Hi again Betty.. I guess that report by some 3rd tier consulting firm in Oklahoma
is right, and the current prices of the fiber stocks is wrong? Hardly....
I do agree with one thing, getting the fiber to or close to the end user, the last mile,
is and will remain the most significant barrier to growth for fiber, and the net in general.
Oh, I guess the person that posted those fiber links neglected to read this one from the FED>
"One reason an overhang could persist is that some types of high-tech capital do not depreciate
rapidly. For instance, unlike the equipment that sends signals down the optical fiber, the fiber itself
probably has a useful lifetime that is reasonably long. Optical fiber today is not greatly different in
quality from the fiber of a few years ago, and there is little physical deterioration once the fiber is in
the ground. All this suggests that the excess capacity of total fiber could take quite some time to
work off. And presumably other types of equipment and structures are similar in this respect to
fiber".
"The creation of the long-haul fiber optic network, the part of the network that runs from city to
city, provides perhaps the best illustration of the excesses that can develop as firms rush to
establish their market positions. The creation of these networks may also indicate the complexities
involved in determining the size of a capital overhang in a particular industry. In 1995, just three
firms had significant long-haul fiber optic networks in the United States. By 2000, however, there
were nine such firms, and by the end of this year, there will be several more. In some regions of
the country, the numbers are larger still, with some major cities in the Midwest being served by as
many as twenty long-haul firms.
The competing long-haul firms have laid huge amounts of fiber over the past few years. Not only
do numerous firms compete, but each firm also has the incentive to put in place more fiber than it
might need in the immediate future. As I mentioned before, the optical fiber itself is long-lasting,
and the quality of new fiber has tended to increase only slowly over time. Thus, with the risk of
obsolescence low, investment could be targeted more toward anticipated long-run needs.
Moreover, fiber itself is relatively cheap. By contrast, the vastly greater expense in building a
network is the construction cost associated with laying the fiber. Indeed, back-of-the-envelope
calculations suggest that the cost per mile of fiber is something like $170, whereas the cost of
installation is more on the order of $125,000 per mile. In that context, it is not surprising that firms
would lay excess amounts of fiber in a given trench once the ground is broken". |
