BuddeBlog

The end state for broadband infrastructure is FttH, perhaps with large sections of the market having their own dedicated fiber ‘tail’ from their home/office out to a central aggregation point.  The extremely high capacity of FttH, combined with its shrinking but still significant cost, suggests that a rational broadband policy would not include multiple competing fiber plants in the local loop. 

Interestingly, countries who are leading in structural change are often also the countries with overbuilt infrastructures (telco, cable, wireless) such as the Netherlands, Sweden, Singapore and Hong Kong. 

The reason for this is that, due to their heavy use of existing infrastructure, these countries have a much better understanding of the need for FttH. They quickly reach the conclusion that when HFC (cable operator plant) needs to be upgraded to FttH, an interesting economic situation will arise, whereby the content providers (cable operators) will need to decide if they want to duplicate telco fiber, or whether they will be able to use (open) networks of the telcos. In Europe some of the HFC networks are already struggling to survive. Recent regulation developments in the Netherlands are aimed at rapidly establishing an attractive mass market for FttH. This will become available for as little as €12 per month. 

Obviously there will be densely populated areas that can sustain two FttH cables at current retail rates, but it defies basic logic that there will be all that many of them -  especially as access to capital has become expensive (current EU and OECD data indicates that sustainable FttH requires 37%-40% subscription rate penetration). 

We also don’t see overbuilt plant in electricity, gas, water, sewers, highways, HFC cable networks, etc. Telecoms engineers are indicating that most HFC networks are under-dimensioned to serve large-scale use of DOCSIS 3, and, even with DOCSIS 4, 5, 6 or 7 HFC, they will eventually be unable to compete economically with fiber. 

The transition to competition based on pure broadband capacity is somewhat paradoxical for cable operators.  The very high capacity of HFC networks, as compared to legacy telcos’ twisted pair copper, gave cable operators an early lead - one that they maintain - in residential broadband.  Yet the basic cable business model entails selecting content for subscribers and delivering it either in packages (standard cable tiers) or individually (pay-per-view). 

This business model is at odds with an end-to-end Internet in which users are essentially in sole control of the data they send and receive.  So, in addition to ultimately facing the need to upgrade the pure capacity of their networks, cable operators face a challenge to their fundamental business model.  If they want to be pure bandwidth providers their networks are no longer state-of-the-art.  But if they want to be content providers looking into the future, there is no need for them to have a network at all - if there is adequate capacity available on an open fiber network, whether provided by legacy telcos or otherwise. 

This shows that the reason we have two networks - cable and telco - is that in the past entertainment and telephony required vastly different technologies. But that is no longer the case. 

Note that when we speak of FttH we are not particularly referring to shared-bandwidth passive optical network (PON) arrangements, which are obvious improvements over telco-based copper DSL solutions, but which can (depending on the particular PON architecture selected) lead to congestion problems like those faced by cable systems if consumers, for instance by telecommuting, radically increase their parallel use of broadband.  This is in the national interest but it is not in the individual interest of a network operator trying to minimize capital expenditure and foreclose competitors. 

What we are referring to is dedicated or quasi-dedicated fibers to each individual home or business. 

In this respect the OECD, for example, is strongly in favor of dark fiber solutions rather than municipally-run networks. They are the closest thing we have to unbundling on copper which has been successful. It does mean, however, that we need point-to-point connections in order to foster competition. A good example here is Citynet in Amsterdam. 

Note also that wireless broadband is a very different infrastructure, with different capabilities, and it will develop parallel to FttH. It has a totally different (fundamentally sound) business case, based on the distinctive benefits of mobility rather than raw capacity - so we don’t see this as an ‘overbuild’.  Certainly, it is no alternative to, or replacement for, FttH. 

That having been said, wireless broadband is going to play a key role in certain regional and rural areas where the cost of laying dozens or hundreds of miles of fiber to serve one or a few customers can be daunting. It also allows for a far more rapid rollout of midsize broadband which after time can be replaced by fiber when the business cases for such deployments are becoming clearer. 

Paul Budde 

This article is based on international collaboration of a dozen telecoms experts. 

