Phil's corner

I previously noted the rather high cost per premise of EPB's Chattanooga FTTH deployment. While this scheme is the poster child of the UK's "FTTH or bust" lobby it does look expensive in terms of cost of installation and the retail pricing would be a bit rich for our tastes too.

Obviously it's a sexy proposition to have a gigabit connection, even if only 12 residents take that service. One has to question the large debt involved in the current climate - a company with a turnover of $480m in 2008 taking on a fibre-optic bond debt of $220m doesn't look like something that would fly in the private sector. $220m divide by 169,000 residents is a debt of $1300 per head which if transferred to the UK population would be $78 billion or £47.8 billion which is 50% higher than the Analysys Mason estimate of under £30bn for point to point FTTH throughout the UK.

EPB's premise was of reducing the cost of operation of it's electric grid. The accounts show the following costs for 2008, 2009 and 2010 in $m :-

Other operation expenses :- 38.0, 38.9, 37.5

Maintenance :- 13.6, 15.6, 18.0

So it's early days but the tens of $millions of smart grid savings aren't showing up just yet.

The operating expenses and revenues of the fibre optic system are starting to take off :-

Fibre optic operating expenses :- 9.8, 11.0, 16.1

Fibre optics sales :- 15.5, 17.2, 20.9

It will be interesting to see the full picture as the system rolls out and full year accounts reflect a mature customer base. Adding $5.1m in operating expenses to gain $3.7m in revenues from 2009 to 2010 doesn't look great but the accounts of large companies don't provide a whole lot of detail.

In 2010 only 18% ($4m) of the fiber optic revenue was from residential services. When 30,000 customers paying $100 a month are fully reflected in the accounts we should see perhaps $36m of revenue making the total more like $58m with 62% from residential sales.

I look forward to the 2011 accounts, and would be happy to be corrected if I have misunderstood any of the above. It's a shame proponents of schemes like Chattanooga don't look beyond the willy waving gigabit speed into the detail in order to see if the thing is remotely affordable or sustainable.

Things are different over there, with lots of small municipality utility companies when compared to the UK's regional distribution network operators. EPB talks of being one of the biggest in the US, serving 169,000 residents in a 600 square mile area - that's a square 24.5 miles on each side, or a circle with a radius of 13.8 miles, so tiny compared to the UK operators. EPB is also what we would call a quango, or perhaps a council owned non-profit business, so it's part of the public sector unlike the UK's wholly privatised electricity industry.

I have extracted some information from the hour long interview, and added some internet research to fill the gaps, with a view to helping understand what EPB are doing and it's relevance (or otherwise) to the UK situation.

EPB have spent about $300m on installing a gigabit fibre optic network to connect up their electricity distribution assets to form a "Smart Grid" and at the same time to provide residential triple play services and business services. This project has been underway since 2008 and gigabit residential services were announced in September 2010 - so far there are "a dozen" customers taking this $350/month service.

Much of the investment was based on the Smart Grid delivering savings on meter reading, reducing stolen electricity, faster outage recovery, better design etc. A Federal grant of $111 million was provided for this aspect ($656 per resident) and a bond issue completed in April 2008 raised $220m. Personally I have no idea why a SCADA system on a power distribution network would require gigabit connectivity rather than something more like RS422 but we'll leave that to one side. Suffice to say that a belief in large savings ( $30m pa) on the electrical side drove at least $160m of this investment.

EPB's broadband products don't come cheap - 30 Mbits/s standalone symmetrical broadband at $58/month "plus taxes and fees" is probably very good value but the equivalent price point in the UK would be £58/month inc VAT and to be honest that's going to be a hard sell, as Virgin Media have found with their 50M DOCSIS 3 cable product. My £1 = $1 conversion reflects the reality of retail pricing either side of the Atlantic - if you look at the Federal minimum wage, EPB's power price per kWh or the price of a Big Mac it's invariably $1 of US street price equates to £1 UK street price.

The high pricing also has to be seen in the context of limited competition in the US broadband market - Comcast charge $100-$117/month for 50M downstream / 10M upstream cable broadband. EPB have introduced a third broadband supplier to compete with Comcast cable and AT&T DSL. Another "electric broadband" operator in Tennessee also knows how to charge - $160 per month for 16M down / 2M up service.

EPB fibre has 30,000 residential and 1,300 business customers. It isn't clear what proportion of the customers are covered but Ingraham referred to building "where population is densest and working out". About 50% of electricity meters are connected by fibre, they only run fibre where the residential customer takes broadband, TV, or phone service and the rest of the electricity meters use 900 MHz mesh networking to communicate to those with fibre connections.

169,000 residents at 2.5 people per home would give 67,600 homes and 50% of that is 33,800 so it looks like about half of the homes take the fibre service which fits with the 50% metering comment . $300m is $4,438 per home passed or $8,875 per home connected which is a massive sum compared to other FTTH projects like Verizon's FIOS. Obviously the accounting of a dual purpose project gets complicated - how much of the spend was necessary to deliver the electrical savings, and how much to deliver the fibre optic communications services ?