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? -----Mike HammettIntelligent Computing SolutionsMidwest Internet ExchangeThe Brothers WISP
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
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
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
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.jun@towardex.com> To: "Mike Hammett" <nanog@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
A big issue you don't mention is the easement, the legal right to place conduit. What does it mean to buy conduit if you don't have an easement on the property to use the conduit? On Sun, Feb 5, 2023 at 5:28 PM James Jun <james.jun@towardex.com> wrote:
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
I would imagine that comes down to the wording of the sale and what you're actually buying. Are you buying the underlying asset or are you in some long-term lease or IRU? ----- Mike Hammett Intelligent Computing Solutions Midwest Internet Exchange The Brothers WISP ----- Original Message ----- From: "Fletcher Kittredge" <fkittredge@staff.gwi.net> To: "James Jun" <james.jun@towardex.com> Cc: "Mike Hammett" <nanog@ics-il.net>, "NANOG" <nanog@nanog.org> Sent: Monday, February 6, 2023 5:57:27 AM Subject: Re: Conduit Lease/IRU Pricing A big issue you don't mention is the easement, the legal right to place conduit. What does it mean to buy conduit if you don't have an easement on the property to use the conduit? On Sun, Feb 5, 2023 at 5:28 PM James Jun < james.jun@towardex.com > wrote: 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
On Mon, Feb 06, 2023 at 06:57:27AM -0500, Fletcher Kittredge wrote:
A big issue you don't mention is the easement, the legal right to place conduit. What does it mean to buy conduit if you don't have an easement on the property to use the conduit?
Typically, in large telecom installs like this (esp. for joint trench builds), the lead company obtains an Easement Agreement which allows "other telecommunications providers", "licensees" or "other designated agents" of the lead company to access and use the full enjoyment of the easement areas. If you dig up registry of deeds for some large telecom joint trench builds (I can think of at least two examples), you'll find that these come pretty standard. Further, conduit lease and license agreements of these sort for the buyer typically include Underlying Rights clause that also requires the trench system owner (the seller) to maintain underlying rights for the purchaser of rights to the conduit. Seller is required to ensure that the buyer has proper legal rights to enter and make full enjoyment of the conduit capacity it purchased or otherwise licensed from the seller. For constructions occuring outside of private property, the lead company is responsible for engaging local authorities owning the public right-of-way to propose the system installation in a multi-tenancy nature (i.e. the system meets and exceeds Dig Once and joint trench requirements set out by the municipality and so forth); as such, the right-of-way siting permits are developed to allow construction of the entire system and with the understanding of access by all users, in principle and procedures as provided under respective state laws. James
On Sun, Feb 5, 2023 at 10:13 AM James Jun <james.jun@towardex.com> wrote:
On Sun, Feb 05, 2023 at 11:21:09AM -0600, Mike Hammett wrote:
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?
Generally speaking, most telcos and utility owners will not sell you conduits.
One quick note: conduit on private property, such as the tail of a telco conduit serving a small office complex, is almost always a fixture of the property belonging to whoever owns the land. Even though the telco installed it for free. It's just too expensive for them to dot the i's and cross the t's legally when installing the conduit tail, so they generally just do it realizing there's low odds of anyone hijacking it from them. Regards, Bill Herrin -- For hire. https://bill.herrin.us/resume/
On Sun, Feb 05, 2023 at 12:36:27PM -0800, William Herrin wrote:
One quick note: conduit on private property, such as the tail of a telco conduit serving a small office complex, is almost always a fixture of the property belonging to whoever owns the land. Even though the telco installed it for free. It's just too expensive for them to dot the i's and cross the t's legally when installing the conduit tail, so they generally just do it realizing there's low odds of anyone hijacking it from them.
This is an important point that does come up. In commercial property installations, telcos often choose to look over this just like you stated--since they control the mainline system out in the street anyway, they feel that provides enough of security and not enough of a concern to lose sleep over it. However, in valuable multi-tenant facilities (carrier hotels, data centers, and large commercial/urban developer projects), you will also find that telecom carriers can, and often will, absolutely enforce their rights to their conduit systems (including tails) being placed upon private property. Access and Easement Agreements are frequently used to enforce the purpose of the wayleave for large telecom installations occuring upon private property. Therefore, it is important to contact the property owner and the owner of the wayleave (i.e. carrier owning the conduit system on private property) for permission/license to enter, and never assume that just because a conduit is in private property and the landlord thinks you're ok, yo're good to go. More often than not, it is not ok, and you will likely end up getting nasty surprises from the said carrier's legal department, when they decide to enforce their rights. This happened to a large Tier-1 carrier who was pulling fiber into a new developer project here. The property owner told them it was ok to use the conduit, and all of the manholes were simply labeled 'FIBER OPTIC' engraved on them, so the carrier thought they had permission to pull fiber. They never realized that the ILEC had an easement agreement and those conuits and manholes were paid for by the ILEC for installation. Their fiber cable was discovered about a week later when ILEC crews were working to pull their own cable in-- the rest is hitory, they had to make amends to obtain proper authorization and pay fees, etc. after being discovered. After this happened, the ILEC also replaced all manhole covers in the property with their name and logo engraved on them. James
On Sun, Feb 5, 2023 at 1:14 PM James Jun <james.jun@towardex.com> wrote:
it is important to contact the property owner and the owner of the wayleave (i.e. carrier owning the conduit system on private property) for permission/license to enter, and never assume that just because a conduit is in private property and the landlord thinks you're ok, yo're good to go.
If you ask the carrier, the answer (if you can get one at all) is: Ours. You no use. And it prompts them to get their legal house in order. Not a good strategy. Get the owner's permission in writing and double-check it with the county recorder's office (or whatever it's called in your state). If the ILEC recorded an easement then you're out of luck. If there's no recorded easement or a defective easement then you can get away with it. Even if they have a signed document, they can't just go after you, they have to go after the landlord, and the money they'd recover is never worth making an enemy of the landlord. Regards, Bill Herrin -- For hire. https://bill.herrin.us/resume/
participants (4)
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Fletcher Kittredge -
James Jun -
Mike Hammett -
William Herrin