Fiber Optic

Futureproof With Fiber: 4 Steps to Build an FTTX Business Plan

Futureproof With Fiber: 4 Steps to Build an FTTX Business Plan

4 December 2018 | Reading Time: 4 minutes

Fiber-optic technology has played a fundamental role in enabling broadband speeds, with “Gigabit” becoming practically synonymous with “fiber to the home” (FTTH). The rise of the cloud, the IoT and smart city applications – as well as the arrival of 5G – has accelerated the need for high-bandwidth, low-latency, future-proof networks. Consumer demand for symmetrical bandwidth has also increased significantly, with users wanting comparable performance for download as well as upload. Ultimately, users expect connectivity to be ubiquitous.

When it comes to networks, the planning horizon can easily be as long as 20 or 30 years—which means every choice made at the outset has long- term implications. Today, on the cusp of a whole new era in innovation, requirements and technologies are quickly evolving which introduces complexities in the business planning. However, these steps can help futureproof your business plan.

4 Steps To Build a Considered FTTX Business Plan

1. The first consideration operators must address is revenue by introducing new revenue streams, differentiation strategies and innovation. Today, increasing numbers of larger and smaller communications providers are expanding their revenue sources to better serve their customers’ needs for always-on connectivity. For example, service providers are developing premium content packages with content partners, based on the interests of their target audience. Customized services can be offered to target customer groups such as gamers who are willing to pay for very high-performance symmetry, latency and uptime. This allows service providers to differentiate their services from competitors while they must also stay ahead of developments in the IoT, AI and VR.

In order to see success, service providers must follow these three practical tips:

  1. Define a clear network revenue objective. The business case and calculations are worked out once the revenue objectives are determined although the outcome may vary depending on the network choice. Will you be building a residential-service-only model? A residential-plus-business network? A business-plus-wholesale network?
  2. Prepare realistic expectations around take rates. A realistic assessment of connections in residential or business projects is essential. What happens if you pass 100 homes but only 30 want your services? Predictions of penetration rates that are overly optimistic or too cautious are equally problematic. If an operator’s solution maxes out then they can’t easily scale up if higher demand is created which could mean there’s a need to make new investments or turn customers away.
  3. Consider a multipurpose vs. separate network. Networks have typically been “single purpose,” designed to provide residential services, or wireless backhaul, for example. Largely, these functions influence business and cost decisions. Previously-separated functionalities are now coming together, however, with network convergence making it possible for an infrastructure to perform multiple tasks.

2. Although communications providers have typically viewed costs exclusively in terms of CapEx and OpEx, they are now realizing that cost models shouldn’t focus on getting the network in place and passing homes or businesses, but also factor in the cost and speed of making individual connections. The costs of offering services, equipment, labor, permissions, maintenance and power also need to be considered. Operators should consider the total cost of ownership (TCO). Although it might initially look like it makes sense to minimize CapEx when making a buying decision, a high OpEx could negatively impact the profitability of the overall operation. Organizations that see success budget for other factors influencing the overall outcome and are optimized for the future network lifecycle.

Assessing the opportunity cost is one of the first steps operators should take, choosing a solution that minimizes the time to revenue, even though it might be the higher first cost alternative. Partially deferring CapEx can also be highly beneficial by choosing a network architecture and solution that allows the flexibility to build up the network as demand and revenue become available. Costs for power consumption and network security are often-overlooked and could have a negative impact on overall costs, while legislative challenges should also be considered. Customer satisfaction and retention are key business priorities so operators should ensure high network quality in order to reduce churn.

3. Funding models often result in trade-offs between risk, benefit and control. As fiber networks can be attractive to public-market and private-equity investors alike, there are several funding options for fiber operators. Federal and local government funding plays a very important role in stimulating development of network infrastructure and is tightly connected to GDP growth.

Emerging public-private partnership (P3) models present a promising alternative to the traditional “municipal broadband” models for the many communities that lack the capital or expertise to deploy and operate fiber networks or to act as ISPs on their own. By taking on the risk of fiber construction and finding a partner to lighten the network work, a locality can increase the potential for a universal fiber buildout to every location – however, this kind of partnership can be complicated as the two parties have different goals. Private-public partnerships where the national body does not sell directly to the public but is one link in the value chain can work well – national broadband networks (NBNs) enable the risk of the overall network business model to be split for easier financing.

4. Once revenue and costs are fully evaluated, business indicators such as ROI, cash flow and NPV (net present value) are used to assess the attractiveness of the business investment. Operators are adjusting business plans to shorten payback time to better align with the nature of projects. It’s best to assess the business ROI using two or three different architectures as the results can be very different. This analysis can uncover ways to optimize the business case (for example, fastest deployment is preferred in a very competitive environment).

A sensitivity analysis should also be completed to map uncertainties to specific sources in the business model. This helps stakeholders see the potential impact of real-life situations that may occur during the implementation phase and develop a contingency plan. For example, what happens if a certain segment doesn’t meet its revenue targets? How will that affect the rest of the project? Although not all uncertainties can be fully eliminated, a thorough, full sensitivity analysis prepares for a successful future.

Although it’s not always easy to predict “the next big thing” after 5G, cloud or IoT, following these steps when creating a business plan can help prepare your business for upcoming requirements. It’s important to build flexibility into your network architecture in order to futureproof your networks and your business and be able to scale services in order to meet new demand. Indeed, this market continues to gain momentum; some industry estimates suggest that more than 1 billion homes will be supplied with fiber by 2021.

You can learn more about FTTX considerations here.

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