Bulk Purchase Guarantee by Key Customers
In the series of articles on fiber optic business models, we explore the various business models of this technology and the experiences of global operators in this field. The first model was introduced in the article “Fiber Optic Business Models – Model 1: Aggregation of Retail Demand FTTH+FTTO.” In this article, we will discuss the second business model.
Model 2: Bulk Purchase Guarantee by Key Customers
In the business model of bulk purchase guarantee by key customers, one or more initial and key customers guarantee the use of a significant portion of the network’s capacity. This initial commitment helps reduce the investment risk in the fiber network by providing guaranteed revenue streams, making it more attractive for private financing and ensuring the economic viability of the project. This model focuses on the wholesale provision of services.
A successful example of implementing this model is CityFibre in the United Kingdom. This company started as a small startup in 2011. CityFibre’s method was to rescue failed fiber projects in small UK towns. Initially, they only adopted the wholesale model. Examples of their deals include agreements with retail broadband providers TalkTalk and Sky to create a fiber network capable of delivering 1 Gbps in York. TalkTalk and Sky committed to pre-payment and customer migration plans, ensuring the commercial aspect of the project.
Perhaps their most notable deal was their 2017 project with UK mobile giant Vodafone. CityFibre signed a contract to build 1 million FTTH homes with Vodafone, under which Vodafone guaranteed 20% of the services for 10 years under an exclusive contract. In 2020, CityFibre acquired the FibreNation project, in which TalkTalk was a key stakeholder. This acquisition required them to renegotiate with Vodafone, which they successfully did, thereby strengthening their wholesale model.
The key advantage of this strategy in the UK market is that the design of downstream/upstream speed profiles is up to the access recipient. Both Vodafone and TalkTalk have the discretion to reduce speeds if desired, allowing them to sell 1 Gbps access to retail customers without incurring higher wholesale costs.
References:
– “FIBRE-TO-THE-HOME BROADBAND: BUSINESS MODELS AND FUTURE CONNECTIVITY,” FTTH Council Europe, [Online]. Available: [FTTH Council Europe](https://www.ftthcouncil.eu/resources/blog/guide-to-successful-ftth-business-models).
– “The business models that are attracting FTTH investment now,” Outvise, 2022. [Online]. Available: [Outvise](https://blog.outvise.com/business-models-attracting-ftth-investment/).