What Went Wrong: Broadband Delivery to the MDU

Tenants want it, property owners want to offer it, and service providers want to deliver it, yet in-building broadband deployment to the multi family environment continues to struggle. With the list of failed providers continuing to grow, it is evident that there is still a kink in the strategy. Why is it that given the demand expressed by tenants and the availability created through in-building deployments, that this market has not exploded?
While the list of problems is long and varied, it can be summarized in three principal failings: low implementation of expressed intention, inherent disjoint between expenses and revenue, and dissimilar expectations among "partners."
The first issue of intention and implementation consists of relatively low number of apartment dwellers who have actually adopted broadband services despite the high percentage that express intent to do so. This disparity has resulted in a broadband penetration in apartments of less than 5%. In-building providers have fared slightly better usually maintaining a 5-10% penetration . However, these rates are not sufficient to create a sustainable deployment.
The second issue of revenue not meeting expenses stems from residential broadband's model of mass subscription at relatively low service fees. Consumer broadband services deliver a much lower per subscriber revenue stream than do business services, thus requiring more residential tenants to subscribe in order to generate equivalent revenues. With the current 5-10% penetration rates , providers are not even able to cover the monthly expense of a T-1 uplink, let alone the capital expense, maintenance expense, and various other costs associated with deployment. Until more subscribers sign up, there will be an unfavorable inequality between expenses and revenues.
The final issue is a divergence in expectations from providers and owners. While property owners are almost unanimous in understanding the importance of introducing broadband to their community, there is no consensus on how it should be delivered and where the responsibility should rest. A new model is being considered by many providers that distributes the risk/expense of a deployment between the owner and the provider. Yet, only a small percent of owners have truly expressed support in this model.
Compared to hotel management companies, apartment real estate owners are more resistant to the capital ownership model being endorsed by service providers and equipment manufacturers. While apartment property owners are hesitant to make the capital purchase or lease, they continue to want financial rewards. Furthermore, property owners do not want to become heavily involved in the administration of the property's broadband solution-for the most part, owners do not want to be in the service provider business. They are reluctant to commit their leasing agents in promoting and managing the service.
These three factors paint a very difficult picture for the service provider in today's market. However, logic and market forces favor providers. Property owners are beginning to realize that it is to their benefit to aid providers in creating a sustainable deployment model. They are realizing that when providers file bankruptcy due to an unsupportable model, leaving the property without broadband service, the cost to the property is greater than if they supported a shared risk model. Furthermore penetration rates are beginning to improve as providers devote more attention to each particular property and are more selective in their choices of where to deploy. Finally, as more traditional providers move into the market, with more resources at hand, the profitability of in-building deployment will increase.
While the barriers impeding success loom large, the in-building market is built on innovation and improving the standard, and no doubt these elements will be self directed as the market continues to emerge.