One of the keys to making broadband internet expansion work is finding enough customers – and keeping them.
Whether the internet service is provided by a private company or through a government or public-private partnership, broadband service is something that is paid for month after month by its users.
Scott Woods, who works with broadband technical assistance for Broadband USA, a federal program, said one way some providers approach the issue is to seek a commitment from customers to pay a certain fee for set number of years.
“Your pricing is a key piece of any broadband expansion,” Woods said.
How much customers will pay, how competitive that rate is and what services it will provide initially – and in the future – are all part of the planning.
“What happens when 10 percent of my customers fall off? How does that impact my business?” Woods asked
“It’s going to have a certain amount of risk you’re willing to take on,” observed
Andy Spurgeon, manager of broadband technical assistance with Broadband USA.
A determination about risk must be made by those pitching a broadband expansion.
“It gets complicated the more people you have at the table,” Spurgeon said, but he said having multiple partners also can spread the risk – and possibly the up-front costs.
“Most projects have a requirement of up-front capital,” Woods said. “When the network has been completed and is operational, you’re going to need some working capital.”
Initially, any system will operate at a loss, with profits coming over time.
“Every broadband project loses money its first year,” Spurgeon said. “There is a cost to connect customers. You have to think about that. You’ve got to plan for a period of time to operate at a loss.”
Planning needs to include some realistic projections about when income will be greater than the upfront costs and operational expenses, he said.