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Some of the World’s Largest Investors Are Investing in FttH

While some governments are still struggling with the concept of FttH—some of the world’s largest investors such as the Dutch superannuation funds (ABP, PGGM and Pensioenfonds Vervoer (PfV)), have been investing in FttH in the Netherlands since 2010.

This is happening in a country with a broadband cable network that covers 95% of the country and nationwide access to ADSL2+ networks. Average speeds available to ordinary users in the Netherlands, is amongst the highest in the world.

However, these investors, like most others, have come to the conclusion that FttH is the network of the future and that the cable and telco networks are on the way out. They believed that KPN was far too slow with the roll out of their FttH network and saw opportunities of their own in this market.

These investors are interested in investing in long-term assets that will secure cash flows for the next 30 years. They have strong needs for viable investments that will deliver safe and steady income over long period of times, especially under the current financial circumstances.

In particular they see the current closed HFC broadband networks as high risk as it is expected that these will rapidly decline within the next five years or so. While these HFC networks have a relative high Return on Investment (ROI) of around 20%, they prefer to invest in the long term open FttH networks with ROIs typically more around 6%.

With bond rates in the Netherlands at around 1.89% in mid 2012; the 6% strategy is already seen as superior.

The way that most, if not all, HFC operators are currently funding their upgrades is through their cash flow. Very few, if any, are making investments through the capital markets for the risk reasons mentioned above.

These are lessons here that can be learned; especially in situations where it is suggested that investments in old broadband technologies be made—rather than in the future proof FttH technology. In Australia companies such as Optus and Telstra have already made their investments strategies and both don’t seem to see a long term future in their HFC networks.

So while short term investments in old technology might deliver a short cost advantage, it looks like that this is not a smart way of investing. With the reality of the current global investment market; it is highly unlikely that capital markets will be eager to fund upgrades or extensions of the HFC and copper based networks.

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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