Why Take Rate Matters More Than Passings: An MDU Example

Marc Hudson
Co-founder and CEO, Hum
Aug 16, 2023
6 min read

Most ISP operators know that take rate is important, but exactly how important is it? In a resident choice (also known as right-of-entry, opt-in, or retail) MDU deployment, the math indicates that take rates may be more critical than most assume. 

In this post, we want to cover these few main points (we will also get into the weeds with numbers a bit but, bear with us - we think the juice is worth the squeeze). We also get into quite a few terms specific to telecom and finance, so please see our definitions list at the end of the article for further explanations on a term or metric.

  1. Take Rate Impact on Profitability: The take rate in Multi-Dwelling Units (MDUs) is a critical factor for Internet Service Providers. An above average take rate can significantly boost profitability in MDU deployments and result in much faster returns on invested capital.
  2. Impact of Cost of Capital: In the current economic environment, rising interest rates play a significant role in ISPs' net returns. With a conservative Weighted Average Cost of Capital (WACC) of 10%, a low take rate (20%) results in a negative net return (-2.1%), whereas average and higher take rates (35% and 50%) yield positive net returns (9.9% and 19.2%, respectively).
  3. Operational Complexity & Strategic Focus: Managing the operational complexity of acquiring and installing new MDUs is challenging and expensive for ISPs. Before over exerting on new passings, It is essential for operators to focus on maintaining and even increasing take rates to secure long-term positive returns on capital.

MDU Prototype

To help illustrate the above points, let’s start with a prototypical MDU install. This could be a brownfield or greenfield, as the capital expenditure profile is usually roughly the same. Here are the numbers:

Cost Per Passing $800
In-unit wiring + CPE $400
Customer Acquisition Cost $300
Stabilization Period 2 Years
Term 10 Years
ARPU $70
Gross Margin 85%

Take rate sensitivity

To help understand the impact of take rates, we built this Internal Rate of Return(IRR) calculator worksheet. We used this to calculate the IRR over a 10-year period using the aforementioned assumptions on three different take rate scenarios: Low, Average, and High. The Average scenario is based on industry average take rates which approach ~35%, as an industry average, in 12-24 months after an MDU is deployed with fiber.

Scenario Take Rate IRR
Low 20% 7.2%
Average 35% 18.7%
High 50% 27.5%

It’s important to note that payback is calculated on gross margin, because we have an incremental cost of providing service to each new subscriber (customer service, internet transit, etc.). We also do not factor in the frequency or cost of churn as that is an important, but independent variable, that we will discuss in a future post.

Factoring in cost of capital for net returns

Economic performance cannot be measured without factoring in cost of capital. In today’s interest rate environment, cost of capital is more material than ever. More specifically, with debt rates approaching 7-10% and equity usually needing a higher risk-adjusted return than debt, we are seeing WACC in the ISP sector approaching the 10%-12% range and sometimes even higher. 

Scenario Take Rate IRR Cost of Capital Net Rate of Return
Low 20% 7.2% 10% -2.8%
Average 35% 18.7% 10% 8.7%
High 50% 27.5% 10% 17.5%

When factoring in weighted average cost of capital at a conservative 10%, we see that the Low take rate scenario actually generates a net negative rate of return, while Average and High still perform positively.

Cost per unit connected vs cost per passing

Most ISPs measure cost per passing. It's a great metric and one that helps operators understand the static capital spend needed to expand the surface area of their network. However, cost per passing alone does not accurately represent the true capital cost to obtain a new subscriber because it does not factor in take rates. Layering on take rates onto cost per passing reveals a much more important metric: cost per unit connected.

A closer look at our example shows just how critical take rates are to the discussion of capital efficiency. This effect is the result of adding the cost per passing of all non-connected units onto our connected units to reveal the true cost per unit connected.

Cost per unit connected chart. 20% = $4,400. 35% = $2,686. 50% = $2,000.

The exclamation point: cash flows

To bring things full circle, let’s investigate one last data point: Cash Flows. When looking at cash flow, we see that the High take rate scenario outperforms the Low and Average take rates by 419% and 68%, respectively, over a 10-year period. 

10-Year Cash Flow per Unit Passed vs. Take Rate. 20% = $417. 35% = $1,329. 50% = $2,242.

Why It Matters

For ISPs, managing the operational complexity of acquiring and installing new MDUs can be tricky and expensive. When evaluating the opportunity and real capital costs of expansion, it’s important to ensure that both existing and future deployment can maximize and maintain take rates in order to ensure the long term returns on capital. A small take rate improvement can often mean a large difference in the financial outcome of an MDU deployment.


  • Average revenue per user (ARPU) - the average revenue per user/subscriber in a given period, usually measured over a monthly interval.
  • Cost of goods sold (COGS) - The cost of providing service. This usually includes transport, transit, customer service, and any regulatory fees or taxes not passed through to the subscriber.
  • Cost per unit connected - The average cost to connect a household, inclusive of the passing cost. This also includes in-unit wiring and customer premise equipment (CPE). These costs are all typically capitalized expenses.
  • Cost per passing - The average cost of making service available to an individual home or location. For the purpose of an MDU, this usually means fiber has been run to the floor or door of individual units.
  • Customer acquisition cost (CAC) - The cost a provider incurs to acquire a new subscriber. This usually includes all related sales and marketing activities (including discounts/promotionals).
  • Internal rate of return (IRR) - Internal rate of return (IRR) is a financial metric used to assess the profitability of an investment. To keep it simple, it is the annualized rate of return that an investment would have to generate in order to break even.
  • Stabilization period - The amount of time a new deployment takes to reach its terminal take rate.
  • Take rate - The percentage of potential subscribers who subscribe to service.
  • Weighted average cost of capital (WACC) - The average cost of the funds that a provider uses to finance its growth and operations, including debt and equity.

About Hum

Hum automates subscriber acquisition, decreases customer acquisition costs, and enables ISPs to succeed in the MDU arena.
Get in touch to learn how Hum can help your team increase take rates.

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