Broadband left out of infrastructure goals, and how the FCC wants to fix it

As to the smart grid project, that was a separate $232M project. https://www.smartgrid.gov/project/epb_smart_grid_project.htm...

Of those smart grid investments, only the Backhaul Communications part could conceivably (in part) be attributed to the fiber network buildout costs. In no way can 100% of the federal smart grid grant be seen as a subsidy to the fiber network. Even if you subscribe to conspiracy theories about the power side secretly subsidizing the fiber side, that 100% subsidy theory just does not survive the collision with reality. Given how litigated this issue has been, there's no way the opponents would let a hundred million dollar misuse of federal grant money slide.

Either way, no matter what dollar cost you peg the fiber network buildout costs at, your $5,000 cost per subscriber is plain wrong. The correct figure is closer to $2650, but it's still not even close to $5,000, even if you slap on an additional hundred million dollars in costs.

This obviously also makes your payback times wrong.

To give some context to EPB fiber's costs, ten years ago Verizon paid $850 per premise passed and an additional $880 per premise connected. These are in line with EPB's costs if you assume a 50% take rate for FiOS.

Just to rub it in on how wrong your estimate of $5,000 per subscriber is, the very source your cite yourself states that the average cost to connect a new subscriber to EPB fiber is $1,200.

But, wait, there's more!

Your analysis on the economics of fiber networks just crumble when you look at the annual report of EPB. Here's the punchline:

- operating expenses include debt service!

EPB fiber pays EPB $10M per year for the use of the fiber network. This is enough to cover the costs of the $220M bond. In fact it covers half of EPB's whole debt service. Incidentally EPB fiber's operating income would more than covers the remaining debt service with change to spare.

In other words your assumption of 60% in operating expenses excluding debt service is just plain wrong and all your calculations are wrong.

And that's even before factoring in the fact that service at $70 per month usually does not include cable tv. This in turn means that a large chunk of operating expenses for that service can be excluded, as cable tv rights are a major cost item.

All in all, even assuming debt service is included, 60% operating expenses for a fiber network is not a given.

Right, but sources say the $111.5M was used to build the fiber network that was a part of both the Smart Grid and broadband projects: "In 2009, a $111 million federal stimulus grant offered the opportunity to expedite construction of a long-planned fiber-optic network, said David Wade, chief operating officer for the power company. (EPB also had to borrow $219 million of the network’s $330 million cost.) Mr. Wade said it quickly became apparent that customers would be willing to pay for the one-gigabit connection offered over the network." (https://www.nytimes.com/2014/02/04/technology/fast-internet-...)

> Of those smart grid investments, only the Backhaul Communications part could conceivably (in part) be attributed to the fiber network buildout costs.

Yes, but that's the fiber backbone underlying the residential internet service.

> Either way, no matter what dollar cost you peg the fiber network buildout costs at, your $5,000 cost per subscriber is plain wrong.

Sure, with the newer 83,000 subscribers figue, it's more like $4,000 rather than $5,000.

> To give some context to EPB fiber's costs, ten years ago Verizon paid $850 per premise passed and an additional $880 per premise connected. These are in line with EPB's costs if you assume a 50% take rate for FiOS.

The FiOS uptake rate is under 40% (and during the first decade was under 1/3). Even with your numbers that's $850 / 0.4 + $880 = $3,000 per customer. And those numbers are 2006 projections at the onset of the project: https://www.sec.gov/Archives/edgar/data/732712/0001193125061.... Through 2010, Verizon spent $23 billion on FiOS, and since then spent at least another $3 billion wiring up New York. It has about 7 million subscribers, or about $3,700 per subscriber. See also https://techcrunch.com/2013/04/08/google-fiber-cost-estimate ("As a point of comparison, it was estimated that it cost Verizon, before it halted FiOS buildout, about $4,000 per home to connect it to its fiber network.").

> Just to rub it in on how wrong your estimate of $5,000 per subscriber is, the very source your cite yourself states that the average cost to connect a new subscriber to EPB fiber is $1,200.

It says that's the "Average cost of hooking up new fiber optic customer for EPB." I don't take that to be the cost including construction of the network in the first place.

> - operating expenses include debt service!

Does it?

"Fiber optics revenues are recognized on the accrual basis at the time services are provided. Operating revenues include service sales net of bad debt expense and miscellaneous revenue related to ber optics operations. This miscellaneous revenue includes ad revenue, late payment fees, and rental income. Operating expenses include those expenses that result from the ongoing operation of the ber optics systems. Non-operating expenses consist of interest expense on indebtedness and various miscellaneous expenses."

> EPB fiber pays EPB $10M per year for the use of the fiber network.

Is that for debt service? That could be for shared O&M too.

> And that's even before factoring in the fact that service at $70 per month usually does not include cable tv. This in turn means that a large chunk of operating expenses for that service can be excluded, as cable tv rights are a major cost item.

Television packages are also a major revenue source. In computing the operating margin, if you exclude TV from costs you also need to exclude TV from revenues.

That assumption only holds if the cost of the inputs do not rise with time. In fiber builds up to 80% of the costs are labor. If/when labor costs rise more than the cost of money then you are worse off putting off an inevitable/intended investment.

Furthermore if putting off an investment causes duplicate costs (build aerial, later replace with buried) or causes you to forego OPEX savings (aerial vs. buried facilities maintenance costs), then you are actually worse off by paying later.

Thus the time value of money is not the end all and be all.