Fast Net News, DSL Prime, DOCSIS Report

AT&T is doing a technically similar build - fiber to a neighborhood DSL cabinet - for $300/home passed to 30M homes. FairPoint is using Occam remote terminals, which would be $2-6M in gear if the proposal is approved. They are similar to what Qwest is now using for deliver up to 20 megabits upstream and 40 megabits downstream. AT&T throttles that to lower speeds, perhaps to accommodate their TV package, but has talked of raising the speeds. Qwest's speeds are more appropriate with current technology.

FairPoint and other companies smaller than AT&T probably pay $50-$100 more per home than the giant telco because of smaller volumes of equipment purchases and construction contracting. Lower density, which means more cabinets and installations, also add costs. While some line-powered 24 port pizza-box size DSLAMs can be installed in a few days work, total, other units need power connections and everything need to be engineered. So assuming $7,000/cabinet is not out of line for a rural build, where an engineer has to travel to check the site, draw a work order, supervise the field crew, and test the installation.  RUS should be able to negotiate some savings, but these figures should be representative of costs for most of the "unserved" who can't be reached by cable TV.

These are the kind of costs we need to accept if we want to provide landline data to 98-99% of the U.S. Fortunately, almost half of the 5-10M "unserved" homes can get cable TV but not data, and can be upgraded for less than $500/home, an obvious first step in any broadband plan. But those that cannot typically are extremely remote and many will face costs like this. If the Fairpoint figures are representative, it will be easy and quick to get to 98-99% megabit coverage with the $7.2B in the stimulus. That's a separate article. I also believe that fiber all the way home would be even better anywhere that's affordable.

Quick tips to RUS to save public money:

• Broadband, once the equipment and backhaul are in place, is a very profitable service. Wall street reports find margins as high as 70% and rarely less than 40%, several hundred dollars a year for the average customer. The net present value of a broadband customer is somewhere between $500 and $1,500 depending on how you calculate that. So the minimum 20% investment by the carrier makes sense and should rarely be subsidized unless the cost per home is over $2-4K. In a more typical situation of $1K/home, a 50% subsidy should be enough to cover the cost. Loans are a sensible way to help those carriers, like FairPoint, Charter, Qwest, and Time Warner with severe financial constraints.
• Broadband is profitable enough that carriers nearly always pay for the initial equipment and installation. While Congress has allowed subsidizing that equipment, they haven't required RUS to do so. They also obliged RUS and BTOP not to pay for items that the carrier would otherwise invest in. It's easy to ask the carrier to break out the install/cpe costs, and ask whether their are special circumstances that mean the carrier could not carry the cost. This will prove to be 10-30% of the amount requested, especially as some are asking for $300-600 for whole home TV installations as part of "broadband." Similarly, upgraded routers/switches for backhaul are not typically needed unless you have paying customers that more than cover the costs. That's a smaller part of the total but also worth checking and normally not funding.
• If the company provides accurate data, in less than an hour any network expert can separate "sensible" proposals from those that need very close review, as I did looking at FairPoint. RUS is spending at least $27M on contractors to review proposals. 1% of that can review over a thousand proposals and set aside those that definitely should not be funded without a good look. I've reviewed with senior network engineers what's involved, and it should be possible to train a reviewer in basic broadband cost accounting in less than a week. Just do it, by whatever means necessary.
• Look for overhead and customer acquisition costs included in the proposal. Universities are notorious for adding overhead up to 70% to grants with regular scandals. We don't need to subsidize Glen Post's private jet.

Separately, Vermont Public Radio reports an apparent scandal is brewing at FairPoint. "Potentially explosive allegations have been made against FairPoint Communications. An anonymous whistleblower has told regulators that the company and a contractor fabricated tests last winter." The AP reports that the system testers were "watching what they thought was 'flow thru' within a system and from one system to another, they were really only seeing a small program that was created to assimilate what they wanted the systems to do. They were not actually in the systems at the time nor were they in the test systems. They were in a newly created small program that used screen shots from the real system to deceive the audience into believing that they were watching a real demonstration."

If these allegations are true, I hope the company specific issues don't obscure a crucial lesson becoming apparent: the wireline copper business will inevitably decline. Fairpoint is broke, and Qwest is putting on a full court press for a bailout via the "universal service fund." That won't be enough if their line loss continues at anything like the 11.8% figure of the last twelve months. I've a article in draft looking at "Jules' Next Crisis: FairPoint New England Broker Than Broke" and wondering about the other regional telcos. If bankruptcy is likely, any lawyer will tell you the right move is to do it as soon as possible rather than stringing out losses and having few assets for recovery. Fortunately, the FCC team includes former analyst Blair Levin, who has been watching these companies for several years. It's best for Jules and Blair to start work now before the crisis is unstoppable. Many New England homes cannot get cable or wireless, so it will be necessary to keep the FairPoint network running by some means.