Europe’s Economic downturn a (potential) boost to telecoms.
The financial crisis which triggered the continuing global economic downturn has received government assistance unseen since FDR’s New Deal. In the American context, much of this assistance has so far been in the form of bail-outs. In the 1930s the Keynesian focus was on government spending to stimulate employment. While millions were kept in work, and spending on infrastructure projects increased annually (more was spent in 1940 than in any year in the ’30s), the economy only recovered at a deeper level when stimulated by the manufacturing demands of the Second World War.
The current crisis provides a golden opportunity for governments to revisit the Keynesian strategy, one that is gaining ground among many economists. It may provide a key stimulus for next generation telecoms infrastructure development.
Until late 2007 some of Europe’s major incumbents, including Deutsche Telekom, BT and France Telecom, upgraded their copper networks with ADSL2+ and VDSL but stayed clear of large-scale fibre Next Generation Networks, citing cost and the lack of consumer demand for services requiring 100Mb/s. Their mindsets and strategies have since been dramatically revised following the success of alternative fibre network operators, which looked like leaving the incumbents behind when consumers eventually do need that bandwidth. But the incumbents have taken a half-way approach, generally planning to deploy hybrid fibre/copper for most of their networks. Copper in the last mile would still restrict customers to at best 40Mb/s.
A life-line can be thrown by governments looking for worthwhile projects to invest in, thus providing jobs in the short term while securing longer-term socio-economic prosperity for taxpayers. The EU has called for almost €190 billion to be spent as a regional stimulus package, of which a sizeable chunk is likely to be spent on IP infrastructure. The governments of the UK, France, Spain and Portugal have all recently cited broadband infrastructure as a key area in which to channel funds.
Public money would go far to alleviate the liquidity crisis faced by telcos, which threatens to stall their investments in coming years. Telcos make little money from broadband, since competition among ISPs has brought down prices, and thus service revenue, to new lows. In addition, legacy voice revenue will continue to fall as more people switch to mobile-only solutions. Buttressed by public funding, cash-strapped telcos will be better able to build mostly FttH rather than the cheaper FttC networks. The Italian government has pledged to invest up to €1 billion in the country’s NGN, providing the collaboration which Telecom Italia needs to overcome its fear of undertaking the job on its own. In the UK, the cost of funding a national NGN has been estimated at between £5 billion £28 billion, depending on the options available (including FttC / VDSL; FttH using Gigabit Passive Optical Network (GPON) or FttH / Point-to-Point (PTP)). A report commissioned at the end of 2008 disappointingly favoured the cheaper hybrid option, but given the likelihood that the government will inject substantial cash into the country’s NGN, more FttH is expected to be built. As for the smaller markets, the Portugese government also recently announced that it would provide an €800 million credit line to support Portugal Telecom, ZON Multimedia, Sonaecom and ONI in their planned €1 billion investment to build out the country’s NGNs. These should cover 1.5 million homes and are considered imperative to help the country fight the economic downturn.
For a good number of Europe’s consumers, government stimulus packages should deliver some silver to line the dark clouds.
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