how-to block ads
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NumberCruncher
@dynamiccity.com
 from:
GOLFnSUN 
| A little less
There is a modest error in the calculation above. $950*400 = $380,000 (vs. $360,000) + $650*40 = $406,000 / 40 = $10,150. The math can also be calculated as $950/.10 (10% take rate) + $650 = $10,150.
According to slide 11 of the FIOS presentation referenced above, their 12 month penetration is 15%. Take $950/.15 = $6,333 + 650 = $6,983.
According to the FCC (»hraunfoss.fcc.gov/edocs_public/a···11A1.pdf.) the value of a cable subscriber is $3,785. While one can argue that a FIOS subscriber may be more valuable than a cable subscriber, using this value as a benchmark, Verizon will need to achieve a 30% take rate for its costs to equal the value of a subscriber. ($3,785 - $650 = $3,135. $950/$3,135 = .30) | |
disc
join:2005-12-31
Raleigh, NC
| Good analysis, but I'm wondering if they're two different types of investments. For instance, $3785 represents the purchase price of the business that's being purchased. On one hand, their assetts are being purchased, but what's also being purchased is that they're a business that is generating cash flow. It has other costs such as OPex built into it.
In comparison, VZ's investment represents CAPex per sub, but not OPex, Rev, etc. Would it maybe be better to use the 10 Year NPV of Verizon's business case and divide that across the number of subscribers? Maybe some Year greater than 10? I don't know. It would be interesting to know how the buyout firms actually do this type of calculation. | |
wentlanc
You Can't Fix Dumb..
join:2003-07-30
Maineville, OH
| reply to NumberCruncher
I hate the way these guys do math. It costs them $950 per home to pass, and $650 to connect "later on sometime" according to the article. So, every home costs $1600 to connect. It does not cost more per home to connect FEWER subscribers. It does cost to pass. Their math artificially inflates the cost per home based on the take rate to liquidate the overall cost for a single neighborhood. Assume 400 homes in a neighborhood. That is a $640K cost to connect all homes. Assume that they got 80% saturation for telephone service only, 400 homes, times the $1600 each to connect, $640,000 paid for over 30 years would be about $5.50 a month per subscriber assuming 320 subs. How realistic is it that they could get 80% of the telephone market? Now add in television and HSI and you tell me that it is too expensive. They are just playing with numbers to make it all sound horrible, when in fact they will still make money hand over fist.
Assume a their theoretical 10% take rate. (again, that is the immediate take rate, no long term predictions there)
$380K to offer service to a neighborhood of 400 subs.
+
$26K to connect their immediate 10% take rate.
=
$406,000
240 payments over 30 years per sub
9600 payments of $42 a month to pay that back.
Assume that they force conversion of telephone subs to fiber. Assume that they only have 50% of telephone subs in this neighborhood (low IMHO).
$130K to connect those 200 subs
=
$510,000
48000 payments of $10.62 a month to pay back over 30 years.
Much better return rate. If they can get a single service from the majority of their users, they will pay off the network in no time.
Assume 90% of the neighborhood uses them for phone..
$234K to connect those 360 subs.
=
$614,000
129,600 payments of $4.73 a month to pay back over 30 years.
Sound expensive now? Sure there will be fluctuations depending on take rate, and many other things, but they will not lose money, and it does not cost them what they are advertising, to connect you. It is BS marketing to gain sympathy. Will they come back and lower your prices later on when it is less expensive becuase more people signed up? Doubt it.
puritan | |
wwdubbia
join:2002-06-03
Clinton, NY
| said by wentlanc :I hate the way these guys do math. It costs them $950 per home to pass, and $650 to connect "later on sometime" according to the article. So, every home costs $1600 to connect. It does not cost more per home to connect FEWER subscribers. It does cost to pass. Their math artificially inflates the cost per home based on the take rate to liquidate the overall cost for a single neighborhood. Assume 400 homes in a neighborhood. That is a $640K cost to connect all homes. Assume that they got 80% saturation for telephone service only, 400 homes, times the $1600 each to connect, $640,000 paid for over 30 years would be about $5.50 a month per subscriber assuming 320 subs. How realistic is it that they could get 80% of the telephone market? Now add in television and HSI and you tell me that it is too expensive. They are just playing with numbers to make it all sound horrible, when in fact they will still make money hand over fist. Assume a their theoretical 10% take rate. (again, that is the immediate take rate, no long term predictions there) $380K to offer service to a neighborhood of 400 subs. + $26K to connect their immediate 10% take rate. = $406,000 240 payments over 30 years per sub 9600 payments of $42 a month to pay that back. Assume that they force conversion of telephone subs to fiber. Assume that they only have 50% of telephone subs in this neighborhood (low IMHO). $130K to connect those 200 subs = $510,000 48000 payments of $10.62 a month to pay back over 30 years. Much better return rate. If they can get a single service from the majority of their users, they will pay off the network in no time. Assume 90% of the neighborhood uses them for phone.. $234K to connect those 360 subs. = $614,000 129,600 payments of $4.73 a month to pay back over 30 years. Sound expensive now? Sure there will be fluctuations depending on take rate, and many other things, but they will not lose money, and it does not cost them what they are advertising, to connect you. It is BS marketing to gain sympathy. Will they come back and lower your prices later on when it is less expensive becuase more people signed up? Doubt it. puritan The funny thing is that in 30 years Fios will be the equivalent of today's copper, so they can do ANOTHER deployment then of the latest and greatest technology and someone can dig up this thread and compare the numbers...  | |
Phil Harvey
@69.15.x.x
| re: "They are just playing with numbers to make it all sound horrible... "
Not really. I don't think spending $9K+ a home for a network connection that will be cutting edge for decades is a bad idea.
I'm playing with numbers to point out that installing fiber is not cheap. If it were, AT&T, Qwest, and the old BellSouth would have already done it to 100 percent of their homes.
Verizon's definitely breaking new ground with FiOS, but the cost of doing nothing is far, far greater.
ph | |
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