some other methodology will be needed.
Mike — Appreciate the piece. Your takeaways are sound. Since you asked (sort of), the math to get from $18.1k to $191B involves a material adjustment for relevant inflation, based on the BLS non-residential construction producer price index, which has had a pretty bad couple of years since the sample projects were priced, as noted in the study. Separately, your use of the phrase "settle — for wireless" in your opening suggests you are unfamiliar with recent fundamental advances on the wireless technology front. I encourage you to visit taranawireless.com to learn how our next-generation FWA platform is changing the game. Since its introduction in late 2021, over 200 ISPs in 19 countries and 40 US states have embraced our unique G1 platform and are routinely delivering fiber-class speeds with high reliability, in both licensed (CBRS) and unlicensed (5 and soon 6 GHz) spectrum. Would be happy to brief you on the details and share network performance stats if you'd like.
Fascinating stuff. Curious what you think what the states could do to encourage competition between ISPs, per takeaway #4. Assuming we have the flexibility at the state level, we want to know what can be done.
Mike,
Great work!
Both your analysis and Tarana's suffer from the faulty assumption that location density is a good proxy for cost. Unfortunately, it's a lot more complex than that.
Field conditions, including topography, geology, aerial vs. underground infrastructure, condition of existing poles, special situations like railroad and water crossings, and clustering are first-order affectors. A mile of fiber in the Mississippi delta costs a lot less than a mile of fiber in the Rockies. The marginal cost of a passing is less when locations are clustered than when they are more-or-less distributed along a roadway.
Costs vary by provider. Incumbent telcos and MSOs have a huge cost and schedule advantage insofar as they have existing pole attachments, strand and frequently usable duct, as well as buildings and cabinet sites. Tier-1 and Tier-2 incumbents also enjoy volume purchasing power, master service agreements with contractors, and other economies of scale, pre-existing capital overhead (like tools, trucks and software) and will have optimized their deployment processes. To varying extents, their matching contribution can come from retained earnings rather than debt, so their cost of money is low. Some of them have publicly disclosed their cost per passing, and of those, the average is in the range of $600 to $900 -- much less than CostQuest's $5,589 (and yes, those numbers do exclude locations that they consider economically infeasible without subsidies). Of course, electric coops and munis have their own cost advantages -- especially the fact that their ROI requirements are much less -- but those typically will be overcome by the structural advantage enjoyed by incumbents.
The point here is that we really won't be able to have a reasonable estimate of cost distributions until all the bids are on the table. This doesn't help states in setting their high-cost thresholds. Some other methodology will be needed.
Mike — Appreciate the piece. Your takeaways are sound. Since you asked (sort of), the math to get from $18.1k to $191B involves a material adjustment for relevant inflation, based on the BLS non-residential construction producer price index, which has had a pretty bad couple of years since the sample projects were priced, as noted in the study. Separately, your use of the phrase "settle — for wireless" in your opening suggests you are unfamiliar with recent fundamental advances on the wireless technology front. I encourage you to visit taranawireless.com to learn how our next-generation FWA platform is changing the game. Since its introduction in late 2021, over 200 ISPs in 19 countries and 40 US states have embraced our unique G1 platform and are routinely delivering fiber-class speeds with high reliability, in both licensed (CBRS) and unlicensed (5 and soon 6 GHz) spectrum. Would be happy to brief you on the details and share network performance stats if you'd like.
— Steven Glapa