Hold the Sandwich. Telecoms Stop Serving Free Lunch

The Rise and Fall of Telecoms (Continued)... This concludes the responses to my April 27 Dispatch, Telecoms Seek Critical Mass of Tenants for Survival. ...  Don Ankeny, CEO of PhatPipe, writes: "The industry train wreck is not surprising.  Building out expensive networks not justified by revenue-paying customers is putting the cart before the horse. ... Property owners need to take a proactive role. ... [For example] partnering with us lets them determine which buildings get wired and when.  The decision to wire a building/park is made together and is based on tenant surveys, anticipated capture rates, and build out costs.  If the ROI is adequate, the building gets wired.  If not, the tenant(s) either has to pay more for the service or not get it.  There is no free lunch."

Skip Case of Case Industrial Partners in Columbia, MD is skeptical about rapid adoption of broadband connectivity in his neck of the woods.  "This is Columbia, Maryland -- smack in the middle of the Baltimore Washington Corridor.   Our business park, Oakland Ridge, the first industrial park developed by the Rouse Company for Columbia back in the late 60's/early 70's has 52 buildings, 2.2 million square feet, 2.6% vacancy (thanks CoStar) and is predominantly office/lab/flex space.   An educated guess is that less than half of the tenants have service greater than dial-up. ... I do not believe that most of the USA is as ready and willing as the telecoms would like us to think."

Scott Kaplan of Libritas in Oakland, CA writes, "To make money, you can't sell just phone and bandwidth (margins are way too thin).  You have to sell enough high-value services (remote access, MS Exchange, file services, backup).  You can't build out a parallel telecom network (costs $500K/bldg).  You have to be able to light a building for less than $50K.  And you have to make over $50/desktop.  That way you can break even if you sign up about 40 desktops in a building."

Richard Chess of Advantis Commercial Real Estate Services, Richmond, VA writes: "Winstar (my former employer) spent $50,000 - $100,000 per building to bring true fiber speed to buildings (minimum of OS3). ... Winstar's penetration is on average 10% (as many of the buildings are recently wired).  In some markets (Baltimore) they were pushing 30% penetration.  As they get to average penetration at 30% (versus 10%) their cost per customer drops by 2/3. ...  As the typical customer, using full service broadband, is projected by some firms to be spending over $1000/month for service, you see where the Winstar model would have worked...had they focused only on the major markets (where one HUB can reach 40 - 50 buildings and a typical building might be 500,000 SF).  In some of the minor markets, the HUB reach drops to 20 buildings and the typical building size may drop to 50,000 SF.  The cost per building served stays the same but the potential customers drop significantly."

--Peter Pike / ppike@pikenet.com