Re: Conduit Lease/IRU Pricing

[Mike Hammett <nanog () ics-il net>]

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. 




----- 
Mike Hammett 
Intelligent Computing Solutions 

Midwest Internet Exchange 

The Brothers WISP 

----- Original Message -----

From: "James Jun" <james.jun () towardex com> 
To: "Mike Hammett" <nanog () ics-il net> 
Cc: "NANOG" <nanog () nanog org> 
Sent: Sunday, February 5, 2023 12:13:43 PM 
Subject: Re: Conduit Lease/IRU Pricing 

On Sun, Feb 05, 2023 at 11:21:09AM -0600, Mike Hammett wrote: 
> I know that location matters, but I hope to be location agnostic. 
>
> How have you seen empty conduits sold? Entire route only, or is a partial route okay? Twenty years only or less? 
> Price compared to cost of construction? Ongoing maintenance costs? 

Yes and yes. Yes on both partial and full route conduits. 

Generally speaking, most telcos and utility owners will not sell you conduits. The commonly opportune time for you to 
"buy" a conduit or buy rights to use a conduit in perpetuity or for long periods is to join into a common trench when a 
joint trench construction is proposed in the area. In this instance, in most cases, you don't even have to do any 
construction yourself, you simply specify the size/number of ducts you want as a customer and you pay pro-rata share of 
the joint trench construction costs. 

Where you can buy an existing conduit, from published projects, I've seen them going for sale usually between $100 to 
$290 per linear foot, this is in Boston. If you do the fine prints and math, when purchasing an empty conduit (even 
buying a municipal conduit), you may find that post-construction conduit sales are generally higher in price than what 
it costed to build it in the first place. This is because most sellers will consider the current market rates and field 
conditions (i.e., they will approximate how painful and costly will be for you to re-open the street and build a new 
duct system for yourself, and whether local authorities would even allow that to happen based on how full the street 
is, and based on that difficulty, price will often commensurate accordingly). 

One thing to note here is that federal law stipulates (47 USC Sec. 224) that attachment rates shall be 'just and 
reasonable' (Note: I am not a lawyer, seek legal advice from an actual attorney). As such, this is one point of 
consideration that sellers do often consider, when developing pricing for selling a conduit-- attempting to make 
high-return profits off of an empty conduit that is in multiples of construction costs (e.g. many PE or investor backed 
companies will demand high returns in short term after construction), could potentially subject them to a regulatory 
complaint by a telecom attacher to the state PUC. This is one of the reasons that was cited by one investor-backed 
utility in my area, as to why they will refuse to 'sell' empty conduits-- however, they will lease conduit space to you 
for annual recurring fee at reasonable rates, so they're compliant with the law. 


So, often more common approach to acquiring access to ducts is leasing at a recurring fee, as outright purchasing them 
post-construction is not something many utility owners do. Here, most conduit leases from publicized figures go from 
$0.05/ft/year to $3.5/ft/year for leases by privately held or investor owned utilities, and $1-$100/ft/year from state 
transit agencies. 

If you lease a conduit, usually ongoing maintenance costs are baked into the cost of your annual lease. If you purchase 
an empty conduit outright, or buy long-term rights to use it in lump sum, you are often charged pro-rata share of O&M 
costs, similar to that of condominium fee, to cover ongoing expenses, such as utility costs to invest in crew safety 
training programs, plant protection (Dig Safe/USA/one-call locate responses to mark the trench, etc), weekly trench 
patrols, manhole inspections, etc. You will also pay an inspection fee every time you enter and work in a utility-owned 
manhole, generally priced similar to that of hiring a police detail. These are all reasonable costs and you should 
expect to pay them accordingly when working in a utility conduit system. 


You will also find that leasing conduit is a difficult topic in itself. Usually it may be easier to engage a heavily 
regulated incumbent LEC or another public utility who is regulated to provide telecom duct space (electric transmission 
owners providing UG duct space for telecom, etc). Process will take long, but these guys are regulated and required by 
law to provide you conduit license at affordable, "just and reasonable" rates. 

Another aspect that cannot be ignored when it comes to obtaining duct space, is asset trading/exchange agreements. 
Telcos (both ILECs and CLECs) love this, as much as we network operators in NANOG love peering--you can propose to give 
them duct space in conduits you already have that they don't have (or even fiber optic cable capacity in some cases), 
in exchange for them giving you their conduit space to you, in a trade. Just like IP peering, many asset exchange/trade 
agreements are often settlement-free, but commercially settled exchange arrangements are also very popular, specific 
terms of these agreements and negotiations are often confidential. 

James