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Broadband Demand-Side Management

Countries, cities and commercial organisations around the globe are facing problems associated with the rollout of fibre-to-the-home networks. There are two key areas of concern:

1. Operators are struggling with their business models for the rollout (Europe and the USA)

2. Once they have rolled out they face a limited take-up of the infrastructure (Singapore, South Korea and Japan)

We have been warning about these issues for well over a decade. The problem arises because the telecoms industry has been based on the principle ‘build and they will come’. While this eventually will also work for FttH, it could take from three to five years to happen since, based on the existing applications and usage, the current broadband networks are sufficient for our current broadband capacity requirements. Recent separate research from companies such as Cisco, IBM, Google and Ericsson, however, is indicating that the current infrastructure will run out of steam anywhere between 3 and 8 years from now.

We have been arguing that when the decisions are made to roll out FttH policies that are aimed at the demand side should be developed at the same time. It takes time to build scale in FttH and organisations are reluctant to develop applications for FttH as, in order for them to be economically viable, most of these applications require a large number of users. Commercial interest is generally not displayed at that level unless there is something around 15%-25% national uptake—the well-known chicken or egg situation.

Fortunately most business and government leaders understand the long-term investment needs and agree that high-speed broadband is essential infrastructure for the digital economy, and that this includes e-health, tele-education and e-government services. For that reason countries around the world are changing their broadband infrastructure plans to include policies aimed at facilitating the development of their digital economy. At the latest count, made by the UN, the number of countries with broadband policies aimed at the digital development is now close to 80.

With the digital economy at the core of these plans the foundations for FttH infrastructure are becoming far more solid—at least in the developed countries, all of which are now actively involved in FttH rollout programs. All the BRIC countries also have ambitious FttH plans, as well as all of the Gulf States. Infrastructure is seen as national infrastructure and, as such, as a long-term (30-year) investment; and politicians and investors are increasingly looking at it from that angle. Telling in this respect is the blog that we wrote back in 2010 on the investment strategy in FttH infrastructure of some of the superannuation funds.

We also mentioned the changes in the broadband strategies of South Korea, with their $2 billion investment in tele-education, which will further boost their uptake of the existing fibre networks.

Interestingly, in the Netherlands, where many of the FttH rollouts are driven by local councils, the same conclusions are being arrived at. The FttH networks in competition with the existing broadband networks are not bringing in the expected customer numbers and they are now also discussing other policies addressing the demand side of FttH.

The question we have in this particular situation is that local councils can do relatively little to stimulate demand, since most of the demand policies that are needed have to be of a national nature, and therefore the demand needed for those applications needs to be generated nationally. There would be very few content providers interested in simply starting a commercial digital media or healthcare service just for the one council area. This comes back to the abovementioned minimum national penetration level needed to simply get these developments started. FttH infrastructure needs to be addressed on a national level, not on a local level. The problems of a local approach are very visible in the USA, where after a decade of local FttH rollouts there are still very few success stories, mainly because local councils and states are overruled by national telecoms policies that do not allow local councils to be involved in the rollout of this infrastructure, so there is no chance whatsoever to create that essential national demand for FttH services through well-meant and laudable local initiatives.

It will also be interesting to see how successful the Google initiative in Kansas City will be. We are not particularly optimistic about that, for the reasons we give here.

Eventually, however, these applications will be developed, and so in that respect it is not a waste of investment. But in order to create a faster uptake and/or to build better business models a two-pronged approach is absolutely essential—one that covers both the supply and the demand side.

Australia is one of the few countries that does have such a combined policy in place—although not to the extent that we would like to see—and its model is currently used by the UN. It was featured at the latest G20 meeting in Mexico as an example of how to more quickly develop the digital economy in order to stimulate a turnaround in the international global economic malaise. Not that broadband can turn things around, but without a broadband infrastructure a transformation of the economy is far more difficult to achieve.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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