IT Purchase Process / Telecom Glossary
Telecom Construction Fees Explained
I’m the Senior Director of Product Operations at Lightyear. I’ve worked in telecom for 20+ years and have seen the frustration and confusion caused by non-recurring fees in telecom.
At Lightyear, we are using our data to bring pricing transparency to the telecom industry (check out our DIA pricing guide and WAN Pricing Guide, if you haven’t already) - but this is our first time really digging into the complexities behind the non-recurring, upfront fees.
Today we’re talking about telecom construction fees (aka installation fees). Let’s get into it.
Installation/Construction Fee Overview
During a telecom installation, construction will be the highest fee you’re faced with.
Construction fees exist to pay for the cost to establish the physical connection of fiber to the location that you need connectivity.
You’ll most commonly see construction fees when your provider is “off-network” or “off-net” at the location in question; this means that they do not currently have fiber running to your location and they will need to build out the physical connection to become “on-network” or “on-net”. Generally speaking, a carrier within 200 feet of your location is considered to be “near-net”, while anything beyond that is considered to be “off-net”.
If you didn’t put this together already, construction costs are a big part of why it is so hard to procure DIA for personal use, as carriers don’t have fiber running into every home on the block.
What if my provider is on-net?
If your provider already has fiber at your location (aka is “on-net”), in theory, you shouldn’t be faced with an installation/construction fee. If you are, it should be nominal (and negotiable).
However, even with on-net providers, there is a chance you’ll still be faced with a construction fee. Sometimes the provider quote only includes the cost to deliver your service to the Minimum Point of Entry (MPOE) of your location, and you are responsible for extending the circuit from the MPOE to where you need connectivity (E.g., they deliver to the lobby and you pay to extend it to the 25th floor). This is common when working with the LEC/phone company and makes for an unwelcome surprise bill. The majority of Cable companies, on the other hand, will include the cost of delivering the circuit all the way to your location in their quote.
How are construction fees calculated?
When scoping out construction fees, a telecom provider will project out all future customers that they can (potentially) service through that same build out and then use that information to calculate how long it will take for them to recoup the build expenses. They then use those calculations to determine how much to charge “patient zero” for the build.
Note that every provider calculates this construction payback (and thus, how much to charge you) differently, so estimating construction fees ahead of actually speaking with the telecom providers is hard to do.
How are construction fees quoted?
One of the most important things to note regarding telecom construction fees is that sometimes the carrier does not include the cost of construction in the first quote they present you with.
At this point in the selling process it’s likely that they don’t even know how much the construction would cost; this is not determined until the site survey is completed by the provider, which only takes place after you’ve placed your order. This is most common when you’re working with the LEC (recall they also only quote to MPOE, not to your suite).
On the flip side, if you’re working with the cable company (or other select providers), they will do some form of desktop survey/diligence up front in order to determine how much your construction will cost and will include that in your quote.
In both cases (LEC and CableCo), additional construction costs could always be assessed later in the implementation process, but it is upcommon.
Key takeaway: when procuring telecom services, make sure you ask if your quotes include construction costs or not!
“How do you want it priced?”
After your construction costs are determined, your telecom provider will likely ask you, "How do you want it priced?"
In this regard, they are asking if you would like to pay some or all of the construction costs up front in your nonrecurring cost (NRC) or if you’d like to amortize some/all of the construction costs in your monthly recurring cost (MRC).
MRC vs NRC Considerations
The “how do you want it priced” question ties in with a factor you’ll need to decide with your company: how should you recognize these costs on your books?
Build cost can be recognized as Operating Expenses (“OPEX”) or Capital Expenditures (“CAPEX”). OPEX is the operating expense required for the day-to-day functioning of a business, while CAPEX is the expense a business incurs to create a benefit in the future - depending on the structure of the fee.
So, if you choose to pay some or all of your construction fees up front in your NRC, you’ll recognize that chunk as CAPEX. If you choose to amortize the fees throughout your contract as MRC, that will flow through your income statement as OPEX.
On-Net vs Off-Net Pricing: What to Expect
Lightyear has collected over 15,000 telecom service quotes over the last two years and is aggregating that data to help bring some transparency to the telecom industry.
With that, we have some data on off-net pricing to share.
The chart above displays the MRC for a 1Gbps fixed bandwidth Dedicated Internet Access circuit (out of data center, 36 month term, non-managed router). The off-net MRC quotes shown here include construction costs (see the “How do you want it quoted?” section if that doesn’t make sense).
In this data, we isolated as many variables as possible to showcase the difference between on-net and off-net pricing. It goes without saying that every project/construction/installation is different and will come with their own pricing nuances.
The main takeaway is, all else being equal, when you are sourcing circuits in an on-net building, it will always cost less than when you are sourcing in an unlit/off-net building due to the construction required.
Telecom Installation Fees: Conclusion
If this post and our post on telecom expedite fees hasn’t made it clear enough: the telecom fee landscape is opaque and complicated!
It’s important to have a partner on your side that knows the tricks and trades of the telecom providers to make sure that you’re paying the least amount of fees possible.
The Lightyear team has been through thousands of telecom installations and is here to help you navigate the fee landscape and negotiate the providers down wherever possible. On top of that, our software will project manage installations on your behalf, so you can get back to focusing on your actual job.
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