Fibre to the farm provides opportunities for rural Australia

Over the last decade, Australia has spent $5.5 billion on satellite and fixed wireless broadband services and another $650 million on mobile blackspots.

After last year’s Regional Telecommunications Review, the Government earlier this year indicated another $220 million for mobile blackspots, money for digital inclusions projects and $60 million for a regional connectivity program. It is with this latter in mind that I would like to focus on FTTF projects.

Many countries are struggling to provide good quality broadband for rural citizens as well as those in cities.

Rural areas mainly include premises that are typically at least one kilometre away from a town with many properties partly or fully used for farming.

Interestingly, in the current political environment, we see that many countries are developing plans for better broadband services for these areas. While second rate systems are often available, these rural users are increasingly asking for rural fibre developments — Fibre to the Farm (FTTF).

Both the Republican Party and the Democrats in the USA have promised US$100 billion-plus (AU$145 billion) for broadband infrastructure in rural America. Many European countries are also forking out big money for regional and rural voters.

The economic advantages of providing high-speed access to agriculture businesses – which farms are – is significant. The value of digital agriculture in Australia is estimated to be more than $20 billion. Regional tourism is another potential target. Many countries are now successfully using digital technologies to lure tourists away from the overcrowded hotspots to other areas.

One of the countries that have been involved in rural fibre deployment for at least a decade is the Netherlands. I recently received an update on the developments in the Low Countries from my colleague, Hendrik Rood.

He mentions that now, a decade later, the areas where FTTF has so far been deployed are mainly the low-density rural areas in the Netherlands (Flevoland, parts of Northern Groningen, Frisia and Zeeland). These are the areas in which farm sizes are well above the national average. Rural communities here have been either organising the fibering themselves or they pay for it — for example with a surcharge of €15-20 (AU$24-32) per month, as they see this as an investment in their own land. The rollout itself is mainly done by local providers and without government subsidies.

Based on these earlier successes, other rural areas are now being looked at. What has proven to be successful here is demand aggregation and co-payments. Rural communities are coming together and are signing up participants and, in general, these people are prepared to provide a co-payment of  €2500 (AU$4,000). In these projects, the participation rate is around 70-80% — enough for the private service providers to roll out FTTF projects.

The road infrastructure in the larger and newer polders (dyked in floodplains) is grid-like. Absence of trees, at least at one side of the road is a big bonus. Trenching costs have sometimes come down as low as €3-4 (AU$5-6) per metre, especially in areas where rural construction can be scaled up. Cable and ducts add some cost per metre, but it is possible to go down along main roads to around €7 (AU$11) per metre — and that trench/duct then serves multiple farms in a row along the road. Problems – read extra costs – occur in areas with deep tree roots or areas with ditches and bridges.

Cost for the connection from the farm to the main road can be a major part of the actual cost, but it is fairly typical that this “last mile trenching” is something farmers don’t hesitate to do themselves.

In the Netherlands, stock market listed infrastructure funds and private equity firms all entered Fibre to the Home (FTTH) construction in rural area, simply because the poor services of 1 or 2 Mbit/s downstream (or worse) have gradually raised the appetite for fibre and therefore the willingness to fork out a co-payment or a monthly surcharge.

Average farm connection costs in the Netherlands have come down from around €7,000-€8.000 (AU$11-13,000) in low-density Zeeland to €3,500-€4,000 (AU$5-6,000) today. A one-off co-payment of €2,500 (AU$4,000) turns an average €3,500 (AU$5,700) per farm cost into an average €1,000 (AU$1,600) investment — which is rather similar to what the operators of fibre deployments in the cities face in their lower density housing areas.

A sign-up rate of 60-80% in rural areas (now observed) actually makes them more attractive. Within towns and cities, there are the competition wars between VDSL versus cable or cable versus FTTH and the operators have to split the market. Because of this, achieving residential subscription penetration rates beyond 50% per network is a real challenge, effectively turning a €1,000 (AU$1,600) per home passed investment into a €2,000 (AU$3,200) plus per home subscribed investment.

With more subsidies becoming available for infrastructure developments in rural areas the penetration of fibre in rural areas is set to further increase rapidly over the coming years.

There are lessons to be learned from the Netherlands. We also see interesting developments along similar lines happening in New Zealand, the USA, UK, the Scandinavian countries and the Baltic states. It is often entrepreneurial communities teaming up with local infrastructure companies that are leading the way.

Paul Budde

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