In the end, most everything in life can be reduced to simple, useable numbers.

Health: Recently, the Surgeon General's Office released a report showing that 61% of adults in the United States are overweight or obese, and 13% of children aged 6 to 11 years and 14% of adolescents aged 12 to 19 years are overweight. This prevalence has nearly tripled for adolescents in the past 2 decades.

Politics: According to the latest U.S. Census, only 55% of voting age Americans voted in the last election.

Population: According to the Department of Health and Human Services there were 4,058,814 births in the U.S. in 2000, but only 2,404,598 deaths. The Immigration and Naturalization Service's last report shows that in a typical year there are 916,000 legal immigrants to the U.S., plus an estimated 275,000 who enter illegally.

As expected, statistics can also dramatically impact voice, video and data services in the residential multi dwelling unit (MDU) industry. Statistics impact the viability of a service provider's business model, communications infrastructure costs for new construction or property upgrades, ancillary income opportunities and even federal policy decisions.

Numbers Impacting Success

When an owner is evaluating options for upgrading existing wiring infrastructure or designing such infrastructure for a new project, or a service provider is evaluating the efficacy of serving a property, it is important for both to know answers to such questions as the total number of units to be constructed and in how many phases; the total number of one, two or three bedroom units; the total number of voice, video and data outlets to be installed in each unit or each room; the distance from each unit to the outside wall; the distance between each building; the distance from each building to the clubhouse. These are all numbers that impact both expense and revenues.

Understanding how many residents will be living on a property once it is fully occupied (avg. 93-95% of the total units) impacts the viability of a service provider's business model. For most competitive video and or high-speed data service providers, the average number of units required to obtain an adequate return on investment (ROI) is 150 units. Of course, the percentage of mix in the resident demographic impacts this number as well (i.e., student, single, single with children, elderly).

The penetration of service or "take rate" is another number impacting both the property owner and service provider. On the average, the take rate for basic or expanded basic video services is 65-75%. Digital video services average a take rate of 20-50%. The rate for purchasing Pay-Per-View programming averages 2-5%. The average take rate for broadband, high speed Internet service is currently 5-10%, without much change over the past two years. However each of these numbers become skewed when various resident demographic profiles are applied.

Lori Reeves, Director of Information Technology of Forest City Residential, one of the
nation's larger owners, developers, and managers of multifamily properties, states "of our typical, mixed resident demographic, 80% of the occupied units purchase some form of cable television service and 25% purchase broadband, high speed Internet access."

For JPI Partners, one of the nation's largest builders of student housing, Henry Pye, Manager of Ancillary Services states "We have a number of sites where 95% of the students use high speed Internet service. We have also been trying to compare the Luxury Multifamily adoption of digital cable and high-speed Internet services. Luxury multifamily residents appear to be adopting such services at twice the rate of the general public."

And Bryan Rader, President of MediaWorks, a competitive video and data service provider comments on property types by stating "Our experience is that 60-75% of occupied units purchase some level of cable service on B properties, with less than 10% signing up for high-speed internet service. On "A" properties, the penetration rates for video can range from 75-90% of occupied units, with 10% or more signing up for high-speed Internet access." Another interesting trend is that the cable consumer on a "B" property may be slightly less likely to purchase cable services, but is more likely to subscribe to many more services (i.e. multiple premium packages, etc.) than a subscriber on an "A" property. As such MediaWorks "sometimes sees higher average revenues per subscriber on B properties than on A properties," says Rader.

Computer Ownership and Internet Access

According to the 2000 U.S. Census, 51% of the households surveyed answered, "yes" to owning one or more desktop or laptop computers. In response to questions regarding Internet access, 42% of households had at least one member who used the Internet at home. While this data is represented as a broad cross section of the United States, its significance to the MDU industry becomes more evident when placed in concert with the computer ownership demographic. As the MDU industry varies significantly in its resident demographics, one property will vary from another in the sense of need and urgency to address improvements in wiring infrastructure based on its resident demographic.

The Census reports that among households with incomes of $75,000 or more, 88% had at least one computer, and 79% had at least one household member who used the Internet. In households with incomes of $35,000-$50,000, 75,000 or more, 62% had at least one computer, and 48% had at least one household member who used the Internet. And among households with incomes of $25,000 or less, only 28% had a computer, 19% accessed the Internet. Also, one-person households were less likely to own a computer and access the Internet than households with two or more people.

While 58% of households with two or more people had a computer, only 30% of one person households had a computer. Regarding Internet access, 47% of households with two or more people used the Internet, while only 24% of one person households did so.

In relationship to age, of those who are 25 years of age and younger, 44 % owned a computer at home and 36 % used the Internet. Of those 25-44 years of age, a primary MDU demographic, 61% owned a computer and 50% used the Internet. And of those 45-64 years of age, 57% owned a computer and 47% used the Internet.

The Internet lifestyle (typical uses of the Internet) of people using the Internet at home, age 18 and over indicate that for the time spent on the Internet 88 % is for the purpose of E-mail, 53 % is to check news, weather and sports, 39 % is to shop or pay bills, and 5 % is for entertainment.

In terms of computer ownership in the MDU environment specifically, one MDU company recently completed a detailed study of their portfolio. While conducting an annual walk-through inspection of over 5,000 occupied units, they found that of their A grade properties 60% of the residents had a computer present in the unit, while only 45% of residents in B grade properties owned computers. These numbers are up by over 40% from their study of this same subject just three years ago.

