Telecom unit economics: fiber roll-out, churn, and capex
Work out the payback of a fiber build, the cost of churn, and operating free cash flow.
Industry brief, with a one-minute summary: Telecom: mobile and fixed networksKey takeaways
- A fiber network costs almost the same to build whether 20 or 60 percent of homes sign up.
- The cost of passing homes is already spent. Each extra subscriber adds revenue for only the small connection cost, so take-up drives returns.
- Worked case: Fiber roll-out in a city in Malaysia.
Key idea
A fiber network costs almost the same to build whether 20 or 60 percent of homes sign up. So the share of homes that subscribe, the take-up rate, decides whether a roll-out pays back.
Fiber costs come in two parts. The cost per home passed is the cost of laying fiber down a street so that every home could connect. The cost per home connected is the extra cost of linking one home that actually subscribes. Building costs depend on digging: the Fiber Broadband Association's 2025 report puts median US costs at about USD 18 per foot underground and USD 8 per foot on poles. Density matters: in a dense city a few metres of fiber reach many homes.
Worked case
Fiber roll-out in a city in Malaysia
The prompt
An operator plans to pass 100,000 homes with fiber in a Malaysian city. Passing each home costs MYR 1,500 and connecting each subscriber costs a further MYR 800. It expects 40 percent of homes to subscribe at an ARPU of MYR 120 a month. Operating costs are 30 percent of revenue. What is the simple payback in years, and how does it change if only 25 percent of homes subscribe?
The structure
- Payback = total build cost / yearly EBITDA
- Build cost = homes passed x cost per home passed + subscribers x cost per connection
- Yearly EBITDA = subscribers x ARPU x 12 x (1 minus operating cost share)
- Sensitivity on take-up rate
Working it through
1. Subscribers
40 percent of 100,000 homes.
Subscribers:100,000 × 0.4 = 40,0002. Build cost
100,000 homes at MYR 1,500, plus 40,000 connections at MYR 800, in MYR millions.
Total build cost (MYR millions):(100,000 × 1,500 + 40,000 × 800) ÷ 1,000,000 = 1823. Yearly revenue
40,000 subscribers at MYR 120 a month for 12 months.
Yearly revenue (MYR millions):40,000 × 120 × 12 ÷ 1,000,000 = 57.64. Yearly EBITDA
Keep 70 percent after operating costs.
Yearly EBITDA (MYR millions):57.6 × 0.7 = 40.325. Payback at 40 percent take-up
Build cost divided by yearly EBITDA.
Payback (years):182 ÷ 40.32 = 4.516. Payback at 25 percent take-up
25,000 subscribers: build cost 150 plus 20, EBITDA 25,000 x 120 x 12 x 0.7.
Payback at 25 percent take-up (years):(150 + 25,000 × 800 ÷ 1,000,000) ÷ (25,000 × 120 × 12 × 0.7 ÷ 1,000,000) = 6.75
The recommendation
At 40 percent take-up the build pays back in about 4.5 years; at 25 percent it takes about 6.7 years, because the MYR 150 million cost of passing homes is the same either way. The operator should build first where demand is proven (pre-registration, dense housing, weak rival networks), and consider sharing or wholesaling the network to raise use.
Risks: A rival fiber network in the same streets would cut take-up; Fixed wireless access over 5G can compete on price; ARPU may fall if the market enters a price war.
A mobile operator in Nigeria has 10 million subscribers and a monthly churn of 2 percent. To keep its base flat, it must win back the lost customers at an acquisition cost of USD 20 each. Roughly how much does it spend a year just to replace churned customers, in USD millions? (Use 10 million times 2 percent times 12.)
A European operator has revenue of EUR 8 billion, EBITDA of EUR 3.2 billion, and capital spending of EUR 1.6 billion. What is its operating free cash flow (EBITDA minus capex) as a percent of revenue?
In a fiber roll-out, which change most improves payback once the streets are built?
Sources for this lesson (2)
- Fiber Broadband Association and Cartesian: Fiber Deployment Cost Annual Report 2025
- Recognized public explanations of case-interview concepts and frameworks
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