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Market-Led Demand for FttH Is Picking Up

With more than 100 countries now involved in the rollout of FttH there is increased evidence that commercial demand exists for this infrastructure. In developed economies FttH demand will, over the next 5 years, grow to between 30%-50% of the population. Competition aimed at the top end of this market will trigger a broader rollout.

A Bernstein study of Google’s rollout of FttH in Kansas City concluded that the penetration measured by them was much higher than they had expected. The survey saw penetration rates of up to 83% in more affluent neighbourhoods and 27% in lower income areas. Bernstein believes that in three to four years Google will capture 50% or more of potential homes passed with its $70 offering, and at least 10% of the homes passed with the company’s ‘free’ 5Mb/s offering (which requires a $300 install fee).

A further indication of the demand for FttH is that AT&T has unveiled plans to roll out FttH in 100 American cities and a similar number of municipalities are ready to do the same—as soon as the FCC, who already has the backing of President Obama, keeps its promise to make it easier for these cities to do so. Most of Scandinavia, the Netherlands, and many of the Arab oil states are now reaching FttH penetration levels of more than 50%. Even countries such as Estonia, Lithuania and Bulgaria are rolling out FttH at an ever-increasing speed, and by the end of this year China aims to have 100 million households connected to fibre.

The latest data from the Australian government is showing 90% uptake rates of FttH in the brownfield areas where it is becoming available. In greenfield areas the uptake is as high as 95%-100%, especially in new high-rise buildings; many of these are built by Asian investors who are very keen to obtain FttH access for their apartment customers. Despite this success the government has replaced the planned $40 billion FttH rollout with a so-called multi-technology mix (MTM), using FttN with copper and HFC as its last mile access infrastructure.

Looking at previous developments in the internet/broadband market it is safe to say that from now on demand for FttH connections will—around the globe—only increase.

Countries are increasingly viewing the developments in broadband infrastructure as a utility, similar to models used for gas, electricity and water, and such a model is the key to universally affordable broadband access. Treating the infrastructure separately from the services would bring telecoms investments more in line with that notion and therefore make investment in pure infrastructure models (such as FttH) more effective.

As a result of this we see a whole range of new infrastructure companies becoming involved in this market. They quantum leap over all of the ageing infrastructure providers, since in most cases the incumbent fixed broadband providers have been slow off the mark in upgrading their infrastructure. The demand for rich media and high-speed broadband services may be going through the roof, but the incumbent telcos in the USA and Europe seem to have adopted a business model that is based on penalising and discouraging customers from high usage and, with the help of anti-net-neutrality rules, they could even actively limit supply while demand in the market is rising sharply. In markets that are working properly increased demand would result in increased supply, but apparently not so in telecoms.

What is now happening around the world is that these new companies are aiming to cherry-pick, with FttH aimed at the more affluent top 15%-25% of the market. By not following the market-driven demand and supply model the incumbent telcos now see themselves as being ‘robbed’ of these highly profitable markets and in several cases this is forcing them to act. AT&T’s plans are driven by Google Fibre and in the Netherlands KPN was pushed by Reggefibre. The FttH battle in the UK is led by BSkyB and a couple of other providers, with BT struggling to keep up with these companies.

In Australia, with the government now basically stopping new FttH rollouts, companies such as Telstra and TPG have shown interest in filling that gap. However, similar to the situation in other countries where this has led to an undermining of the business model of the incumbent, in Australia this would severely undermine the business model of NBN Co, the government company rolling out the national FttN network.

There are now also FttH rollouts in developing economies such as Indonesia, South Africa, Brazil, and India, where there is demand in at least the top 5% of the market. In such economies this immediately translates into tens of millions of users.

We are now seeing a perfect storm brewing whereby competition is forcing new FttH rollouts which in turn is pushing a reluctant incumbent market forward, and whereby investment models are favouring more targeted and different business models for infrastructure and for services.

True, if the incumbents are able to deliver different MTM solutions with a universal equivalent outcome there will be, as they argue, less demand for FttH. But the jury is still out on this. Australia is embarking on such a strategy but recent announcements are watering-down the promise of an already very low universal 25Mb/s service to be delivered over the planned FttN network; this does not sound very encouraging. It is safe to say that by the time people are beginning to be connected to MTM solutions to any significant degree 25Mb/s will be insufficient to satisfy the demand in at least 50% of the market.

It will also be interesting to do a case study in a couple of years’ time to explore the impact of FttH between the ‘haves’ and the ‘have-nots’—a case study on the social and economic inequity of people who live in towns with FttH access and people who may never get it—or at least where it may take ten or more years.

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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