• Questions to ask
  • Recognized companies should be considered
  • T1 lines still being offered

The failure of many broadband companies that had promised high-speed wiring and Internet service to apartment residents holds a positive lesson for property owners, according to one expert.
“If the multifamily industry should learn anything from the collapse of these broadband companies, it’s that providing this service is about increasing leasing and resident retention, not profit models,” said Larry Kessler, CEO of InteliCable Group, a firm that assists the multi-housing industry in developing and negotiating telecommunications contracts.

After the broadband debacle, many have speculated that wireless is the next big telecommunications trend for the industry, or the miracle solution that can alleviate wiring and regulation headaches.

But industry insiders say that not only is broadband still very much alive and kicking in the apartment industry, any kind of “wireless solution” in the immediate future is unlikely.

“Wireless services provide an opportunity to deploy service in ways that can’t be achieved by any other technology,” Kessler said. “But until it can be manufactured and sold cheaper than it is now, wireless doesn’t provide the economies of scale that are required to provide broadband services profitably.”

The question that remains now is how to provide for the resident demand for high-speed Internet access. According to a technology survey of 30,000 apartment residents by the National Multi Housing Council (NMHC), tenant demand for high-speed services was expected to increase by roughly one-third in 2001.

The most important thing to bear in mind when considering whether to provide high-speed access to residents is that it is an amenity investment and not a source of ancillary income, Kessler said.

What owners need to do today is get actively involved in the process rather than signing the duty over to another service provider. Owners should first familiarize themselves with the property’s existing services before making any decisions.

First, call the local cable and phone companies to determine whether they provide high-speed Internet access. If they do, ask if the property already is wired for high-speed service, because owners may be able to negotiate with providers to allow residents to order the service. Review existing contracts with providers. If the contract is near expiration, owners can negotiate a new contract that includes high-speed access for a fee.

Questions to ask

If local cable and phone companies do not provide high-speed services, there are a few questions that owners need to ask.

Ascertain if, or when, they plan on offering services to judge whether it is necessary to get alternative services. Next, be sure that the property is going to be able to receive these high-speed services. Distance limitations of 3.3 miles and a broad enough customer base can determine whether the local phone and cable providers will provide high-speed services to specific properties.

On properties where high-speed services are not facilitated by local service providers, owners should be aware that in early 2001, the FCC ruled that residents are allowed to have two-way Internet access from satellite dishes.

The intricacies of the technology present enough of a roadblock to keep most property owners wary of getting too involved in providing the service, but it is important to do some research. “Cable and phone companies manipulate property owners that don’t understand high-speed Internet service,” Kessler warned.

Owners can access an online resource, www.2wire.com, that provides comprehensive information on the broadband industry. Among other features, the site offers a learning center, complete with a lengthy glossary of jargon and terminology, networking resources and tutorials. There also is an online DSL Lookup Service where you can type in the address and phone number of the property to determine if digital subscriber line (DSL) equipment is installed locally and how far the property is from the central office. The site also offers technical support, services and other tools to assist owners in locating alternatives to their local service providers.

Property owners should be realistic about what kinds of services they can expect from local providers and be willing to make the extra investment in providing this service if need be.

“Owners have to develop the mindset that they may have to [put in their own] money if they have to go outside of the phone company, because we know now that broadband companies can’t afford to provide the service and make money,” Kessler said.

Wiring the apartment property for high-speed Internet access is an amenity investment. “There are some expenses that don’t have a direct payback. Owners need to decide to what degree having or not having this amenity is going to impact their residents. People follow amenities,” said Kessler. “The money gained in facilitating the service is in gaining and retaining rent revenue. The danger is in looking at it as a profit model or an ancillary income source.”

Recognized companies should be considered

When deciding on what amenities should be included in an apartment, owners should also consider sticking with recognized telecommunications companies. After many start-up broadband providers have failed to deliver their services, a number of apartment owners are choosing well-established telecommunications conglomerates as their Internet service providers.

In the summer of 2001, Apartment Investment and Management Co. (AIMCO), one of the largest apartment developers, called on BellSouth, a national communications services company, to be the telephone and broadband provider at 235 of its communities, or 56,000 apartments, in the Southwest.

“We’ve worked with BellSouth for several years. It has good customer service and products,” said Don Baumann, AIMCO’s vice president of regional services. Although BellSouth was the incumbent local exchange carrier, he said the company also was chosen for its reliability when many private providers are having financial difficulties. Because all of the suburban, class B to A- properties are less than 15 years old, there was no difficulty installing the DSL, said Baumann.

