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FTTH Study 2019 Summary Findings

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FTTH Study 2019 Summary Findings FTTH Study 2019 Summary Findings June 4, 2019 Prepared for: www.cartesian.com Copyright © 2019 Cartesian, Inc. All rights reserved. Estimated FTTH Investment Required Cartesian estimates 90% of US households can be passed with fiber for an estimated amount of $70B Investment Required by Deployment Type Comments High • Homes passed or planned to be passed with fiber by 2025 have been allocated D2 FTTH Network D1 across all groups, based on past FTTH A B C Deployment deployment density profiles Low • At the end of 2018 there were 39.2 million Costs per HH Dense US households with FTTH availability, plus More Most Urban/Suburban Significantly Rural & Complex an additional 25.9 million forecasted by Costly More Costly Deployments Expensive Deployments 2025 # 2025 HHs Not Already • To pass 80% of the households (as in the Covered by FTTH (M) 33.9 9.8 7.3 5.1 13.5 2009 study) it will require today an investment of $51.5B vs. $70.9B back in Cutoff HHs per Sq. Mile1 1,525 767 302 63 NA 2009 • Based on current FTTH build investment Percentiles Covered 0-54% 55-69% 70-80% 81-90% 91-100% requirements, Cartesian estimates that the average cost to pass all but the 10% most Modeled Cost to Pass expensive remaining non-FTTH households per HH2 $668 $1,313 $2,187 $3,656 NA in 2025 is ~$1,250 per HH • Penetration rates across groups A, B, C and Incremental Cost to D1 expected to average 50.1% in 2025 Connect per Sub $550 $550 $550 $550 NA Assumed Penetration 45% 50% 60% 70% NA Totals Cost to Pass ($B) $22.6B $12.9B $16.0B $18.6B NA $70.1B Cost to Connect ($B) $8.4B $2.7B $2.4B $2.0B NA Total Investment Cost to Connect ($B) $31.0B $15.6B $18.4B $20.6B NA Requirement ($B) $85.6B 1 Household density estimated using Census block groups as opposed to FCC Wirecenter data in the past study 2 Based on logarithmic regression model estimating effect of household density on cost to pass a home across multiple real-world fiber deployments Source: Cartesian, FCC Form 477, US Census, American Community Survey, Company Presentations Confidential and Proprietary — Copyright © 2019 Cartesian, Inc. All rights reserved. 2 US Household Density Cutoff Past FTTH deployments demonstrate that deployment in the 80-90th density percentiles is now commercially feasible US Households Inverse Density Curve Comments 4.5E-034.5x10-3 • An inverse density plot represents a proxy for FTTH cost to pass 4.0E-034.0x10-3 • Previously, in 2009, fiber connected households were allocated to highest Commercially feasible households in rural 3.5E-033.5x10-3 densities and lowest cost percentiles – areas, considered economically infeasible since then, deployments have occurred to pass in 2009 Cartesian (CSMG) Study in lower-density areas, owing to -3 3.0E-033.0x10 government subsidies and high take-up rates which have translated into NPV 2.5E-032.5x10-3 positive FTTH deployments (e.g. take- up rates as high as 80%) 2.0E-032.0x10-3 • New materials, architectures, and processes, e.g. micro-trenching, 1.5E-031.5x10-3 Households still considered distribution TAPs have the potential to economically infeasible to pass lower further FTTH costs by increasing -3 deployment efficiencies Square Miles per Household Milesper Square 1.0E-031.0x10 • 5G has the potential to further lower FTTH deployment costs in certain areas 5.0x10-4 5.0E-04 by developing new or improving existing infrastructure (ducts, poles, 0.0E+00— etc.) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% • Power utility companies have been Distribution of deploying fiber networks for their smart grid needs and partnering with Current HHs 14.4% 11.1% 10.2% 9.8% 10.1% 10.4% 10.8% 10.4% 7.8% 5.0% fiber providers to benefit from with FTTH synergies Density Segment A B C D1 D2 (0-54%) (55-69%) (70-80%) (81-90%) (91-100%) Source: Cartesian, National Broadband Map (FCC Form 477 December 2017 – version 2), 2010 US Census, American Community Survey Confidential and Proprietary — Copyright © 2019 Cartesian, Inc. All rights reserved. 3 FTTH Cost Drivers FTTH costs have remained roughly the same over the past several years; government subsidies have allowed builds in rural areas in excess of $3K per home passed 2006-2019 FTTH Cost to Pass and Connect1 2019 FTTH Costs to Pass per HH $2,500 $7,000 Cpass = $7,549 - $2,161 * log10(Density) $6,000 $1,800 MN Fiber Co. $2,000 -7% CAGR $5,000 -1% CAGR -3% CAGR VA Fiber Co. $1,500 $4,000 TN Muni-fiber -6% Network $1,000 $3,000 CAGR VZ FiOS $2,000 Google Fiber, Network $500 Kansas City Cost to Pass one Household one to Pass Cost $1,000 Cincinnati Bell Telecom Cost to Pass and Connect per Home per Connect and to Pass Cost $0 $0 1 10 100 1,000 10,000 Household Density (per mi2) Bristol Virginia Utilities Cincinnati Bell A B Primary Cartesian Estimate to Cartesian Research Verizon FiOS reach 90% of US HHs Estimates C D1 Benchmarks • The Cartesian estimate represents the average cost to build to the • Similar to the 2009 study, logarithmic regression analysis was used to remaining households to reach 90% coverage. This is higher than current model the relationship between household density and cost to pass build costs due to different mixes in density • Analysis reveals no significant change in the relationship between density • While equipment and materials costs have decreased and labor usage has and incremental cost from 2009 study become more efficient, labor rates and scarcity of resources have balanced • Urban areas see costs at around $700-1,500 per home passed, while rural out efficiency gains and kept deployment costs relatively constant areas can range from $3,000-6,000, corresponding to a 4-fold increase • Cost efficiencies have also been offset as operators have been deploying FTTH in increasingly higher cost areas, i.e. rural or complex areas 1 FTTH cost to pass and connect data points represent different household deployment densities Source: Bristol Virginia, Cincinnati Bell, Verizon, SNL Kagan, Google Fiber, Corning, Cartesian Confidential and Proprietary — Copyright © 2019 Cartesian, Inc. All rights reserved. 4 BOSTON KANSAS CITY LONDON NEW YORK PARIS Confidential and Proprietary — Copyright © 2019 Cartesian, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval www.cartesian.com system, or transmitted in any form or means (electronic, mechanical, photocopy, recording or otherwise) without the permission of Cartesian, Inc..
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