4 Mistakes New ISPs and Infrastructure Owners Make and How To Avoid Them

The current influx of federal funding for broadband deployment projects may result in the creation of new internet service providers (ISPs) or new infrastructure owners (e.g., municipalities or electric cooperatives that decide to build and lease fiber) across the country. We thought we’d share four mistakes we have seen new ISPs and infrastructure owners make — and how to avoid them.

First, new infrastructure owners should assume appropriate maintenance costs from the very beginning.

We have seen new ISPs or infrastructure owners assume that fiber’s relatively long life span means maintenance costs can be ignored or downplayed in the beginning. This simply is not true — between network monitoring, fixing the inevitable breaks, and even accounting for electronics replacement every 5–7 years, ISPs need to budget appropriately for maintenance as soon as construction begins.

Second, new infrastructure owners should exercise caution during the make-ready process so they don’t end up overpaying.

Before an ISP can install a new attachment on a utility pole, the existing attachments may need to be moved to comply with federal line spacing requirements. In some cases, the entire pole needs to be replaced after years of exposure to the elements, deterioration over time, or even impact from vehicles. If safety inspections reveal that the utility pole is unsafe and cannot be used for new attachments, the pole owner — a municipal electric company, private electric company, local government, or telecommunications company — should pay to replace the pole. However, if a new ISP doesn’t hire a seasoned engineer to participate in utility pole inspections (or “ride outs”), the ISP risks footing the bill for utility pole replacements that should ultimately be the owners’ financial responsibility.

Also note that if a pole needs to be replaced so it can carry additional load, the ISP should only pay the depreciated cost of the pole because electric companies budget pole replacements in their rates. For example, if a pole is 70% depreciated when the new ISP is asked to replace the pole, the new ISP should only pay for 30% of the cost of the pole, in an ideal situation.

Third, new infrastructure owners should carefully sequence new customers.

New ISPs might be tempted to build last-mile infrastructure to a small number of premises as quickly as possible so they can say they have started connecting customers, but the first batch of connected customers always carries a jump in expenses such as customer service, FCC reporting, and more. If new ISPs don’t sequence their initial customers judiciously, they risk not having a foundation of sustainable growth and revenue, thereby jeopardizing the future of the business.

Fourth, new infrastructure owners should be laser focused on growth and customer acquisition above all else.

When new ISPs are first getting established, their primary objective should be building a solid customer base. During this phase, expenses outstrip revenue, and most new ISPs will only achieve stability after several thousand customers have signed up for service. Another technique that may provide stability during this challenging period is structuring debt repayment with a grace period of a few years after the business is established, if at all possible.

New ISPs can be precarious in the initial years, but awareness and preparation can help them avoid errors that are detrimental to long-term success.

What other mistakes have you seen new ISPs make?