Some builders install fiber-optic networks, then keep ownership, hoping to collect fees in the years to come
San Francisco Chronicle | October 17, 2004 print edition | Benny Evangilista
For new home builders these days, pre-installed wiring for cable TV and high-speed Internet is becoming as standard as water pipes and central heating.
But a few residential developers across the country are going a step further by getting into the telecommunications business, pre-wiring whole neighborhoods with their own fiber-optic cable networks capable of high-tech video, voice and data services.
” We are the developer, we are the builder and we are the communications company,” said Joel Thomas of Cornerstone Construction and Investment of Acworth, Ga., which has become the cable TV and Internet provider in its two residential developments northwest of Atlanta.
” We see this as long-term residual income,” said Thomas, whose company is using the profits for a loftier purpose, helping to fund ministries that help inner city youth and train new missionaries.
The trend is more of a trickle than a deluge at this point, as only about a dozen housing developers are taking firm steps to install such networks, said Thomas Reiman, president of the Broadband Group.
The Sacramento telecommunications consulting firm is working with about 50 clients similar to Cornerstone that are at least examining the possibility of running their own fiber-optic network to new homes.
Still, “it’s an interesting twist in terms of development communities,” said Reiman. He added that the trickle will continue to grow, especially as demand for bandwidth-consuming digital entertainment and communications services increases and as more uses such as security, health care and energy management are added to the network.
” That’s when fiber to the home means something to (consumers), and it’s not just because they get faster Internet,” Reiman said.
Fiber-optic networks are strands of hair-thin glass cables that transmit digitized streams of data at great distances as pulses of light. Because the light speeds through the glass fibers, it moves faster and with less power than electrical pulses through standard copper wire.
Experts say that with copper wire or coaxial cable, the bandwidth degrades the farther the signal goes, but with fiber optics, there is virtually no signal degradation for nearly 20 miles. Also, fiber-optic cables are capable of carrying many other frequencies of light at the same time, which also increases bandwidth.
Telephone and cable companies are battling each other to be the consumers’ choice for a triple play of broadband communications services — voice, data and video.
With Web users already embracing the practice of downloading songs, technology and entertainment companies are developing ways to cash in on delivering services such as video on demand, which requires transmission of large data files that need the fat bandwidth available with fiber-optic cables.
Glass, not wire
New technologies such as digital and high-definition television and voice over Internet protocol, known as VOIP, are also increasing demands for more bandwidth.
“In this day and age, when you move into a new community, you expect to have these kinds of services,” said Katie Seebold, marketing manager for Alloptic Inc., a Livermore company that makes equipment used to connect fiber networks in developments like the Pinehills, one of the largest of its kind on the East Coast.
Therefore, developers, particularly those with larger planned developments, are seeing installed fiber-optic networks as an amenity that home buyers now and in the future will demand.
Last month, Pulte Homes announced a marketing agreement with Verizon to install fiber-optic lines in four Pulte developments in Southern California. Pulte also announced it had teamed with fiber-opticsmaker Corning Inc. and technology consultant Paxio Inc. to install fiber to homes in its Danbury Place development in Sunnyvale.
Pulte pre-wired Danbury Place homes to let residents connect multiple computers, printers and video equipment, but Paxio sells the broadband services and operates the fiber network outside the homes.
” It helps with the sale of our houses,” said Merry Sedlak, a Pulte vice president of marketing. “The whole house is totally smart wired. It’s been very well received.”
Fiber-optic cable systems are within reach of about 970,000 homes in North America, a number that has increased dramatically in just the past year, and 146,000 homes are connected, said Mike Render, a principal at Render, Vanderslice & Associates, a Tulsa, Okla., firm that specializes in the fiber- optics market.
But he said other developers in Minnesota and Southern California have, like Cornerstone, chosen to own and operate their fiber-optic systems.
” If they own (the network), they see a chance for an ongoing revenue stream” beyond the sale of the last home, Render said. “But communications is a complex business.”
Slow to take off
It’s so complex that telecommunications companies themselves have only sporadically started various fiber-to-the-home initiatives during the past two decades.
Although there have been various demonstration projects and isolated installations such as at San Francisco’s Mission Bay commercial and residential complex, the high costs of retrofitting existing copper networks, regulatory issues and slow consumer demand have kept fiber from taking off, Reiman said.
Even now, critics are skeptical about plans announced this year by telecommunications giants such as SBC and Verizon Communications to spend billions of dollars in the next several years to extend fiber to existing and new homes.
In fact, it was Verizon’s unexpected pullout as the fiber-optic provider for an upscale project of 3,000-homes and four golf courses in Plymouth, Mass., that caused its developer to get into telecommunications.By 2002, Verizon had wired 50 Pinehills homes, but it made a corporate decision to pull back on fiber-optic projects, leaving a void in the development’s technology plans, said Pinehills President John Judge.
“We were faced with a very difficult position,” he said. “Would we rather create our own data and video company, buy programming, decide whether we have the History Channel or the Golf Channel or both, or were we going to try to find another Verizon to step in?”
Rather than face another disappointment with a new telecommunications provider, “we decided (to) be the masters of our own destiny,” Judge said.
Within three months, Pinehills had created its own technology company, Pinehills Connection. Today, about 98 percent of the 450 completed homes use Pinehills Connection for cable and high-speed Internet service.
Pinehills Connection buys cable programming through the National Cable Television Cooperative, a group of 1,000 independent cable operators with 14 million subscribers that is able to negotiate programming prices with the same networks found on major cable operators like Comcast. Judge himself runs into homeowners daily and fields questions about cable service.
A continuing concern
Judge said Pinehills Connection is on track to become profitable in another two years and outlast the land development company itself.
“After 10 years as a land development company, we’ve just sold the last permit to the last builder,” he said. “We don’t have any more land to sell.”
Render, of Render, Vanderslice & Associates, said the cost per home to install fiber has dropped from more than $2,000 last year to about $1,650 this year. A decade ago, the average cost was $7,500 per home.
“It’s at the point where it’s very attractive economically,” Render said. “The revenue streams you can get from one of these homes is fairly strong. People who buy these homes are looking at what services than can get now. And when they think about selling their house, this (fiber optics) might be very high on their list (of features) seven or eight years from now.”
Giving something back
In Georgia, Cornerstone Construction created a subsidiary called ICornerstone Inc., which has built and runs a fiber-optic network that links about 130 completed homes of a planned 600 for both of the company’s developments, the Reserve and Timberland, in Dallas, Ga. ICornerstone generates revenue from the phone and Internet services it provides.
“This is another business for us,” said Joel Thomas, ICornerstone’s director of operations. “We can make more off developing land by putting fiber in the ground than by putting it in houses.”
But Thomas said he and Cornerstone Investment owner Michael Ellis didn’t start ICornerstone just to pocket a few more dollars.
Thomas and Ellis originally met more than a decade ago while volunteering at Blood-N-Fire, a nonprofit Atlanta ministry that helps get inner city homeless youth off the streets. They created ICornerstone as a way to generate revenue for both Blood-N-Fire and for Nehemiah International, a new “boot camp” organization that trains youth missionaries from around the world.
” The basis for this business was (to) create income to support our real passion, which is helping people and rebuilding lives,” Thomas said.
E-mail Benny Evangelista at email@example.com.