Something interesting also....
Carriers have been selling building access really cheap, or even giving it away for the last 5 years assuming that demand would scale in those buildings in order to compensate the expenses. Well, I'm sitting in a building that is lit by a carrier right now and all they have is a single t-1 lit (I went down and looked) and I'm pretty sure that isn't covering their POP space, power, lateral build costs, ect.
MFN and LVLT had really cheap building entrance costs until recently, but have since bumped them up, but still not enough, IMO, to cover their actual costs.
Customers express that just becuase a carrier's cost is $150,000 to light a building they shouldn't have to bear a large portion of those costs, and in most cases they can't afford to pony up that money. Carriers say they won't build to a building unless they recoup those costs in somewhat of a timely manner. Some carriers have said they could get more demand from the building, so they could lower the cost paid for the first customer, but that demand never comes quick enough.
If you look at MFN's 10-k, they are saying that they have spent $1 odd billion on construction YTD, and they are only allocating $400mm for the rest of the year. How many buildings will that light and how much of that will go to their employees?
Now if we are talking about dark fiber, since payments could be $90 per month per strand and $1,500 per building entrance, how long does it take to recoup $150,000? Even if we are talking $50,000, we are still looking at 2+ years just to break even on the BUILDING costs, not the SG & A, fiber, conduit, franchise fees, ect.
If some of the revenue is lit services, ala OC-12, your recoup time is quicker, but it still extends out pretty far.
A tricky business model (like Sigma possibly), would use the cheap fiber, cheap building access fees and negotiate their own building distribution. It would save a ton of money down the road on construction fees, but you could never control your own destiny where the network goes. Also, you become part of the problem why the carrier would want to get out of the dark fiber business, and why the carrier would possibly go under due to lack of revenue.
Also, demand was pretty high a few years ago, and it has slowed considerably. Is there enough demand to support all of the new metro players? |
