Should users finance fiber-to-the-home?

Brigham City, Utah is poised to test out a rare and experimental model for broadband economics: Having end users finance the cost of connecting their homes with fiber.

“I’m not aware of other projects like this,” saidPaul Larsen, Brigham’s economic development director.

Under the plan approved by the city council in November – some of the particulars of which were dictated by nuances in the bonding process funding the project – fiber would be connected to end users willing to pay a one-time fee of $3000 for the connection (independent of any subscription fees paid to service providers on the network), which they could pay upfront or in $25 monthly payments over 20 years, backed by a city bond.

Those paying over time would also pay interest above that $3,000 premium, so their total cost could end up north of, say, $5000 after 20 years (the interest rate wasn’t known as this article was written). For users who move during that time, a lien is placed on the property requiring new owners to continue the payments.

Brigham is opening to the new approach after a series of financial and operational struggles threatening the ambitious multicity public wholesale fiber-to-the-premises (FTTP) project that it joined years ago called Utopia. Under the current plan, Brigham would own the local FTTP network, including the fiber drop to the house, and lease it to Utopia, which would operate and maintain it.

Though novel, the current plan is analogous to the “assessments” that the city already routinely charges to residents for things like street and curb repairs in front of each home, Larsen said. But it has given fuel to critics of the plan, which have circulated fliers with the image of a house with a ball and chain. Still, the city council wasn’t swayed, adopting the plan by a vote of four to one. And by the time measure was approved, some 1600 users had already signed up, nearly a quarter of which had paid the full amount upfront. (Brigham has about 5600 homes and an unknown number of businesses.) That buy-in from residents is crucial, as fiber deployment costs are typically highly dependent on take rates.

“We have instantiated hundreds of FTTP networks across North America, and $3000 per home seems to be very expensive – more than twice what we would expect in a typical suburban area,” said Geoff Burke, senior director of corporate marketing with equipment vendor Calix, who added he wasn’t opposed to Brigham’s approach but doesn’t see others pursuing it. “This model seems to be escalating costs – not reducing them.”

However, proponents of the user-financing model argue that one of its benefits is in taking advantage of the typical consumer electronics cost curve, wherein early adopters help lower the cost by voluntarily paying the higher prices that accompany a new technology.

“[The consumer electronics] investment structure can be contrasted with broadband, where investments depend not on millions of consumers but on a handful of companies,” Derek Slater, a policy analyst for Google, and Tim Wu, a Columbia Law School Professor, wrote in a white paper on user-financed fiber last year. “It is a centralized investment model. Incentives for providers … [focus] on maximizing returns on existing infrastructure.”

Larsen said the city also mulling other options for defraying the cost, such as offering wholesale fiber connections to wireless towers and adding residential utility meter-reading applications, which some other municipalities have used in fiber broadband projects.