What is the average cost of home broadband per household?

PROJECT CASE: Analysis of the network and operation of operator M in province A in eastern China

Composition of investment in home broadband network construction

The construction of home broadband network mainly includes: ODN (optical distribution network) construction, Internet equipment construction, business network and supporting construction. The topology of home broadband network from user end to backbone network is shown in the figure below.  

ODN is the optical fiber network from users to OLT. The home broadband construction mainly refers to this part of the construction.

The Internet is the network of each operator for public users. China Mobile called it CmNet, China Telecom – ChinaNet and China Unicom – UniNet. The construction of Internet equipment mainly involves the deployment of OLT, BRAS/SR and routers at all levels.

The content of the business network and supporting construction is relatively large, mainly including: CDN and Internet business management platform, transmission between nodes, computer room and supporting construction.

ODN construction

The average cost per household is a common indicator used by operators’ planning and construction departments to measure the cost of home broadband. It refers to the average cost per household in the FTTH coverage project, which is related to the coverage scenario. Moreover, due to the different network coverage bases of various operators, the average cost per household of different operators is also quite different.

In remote rural areas, if new poles are needed, the average cost per household may exceed 500 CNY per household; while in newly built residential areas in cities, since the ODN network is invested and constructed by developers, the average cost per household may be as low as 70 CNY per household. Referring to the average cost per household of home broadband of operator M in province A in the past two years, it is about 200CNY in urban and 350CNY in rural areas.

But there are two issues should be noted:

• First, the average cost per household usually refers to the average cost per household of residents within the coverage area of the newly built FTTH. The statistical domain is residents rather than users. However, residents can usually choose any of the three major operators. In this way, for a residential area, if the total access rate (the ratio of actual installed users to total households) is 90%, the access rate of a specific operator is only about 30%.

For example, a residential area has 1,000 households, and the cost of the FTTH coverage project of operator M is 200,000 CNY, then the average cost per household is 200 CNY; the access rate of operator M in the urban area is 35%, then the ODN investment for each installed user is:

200/35%＝571 CNY

• Second, the average cost of home broadband generally does not include the investment in the backbone cable in ODN. Taking operator M in province A as an example, the average number of users accessing a single PON port is 30, and the utilization rate of the backbone optical cable core is about 50%. If the average link length of the backbone optical fiber is 3km and the cost per core kilometer is 100 yuan (the larger the number of optical cable cores, the lower the cost per core kilometer), the investment in the backbone core occupied by each user is:

100X3/30/50%＝20 CNY

Taking into account the operator’s access rate and trunk cable investment, the average investment per household in ODN construction for home broadband users is estimated as follows:

Internet equipment construction

OLT investment is mainly related to the number of equipment ports. For example, the average number of users of a PON port is about 30, the utilization rate of the PON port is about 70%, the unit price of a GPON port is about 650 CNY, and the unit price of an XG-PON port is about 3,500 CNY,. If the GPON port and the XG-PON port are configured at a 4:1 ratio, and the investment in equipment racks and equipment common units is estimated at 10% of the port investment, the PON port investment per user is:

(650×4+3500)x1.1/0.7/(30×5)＝63.9 (CNY)

The average cost per household for BRAS/SR, metro core routers, and provincial network routers is estimated by dividing the total investment in related equipment in the past five years by the total number of users. The average investment per household is approximately RMB 72.3.

Business network and supporting construction

The average cost per household of CDN and various Internet business management platforms is estimated by dividing the total investment in related equipment in the past five years by the total number of users, and the average investment per household is about 50.8 CNY

The transmission between various Internet nodes is estimated at 65,000 CNY/multiplexing segment per 10G port, which is converted to 6.5 yuan/multiplexing segment per 1M. Referring to the traffic of home broadband users between various Internet nodes, the average peak traffic of each user is about 7.4M.multiplexing segment (in July 2020, one business segment of the provincial network is estimated at 1.4 multiplexing segments, and one business segment of the backbone network is estimated at 2 multiplexing segments). If the investment in transmission equipment racks and equipment public units is estimated at 10% of the port investment, and the optical cable and pipeline are estimated at 50% of the equipment investment, then the transmission investment per user is approximately:

6.5×7.4×1.1×1.5＝68.8 (CNY)

Average cost per household

If the equipment room, power supply, air conditioning and other supporting facilities used by the equipment are estimated at 30% of the equipment investment, the average cost per household for home broadband network construction is as follows.

Based on the calculation that urban users account for 60% and rural users account for 40%, the average investment per home broadband user is approximately RMB 1,166.6.

Investment Benefits of Home Broadband Services

The income of home broadband services mainly depends on the internal settlement of mobile convergence services. At present, the average ARPU (average revenue per user) of mobile convergence services of operator M in Province A is 68 CNY (urban) and 58 CNY (rural), and the income of home broadband services is estimated at 35% of the convergence service package.

The expenditure of home broadband services mainly considers the depreciation, installation and maintenance and marketing costs of assets. The investment in communication equipment is depreciated for 5 years, the ODN and communication pipelines are depreciated for 10 years, and the marketing costs are amortized for 10 years.

The investment benefit estimates of home broadband services are shown in the table below.

According to the above estimation method, the home broadband business can still make a small profit in towns and cities, but it is loss-making in rural areas.

Conclusion

In the estimation, the income of home broadband service is estimated at 35% of the integrated service package, which means that if there is only wireless service in the package, the profit of wireless service must reach more than 35% to ensure that the integrated service does not lose money. Wireless service obviously does not have such high profit, that is to say, the integrated service is generally loss-making.

Among the investment proportions of home broadband, ODN accounts for the highest proportion, which is related to the low management level of ODN of M operator; while the average household investment of ODN of another operator T is much lower. Moreover, the overall resource utilization rate of home broadband network also has a large room for improvement.

Province A is an eastern province with a high urbanization rate and household density, so home broadband service has not yet brought about a large loss; but in the central and western provinces, especially in remote rural areas, losses are inevitable when developing home broadband service.