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Fiber to the Home: ‘Awesome’ - But What Is Its Purpose?

Two approaches can be taken towards the development of Fiber to the Home (FttH). One is all about its commercial potential—the sale of the most awesome commercial applications in relation to video entertainment, gaming and TV. The other is a perhaps more sophisticated approach—from the perspective of social and economic development.

Of course the two are not mutually exclusive. Those who successfully follow the commercial route create an infrastructure over which those other social and economic applications will eventually be carried as well. This is quite a legitimate route, but the reality is that most people in this situation will say ‘the FttH entertainment applications are absolutely awesome, but totally useless’. In other words, nice to have but it is highly unlikely that people will pay for them.

We basically see this with such commercial FttH deployments around the world. Commercial FttH subscriptions cost consumers well over $100 per month, and at such a price penetration in developed countries will reach no more than approximately 20%. That will not be sufficient mass to launch other social and economic applications over such a network.

If we are serious about those national benefits we will have to treat FttH differently—not just as another telecoms network, but as national infrastructure. However the all-powerful telcos will fight such an approach tooth and nail, since that would make their network a utility. They are used to extracting premium prices based on their vertically-integrated monopolies and they are in no mood to relinquish this. Simply looking at the amount of money telcos spend on lobbying reveals that they do not want to see government making any changes to their lucrative money-making schemes.

It will be interesting to see what Google Fibre in Kansas City will do. Its price is more affordable (around $75) but it is still operating on that ‘awesome entertainment’ level. Will it be able to attract sufficient customers to eventually create that broader infrastructure that will be used by a far greater range of applications? We estimate that it would be able to achieve around 40% penetration, and if it could move past ‘awesome but useless’ that could grow to 60%. By that time sufficient mass would have been created to move to the next stage. So, all very doable over, let us say, a five-year period.

The good thing is that if any company can create such a breakthrough development it is Google. It is not a telco. It simply wants to prove the business case—that FttH makes business sense. If it can prove the commercial success of Ftth it is more likely that other telcos will follow. There is no way Google on its own can fibre the USA, let alone the world. So its role in relation to Google Fibre is to extend the global FttH footprint by example, as that would allow it to increase the number of next-gen applications and service. With its dominant position in this market the spill-over from that is many times larger than the financial gains the company can make running a FttH network.

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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