As MDU property owners evaluate each property within their portfolio and service providers consider serving these properties, it is important to understand the effects of demographics on computer ownership and Internet access. When combined with the many varied interpretations of "high speed" based on each individuals past experiences with computers and Internet access, their willingness to pay more than the $20 cost of dial up access, the demographics of finances, age and Internet lifestyle, the equation of the extent to which an owner should secure new services and upgrade existing wiring infrastructure can become quite complex.

Numbers Impacting Public Policy

In the December 2001 issue of Broadband Properties, "Boring? Not Anymore" addressed the critical issues of perpetual contracts between video service providers and MDU property owners.

Perpetual contracts are typically contracts between incumbent franchise cable operators (i.e., Time Warner, Comcast, Cablevision) and MDU property owners, where such a contract grants a cable operator the right to remain on the property so long as it has a franchise agreement with a city. In essence then, the presence of a perpetual contract means a property owner will never be able to remove the operator from the premises, as it is rare for an operator to ever lose its franchise rights with a city. Over 95% of franchise licenses are renewed. Additionally, most perpetual contracts stipulates that a perpetual right of access be granted not only to the current cable operator, but also to any company it may sell or assign its rights to. As such, the presence of a perpetual contract indirectly blocks the opportunity of a property owner to secure a second, oftentimes more competitive video or data service provider (i.e., private cable operator or ISP) due to the economies of scale resulting from splitting the customer base on a property.

In most cases, perpetual contracts were forced onto property owners and developers several years ago, as property owners typically had no other option if they wanted the incumbent provider to bring services to the property.

In earlier statements to the FCC regarding the anticompetitive nature of perpetual contracts, the Independent Multi-Family Communications Council (IMCC), a Washington, D.C. based trade organization representing private cable operators reported that 30% of all MDU properties in the U.S. were encumbered by perpetual contracts. Although this figure is not supported by surveys or data reports by the private cable, franchise cable or real estate industries, the FCC did find the figure impressive enough to begin proceedings on the matter. However, the FCC has continued to seek additional information on the impact of perpetual contracts in the MDU environment.

During a meeting at the FCC in December 2001, the Commission asked MDU industry leaders to consider providing a benchmark from which a proper assessment on the actual impact of perpetual contracts can be made. This benchmark would evaluate the average percentage of MDU properties actually encumbered by perpetual contracts. Such a study was completed by the real estate industry. The results were formally submitted to the FCC in February 2002 by the Real Access Alliance, The Real Access Alliance is an alliance of the leading MDU real estate trade organizations and their members. Such organizations include the National Multi Housing Council (NMHC), National Apartment Association (NAA), National Association of Home Builders (NAHB), Building Owners and Managers Association (BOMA), and the National Association of Real Estate Investment Trusts (NAREIT).

For this study, a large population of property owners was randomly selected from across the U.S., varying in their size, resident demographic and geographical location. A total of 4,795 properties (1,207,184 units) replied to a detailed survey. The data collected represents a broad array of high-end, middle-income, and lower income properties, adding significant statistical significance to the data's representation as a cross-section of the MDU industry's broad demographic spectrum.

In the final analysis, the study's data illustrates that a statistical mean of only 4.8% of MDUs are actually encumbered by perpetual contracts, as opposed to the 30% originally reported by the IMCC. However, it should be noted that two potential causes for the 25% difference in reporting between the IMCC and the real estate industry are 1) the IMCC's absence of a proper data reporting vehicle such as a formal survey, and 2) many owners have negotiated their way out of perpetual contracts since the IMCC's original supposition of 30%.

According to the Alliance's study, it was also determined that of the total MDUs encumbered by perpetual contracts, only 3.7% of these desire to renegotiate or terminate their existing contracts. When asked why they desire to renegotiate or terminate these contracts, the three most statistically significant responses were 1) increased ancillary income opportunities, 2) lack of services and technology, and 3) lack of sufficient or competitive programming when compared to their competitors. However, it is important to note that when combining items two and three since they relate to service related issues, the primary reason for desiring to renegotiate or terminate an existing perpetual contract with the incumbent franchise cable operator is for the operator's failure to provide competitive customer service, pricing and products.

To view the complete study and report visit: www.nmhc.org/Content/ServeContent.cfm?ContentItemID=2293

For comments or questions regarding the above study contact: Jim Arbury, NMHC jarbury@nmhc.org, or Matt Ames, Miller & Van Eaton mames@millervaneaton.com.

For comments or questions regarding the IMCC's analyses and positions on these issues contact Bill Burhop at bburhop@imcc-online.org.

The End Game

The total number of units, outlets and residents greatly impact wiring infrastructure and broadband equipment issues for MDU property owners and developers. The resident demographic profile and property type impact the take rate of services for service providers. Computer ownership and Internet use by residents impacts the efficacy of an owner's decision to post wire properties for broadband services, as well as whether or not a provider can make an adequate ROI (return on investment) over the long term. And finally, statistics on the status of perpetual contracts illustrate how little or how much property owners or service providers should pursue federal level intervention, rather than letting the free marketplace take care of itself.

Each of these numbers and many more, impact the ability of service providers to remain financially viable and competitive, the efficacy of property owners upgrading wiring infrastructure and, the need or lack thereof to wake the FCC giant. In the end, for both MDU property owners and service providers, numbers represent the ability to provide quality, affordable and competitive services to MDU residents. Fortunately, neither MDU owners nor service providers need a Tarot Card reading or a crystal ball to guide their decisions. The answers are all in the numbers.

About the Author
Larry Kessler is President & CEO of InteiCable Group and a comulnis for Broadband PRoeprties Magazine