Costs And Returns Of Smart Street Pole Installations

Early explorations have adopted three main business models. Today, Phoebus analyzes the IRR, profit margin, and EBITDA margin of smart street pole operators.

Model 1: Smart street pole operators provide only leasing and management services.

Ownership of infrastructure, including the poles, piping, and wiring, belongs to the smart street pole operator. Base stations, security cameras, and environmental monitoring equipment belong to the current operator, who leases the poles and deploys them as mounts.

We determine the price of infrastructure, including the poles, piping, and wiring, for a single pole and multiply it by the total number of poles to calculate the initial fixed asset investment.

Since the government only requires one construction phase under this model, while the initial investment is significant, once the costs of repeated construction are factored in, the advantages of the smart street pole model become apparent.

Revenue: Smart street pole operators' revenue primarily comes from payments from operators for base station leasing, management, and maintenance fees, payments from public security/traffic police and other departments for surveillance camera leasing, management, and maintenance fees, and payments from environmental protection departments for environmental monitoring equipment leasing, management, and maintenance fees. We calculate various revenue streams using the formula "cost per pole x total number of smart street poles x installation rate."

Costs: The costs of the smart street pole operating company include depreciation of fixed assets and employee salaries. Depreciation of fixed assets: We assume a depreciation period and calculate the annual depreciation expense for the smart street pole operating company using "initial fixed assets/depreciation period."

Employee salaries: We calculate the salary costs required by the smart street pole operating company using "number of maintenance personnel x average salary."

Based on our assumptions, the smart street pole operating company's gross profit margin is 7.36% and its IRR is 8.93%. However, since depreciation is a major operating cost item, the EBITDA margin is high, reaching 89%, indicating strong cash flow for the smart street pole operating company.

Model 2: The smart street pole operating company provides leasing and management services while also obtaining authorization to sell data.

We believe the large amount of data held by the smart street pole operating company, after declassification, can be used for a fee by governments, businesses, or individuals. This business has the potential to improve the company's gross profit margin and cash flow and become an additional source of profit growth. In the initial phase of this business, government clients will be the primary customers, while corporate and individual customers will become the driving force for subsequent growth. Assuming operating revenue of 2 million yuan and a gross profit margin of 20%, the IRR can be increased to 9.27%, and the overall gross profit margin can be raised to 8.60%.

Model 3: Smart Street Pole Operating Company integrates data from various smart street poles to become a big data company.

Investment Side: We assume that a smart street pole operating company operates several smart street poles. Under this new model, ownership of infrastructure such as the poles, piping, and wiring belongs not only to the smart street pole operating company, but also to base stations, security cameras, and environmental monitoring equipment.

Procurement Phase: The original procurement department will score the technical specifications of the mounts, determine the final technical score, and provide a shortlist. Local urban infrastructure companies under the State-owned Assets Supervision and Administration Commission will serve as the primary entity for centralized procurement through bidding to optimize costs. During the construction phase, the urban infrastructure company selects the contractor through a bidding process. During construction, the urban infrastructure company oversees the progress of the poles, with the entities responsible for the poles (such as the Ministry of Housing and Urban-Rural Development, the Ministry of Public Security, the Ministry of Transport, and the Environmental Protection Bureau).

During the operation and maintenance phase, this includes both information and physical operations. Smart street poles should be equipped with a gateway to centralize all pole data and grant specific permissions to different pole-mounted entities. The urban infrastructure company retains overall data distribution rights, while the entities responsible for the poles and the government enjoy data usage rights. Physical operations and maintenance are ultimately determined by the urban infrastructure company through a bidding process.

Under this model, smart street pole companies can integrate various collected data into "big data" and sell the corresponding data to operators, public security, traffic police, and other companies and departments. After determining the unit price of each structural component, we can calculate the initial fixed asset investment by calculating "unit price x total number of smart street poles x installation rate."

On the revenue side, smart street pole operating companies' revenue primarily comes from payments from operators for base station data usage, payments from public security/traffic police and other departments for surveillance camera data usage, and payments from environmental protection departments for environmental monitoring equipment data usage. We calculate various revenue streams using the formula "per pole cost x total number of smart street poles x installation rate."

Cost side: Smart street pole operating companies' costs include fixed asset depreciation and electricity payments to the power company.

Electricity payments to the power company: We assume the power output, average daily usage time, and per-kilowatt-hour electricity cost of various devices. We calculate the electricity costs for each device using the formula "device power x average annual usage time x per-kilowatt-hour electricity cost x total number of smart street poles x installation rate." This sums up to arrive at the total electricity cost.

Based on our assumptions, the smart street pole operating company's gross profit margin is 10.48% and its IRR is 10.13%.

Under the new model, smart street pole operating companies can centrally purchase large quantities of equipment, conduct more centralized maintenance and management, and integrate various data sources. This is also reflected in the company's gross profit margin and IRR. However, the company's EBITDA margin can also reach 67%.

The above is Phoebus's summary. If you have any ideas, please contact us.