<story><title>Bigger than Google Fiber: LA plans citywide gigabit for homes and businesses</title><url>http://arstechnica.com/business/2013/11/bigger-than-google-fiber-la-plans-citywide-gigabit-for-homes-and-businesses/</url></story><parent_chain><item><author>callmeed</author><text>Completely inaccurate back-of-the-napkin calculations:&lt;p&gt;- There are about 1 million households in LA (3M+ population but 3 people per household in LA County)[1]&lt;p&gt;- Assuming the vendor got 75% sign-up for the free tier, that&amp;#x27;s 750K households&lt;p&gt;- I&amp;#x27;ll give them a generous freemium-to-paid conversion rate of 10% (sorry but 5Mbs is fine for many people). That&amp;#x27;s 75K households.&lt;p&gt;- I&amp;#x27;ll be generous and say that most paid households will get some kind of bundle and pay $150&amp;#x2F;month&lt;p&gt;MONTHLY HOUSEHOLD REVENUE: $11,250,000&lt;p&gt;- There are 250K non-farm businesses in LA County. I&amp;#x27;m not sure how many are in the city limits, but let&amp;#x27;s say 25K buy a paid. Since we know ISPs love to gouge offices with higher prices for the same service, let&amp;#x27;s say they get $250&amp;#x2F;mo from each business.&lt;p&gt;MONTHLY BIZ REVENUE: $6,250,000&lt;p&gt;- Quick search puts Comcast&amp;#x27;s ad revenue is about 4% of total (Charter is 5%). So I&amp;#x27;ll throw in an extra $1M&amp;#x2F;MO in ad revenue from this deal, which I think is generous.&lt;p&gt;TOTAL: $18.5M&amp;#x2F;MO&lt;p&gt;TIME TO RECOUP $5B: 270 Months (22.5 years)&lt;p&gt;[1]&lt;a href=&quot;http://quickfacts.census.gov/qfd/states/06/06037.html&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;quickfacts.census.gov&amp;#x2F;qfd&amp;#x2F;states&amp;#x2F;06&amp;#x2F;06037.html&lt;/a&gt;&lt;p&gt;EDIT: Updated with ad revenue numbers</text></item></parent_chain><comment><author>JumpCrisscross</author><text>Great analysis! Some suggested tweaks below.&lt;p&gt;SALT:&lt;p&gt;1. You estimated revenues - let&amp;#x27;s multiply that by AT&amp;amp;T&amp;#x27;s 5.7% 2012 net income margin [1]. Y1 earnings: $12.7 million.&lt;p&gt;2. That seems low - let&amp;#x27;s double your business revenue estimate. Adjusted Y1 earnings: $17 million.&lt;p&gt;3. Los Angeles-Long Beach-Anaheim real GDP grew at 2.4% a year between 2009 and 2012. Assume that continues into perpetuity. AT&amp;amp;T pays 5.3% and 3.7% on its 2041 and 2029 debt, respectively - let&amp;#x27;s say you can borrow between those.&lt;p&gt;--&amp;gt; Present value of cash flows: $0.6 to $1.3 billion. Quadruple your revenue estimates and borrow at 3.75% to hit $5 billion.&lt;p&gt;CAYENNE:&lt;p&gt;1. $5 billion to roll out fibre across Los Angeles seems optimistic. The issue is compounded by the city council having no skin in the game, even with regards to bureaucratic inefficiencies (e.g. some land use or environmental commission jamming the entire project for 5 years).&lt;p&gt;SUGAR:&lt;p&gt;1. Your revenue estimates look pessimistic - businesses could pay differing rates based on usage and more than 1&amp;#x2F;4 of the population could sign up. You also don&amp;#x27;t include government demand. But it&amp;#x27;s thorough enough to look closer than 4x off.&lt;p&gt;∴ The RFP in its present form looks more like a political stunt than a serious proposal. Not sure what the LA electoral calendar looks like over the next 3-6 months.&lt;p&gt;[1] &lt;a href=&quot;http://finance.yahoo.com/q/is?s=T+Income+Statement&amp;amp;annual&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;finance.yahoo.com&amp;#x2F;q&amp;#x2F;is?s=T+Income+Statement&amp;amp;annual&lt;/a&gt;</text></comment>
<story><title>Bigger than Google Fiber: LA plans citywide gigabit for homes and businesses</title><url>http://arstechnica.com/business/2013/11/bigger-than-google-fiber-la-plans-citywide-gigabit-for-homes-and-businesses/</url></story><parent_chain><item><author>callmeed</author><text>Completely inaccurate back-of-the-napkin calculations:&lt;p&gt;- There are about 1 million households in LA (3M+ population but 3 people per household in LA County)[1]&lt;p&gt;- Assuming the vendor got 75% sign-up for the free tier, that&amp;#x27;s 750K households&lt;p&gt;- I&amp;#x27;ll give them a generous freemium-to-paid conversion rate of 10% (sorry but 5Mbs is fine for many people). That&amp;#x27;s 75K households.&lt;p&gt;- I&amp;#x27;ll be generous and say that most paid households will get some kind of bundle and pay $150&amp;#x2F;month&lt;p&gt;MONTHLY HOUSEHOLD REVENUE: $11,250,000&lt;p&gt;- There are 250K non-farm businesses in LA County. I&amp;#x27;m not sure how many are in the city limits, but let&amp;#x27;s say 25K buy a paid. Since we know ISPs love to gouge offices with higher prices for the same service, let&amp;#x27;s say they get $250&amp;#x2F;mo from each business.&lt;p&gt;MONTHLY BIZ REVENUE: $6,250,000&lt;p&gt;- Quick search puts Comcast&amp;#x27;s ad revenue is about 4% of total (Charter is 5%). So I&amp;#x27;ll throw in an extra $1M&amp;#x2F;MO in ad revenue from this deal, which I think is generous.&lt;p&gt;TOTAL: $18.5M&amp;#x2F;MO&lt;p&gt;TIME TO RECOUP $5B: 270 Months (22.5 years)&lt;p&gt;[1]&lt;a href=&quot;http://quickfacts.census.gov/qfd/states/06/06037.html&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;quickfacts.census.gov&amp;#x2F;qfd&amp;#x2F;states&amp;#x2F;06&amp;#x2F;06037.html&lt;/a&gt;&lt;p&gt;EDIT: Updated with ad revenue numbers</text></item></parent_chain><comment><author>josh2600</author><text>In my experience, Cable&amp;#x2F;Telco companies don&amp;#x27;t build fiber networks with greater than 15 year payback, with 30 being the hard cap. I think your math is fairly accurate.&lt;p&gt;Source: See my other comment, I did fiber rollouts with telcos including Comcast in the Bay Area.</text></comment>