BellSouth has made a deal with Fogelman Properties to provide broadband for 13 communities, or 6,590 apartments, located in Tennessee, Georgia, Alabama and Kentucky. “We are [now] able to provide our residents with enhanced Internet capabilities offered through a Fortune 100 telecommunications company who we can count on to be around for many years to come,” said Mark Fogelman, vice president of business development.

Another national provider of multifamily telecommunication services, Verizon Avenue, was formed in December 2000 when Verizon Communications acquired One Point Communications Corp. It completed its first project in April 2001, the 186-unit 180 Montague St. Apartments in Brooklyn, N.Y. The apartments are owned by the Continuum Group.

Chantal Moore, Verizon’s vice president and regional manager for the Northeast, said 25% of the Montague tenants signed up for its DSL service. That is a good penetration number here because the national average is 5% to 8%, said Larry Plumb, a Verizon representative.

Verizon offered its residents two service packages of telephone and Internet services. One is $34.99 per month for speeds up to 356 kilobytes per second download, and the other is $44.99 per month for speeds up to 1.5 megabytes per second download. Eighty percent chose the higher-end Verizon package. Most of them are young, single professionals who commute to Manhattan for work. The ones who chose the lower-end option are mostly inexperienced with the Internet, but “they usually upgrade their service later,” said Moore.

Many local phone and cable providers run into distance limitation problems when they try to install DSL in multifamily properties more than three miles away. Verizon eliminates this problem by offering its service through a Digital Subscriber Line Access Multiplexer (DSLAM) on-site. Rather than have tenants connect to a central network outside of the property, the networking equipment can be installed in the basement of the apartment building. “It brings excellent service at no cost to the owners, while it provides more revenue and enhances the marketability and competitiveness of the apartments,” said Moore.

Montague was built last year with high-speed Internet access in mind, which made installation easier, she added.

Recently, Verizon revised its product line. It now offers four products, ranging from $39.95 to $79.95 per month, and from 256 kilobytes to 1.5 megabytes per second download.

T1 lines still being offered

Although DSL is one of the hottest telecommunications products on the market, many broadband providers are still offering T1 lines and keeping them as viable options for apartment owners.

OnSite Technology Services and other service providers are offering more cost-effective and efficient T1 broadband services, which is an older technology than DSL. T1 access has been more expensive. It reaches speeds that are the same as those of DSL, but the quality of the signal is an order of magnitude higher, according to OnSite. However, T1 users generally underutilize the service by spending just a few seconds to download Web pages or to send e-mails.

The newest strategy is to aggregate the usage of T1 lines, rather than have a line dedicated to each user. This can cut prices for tenants who want high-speed access at a lower cost.

OnSite’s pricing for tenants varies from $19.95 to $49.95 per month for 1 megabyte per second download. Apartment owners pay for equipment and installation, which can cost from $200 to $600 a subscriber. Owners may opt to pay for the circuit to the complex, usually starting at $550 a month. Typically, OnSite shares the revenue 50-50 with the owner. If it pays for the circuit charges, it is a net revenue split. If the owner pays for the circuit, it is a gross revenue split.

At some point, though, there may be too much activity on a shared T1 line, making the average experience unsatisfactory, said Bob Duffy, vice president of operations for OnSite. This can be managed by constant monitoring of circuit utilization, he said.

Meanwhile, some broadband providers are exploring wireless telecommunications options for the multifamily market.

OTC Wireless is offering a new product that is a transceiver and antenna that can be attached to the exterior of an apartment building. It can deliver up to 11 megabytes per second, supporting up to 128 users for each transceiver.

OTC is also offering another system called the AirEZY-AMU, which provides Internet access aggregation for the wireless system, in much the same way as the T1 strategy.

Shared access allows tenants to pay only for how much service they use. If tenants only use the Internet to check e-mails, they might use only 24 kilobytes per second. That would cost them as little as $10 per month, according to Obaid Mohammadi, a representative of OTC Wireless. However, that would be dependent on whether the apartment building has other tenants who would pick up the rest of the T1 access.

Installation for the transceiver packages costs upward of $1,570. Equipment for each apartment costs $199. OTC will give buyers who are also ISP providers a 20% discount.

Wireless technology, as of now, is best for properties that are in rural areas that may not have access to DSL, said Craig Ross, a spokesman for Resident Technology Group, a marketing representative for apartment owners that is a customer of OTC.