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.