The High Cost that Belgian Real Estate Developers Pay for Internet

Another week and another napkin that I have been scribbling with thoughts and numbers.

See, since the FTTH (fiber to the home) bug bit me, I have been developing conversations with various real estate companies. Developers, builders, promoters, and managers. With last week’s numbers in hand, I went out to test out these numbers and the hypothesis behind them.

If I take those numbers and apply them to a high-end building in Brussels with 40 units, it ends up looking like this:

• cost for the tenant: €1000 (aka him missing a day of work)
• cost for the internet service provider: €600 (customer acquisition and technician visit)
• cost for Property Manager: €600 (opening up door to service provider)
• Total cost to connect for 1 tenant: €2200
• Total cost to connect the entire building: €88.000

The heads around the table were nodding. “And if it is a furnished rental, the customer expects Internet to be part of the furniture. So it is I who has to spend my day waiting for the technician to show!”

That €88.000 is only for the initial activation. No service included. You would be right to say I am full of shit. If I am half-full, it is still €44.000 of costs.

You would also be correct to say that the property developer does not have to care: she completed her job when she build the building. However, if put on your capitalist hat, aggregating costs is a great niche to exploit .

Internet access is a commodity and (arguably) a basic human right. A property developer does not have to wait or depend on the monolithic operators for it. It has alternatives.

First, a bit of context.

Building for the future

Real estate is a extremely difficult business. Property Developers make huge, long-term bets which are strongly tied to feelings and emotions. People have their houses for a lifetime, real estate agents spend most of their days touring people around so they can “feel” the place, and an enormous amount of marketing materials to engage your feelings. Beautiful pictures of the concept, high-gloss folders with the history of the architect, in-depth look at the materials chosen. “It is a cozy place”, “… beautiful view…”, “… an up-and-coming neighborhood.”, “… spacious bathroom…”, “… modern kitchen…”.

Sure, there is marketing material about the finances, the ROI, etc., but those are there to justify an already-made decision; a decision based on feelings and emotions. Daniel Kahneman (author of “Thinking, Fast and Slow”) would probably agree.

No matter how the decision is made, the property is built with 30, 40 years in mind. With that in mind, the operating costs have a huge impact on its lifetime value. Green materials, high efficiency isolation materials, triple-glazed windows, automated lights, heating, everything. Simply look at the hype and energy behind IoT and smart devices that aim to improve energy efficiency, savings, etc.. It is a huge opportunity.

Building for the future with Internet from the past.

Property Developers spend big money on cabling and equipment, but fall short of providing state-of-the-art Internet connectivity to tenants.

Tenants crave for fast, affordable, and easy Internet, but are left to deal with telecom market that is a de facto duopoly.

A duopoly does not have to change or innovate. It has all the leverage. Applied to real estate, it means that the property developer has to pay the whole cost of the cabling and get none of the benefits: no extra choice, no revenue-sharing. Or even worse: be offered the installation for free in exchange for lock-in. At the end, property developers get a network that is no better than the building next door.

The end result is the same tired workflow:

Total time elapsed : at least 1 week, likely 3 to 4 weeks.

Nothing has been automated. There are no more options; the tenant is stuck with the same narrow choice of suppliers. The same ol’, same ol’

So What are the Alternatives?

Now take a look at the workflow of a tenant moving into an apartment in Sweden:

Total time elapsed: less than 1 minute.

Cost of switching providers in Sweden: marginal. No wonder Sweden superfast and cheap Internet. That is possible due to a tight collaboration between Real Estate Property Developers and network providers. The first one was the Hammarby Sjöstad project in Stockholm. Not only it changed how Property Developers thought about Internet, it changed how Stockholm thought about its entire cabling infrastructure and regulations. That mindset change, helped propel the expansion of Stokab: the often quoted use case for a success implementation of a smart and connected city.

That is my dream for Belgium

This post first appeared on LinkedIn.