Implementation Of A Business Model For Residential Real Estate Developers To Obtain New Revenues From Telecommunications Infrastructure And Services
Significant technological advances in the telecommunications industry continue to be made and used to deliver new telecommunications to services consumers. The advances offer new revenue opportunities for non-traditional service providers such as residential real estate developers. Residential real estate developers can gain previously untapped revenue streams from the construction and installation of telecommunications infrastructure and provision of telecommunications services, either directly as a service provider or through leasing telecommunications infrastructure to an existing service provider. The opportunity is enhanced by new technologies in telecommunications such as voice-over internet protocol ("VoIP"). Residential developers can invest in the installation of telecommunications infrastructure at the same time they are installing sewer, water and other utilities in new subdivisions or in larger scale multi-family developments. They can offer services on their own, or lease the infrastructures to other providers. The argument for such investment ins particularly compelling where real estate developers can ensure "last mile" telecommunications services in their planned residential communities. Residential land developers have long ignored this revenue opportunity by leaving it to incumbent local exchange carriers ("ILECs") or competitive local exchange carriers ("CLECs"), cable television companies and satellite providers.
We described a business model in our article posted on our website, www.telecomattorneys.com, entitled "New Revenue Opportunities for Residential Real Estate Developers from Telecommunications Infrastructure and Services." Under this business model, residential land developers can leverage currently available technological breakthroughs in the form of both enhanced and traditional telecommunications services. In making such an investment the developer would add value to a planned community development in the form of modern telecommunications services delivered over up-to-date telecommunications infrastructure. The purpose of this article is to outline the steps which residential developers should undertake to implement this business model.
Steps to Implement Business Model
- Step 1: Definition of Scope of Telecommunications Services.
As a starting point, the developer should define the scope of telecommunications services needed in the development in terms of types of users and services. If the development will be a mixed-use development, the telecommunications users generally will be single family residential users, multi-dwelling unit ("MDU") users and business users. The services will generally fall within three major categories: voice services, video services and data services. The developer should recognize, however, that there are multiple sub-categories of services under these three principal categories of services that could be offered profitably to various categories of users as we set here in Step 5.
- Step 2: Research the Methods of Delivery of Telecommunications Services.
The developer should then research the various methods of delivering the three major categories of services to be offered to each user segment in the development. The developer should determine how to deliver services most efficiently through use of other as fiber optics, broadband cable or wireline facilities or a mix of delivery of technologies.
- Step 3: Identification of Specific Telecommunications Services to Specific User Requirements.
The third step is to prepare a list of the specific kinds of telecommunications services most likely to be needed or desired by users within the three major telecommunications service categories of voice services, video services and data services. These specific kinds of services would include wireline or wireless voice services including VoIP, video services including cable or satellite delivered entertainment services, and data services, including internet access and internet information services. In this connection, the telecommunications services which the developer will most likely consider as needed by the various user segments are:
- Local exchange and long distance voice services (using VoIP technology);
- Emergency 911 or E-911 and Enhanced E-911 and emergency callback services;
- Internet access services (such as high-speed digital subscriber lines ("DSL") or cable broadband or wireless access lines);
- Internet service provider services such as email, web hosting and community and group access;
- Home security services, including burglar and fire alarm services;
- Security services for the common areas in the planned development (such as communication controlled access to community, video security for common areas);
- Home automation services (the homeowner's ability to remotely turn on and off appliances and entertainment facilities); and
- Extension of the planned community's telecommunications network to serve adjacent planned communities not under control of the developer.
- Step 4: Qualification of Anticipated Revenue.
Next, the developer should quantify the revenue anticipated from each of the services offered through investment in the infrastructure to each segment of users. - the voice, video and data by each residential, commercial and MDUs in the planned development.
- Step 5: Telecommunications Infrastructure: Equipment and Real Estate Law Issues.
After completing the four steps above, the developer should describe with more particularity the telecommunications infrastructure and related facilities that will be needed to provide the services to be offered. The infrastructure will usually consist of conduit, either buried directly or installed in encasement or pipe material, telecommunications switches and associated telecommunications equipment, a head-end or central office which would house the equipment and from which all telecommunications services to the development will be managed and delivered. The developer should include a layout of the easements and rights-of-way where the infrastructure will reside. The developer should assure to the extent possible that private rights-of-way can be maintained or reserved in perpetuity for his benefit to avoid any obligation to use public easements to provide the services.
- Step 6: Analysis of Existing Telecommunications Services.
After gathering the information under in the foregoing steps, the developer should then begin a research project to analyze availability and prices of current telecommunications services offered by existing providers in the areas surrounding the planned community. The existing providers would include ILECs, CLECs, cable television companies, wireless service providers, and private telecommunications network service providers. The analysis should identity the nearest interconnection point between the planned development and the National Internet Backbone, and/or the public switched telephone network. The existing providers could be competitors or partners in providing services to end-users within the development.
- Step 7: Formulation of Prices.
In Step 7, the developer should project the cost for the telecommunications infrastructure the developer intends to construct and install in the planned community, and formulate terms and prices for leasing of the infrastructure to providers who will use the infrastructure to deliver the services to end users. In this step, the developer should consider the methods of financing the infrastructure.
- Step 8: Prepare Detailed Business Plan.
Finally, the developer should prepare a detailed business plan covering the costs of construction and installation of the infrastructure and anticipated revenues from the leasing of the infrastructure and an operating budget for the provider described in the business model who will actually be delivering the telecommunications services to each user segment in the planned community. Both operating budgets should consider a lack of revenue for at least four months from the time installation of the infrastructure is completed and from the time services can be offered in the planned development. The operating provider's budget should provide for minimal revenue for months five through eight after services begin.
By employing and completing these steps, a developer interested in taking advantages of the revenue stream from ownership of telecommunications infrastructure should be able to evaluate the revenue opportunity based on the results precursors and make the business decision to move forward or not with the opportunity.
If you have questions about the implementation of the model, or the new revenue opportunities for real estate developers, please contact Michael L. Glaser at Telecommunications and New Technologies Practice at (303) 757-1600.