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Monday, 17 October 2011

Low Hanging's not urban

Dutch cows on islands

One of the arguments/myths which has long done the rounds in telco circles is that the low hanging eg profitable fruit is to be found in urban areas. For years, particularly as a rural dweller, I have argued against this. And largely been unheard (Nowt new there!) more...

This blog post can be read at

Well, I am hesitant to say, "No more," but at the Telecom Paper Breedband 2011 event in Den Haag, the urban = low hanging fruit debate was comprehensively trashed in a coffee break by a group of senior telco execs who weren't (I suspect) expecting to arrive at the conclusion they did.

Why is URBAN no longer the place to be?

1) Competition in towns and cities - everyone assumed that urban was the place to be. Now you are all there, it isn't. Because a) customer acquisition and retention is costing you so much b) infrastructure is more expensive - once bitten, twice shy councils etc c) ARPU is insufficient in such a competitive environment to risk an investment. So, you end up as a reseller with little to differentiate you from all the others.

2) Rural isolation leads to desperation and frustration. And high uptake. So...urban with minimal uptake or rural with max uptake?

3) Necessity is the mother of invention. Rule breaking and JFDI means simple models can be adopted in rural areas and problems are different but often cheaper to resolve. They may be out of your comfort zone, but not out of the rural populace's experience to JFDI.

4) First to market. If you are the sole provider in an area with a realistic and (even urban) competitive pricing scenario for a great product, you own the market. All of it. Even with an open access solution - which you can do purely to convince yourself you are a risk taker!

5) Community is strong. Co-operation, collaboration, community and commerce work well together when allowed. Slice of pie for everyone.

6) The actual proven capex and opex figures vs revenue in rural areas have rapidly approached those in urban areas over the last few years. For reasons given above, it is now (arguably - goto comments) weighted towards rural.

7) Loyalty - Communities stick by their own and will support projects etc that are obviously doing good by the local economy and citizens. This is frequently abused by corporate social responsibility depts, even within so-called community-biased companies but rural communities are becoming wiser to these ploys in the tech sector now.

Value of Social Capital in a Rural Network

Social capital will not repay a bank loan directly. The representative from Rabobank and I discussed this in Den Haag at length - a single session with bankers and communities could solve this issue once and for all so the balance sheet works over a longer payback period (10-15 years) than would be required for a strictly commercial loan (3+ years) but it would still work.

However, where the community is benefiting and seeing the wealth generation internally, funds can be directed from blue pound etc to repayment of loans. What can go wrong is when a community-facing company leaves only a "skim" in the community coffers as a feel good factor after enjoying the revenue from all of the above without sufficient to repay the internal investment from within the community.

The big problem is greed. Too many companies seem to believe that FTTH or inferior versions thereof are a licence to print money, particularly in rural areas. Even those that are seemingly community-facing have ended up showing their true colours recently. For what? To gain a few percentage points and short term gains, whilst losing the chance (as many baby bells and rural telcos have proven is possible) to still be in business 30, 40 or more years down the line.

Long term , drip drip drip, solid revenue based on organic growth and an understanding of your customer base, with minimal competition and a technology that is established, proven and future-proofed.....well, we ended up with folks ready to invest in rural!


chris said...

Add to that, once the rural fibre to the home networks are built they will soon start to embrace semi urban areas, then word will spread and the network can expand into the cities and towns. This will stimulate the market to invest in those areas and stop the telcos conning people that old phone lines can deliver Next Generation access. A bit of competition at last. WinWin.

Cybersavvy UK said...

@chris This is where the really exciting conversations with urban players began. More shortly....

PhilT said...

Social capital will not pay a bank loan - period. You have to turn it into actual money through higher ARPU, parish precept or whatever.

Cybersavvy UK said...

@phil hence the discussion Phil. We started it and we will finish.

Somerset said...

Just to sort this out for once, what is Next Generation Access and why won't 'old' phone lines deliver it?

Clearly the cost of installation across roads and pavements is a major issue for many areas, urban and rural.

Cybersavvy UK said...

Somerset, JFGI. That's a really basic question that quite simply does not belong here.