BuddeBlog

Ofcom recently released its fifth Communications Market report, containing a wealth of data on the progress of the UK’s telecoms sector. This is one of the more advanced in Europe: consumers can access digital TV via cable, DTTV, satellite and IPTV, and almost a third of households take a triple play service incorporating fixed-line, TV and broadband. The BBC’s iPlayer, having undergone two years of trials, has gone from strength to strength since its launch in December 2007. The player has been incorporated within Virgin Media’s offering, and will soon be launched on the Nintendo Wii, overcoming one of the enduring difficulties of Internet-based applications getting from the PC to the TV.

Although unstated, the report also provides a strong argument for smart metering.

According to the Energy Savings Trust, by 2020 consumer electronics devices will account for 45% of all electricity used in the home, compared to around 30% currently. Much of this is due to changing technology, as well as having more of it. Technology has moved on from the CRT TV and VCR to incorporate large plasma TVs consuming on average over three times as much energy as a CRT. There are also multiple peripheral devices. When analogue switch-over gets into its stride in the next two years, households will be obliged to add a digital set-top box to their list of power-hungry devices. As for more of it, it is common for children to have TVs, DVRs and gaming consoles in their rooms, and since all have mobile phones one can throw in a mobile charger as well.

There are a number of European-based agencies which endeavour to alert consumers to their power usage and to encourage manufacturers to increase energy efficiency and reduce the level of power consumption. Yet getting consumers to change their behaviour is the main difficulty. One tactic is to shock them into turning off appliances rather than putting them on stand-by. This can be done simply by alerting them to how much power is being used. A set-top box on stand-by, for example, will consume about 91% of its ‘on’ power, a DVR will use 51%. Yet only 12% of UK consumers regularly switch off the set-top box, and 23% their DVR.

The use of smart meters is crucial to overcoming consumer ignorance of their power consumption. In February 2008 a trial by Scottish and Southern Energy involving 2,000 residents near Perth (and since repeated by a number of other energy suppliers across the country) illustrated the dramatic change in everyday habits when smart meters presented consumers with a visual display of power use, whether from putting on a kettle or switching off a computer monitor.

The UK, currently debating whether to replace 45 million gas and electricity meters with smart meters or with cheaper and less instructive electricity display units, could learn from experiences in Italy where electricity consumption has fallen 5% since smart meters were introduced in 2005, or Canada where the government of Ontario introduced smart meters as a way to avoid investing in more coal-fired power stations.

This consumer, for one, has already changed his power-use habits, and is proselytizing the virtues of smart metering.

Henry Lancaster - Senior Analyst Europe, BuddeComm

For more information of smart meter developments, see:

• Global - Smart Grids - Energy & Environmental Issues - 2008;
• Global - Smart Grids - Overview 2008;
• Global - Utilities Broadband - Trends & Analyses;
• Europe - Broadband - Broadband over Power Line (BPL).

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.

The TiVo/YouTube tie up announced earlier this year has come to fruition with TiVo now porting YouTube’s Internet video content direct to television. The software upgrade to Series3 and TiVo HD DVRs which enable the new feature are currently being rolled out across the US. Upon access to the service, TiVo users will be able to search, browse and watch hundreds of millions of User Generated Content videos. This development is seen as a significant threat to ISPs, advertisers and broadcasters alike. It is also a competitor to the much-hyped Apple TV.

Advertisers are threatened by this new development as it provides another option for consumers to be entertained without being required to watch ads. ISPs are worried as it undermines their efforts to gain revenue from providing both access and content. Broadcasters are also watching mindfully as YouTube evolves into a serious competitor and encroaches upon their traditional broadcasting turf.

The arrangement is likely to be a significant and much-needed boost for TiVo, which has experienced a number of substantial challenges in recent years. The DVR pioneer took a big hit in subscriber numbers last year with the decision by DirecTV to offer its subscribers (which accounted for two-thirds of TiVo’s subs) an alternative DVR brand. TiVO now only boasts 3.8 million subscribers (down from 4.3 million in 2007). The arrangement with YouTube and its associated software upgrade, will give it a substantial advantage over the standard-issue cable DVRs. It will also have an edge over AppleTV which doesn’t allow the viewer to record TV and skip commercials.

Of some concern are the suggestions that the ISPs will increasingly use bandwidth caps to prevent the TiVo/YouTube venture, and similar arrangements, from eroding the ISPs share of the content market.  Again, this highlights the role for antitrust law, and the need for network neutrality protection, to prevent IPSs from dampening competition and consumer choice that should be the hallmark of online content.

For more information on developments in TV and Internet convergence in the USA, see USA - Convergence - Digital TV & IPTV.