Eagle Broadband's Vision: A Fiber-to-Home Takeoff

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Once touted as the residential connection of the future, fiber-to-the-home's prospects have dimmed of late.

With its high installation cost and limits on new upscale developments, many experts have written FTTH off as a Ferrari proposal in a market demanding Fords. But a Texas outfit claims it's making such service work for 11,000 customers in seven new communities.

Eagle Broadband Inc. is building fiber-to-the-home service in 14 mid- to upscale communities nationwide, with seven lit so far — six in Houston and one in Austin. With a 60,000-lot footprint, the company is already billing about 11,000 subscriber households per month for services, including 200-plus channels of video and audio, as well as broadband data, voice and home security.

Founder, chairman and CEO H. Dean Cubley said Eagle's fiber-to-the-home business is getting off — or, more appropriately, into — the ground.

"We have put approximately $30 million into this model over the past two years, and we have the fiber and the infrastructure in these communities, and we are now awaiting the full maturity of the communities and buildout of all of the lots," he said.

WARNER DEAL

Eagle has also expanded its services to include video-on-demand, inking a deal with Warner Home Video as the first content partner. The company is in talks with other content providers.

When the VOD service debuts this fall in Victory Lakes, Texas, it should offer between 150 and 200 hours of movies and television shows via Eagle's own homegrown digital set-top box.

"I really believe that a company such as ours has to have video-on-demand," said president and chief operating officer Manny Carter. "It is a little bit like the icing that you put on the cake — everybody wants to know if you are coming into a community, or if you are going into a municipality, can you provide video-on-demand?"

Despite the company's optimism, the cards don't necessarily favor FTTH in a recession economy. But with a broad revenue base that includes wireless, fiber installation, network services and digital set-top technology, Eagle is pulling down about $2.5 million per month, so it can to ride out the economic storm, Cubley said.

"If we were just a recurring revenue fiber-to-the-home company, we would not be having this conversation, because we would have been out of business a long time ago," he said.

Another advantage for Eagle is that it carries virtually no debt. Unlike other network operators, Eagle financed its $30 million fiber build entirely through its operations.

One danger Eagle does face is in trying to expand too fast, especially since current market conditions are far from stable.

"This is so capital-intensive that it can just eat a company up, and a lot of other companies out there like WINfirst [Western Integrated Networks LLC] and all of them just let these things get ahead of them," Carter acknowledged. "We are turning down opportunities, and I don't see any plans for us to go out and look for a bunch more communities until the market changes and until our stock improves."

Up to now, Eagle has been bearing the cost of installing fiber-to-the-home, but Carter said the company is trying to shift that burden to the builders. It is in talks with several developers now.

"As we do that, you will see us grow more communities, but right now we're putting as much money as we have into communities and we can't replicate that on and on," he said.

But FTTH may not be an easy sell, because builders are still reluctant to pay upfront for an amenity they aren't used to marketing, according to Yankee Group media analyst Ryan Jones.

"There's a $100 billion telecommunications industry that has been trying to figure this market out for the last decade," he said. "Will the local builder be able to figure it out and turn a profit on it? I doubt it."

FTTH is still confined to new developments, but its economics are becoming more favorable as fiber-optic equipment costs fall in line with cable and copper-line installation, Jones noted. But are new home buyers really looking for the big bandwidth advantage of fiber?

"Absolutely not," Jones asserted. "Customers are asking for services. They are not asking for bandwidth.

"So it is up to the local carrier to say, 'What services in this particular geography for this demographic of folks that are going to move into these homes is going to be compelling?' And the success or failure of that deployment is really dependent on how well the operator picks services to layer on that."

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