Bringing Broadband to your Tenants

What Property Owners are Thinking & Doing
By Amy Helland, Cahners In-Stat Group
They all say they want it, they all say they need it, but what are property owners actually doing to bring broadband to their tenants? Cahners In-Stat Group recently completed a study surveying over 200 property management groups on their actions and intentions to make their buildings broadband enabled. The sample group included both small independent management groups and large Real Estate Investment Trusts (REITs). 44 percent of the respondents' portfolios included only office buildings, while 34 percent of the portfolios included only residential buildings. 22 percent of respondents had portfolios comprised of both residential and office buildings.
While demand for broadband has been stated and restated exhaustively, the heart of In-Stat's survey was to determine what property owners have actually done to prepare their buildings for broadband and what are their true expectations of the service. Among the factors examined in determining the extent property owners have embraced high-speed in their buildings are the installation of specialized wiring and the implementation of a community portal.
Of the overall respondent pool, 54 percent had installed specialized wiring in at least a portion of their buildings. For the purpose of the survey, specialized wiring was defined as CAT 5 or higher twisted copper pair or fiber. The majority of those that had installed such specialized wiring held a pure or partial office building portfolio. The installation of new wires is much more attractive in the business market where the cost is more easily recovered through subscriptions to fuller, higher revenue packages. Fiber is gaining an increasing share of deployments in those commercial buildings that are categorized as Class A based on the tenant expectation and revenue potential. While fiber is becoming increasingly important, much of the market is still served by existing wire solutions, this is especially true in the residential market.
The implementation of a community portal was also selected as an indicator of the extent to which technology had been integrated into the building's operations. These portals are often offered as part of the solution provided by an in-building provider. Community portals offer the building owner and tenant a variety of conveniences. For the property owner, portals offer the potential to streamline management through message posting, maintenance request submission, and bill paying. The portals also offer the potential for an additional revenue source through local business advertising, however this potential has not widely come to fruition. For the resident, the portal offers the flip side of convenience through simplified bill payment, service request submission, and community notices. Portals also offer the capability for residents to post messages for other residents.
The adoption of a community portal was less prevalent than the installation of specialized wiring: only 23 percent of total respondents had a community portal available at their properties. Portals were more prevalent in the office properties than in the residential communities. Many building owners are skeptical about the value that a portal offers, as only a small percentage of the tenants, those subscribing to the in-building broadband provider, will have access to the network. The value of these community portals will increase exponentially as these providers' penetration rates increase.
In addition to examining the building's broadband capabilities, the survey also explored the broadband tendencies of these building's tenants. From the service provider prospective, there are four primary types of tenants:
* Those that do not have broadband and are uninterested in the service;
* Those that do not have broadband because they are unsatisfied with available service;
* Those that do have broadband with another provider
* Those that are their subscribers
It is important for the service provider to understand the composition of their potential market when they approach a building.
The majority of property owner respondents indicated that less than 25 percent of their building's tenants subscribed to broadband services. However, 20 percent of respondents indicated that a full 100 percent of their building tenants had broadband service. These two clusters of respondents, representing opposite ends of the spectrum, indicate that there is great diversity in buildings and the tenants they house. These two clusters suggest that there are two distinct subgroups in the real estate market-those properties that attract technology adopters and those properties that do not attract technology adopters. In order to be successful in provisioning broadband services, providers must accurately assess which type of properties a management company holds, or which properties within that company's portfolio that houses technology adopters. Generally these properties can be identified by a handful of key selection criteria including geographic location, size, and rent. Typically those characteristics that define the Class A real estate market will also define the subset of buildings that offer the best potential client base. These buildings are located in an urban environment, they house a large number of tenants, and their tenants have the discretionary income to afford high rent real estate.
While it is extremely important for a service provider to assess the potential for broadband adoption among a building's tenant base, it is also important to acknowledge those tenants' preferences and what the competition might be. Early in the evolution of the in-building broadband market, these providers, what were then called BLECs, hoped to possess exclusive contracts with the building owners. However, in an October 2000 ruling, the FCC specifically ruled against such relationships in the office building market (there is yet to be a specific statement on the residential market). Because the in-building provider faces competition from traditional, CO based providers, it is interesting to see what type of penetration rates these providers have obtained. According to the survey, 38 percent of building owners indicate that over 25 percent of their tenants subscribe to broadband services from a BLEC provider. Considering that the generally acknowledged penetration rates loom around 10 percent, the survey has highlighted instances of substantially higher penetration rates. Penetration rates were generally higher for in-building providers in the business market and were very low (5 percent or less) in the residential market.
Perhaps the key concern for in-building providers in today's market is how property owners perceive them. In light of the lackluster performance of many providers in 2000, many providers have reason to be skeptical about the validity of in-building providers. However, according to the survey respondents, many property owners are satisfied with the performance of their provider and many of those providers that do not currently have a relationship with a provider would chose to work with an in-building provider as opposed to a traditional provider.
The MTU broadband market is evolving at a rapid pace: old models are being discarded and new ideas embraced. The transition that has occurred in the past 12 months in the market, with many players exiting the market and a few new moving in, has left the market largely open. An open market represents the potential for service providers to grow their existing base and create market share. However, an open market also places the property owner, and ultimately the tenant, in a position to choose from among the options. As the survey results expose, there is great potential in the MTU market for those providers that are smart in t6heir pursuits and creative with their offerings.
About the Author
Amy Helland is an analyst with Cahners In-Stat Group. The author may be reached with questions or comments via email at ahelland@instat.com.