Cost Benefit Analysis

Cost Benefit Analysis

When dealing with customers and the cost of what it takes to upgrade a system, it is rather difficult to hit it on the nose. For instance, XY&Z is planning on upgrading their fiber optic network in the Los Angeles area in order to combat market share loss to the cable company. XY&Z has pledged to spend $1 billion dollars in order to do so. (AT&T, 2007) The current cost of pulling fiber and upgrading here in South Carolina is approximately $5/ft. Since we are unable to truly judge what the costs may be in California, we'll use this number. XY&Z is using a fiber/copper hybrid cable which is slightly cheaper and gives almost the same results as fiber optic cable. We could use a slightly lower cost approximation but labor is more expensive on the west coast.

Looking at XY&Z's proposal of upgrading 40,000 miles of its network over the next 12 months, we see that if the budget was just used entirely for pulling, installing and burying the fiber/copper hybrid, we would come to a cost of $4.73/ft.

Budget Amount Upgrade Area Feet per Mile Cost Per Foot

$1,000,000,000.00 40,000 5,280 $4.73

Fiber optic cable itself sells for approximately $2.88/ft. XY&Z would benefit from the cheaper wire but needs to search for cheaper labor. Fiber splicing technicians are very expensive.

Analysts have argued that the cost of a Fiber-to-the-Premise (FTTP) deployment by Verizon, between $600 and $700 per subscriber for Broadband Passive Optical Network (BPON). On the other hand, the Fiber-to-the-Node (FTTN) architecture selected by AT&T will not deliver sufficient bandwidth to accommodate the interactive multimedia and High Definition services required to compete with rival Multi-Service Operator (MSO) and satellite networks. (Broadband Bananas, 2007) Currently, the competition is using the FTTN technique. This allows the competition to separate the hard line fiber from the home cable. On a typical cable installation, there is approximately a 200 foot run of cable from the node to the home. Since fiber optic cable is so expensive by the foot, this allows the cable company to deliver a clean, inexpensive signal. If the cable company was able to obtain a contract agreement with the customer, then they may consider the FTTP technique. In order to XY&Z to afford to upgrade