Tag Archives: atherton

Is Atherton Fiber living in the real world? Part 2

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Urban living, Atherton style.

An appallingly high take rate – 70% – and a vague reliance on third party ISPs to do the heavy lifting of achieving it are two reasons to be skeptical about Atherton Fiber’s plan to build a fiber to the home system that would reach all 2,500 households (there are no commercial properties as such) within the city limits, as discussed more fully in Part 1. It would not work in a typical Californian community.

Open access models, such as this one, that assume a steady wholesale revenue stream from competing retail providers have failed. UTOPIA and Provo in Utah and Grant County in Washington are just three examples. On an FTTH system, Internet bandwidth is a commodity and competitive pressure squeezes margins to the breaking point.

It would be also foolish to expect AT&T or Comcast to buy wholesale capacity. Both companies will use every competitive tactic at their disposal to try to prevent the venture from succeeding. As CTC’s Lee Afflerbach, a true veteran of this industry, succinctly put it, “they are very proficient at changing their rates and such. Predatory is the word, I think…it’s sorta like infinity versus zero. Your odds aren’t very good on that”.

A third questionable assumption in Atherton Fiber’s business model is that 25% of subscribers will pay between $7,500 and $12,000 for dedicated dark fiber strands between their homes and the fiber hut, and then continue to pay a monthly fee for the privilege of using it, in addition to whatever it costs to light it up and provision bandwidth. You can make a good argument that the cost of a dedicated connection is in the same ballpark as the value it adds.

But then there are the weasel words I used: typical Californian community. A leafy town in the urban heart of Silicon Valley that eschews sidewalks and commerce, averages one acre lots and often ranks as the most expensive zip code in the U.S. is not typical. It has more in common with high end gated communities than it does with neighboring cities. Twelve percent of residents work from home, and that’s not counting the ones – like, most of the remaining 88% – who have business addresses elsewhere but work where ever they happen to be, including, and particularly, at home.

At this point, Atherton Fiber is a small, boutique business that could easily be kept afloat by the enlightened self interest of a handful of well heeled patrons, not to mention a customer base that’s not as price sensitive as most. There’s good reason to believe it can succeed because Atherton Fiber is living in Atherton, and that’s not the real world.

The final, and truly interesting, question – whether the business model can be transplanted to the real world – will have to wait until later.

Is Atherton Fiber living in the real world? Part 1

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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.

Atherton FTTH plan has seed money and a quick timeline

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An Atherton venture capitalist put $500,000 into a fiber to the home project there. According to papers filed with the California Public Utilities Commission, Michael Farmwald made the investment in Atherton Fiber LLC, via his Skymoon Ventures Management Company, to get the ball rolling…

To finance the project, Atherton Fiber plans to raise approximately $3 million via a traditional investment mechanism and other interested Atherton residents. The remaining funds would be raised by selling interested property owners a “set” of bundled fibers to their home that they would own directly.

At this point, Skymoon Ventures Management Company owns 90% of Atherton Fiber, with the other 10% held by newly hired CEO Robert Hayes. It’s applied for a certificate of public convenience and necessity from the CPUC, asking for expedited permission to operate as a telephone company. The application included a bank statement showing $400,000 still on deposit, at least as of February, and a fiber construction plan by a Pleasanton engineering company, that might account for most of the rest of the original investment.

Farmwald is working with the Town of Atherton, and has conceptual agreement to a Google Fiber-like plan: the city looks kindly upon the project and leases space for a fiber hut. Atherton is a wealthy city, even by Silicon Valley standards. In recent years it has ranked as the most expensive zip code in the U.S., according to Forbes magazine.

Total capital cost of the project is estimated at $4.8 million, but that doesn’t include most of the connections from the fiber in the street to subscribers’ homes. Plans call for it to reach all 2,500 homes in Atherton by of the end of next year and use a mixed business model that involves selling – technically, leasing – dark fiber directly to residents in order to raise capital, as well as offering them ongoing retail Internet service and providing wholesale connections to other ISPs.

Atherton Fiber CPCN application
Business and engineering plan exhibits
Full set of exhibits (10 MB)
Atherton Town Council staff report, 15 July 2015
Atherton Fiber presentation to Atherton Town Council, 15 July 2015