BuddeBlog

The case for fibre in Europe has been revitalised during the last few months. As late as the beginning of 2007 some of Europe’s major incumbents - notably BT and France Telecom - continued to distance themselves from the need to invest in a national fibre network. Now, a coalescence of national and regional governments, regulators and operators are scrambling to put in place effective fibre-based networks. It appears that everyone is reading from the same page, but there remains the threat of a two-tier structure - with some countries adopting FttH and others a less future-proof but cheaper copper/FttC architecture. Increasingly, this hybrid network seems to be outdated and insufficient. Fortunately, for incumbents which are still in the planning stage (which involves funding the project, sounding out equipment vendors and haggling with regulators for favourable terms) there is an opportunity to refocus their plans to a predominantly FttH effort.

The drivers for FttH are plain. Firstly, a number of smaller markets (particularly Sweden, Denmark, Finland, The Netherlands) have been stimulated by economic pressure to compete with their populous neighbours. As such, these markets have benefited from astute governments and regulators prepared to allow municipal involvement in fibre roll-outs (mainly through investments and co-operation). In many cases in Sweden and The Netherlands, the incumbents have become ISPs on these networks, given that it is generally impractical to duplicate them or to compete against the advantages afforded to the first-to-market operators. Seeing this (and also prodded by the success of new entrants such as Free, Numéricable and FASTWEB), BT, Deutsche Telekom and FT have joined the bandwagon, reversing their former policies and embracing fibre on a national scale.

Secondly, there is now a universal assumption within the political and regulatory corridors that an effective broadband policy should be governed by the requirements of a country’s socio-economic welfare. This is largely an emotional factor; the ‘business case’ is ephemeral and largely unquantifiable but some northern European governments have taken the required long-term view for the benefit of national economies as well as for the more immediate results relating to e-health, e-learning, e-government and smart grids. There is, in addition, the very practical stimulus for governments to reduce their expenditure in delivering health, education and other services.

The second tier countries, including France, Italy, Germany, Portugal, Spain and the UK, have also been stimulated by a desire to be seen ‘catching-up’ with Sweden, The Netherlands, even Korea and Japan. They have been attempting to do so on the cheap, hence their hybrid networks. Yet for incumbents, a national fibre infrastructure can largely be funded through the disposal of existing assets: KPN’s national fibre network is being paid for by the sale of redundant real estate, while Deutsche Telekom, faced with a €5 billion bill to cover 40% of its total customer base with VDSL/FttC, could save €1.4 billion by selling exchanges and using passive infrastructure more efficiently. BT can similarly expect to part-fund its recently announced ₤1.5 billion fibre investment by the sale of exchanges no longer required by its 21CN, while also focussing on areas where it could expect the co-operation of local councils (themselves tapping into tax-funded broadband development schemes).

The role of incumbents in Europe’s overall fibre development is crucial, given that the substantial economies of scale make widespread replication of fibre access uneconomical. Research undertaken by the European Competitive Telecommunications Association (ECTA) in June 2008 showed that it is significantly more cost-effective for incumbents to roll-out fibre networks than it is for new entrant operators: compared to new entrants, incumbents can save up to 30% of their investment using their national infrastructure and ducts, and by exploiting their existing large customer base. For this reason (among others) ECTA is calling for mandatory access to fibre networks to be included in the European Framework for Communications. This would replicate the existing mandatory unbundling of copper networks. Successful network replication is limited to a few dense urban areas (such as Paris, which now supports the efforts of Free, Numéricable and FT) where fibre operators can expect to make a profit. Replicating FT’s network on a larger scale is impossible without access to sewers, infrastructure sharing and regulated access (measures which have recently been legislated for).

Given that the business case for fibre has moved to national socio-economic requirements rather than the economic returns from Internet access and services, that the costs for incumbents become less daunting when their disposed assets and inherent advantages are factored in, and that incumbents themselves (as proved by KPN) can make a profit from opening their networks to competitors, the current approach by some operators to persist in a hybrid network already appears out-of-date. A recent experience drawn from the UK speaks volumes for the push for FttH as opposed to its poorer alternatives: earlier this year Virgin Media found that customers moving from a 20Mb/s to 50Mb/s service soon filled up the extra capacity. The company has not hesitated to pursue plans to unveil a 200Mb/s service within the next few years. BT by contrast insists that its proposed 40Mb/s ADSL2/fibre network will be sufficient for the foreseeable future. This will prove a costly mistake in the long run: having initially invested in a half-measure, BT (and read FT and Deutsche Telekom as well) in coming years will again have to catch-up with the Nordic countries, The Netherlands and elsewhere, and invest in pushing fibre one step closer to the end-user. That FttH is the end-game is self-evident; what will appear remarkable in five to ten years time is that in 2008 there was even a debate about it.

For more information, see separate reports:

• United Kingdom - Broadband - Fixed Network Overview, Statistics & Forecasts;
• Italy - Broadband Market - Overview, Statistics & Forecasts;
• Sweden - Broadband Market - Overview, Statistics & Forecasts;
• Netherlands - Fibre-to-the-home Developments;
• Netherlands - Broadband Market - Overview, Statistics & Forecasts;
• Europe - Broadband Market - Overview & Statistics;
• Europe - Infrastructure - FttH & NGNs;
• Europe - Regulatory Environment;
• Europe - Broadband - Regulating fibre access.

This entry was posted on Monday, August 18th, 2008 at 2:31 pm and is filed under BuddeBlog. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.