With all the bad news about the housing and mortgage industries, writing about how to make money in residential cabling might seem untimely, but maybe not. During one recession long ago, I was working for an electronics company that had been growing very rapidly up to that time. As worries about the recession’s effect on the company began to cause unease among employees, the president, then a young techie entrepreneur, called all the employees together into the company cafeteria.
First, he acknowledged the uncertainty of the -economy, but he noted that the company was in a rapidly developing technology, peripheral to the then-new microprocessor industry. The company was a small fish in a big pond. Most competitors were large, publicly held companies whose major concern was consistent profits. The company, he said, could benefit from this recession if it continued funding research and development and advertising while it cut only expenses that would not affect product development and sales.
Did it work? You bet. That company grew to be a major player in the electronics business in only a few years, with much of its success built on the aggressive actions it took during that recession. It was a lesson worth learning: When others are timid or fearful, look for opportunities, and take advantage of them.
Residential cabling may be a real opportunity now. Many contractors do not pursue residential work for a number of good economic reasons. A single-family home has limited income potential. Developers of subdivisions generally look for the cheapest contractors or installers. Most do not want to deal with after-installation service calls from the homebuyer. All good reasons to ignore residential work.
But the downturn in housing starts has created some potential opportunities for contractors. The timing coincides with a massive consumer demand for broadband connections to the home (for more information, see “Connecting to the Future” ELECTRICAL CONTRACTOR, June 2007), which has led to telcos and CATV companies competing fiercely to connect homes, especially in new developments where the installation cost to the home is cheapest and the “take rate” is highest. Verizon’s FiOS fiber to the home (FTTH) service, for example, appears to have up to a 70 percent take rate in new communities in Southern California.
Verizon is aggressively pursuing customers with banners in shopping centers, towed behind planes and anywhere else it can get exposure to consumers. In addition, the company is soliciting home builders, installers and home technology integrators to work with. Verizon has been going to specialist trade shows and presenting seminars on its FTTH programs to explain what it is doing, who it is recruiting and how to contact the right people. Last year, for the Fiber Optic Association and Verizon, two “FTTH Summit Meetings” were held to help recruit contractors and installers for these ambitious programs.
CATV companies are responding with aggressive sales and pricing and even offering premium Internet service with faster speeds. Municipalities unhappy with the broadband rollout schedules of telcos or CATV companies are building their own FTTH or wireless networks. Although citywide Wi-Fi has fizzled—because cities have found the service demands are not easily met, and real installation and support costs are higher than expected—a new challenger, WiMax, has emerged on another tidal wave of hype. Wireless technologies continue changing faster than standards or markets can respond, making a decision to invest in wireless for a city a difficult proposition, so landline connections continue to dominate the broadband connection marketplace with CATV cable modems and telco DSL each connecting about 30 million households and growing.
So when home builders are “mothballing” developments, and real estate listings show listings for single-family houses are equal to a year’s average sales, where’s the opportunity? When selling new homes becomes more difficult, developers need a way to differentiate their offerings in the marketplace. Some offer all sorts of incentives, including one condominium developer in Los Angeles offering a free three-year lease on a car with each unit sold. Others have adopted a high-tech approach, offering a high base level of tech capability in each home and options to provide a wide variety of customization services for security, networking, home automation and home theater.
One home developer/builder said it had adopted a policy of hiring only certified network-cabling installers for this work, as it had problems with the quality of the work in some installations. The developer can justify paying for qualified installers because high-tech cabling in homes was extremely profitable, generally returning more than 50 percent profit margins, as opposed to the 10 percent typical with normal upgrades, such as kitchen counters or cabinets. This is the kind of developer to work with.
Although we have mainly been discussing the single-family home, one should not ignore condominiums and apartments, which are having to absorb the people who cannot now afford homes. People who cannot afford to purchase a single-family home still need somewhere to live. Some have the means to purchase a condo, but most end up in apartments. Apartments are becoming scarce and expensive in Southern California, while the housing market is flooded with unsold homes. Therefore, condos and apartments may prove to be a more lucrative market opportunity for cabling contractors.
Perhaps most importantly, young people not yet ready to settle down are much more likely to rent than buy. If they have recently lived in college housing, they are accustomed to high-speed Internet access. Colleges are providing every student with high-speed Internet access for all their assignments. Colleges also are sites for all sorts of networking experiments where technology companies let the school and the students test the latest gadgets and connectivity. When these people leave school and move into an apartment, broadband access is considered a necessity.
Apartments and condos (lumped into a category called multi-dwelling units or MDUs) are more like commercial networking installations than residential. The landlords must provide entrance facilities for telcos and CATV providers, perhaps several. Large units may need backbone cabling and telecom closets to provide telephone and Internet access just like a business. If fiber to the building is available, there may be options for bringing fiber directly to the units. Besides phone and network cabling, each unit needs one or more coax cables for TV, intercom and entry systems, and most buildings now have multiple security cameras and recording systems. Each location with electronics needs power and grounds, of course, just like an office building.
While a single-family home developer may be able to convince himself that installing a few extra cables in a home is no problem, the complexity of a multidwelling unit is obvious. The cost of such a job also is larger, demanding more attention from the architect, developer and general contractor. Hiring an experienced, certified cabling contractor for such work is a good business decision. Justifying the additional expense for an apartment owner is easier, as the services may be unbundled and charged separately, or the owner may offer certain services—such as Internet access—directly and charge as a separate monthly item.
The biggest challenge is to educate developers, architects and general contractors on the special needs of a “high-tech residence” to take advantage of the broadband connection. This subject came up at the annual conference of the Building Industry Association of Southern California last November. Attendees included developers, home builders, architects and a lone home theater installer. Each had a different viewpoint.
The developers or home builders were mostly concerned about payback. What did they need to install, who could do the installation properly, how much would it cost and how much would the customer pay for it? Those are the typical issues we deal with, so they were satisfied with our presentation.
Architects sometimes are not convinced. One way to address architects is to inform them of the industry standards and codes regarding high-tech cabling and hope it gets translated into the project paperwork properly.
Of the groups involved in installing residential cabling, home theater contractors are the closest to having a complete understanding of the needs of the home. However, the ones I’ve talked to generally focus on custom installations, generally upgrades to existing housing, that are very expensive. Typical home theater installations run from $20,000 to $100,000 or more, including electronics (stereo, TVs, etc.), and the contractors usually are not interested in installing just the cabling, since most of the cost is in high-margin electronics.
So let’s recap. Is there money to be made in residential cabling? Absolutely. The best opportunities for professional cabling contractors are probably in MDUs being equipped with state-of-the-art communications and security systems, but developers still are working on new subdivisions, and all have broadband service available.
In making presentations to developers and builders, it is important to point out that buyers demand new homes be designed and built for high-tech devices, and they are willing to pay for it. Home cabling not only makes houses easier to sell, especially in a competitive market, but home cabling has a much higher profit margin than most traditional home options, such as kitchen upgrades.
Architects should be assured that industry standards are available and you are familiar with them. Show your industry credentials; training and certification will help you make a positive impression on the architects. In addition, get to know some home theater installers. Most are not interested or capable of taking on big cabling jobs, but they may be aware of opportunities they will share with you, and you can reciprocate when you find opportunities for custom installations.
Next month we’ll look at the “nuts and bolts” of residential network installations.
HAYES is a VDV writer and trainer and the president of The Fiber Optic Association. Find him at www.JimHayes.com.