Cincinnati Bell’s FTTH costs dictated by density, aerial and underground deployment strategies

Cincinnati Bell has made considerable progress in rolling out FTTH services in its network territory, but says the factor of network costs lies in whether it installs fiber on existing utility poles or underground.

As Cincinnati Bell nears completion its FTTH roll out, which it said during its fourth quarter 2015 earnings call will start winding down in 2017, the cost of construction is rising.

Ted Torbeck, CEO of Cincinnati Bell, told investors that the rising cost is related "density and also whether it's aerial or buried wire -- it's both of those issues."

"The cost of the build is increasing as we expected as we build out and we're getting to the edge of the buildout and it's getting more expensive," Torbeck said. "Once we reach the threshold where the margin decreases to the level is acceptable we'll stop the build."

Both installation approaches have their own unique merits in terms of cost and reach. Leveraging existing utility poles makes sense for telcos such as Cincinnati Bell in that they already have a long-standing presence on existing poles that they may own or a relationship with the local utility.

However, in other neighborhoods where it may have already installed conduit to serve customers with copper, Cincinnati Bell would have to find a way to string fiber underground.

While installing fiber and other wired facilities underground has become the norm in Greenfield environments, it poses various challenges in terms of disruption to local residents and costs of digging trenches and repairing roads following an installation.

Cincinnati Bell did not break out what percentage of its network is aerial or underground, but the service provider continued to expand the reach of Fioptics throughout 2015, making it available to a total of 423,000 addresses, or 53 percent of greater Cincinnati. The telco also passed 97,000 new addresses during the year.

Given the challenges in terms of costs to bring fiber to neighborhoods, Cincinnati Bell has focused its builds on a success-based model. It said that it will also continue to look for opportunities to deliver the service to more parts of its network territory in Cincinnati to put in a better competition position against Time Warner Cable (NYSE: TWC) and its soon-to-be parent Charter Communications (NASDAQ: CHTR).

"Our buildout of fiber is 100 percent success-based and as long as we see the returns that are appropriate we're going to continue to build," Torbeck said. "We anticipate by the end of the year we'll be somewhere over 60 percent and we fully anticipate that we'll be getting close to the upper range where in 2017 our build will decline significantly."

Torbeck added that "there will still be neighborhoods [we] go back to and upgrade with fiber to the home, but in 2017 it will decline."

For more:
- see the Seeking Alpha transcript (sub req.)

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