NEW REVENUE OPPORTUNITIES FOR RESIDENTIAL REAL ESTATE DEVELOPERS FROM TELECOMMUNICATIONS INFRASTRUCTURE AND SERVICES
INTRODUCTION
The advances in new
technologies utilized to deliver telecommunications services and the demand
for new telecommunications services have created new revenue opportunities
for new home residential real estate developers from telecommunication's
infrastructure and services. These opportunities are stronger when developers
ensure "last mile" telecommunications services in their planned residential
communities through owning telecommunications infrastructure and investing
in a telecommunications provider to serve their residential communities.
Residential land developers have long ignored these opportunities, and
left them to either incumbent local exchange carriers ("ILECs") or new
local exchange competitive carriers ("CLECs") to profit from telecommunications
infrastructure and services in large planned residential communities.
There is a business
model, however, under which residential land developers can leverage major
advances in telecommunications technology to provide amenities attractive
to new home buyers in the form of advanced and traditional telecommunication
services that add significant value to their planned community developments.
This model is particularly attractive now because of the recent failure
of many CLECs and the lack of real and significant competition in the
local exchange telecommunications markets nationwide.
RESIDENTIAL DEVELOPER
OWNERSHIP OF TELECOMMUNICATIONS INFRASTRUCTURE
Under the model, residential
land developers would purchase and install the telecommunications infrastructure
in their planned residential developments rather than allowing existing
telecommunications providers (either ILECs and CLECs) to put in the infrastructure.
Under current telecommunications industry practice, ILECs and CLECs generally
charge residential developers an upfront fee under a filed intrastate
tariff to install telecommunications infrastructure in the developer's
planned community. Under the tariff the ILEC or CLEC allows residential
developers to recoup only part of this upfront fee over time, that is,
when a certain number of the homes in their developments are sold and
hooked up to the infrastructure.
The Network Company
Residential land developers
would form and own a new company (the "Network Co.") which would purchase,
construct and install the telecommunications infrastructure serving their
planned residential communities. Network Co.'s telecommunications infrastructure
would consist of high speed fiber and wireless communications facilities,
and associated telecommunications equipment. The infrastructure would
be installed in private easements, dedicated for telecommunication infrastructure
by the developers in their planned communities. The installation of the
infrastructure in a private easement is significant requirement under
the model. The placement of the infrastructure in such an easement (as
opposed to a public utility easement) would raise higher barriers to access
the Network Co.'s infrastructure by other telecommunications providers
and allow developers greater assurance that all proposed telecommunications
services will be delivered timely to each of their planned developments'
units.
Residential land developers
would finance Network Co., and the cost of the infrastructure in one of
several ways: either through land development financing or the settlement
process with finished lot builders or homeowners.
Advantages of Network
Company
Residential land developer
ownership of Network Co. and the infrastructure has several advantages.
First and foremost, the residential land developer would receive all revenues
generated from a lease of access to the infrastructure. Moreover, residential
land developers' costs for purchasing and installing the infrastructure
would be lower than those of existing telecommunications providers because
there would be less costs to recover by the investment in the infrastructure.
Second, residential land developers would not pay an upfront fee to an
existing telecommunications provider in order to obtain telecommunications
services to their planned community and only recover part of such a fee
over time. Instead, the developers would recover the entire investment
associated with the purchase and installation of infrastructure. Third,
residential land developers would be able to lease Network Co.'s infrastructure
on a long term basis to a new telecommunications company in which they
would hold an interest and structure the lease, to include a sizeable
initial payment, thereby allowing developers to receive earlier cash flow
and profits. Finally, Network Co. would not be regulated either at the
federal or state level. Thus, Network Co. would not have to make rate
or tariff filings or obtain any regulating authority to purchase, construct
and install the infrastructure. In short, developers would have a new
stream of revenue and profits by taking advantage of ownership of the
telecommunication infrastructure needed to provide the myriad of telecommunications
services home owners now insist on being available.
The Operating Company
Network Co. would
lease access to its infrastructure to newly formed telecommunications
operating company ("OPCO") which would utilize it to provide innovative
and traditional telecommunications services, including broadband services
to each residential unit (and to commercial units if they are part of
the master plan) in developers' planned communities. Broadband services
would include broadcast television, video on demand, pay-per-view services,
interactive television, and large enterprise voice private network services.
Wideband services would include multi-media services, streaming video,
multi-user high speed internet services, network gaming and medium enterprise
voice private network services. Narrowband services include packet telephony
(voice and data services), high speed internet browsing, streaming audio,
audio share filing, home automation and home security, and small enterprise
voice private network services. Currently, new home owners demand most,
if not all, of these advanced and traditional telecommunications services.
Network Co.'s infrastructure
could also provide common residential community facilities for the provision
of telecommunications services to homeowner associations, access to distance
learning, webcam security sites on premises and access to training and
recreational services. Residential developers' capability to offer these
new and traditional telecommunications services and assure their delivery
on a timely basis would add significant value to each unit in the developers'
planned communities.
Lease of Infrastructure
to OPCO
Under the model, while
the infrastructure is being purchased and installed, Network Co. would
negotiate a long term lease of access to the infrastructure to OPCO, which
would provide the broadband services to the developers' planned communities.
Moreover, apart from requiring a substantial initial lease down payment,
developers would include in the long term lease a formula for receiving
a specific amount of revenues from each home connected to the infrastructure.
Developers would
participate in the formation and ownership of OPCO but not control it.
As an investor in OPCO, developers would have a stake in the entity that
actually would provide the broadband services to their planned communities.
OPCO would be managed by telecommunications professionals, thus avoiding
the need for developers to focus on business activities not within their
expertise.
Advantages of OPCO
This part of the model
also has several advantages to developers. First, availability of the infrastructure
to OPCO would improve the retail and resale prices of developers' residential
properties based on the uniqueness of the telecommunications services offered,
ease of and timeliness in upgrade of telecommunications facilities, and
the availability of fiber to the home and in the community with unconstrained
bandwidth. Second, through the infrastructure, OPCO would be able to offer
an array of service packages tailored for a wide range of demographic community
configurations and densities, multi-family to estate homes with brand identities
and choice of brands over state of the art telecommunications infrastructure.
Finally, OPCO, as the long term lessee of the infrastructure, would preserve
the infrastructure's value in developers' planned communities, particularly
since developers would have an ownership, and therefore, a voice in OPCO.
Conclusion
The lack of real competition
in the local exchange telecommunications market presents residential land
developers with a unique and timely opportunity to gain new revenues and
profits and add value to their planned communications. Under a business
model not previously followed, developers would own the telecommunications
infrastructure needed to offer advanced and traditional telecommunications
services that new homeowners now demand. Also, under the model, residential
land developers can also protect their infrastructure ownership by investing
in an telecommunications operating company formed specifically to provide
the advanced telecommunications.
If there are any questions
about this article or the model, please feel free to call the Shughart Thomson & Kilroy, P.C. Telecommunications and New Technologies
Practice Group:
For
more information call the Telecommunications Group Attorneys:
Michael L. Glaser
Philip W. Bledsoe
Howard B. Gelt
Michael D. Murphy
