Is Atherton Fiber living in the real world? Part 1

13 July 2016 by Steve Blum
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A deeper dive into the Atherton Fiber business model raises questions about its sustainability, given the assumptions that appear to have gone into it. The proposed fiber-to-the-home project would pass all 2,500 residences in Atherton. It seems there are no brick and mortar business customers there – the whole town is residential. Yes, it’s that exclusive.

The first red flag is an assumed take rate of 70% within four years. In a typical Californian community that assumption would be delusional. Full city fiber-to-the-premise builds that go up against two big, full service incumbents struggle to reach 30%. The Santa Cruz FTTP project is benchmarking a 35% take rate, but that includes an independent private partner that already has a 15% market share. The City of Alameda’s overbuild cable system reached 30% at its peak, before Comcast bought out the incumbent cable company, turned up the competitive heat and forced a fire sale at 50 cents on the dollar. Provo, which sold its system to Google for virtually nothing, never even got that far.

The second cause for concern is that, as it stands, it would be an incomplete system that relies on third parties to finish construction and sign up subscribers. The basic business model that Atherton Fiber filed with the California Public Utilities Commission doesn’t include the cost of connecting most homes to the fiber out on the street or installing any customer premise equipment. There might be room in the budget to pay for minimal electronics at the central fiber hut, but not much. Atherton Fiber’s assumptions include a $900 connection cost, partially offset by a $300 installation charge, but neither figure is rolled into the model. It seems that paying those costs and charging those fees is the responsibility of third party ISPs (including, apparently, an affiliated in-house provider that’s not on the books yet) which would pay an average of $40 per month per subscriber on a wholesale basis. The retail cost to the customer would, of course, be more than that.

In other to make its business case, Atherton Fiber has to find customers with a greater willingness to pay than most. That question is for Part 2, tomorrow.