Price per home passed is the headline of every fibre deal and the output of none of them. It is what is left after penetration, the build still to come and the exit multiple have been priced.
The price per home passed you can pay for a fibre network is the present value, at your target return, of its free cash flow and exit, divided by the homes it passes today. On an illustrative network of 60,000 homes passed, building to 120,000 at 40 per cent terminal penetration, the most a buyer can pay for a 10 per cent unlevered IRR is $134.85 million, or $2,248 per home passed. If penetration settles at 35 per cent the same homes are worth $1,597; at 45 per cent, $2,898.
Worked in full in The Digital Infrastructure Investor by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The case is Oakmere Fiber, the fictional fibre-to-the-home network of The Digital Infrastructure Investor, bought without debt for an enterprise value of $130 million. The figures are the book's assumptions, not market quotes.
| Input | Value |
|---|---|
| Homes passed at purchase (network three years old) | 60,000 |
| Homes passed added in each of years 1 to 3 | 20,000 |
| Cost per home passed, year 1, escalating 3% a year | $1,150 |
| Connection / reconnection after churn, per subscriber | $700 / $200 |
| Terminal penetration, reached by age 6 (30% of it at age 1) | 40% |
| ARPU, $ a month, escalating 2% a year | 70 |
| Churn, a month | 1.3% |
| Opex per subscriber / per home passed, $ a month | 18 / 3 |
| Overhead, year 1, $m | 4 |
| Exit multiple of year-10 EBITDA, less 1.5% costs | 14x |
| Transaction costs | 2% |
At purchase the network has 18,000 subscribers, 30 per cent of the homes it passes. By year 10 it passes 120,000 homes and has 48,000 subscribers.
Each vintage of homes follows the penetration curve by its own age, so new streets start at 12 per cent and reach 40 per cent five years later. Free cash flow is EBITDA less build, connection and maintenance capex.
| Year | Homes passed | Subscribers | EBITDA | Build capex | Free cash flow |
|---|---|---|---|---|---|
| 1 | 80,000 | 23,400 | 6.40 | 23.00 | -22.23 |
| 2 | 100,000 | 29,600 | 9.40 | 23.69 | -21.16 |
| 3 | 120,000 | 36,800 | 13.08 | 24.40 | -19.68 |
| 4 | 120,000 | 41,400 | 16.74 | 0.00 | 9.92 |
| 6 | 120,000 | 46,600 | 21.62 | 0.00 | 16.26 |
| 8 | 120,000 | 48,000 | 23.79 | 0.00 | 19.40 |
| 10 | 120,000 | 48,000 | 24.62 | 0.00 | 20.32 |
The first three years burn $63.07 million: the buyer pays for the network and then pays again to finish it. Build capex totals $71.09 million.
Exit value = year-10 EBITDA × 14 × (1 − 0.015) = 24.62 × 14 × 0.985 = 339.56
Maximum EV = [Σ FCFt / 1.10t + exit / 1.1010] / 1.02 = $134.85 million
Per home passed = 134.85 / 60,000 = $2,248; per subscriber = 134.85 / 18,000 = $7,492
Excel: =NPV(10%,FCF_1:FCF_10_with_exit)/1.02, then divide by homes passed
At the $130 million actually paid, $2,166.67 per home passed and 20.3x year-1 EBITDA, the network returns 10.34 per cent: $4.85 million, 3.7 per cent, of headroom below the 10 per cent ceiling. The present value of the exit alone is $130.92 million, 95.2 per cent of the maximum all-in cost, fees included. A building fibre network is bought for its year-10 EBITDA and what someone will pay for it.
| Terminal penetration | IRR at $130m | Year-10 EBITDA, $m | Maximum EV, $m | Per home passed |
|---|---|---|---|---|
| 30% | 3.92% | 15.81 | 56.8 | $947 |
| 35% | 7.41% | 20.22 | 95.8 | $1,597 |
| 40% | 10.34% | 24.62 | 134.9 | $2,248 |
| 45% | 12.88% | 29.03 | 173.9 | $2,898 |
| 50% | 15.14% | 33.43 | 212.9 | $3,548 |
Each point of terminal penetration is worth about $130 per home passed. The whole network, built and to be built, follows the penetration assumption in each row. The exit multiple moves the answer almost as hard: at 12x the ceiling is $116.5 million, $1,942 per home passed, and the price paid earns 9.00 per cent; at 16x it is $153.2 million, $2,553.
Comparing the headline price per home passed across deals as if it were a cap rate. Two things break the comparison.
Use price per home passed as the answer to a discounted cash flow, never as its input.
The vintages, the penetration and cost grid and the exit sensitivities are live in the free workbook for this case. The penetration a new build needs to clear 10 per cent is worked in what penetration rate an FTTH network needs, and the link between cost per home passed and per home connected in cost per home passed vs cost per home connected.
There is no market constant: it is the present value of the network's cash flow divided by homes passed, so it moves with penetration, ARPU, the build still to fund and the exit multiple. In the illustrative case, the same network is worth $947 per home passed at 30 per cent terminal penetration and $3,548 at 50 per cent, at the same 10 per cent target return.
Use both, and never alone. Per home passed ignores take-up; per subscriber ignores the homes still to be won. In the illustrative case $130 million is $2,166.67 per home passed and $7,222 per subscriber today, and $1,083 per home passed on the 120,000 homes of the finished network, a figure that looks cheap only because the buyer still funds the build.
Most of it, when the network is still building. In the illustrative case the years 1 to 3 free cash flow is negative 63.07 million, and the present value of the year-10 exit at 10 per cent is 130.92 million, 95.2 per cent of the most a buyer can pay all-in, fees included. A two-turn lower exit multiple takes the affordable price from $2,248 to $1,942 per home passed.
This article is one calculation from The Digital Infrastructure Investor. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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