What I meant by that was, if I construct my own route (permanent cost), I can
place whatever conduit configuration I'd like. A single 1-1/2", a single 4",
FuturePath, 10 FuturePath conduits, a 16x16. Obviously, the more elaborate duct
configurations carry more elaborate costs, but at the small end, it's nearly
the same as the labor is the major cost.
I am working in slightly less congested areas than your project.
Most of our areas, we deploy FuturePath on the mainlines and then just standard
1-1/4" or 3/4" on the smaller stuff. I wondered about how to accommodate third
party splice case should we get interest, and yeah, dropping another handhole
makes sense. They can have whatever slack loops they want and no one is
complaining about messing up anyone else's tangled messes, splice cases, etc.
-----
Mike Hammett
Intelligent Computing Solutions
Midwest Internet Exchange
The Brothers WISP
----- Original Message -----
From: "James Jun" <james....@towardex.com>
To: "Mike Hammett" <na...@ics-il.net>
Cc: "NANOG" <nanog@nanog.org>
Sent: Sunday, February 5, 2023 4:26:36 PM
Subject: Re: Conduit Lease/IRU Pricing
On Sun, Feb 05, 2023 at 01:15:11PM -0600, Mike Hammett wrote:
> I've been following your work on LinkedIn. Great stuff.
>
>
> I'm actually in a situation where I am on both sides of the transaction. I've
> got a network I built that I've been asked pricing on and interested in
> growth opportunities. One of the opportunities I have for growth quoted me at
> roughly the cost of construction (or at least what I would budget for it,
> anyway) for a 20-year term with a reasonably annual maintenance fee. When I
> saw that, I kinda figured that if I was going to spend that kind of money,
> I'd choose a permanent cost as opposed to 20-year terms and the opportunity
> to place however many conduits I wanted as opposed to just getting one.
>
>
Thanks!
Without getting into specifics of your potential project, I can only comment on
what I've seen and can cite examples of.
You mentioned 'opportunity to place however many conduits I wanted' -- are you
talking about ability to pull your own innerducts inside an empty outer conduit
you purchase, or are you talking about a joint trench partaking, where you have
the opportunity to pay pro-rata share of trench construction to install as many
conduits you want to have in the ground (subject to local authority approval
ofcourse)?
If it is the latter (joint trench), this is very straight forward in the
utility industry. It often goes like this:
- Say it costs the lead company (company who is doing the project) a figurative
(just for example of this conversation) cost of $1 million to install 500 feet
of 24 - 4" conduits in a large boulevard.
- Your company proposes to jump into the trench and you want 6 - 4" conduits
for your own backbone.
- The most common and simple cost for you is straight-up pro-rata share: 25% of
the trench costs for 6 ducts out of 24, so you need to pay up $250K to get your
6 - 4" conduits.
- If the lead company is installing smaller pull box manholes for cable pulls,
in most cases, you will have the right of transit to use those manholes so you
can use the very conduits you own.
- If the lead company is installing large underground vaults, don't be
surprised if they don't let you in it -- they'll likely require you to pay
additional costs to install your own separate manhole, where your 6 - 4"
conduits will break off from the main trench, and lead into your own dedicated
4'x4' manhole. If this is not possible (i.e. road is full, local authority
couldn't permit it due to conflict & heavy congestion with other utility lines
in the area), then the lead company may also charge you a reasonable manhole
license fee for you to use their vaults beyond the basic right of transit
('beyond' as in, if you need to install a splice case or slack coil, as opposed
to your cable simply transiting thru the said manhole). For example, Empire
City Subawy (ECS) duct system run by Verizon in NYC charges a publicized rate
of $314/year for each splice case in an ECS manhole.
The legal definitions of what you're exactly getting for paying that $250K
above is largely up to the lead company and the defined contract terms of the
Joint Trench Agreement. I've seen following cases: (a) you outright own the
title to those 6 - 4" conduits in perpetuity; (b) you don't own the title, but
you get an IRU or lease of 99 years to those conduits; or (c) you only get
short-medium (5-25 years) IRU, but then it would probably have to be at a lower
price that is more commercially reasonable to both parties.
Case (a) can be common in joint trench projects that are organized by local
authorities (i.e. b/c municipality required the street dig to be a joint
trench), and lead company has no interest in maintaining any manholes or
conduits, beyond the bare minimum required for their own cable. In these
situations, manholes (municipalities often call them 'joint manholes') become
effectively unmanaged chaotic no-man's land, where nobody owns the manholes,
much less maintain them. I've seen situations where municipality had to step in
to fix a broken manhole cover/frame, because nobody in the joint trench would
step in to take responsibility.
Cases (b) and (c) are often done by more larger telecom installations, where
lead company is building a true joint-use infrastructure and would like to
maintain it over long term. These are usually part of large duct systems, and
the lead company would typically take charge in maintaining the entirety of the
trench and its manholes over their llifetime; as such, members of such joint
trench systems will be separately charged maintenance fee as previously
discussed.
Outside of straight-forward joint trench projects, what determines "just and
reasonable" costs in construction projects to outright own a conduit is largely
a function of how much you (and the other party) are willing to bend, and how
many lawyers and hardballers are going to be involved. In many situations,
sellers may start by wanting to make you pay for 100%+ of their costs of doing
construction/business (typical investor/short return model), where you're
effectively paying not only for your own conduit, but for their conduits as
well-- sellers will call this an acceptable "cost recovery model". Their
position may hold true if you're the only primary tenant of the proposed duct
system, or not, if there are other tenants also joining. For the seller, it
will largely come down to justifying their capital and operating costs and
depreciation expected over time. If the buyer has a good faith reason to
believe that seller is attempting to make opportunistic profits beyond 'just
and reasonable costs' not to exceed capital and operating expenses, it could
potentially result in disputes and regulatory complaints. This is one of the
reasons on why a conduit license/recurring lease scheme is more
straight-forward for duct access in existing systems.
One commonly accepted principle to determine pricing for conduit access is to
apply the energy utility industry's method of using Rate of Return formula,
where owner of the system keeps to an allowed Rate of Return of reasonable
percentage, and then plays with depreciation expenses to get some wiggle room
in how they would compute for costs. It's a complex topic.
James