See also

• Global - Infrastructure - Strategies for the Digital Economy
• Global - Investing in the Communications Revolution
• Global - Broadband - FttH Overview & Statistics
• Global - Broadband - Internet & Broadband Statistical Tables by Country
• Global - Broadband - Regulating Fibre Access
• Global - Infrastructure - Structural Separation

Albania, Bosnia-Herzegovina, Croatia, Cyprus, Macedonia, Montenegro, Serbia (incl. Kosovo)

BuddeComm’s annual publication 2008 Europe - Telecoms, Mobile and Broadband in Balkans (West) profiles the emerging Balkan markets of Albania, Bosnia-Herzegovina, Croatia, Cyprus, Macedonia, Montenegro and Serbia (including Kosovo). Once an unsavoury corner of Europe, integration with the EU is driving economic development and change, a trend that has manifested itself in the region’s telecoms markets. Market liberalisation and competition is pushing down prices and increasing choice, which in turn is leading to increased take up of services. 

The key trend dominating markets across the region is broadband, be it fixed, wireless or mobile. Incumbents are looking to xDSL to arrest the contracting fixed-line market, an acute situation give that fixed-line penetration in the region is low to begin with. Alternative operators, in most cases unable yet to gain cost-effective local loop access to offer competitive retail services, are deploying alternative broadband access networks such as WiFi and WiMAX. Mobile operators, competing in saturated mobile voice markets, are making use of deployed WCDMA/HSDPA networks to market aggressively priced mobile broadband access with prepaid data bundles. 

This report presents an overview of the telecom markets in what are arguably some of Eastern Europe’s most promising, including an assessment of sector liberalisation and privatisation, together with the key regulatory measures which affect competition and investment. Emerging players in liberalised markets are introduced and new infrastructure deployments covered. The important broadband market is assessed, along with forecasts for broadband growth to 2018 in Croatia and Cyprus based on factors such as network investment, the regulatory environment and consumer demand. The report provides essential statistics covering the broadband, mobile and digital TV sectors, highlighting technological developments and the emergence of media convergence and triple play offerings. 

Key highlights:

• Fixed broadband take up across the region is gaining momentum, with annual growth rates of 200% in Bosnia-Herzegovina, 51% in Croatia, 62% in Cyprus, 22% in Macedonia, 63% in Montenegro and 167% in Serbia. Similar growth rates are expected in 2009 as most markets are in the early stages of development. Driving growth are the incumbents, which are deploying xDSL infrastructure as a precursor to convergence services such as IPTV, which is already available in Croatia, Cyprus, Montenegro, Serbia, with plans to introduce it in Macedonia.
• Wireless broadband has established itself in the gap created by the lack of existing broadband infrastructure. Fixed or portable wireless broadband based on WiFi or WiMAX is available in all Balkan countries. However, the inherent lack of bandwidth found in wireless coupled with the consumer shift towards consumption of high-bandwidth multimedia content is leading some operators to re-evaluate the technology. This will become more evident in 2009 and 2010 as ADSL availability expands and competition intensifies.
• Macedonia’s largest competing broadband provider, which despite possessing a wireless broadband network providing 95% population coverage, is constructing its own ADSL2+ network over which it plans to offer VoIP services.
• Montenegro’s pay TV market has developed overnight as a number of cable operators launched operations after receiving licences in 2007. However, the incumbent’s IPTV offering overshadows the pay TV market despite its third place ranking in terms of subscribers, due to the reach of its fixed-line network and its financial resources. During 2009 and 2010 BuddeComm expects consolidation to take place due to competition and the size of Montenegro’s market.
• Use of e-government services is growing year-on-year in Cyprus, as individuals and the majority of businesses utilise the Internet for interaction and transactions with administrative bodies. Similar e-government initiatives are underway in all other countries, with support coming from the EU. As Internet take up increases, usage of e-government and other Internet society services is expected to rise.
• Mobile operators in region are beginning to focus on mobile data, leveraging the now widely-available EDGE/WCDMA/HSDPA networks to launch aggressively priced mobile broadband services with prepaid data bundles. This trend is more evident in highly-penetrated markets where competing operators have deployed WCDMA/HSDPA networks such as in Croatia, Cyprus, Montenegro and Serbia. Competition is expected to force down prices and increase prepaid data bundles as revenue growth opportunities fade in highly-penetrated mobile voice markets. As mobile broadband tariff prices fall, in the medium term the mobile operators will be competing head-to-head with the fixed and portable wireless providers. 

