Monday, December 15, 2008

Total Cost of Ownership (TCO)

The traditional business case to provide broadband breaks down in rural communities where the population densities are lower and the broadband costs exceed subscription revenues. To provide affordable broadband service in rural communities, it is necessary to develop a sustainable economic model that proves the business case for a three, five and ten year period.

Total Cost of Ownership (TCO) is used to measure the total costs of a project over a period of time. Total Cost of Ownership (TCO) can be used to determine the expected costs of a future broadband network over a period of time. The benefit of TCO is in providing an understanding of future broadband network costs that may not be apparent when first evaluating the implementation of a network. The lifecycle cost typically include direct costs such as amortized capital investment in hardware and software, implementation labor and services, training, support and maintenance contracts and facilities.

The sustainability of broadband in rural communities is based upon market forces and the potential need for government assistance.

For this reason, each county should develop a policy framework for broadband that determines:
1. Which areas can be, or are, served by market forces;
2. Which areas will need assistance with initial investment to become self-sustaining; and,
3. Which areas cannot become self-sustaining and will require ongoing funding.

Each area of the rural community may have different economic requirements. The requirement for government funding will be dependent upon lifecycle costs and market forces in each area.

In My Humble Opinion (IMHO)
Rural Communities begin the implementation of a wireless access network in areas within the county that have high population densities supporting a reasonable return. But areas with low population densities have a different economic models which may result in a signficant loss.
Some low density areas will never be self sufficient and a service provider should expect to use revenues from high density areas to subsiduze low density areas.

No comments: