FTTH lucrative for new home builders in Loma Linda, but too costly for city-financed retrofits

by Steve Blum • , , ,

The small southern California city of Loma Linda is a company town. Its major business is health care, with five major medical facilities and as many hospital beds as homes, they say with maybe a touch of exaggeration. The bandwidth consumed by the medical sector made building a municipal dark fiber network an economic development slam dunk for the city. It then successfully took the next step of selling Internet bandwidth to homes and businesses.

The financial side of extending fiber to homes, though, is mixed. There was a significant positive return on investment for developers, but the city has yet to make the business case for fronting the money needed to retrofit existing homes.

In 2004, fiber connections and structured wiring were required in any home newly built or significantly remodelled in the city. Since 2005, 600 new homes were built and all are connected to the muni fiber network, with half choosing to buy Internet bandwidth from the city. The service is pricy by current fiber-to-the-home standards: $30 per month for 5 Mbps service, going up to $100 for 15 Mbps.

The structured wiring and fiber connection added $3,000 to the cost of a new home, according to Konrad Bolowich, Loma Linda’s IT director and fiber guru, speaking at the Inland Empire Regional Broadband Consortium’s annual meeting in Riverside last week. He said that KB Homes built two essentially identical new developments, one in the city and one a few miles away. Wired Loma Linda homes sold for $10,000 to $12,000 more than the unwired, but otherwise identical, models nearby. On top of that, sales people were able to up-sell buyers into as much as $20,000 in electronic upgrades.

On the other hand, Bolowich said the city is still trying to come up with a cost effective solution for hooking up pre–2004 homes. A pilot project cost the city between $1,200 and $1,500 each for the 36 homes connected, too much to be paid back by the additional cash flow from those customers.

It’s an interesting case study, and supports the idea that 1. home builders and, presumably but not certainly, follow-on home owners can realise a substantial return on their investment in FTTH infrastructure and 2. small-scale FTTH operators, such as cities, cannot. Even with a 50% market share.

Turn the cost of residential connections into a profitable capital investment for homeowners, and move it from public operating budgets to private balance sheets. Simple enough when you’re talking to financially sophisticated real estate developers. It’ll be tougher – sometimes impossible – to make a legitimate financial case to individual homeowners. But it’s the best hope of finding a path to muni-scale FTTH success.