Balkans (West) - Mobile subscribers and penetration rate - March 2008

(Source: BuddeComm based on Global Mobile data)

Note: *Penetration was 111.7% for Serbia and 59.1% for Kosovo. 

For more info see: 2008 Europe - Telecoms, Mobile and Broadband in Balkans (West)

BuddeComm’s 2009 New Zealand - Telecoms Overview & Analysis publication provides a detailed overview, including statistics, forecasts and analysis, of the regulatory, infrastructure, fixed network voice and VoIP sectors of the New Zealand telecommunications market, as well as an overview of the key market players and global trends. 

Market statistics and forecasts

The total telecoms market in New Zealand grew by 2% to $7.1 billion in the 12 months to June 2008. BuddeComm predicts that the total New Zealand telco market will grow around 2.3% in 2008/09 and 3.5% in 2009/10, although these growth rates could be up to 1% lower, depending on the severity of the global financial crisis. 

Fixed-line voice market (voice calls and local access) revenues continue to decline and has been losing overall share of telecom services market for several years. Overall the fixed network voice market declined by 4% in 2007/08 to $2.53 billion and we predict that it will decline a further 5% in 2008/09 and 6% in 2009/10, as phone call prices and volumes continue to drop and more people give up their traditional home phone line. Long-distance calling prices in particular continue to fall. 

Data and broadband continues to be a strong market driver although broadband revenues dropped significantly on what was anticipated due to weaker than expected results from Telecom. Pay TV revenues were weaker in the 2008 financial year than previous years due to a soft local economy. Revenue growth rates in this sector are predicted to pick up again in 2008/09 and reach a growth rate of 8% in 2009/10. 

Annual change of total market revenue by service in New Zealand - 2007 - 2010

(Source: BuddeComm based on industry data) 

Opportunities in the second tier market

Even Telecom New Zealand has itself admitted that functional separation has already begun to stimulate competition in New Zealand. Existing participants now have the opportunity to extend their activities, and additional competitors now have more opportunity to enter the market which has previously been dominated far too much by Telecom. Smaller competitors now have more attractive wholesale arrangements coming into place and this will put further pressure on prices, which have historically been far too high due to Telecom’s overwhelming market dominance. 

But market consolidation will continue

Despite these opportunities, there is no doubt that a weakened economy due to the financial crisis will lead to further consolidation in the telecom sector, especially among the smaller fixed-line telcos/ISPs. Also, TelstraClear, the country’s number two fixed-line operator, has been unable to gain any market traction, despite the opportunities that are opening up due to functional separation. It is quite likely that its owner across the Tasman, Telstra, will show increasingly less interest in the telco in a worsening financial crisis, as any potential investment funds earmarked for New Zealand, are diverted back to home soil. 

Key highlights:

Impact of financial crisis

• As in Australia and other developed markets, the financial crisis will most likely led to a drop in consumer demand and this will put pressure on telco service prices during 2009.
• New Zealand’s telco sector will actually be better placed than that of Australia. Despite a potentially weaker economy as a result of the financial crisis, it has already put in place the framework for the rollout of its national telco infrastructure, which will hopefully begin to give second tier telcos a more level playing field. 

Market competition

• Competition will continue to grow in 2009 in the New Zealand market, although from a very low base due to the enormous market power that Telecom has had up to functional separation in 2007.
• It has been a long process for Vodafone to integrate fixed-line telco operator ihug, after an acquisition back in 2006, but finally Vodafone seems to be gaining traction in the fixed-line market with DSLAM wholesale agreements in place by late 2008.
• Vodafone will push hard in 2009 to further its rollout and will start to gain significant market share from Telecom in both the fixed-line calling and broadband market.
• Other players like Orcon will also continue with DSLAM rollouts and make good progress, and this will stimulate healthy ADSL2+ competition. 

For more info see: 2009 New Zealand - Telecoms Overview & Analysis