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Fiber-to-the-Home Test Marketing Campaign Update

HG&E recently wrapped up a test marking campaign that was designed to better understand current customer demand for municipal fiber-to-the-home (FTTH) broadband service. While HG&E is capable of providing residential FTTH service, and is currently providing residential broadband service within Holyoke on a very limited basis, there must be sufficient interest in order for a City-wide venture to be economically viable and not have an adverse effect on utility rates. Taking the time to fully understand the impact of a potential FTTH build is critical to meeting HG&E’s mission to provide competitive rates, innovative and sustainable energy solutions, reliable service, and excellent customer care.

Summary
In spite of several seriously interested respondents, not enough households are currently willing to subscribe to a local, residential fiber internet service to justify an estimated $30 million expenditure to provide City-wide FTTH service.

Purpose
The Fiber-to-the-Home Interest Form was not intended as a poll or a survey of the general population. Rather, it was the first step in a test marketing campaign to determine how many of those interested in FTTH would sign up for the service and to obtain contact information for future follow-up. The question that needed to be answered was whether or not there was enough interest to make a $30 million build financially viable. Also, it is important to understand if the interested customers are willing to pay service rates that would cover the buildout cost while paying for continued operation and upgrades.

The Goal
It is important to HG&E that the FTTH project be financially self-supporting for several reasons. It would be unfair to have some people pay more for their utilities so other people could have faster, less expensive internet. It is critical that the FTTH enterprise be able to pay back the original investment in a reasonable period of time so that the enterprise can afford the upgrades that are inevitable.

An often-cited theory is that a municipal internet project needs a 30% share of its market in order to reach the break-even point. There are 15,278* households in Holyoke, so the FTTH project would need 4,583 subscribers to reach a 30% market share.  The Department’s financial analysis shows that if the FTTH enterprise had 3,000 subscribers, paying $90 a month, it would not come close to paying off the original $30 million investment within 20 years. So, at $90 a month, the project would not be viable unless it had considerably more than 3,000 subscribers.

*This information is based on US Census data. In addition to US Census data, HG&E has been monitoring Cable TV subscription data which is published annually by the Massachusetts Department of Telecommunications and Cable (DTC).

Methodology
In order to determine the number of potential subscribers in Holyoke, HG&E launched a test marketing campaign with the slogan - “If we build the network, will you cut the cord?”. This three month outreach effort ran from April 2021 to July 2021 and included significant advertising and outreach within HG&E’s footprint. From print ads to social media and from direct mail to radio, HG&E saturated the market in an effort to educate customers and solicit feedback from the community.

The campaign encouraged “customers who would like to subscribe to a local, residential fiber internet service” to visit the website to fill out an interest form which was available to all, in Spanish and English. An effort was made to keep the form as fair, as factual, and as brief as possible, but it was important to explain what was involved in cutting the cord for those unfamiliar with the process.  Potential advantages and disadvantages were included, but neither was exaggerated.

Responses were screened to exclude duplicates and incorrect addresses and to include households that could be served as part of the $30 million investment.

Findings & Results
Results indicate that less than one-out-of-ten (6.0%) of the 15,278 residential households within HG&E’s service territory reported they would be willing to subscribe to residential fiber internet, while 94.0% were either not willing (0.4%), or did not complete the interest form (93.6%).

A significant portion of customers who completed the interest form (69.5%) reported they are unhappy with their current provider and their current provider is too expensive. These customers indicated they would switch if HG&E offered a lower cost alternative. Based on the required costs to implement and maintain fiber optic internet in the service territory, HG&E estimates that it would not be able to offer a significantly below market rate for FTTH internet access due to the cost of the overall investment and the continual upgrades necessary to maintain an up-to-date network capable of meeting changing customer needs.

Conclusion & Next Steps
At this time, the interest in FTTH is not sufficient enough for HG&E to move forward with a City-wide residential FTTH project. With that said, HG&E has identified pockets of interest throughout the City and will complete a network design in order to determine the feasibility of a pilot fiberhood.

As previously mentioned, HG&E is fully capable of providing the service when there is adequate demand. Residents who did not previously complete the interest form are encouraged to provide feedback.

HG&E is committed to the following:

Develop a Network Design
In order to better understand the true cost and key variables associated with a network buildout, including type of delivery (overhead/underground, backyard or street-side), residence type (single family, multi-family, multi-dwelling unit), and pole make-ready needs, HG&E will procure a full network design in 2022. In addition to determining the true cost in today’s economic climate, the design will allow HG&E to develop a scalable and cohesive network, ensuring any investment is sustainable long-term.

Explore Pilot Opportunities
The results of this test marketing campaign have helped to identify pockets of interest throughout the community, providing the ability for HG&E to better understand the feasibility of a gradual roll-out, neighborhood by neighborhood. 

In an effort to better understand the local residential market, HG&E is administering three residential pilot programs at the Cubit, Chestnut Park Apartments, and Russell Terrace. During the redevelopment of these buildings, HG&E was able to work with the property owners to cost-effectively install fiber in the buildings and offer customers broadband service. HG&E continues to seek similar opportunities and will evaluate a residential pilot fiberhood as additional network design information is received.  

Identify Potential Funding Opportunities
In 2021, HG&E submitted an application to the City of Holyoke for American Rescue Plan Act (ARPA) funds in the amount of $3.5 Million. While this application was not selected, HG&E’s team will continue to monitor and explore available funding opportunities on the local, state, and federal level.

HG&E will continue to explore and assess all broadband opportunities within the service territory, while studying the outcomes of similar projects in neighboring communities. For more information see the test marketing campaign report.

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