Capital expense, operating expense and revenue are the basic parameters of a business plan. With broadband-specific incentives that improve those metrics – even marginally – local governments and economic development agencies can attract private broadband investment into underserved areas.
Public policies can be tailored to significantly reduce construction costs. Uniform, broadband-friendly right of way and permit procedures eliminate a huge source of uncertainty for business planners. The more certain they are of their estimates, the more likely they are to invest.
In the long run, it might not seem like much,
but even a little guaranteed anchor revenue
can make a huge upfront differenceOffering public facilities, for example vertical assets or space for nodes, on a co-investment basis and pre-installing empty conduit whenever roads are built or trenches are opened will also lower the hurdle for network builds. Of course, standard economic development tools such as sales tax concessions, community development funds and local seed capital work for broadband too.
Reducing the capital cost in a given locality improves its competitive position versus other regions by broadening the pool of potential service providers and increasing their return on investment. It also makes it easier for projects to qualify for assistance from the likes of the California Advanced Services Fund and the federal Rural Utilities Service.
Reducing capital costs isn’t always the answer, though. There are tradeoffs between capital and operating expenses. For example, it’s cheaper to hang fiber on poles than bury it, but the ongoing costs are higher. Capitalizing leases for node locations and vertical assets reduce operating expenses while raising capital costs.
Another way to reduce operating costs is for local agencies to partner with service providers on items like bulk Internet access and maintenance. One big wholesale bandwidth purchase will usually be cheaper than two medium size contracts. Local agencies might be able to set up agreements for joint pole maintenance or trenching. There’s a long list of possibilities worth discussing with prospective broadband system operators.
Documenting demand and leveraging public sector IT and telecoms budgets will brighten revenue prospects. The cost of an investment-grade demand study ranges into the low six figures for a local or regional-scale project. A service provider will spend that money on localities it already finds attractive, leaving local organizations to fund research for the area they represent.
A local agency can be an anchor tenant for a new broadband system, particularly when it can suggest ways of configuring a network so that key points are included. The agency should be able to reduce its own operating costs, while at the same time providing an early, guaranteed revenue stream to the service provider.
Given the tradeoffs between operating and capital expenses, the fixed cost of running a broadband system can be relatively low. The greatest value of an upfront contract to a system operator is its reliability, not necessarily the dollar amount involved.
It’s surprising how even small incentives – such as slightly lower costs, upfront contracts or small loans – can grab the attention of potential broadband operators and tip the balance in favor of a given locality. Sometimes, it’s just a matter of everyone speaking the same language.