FTTH moves forward in Europe, but growth is eclipsed

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At the end of January, the FTTH Council Europe met in Vienna for a two-day session to discuss the challenges, opportunities, and future of FTTH deployments in Europe. Hartwig Tauber, the president of the council, underscored the stark reality that Europe may quickly fall behind other parts of the world when it comes to FTTH deployment. He stated that, at its current growth rates, “Europe will have fewer homes passed by FTTH technology in 2008 than Japan has FTTH subscribers today!” (Emphasis mine.) As such, it is not surprising that this year’s event was sold out, with more than 800 delegates attending.

Tauber quoted data from IDATE, the French market research and consulting firm that provides the FTTH Council Europe with yearly market reports. The latest report from IDATE shows that there were an estimated 646,600 FTTX subscribers in the EU18 (the 18 members of the European Union) in mid-2005, representing 18% growth from mid-2004 estimates. Additionally, the number of homes/buildings passed, estimated at 2.51 million in mid-2005, grew at a slightly faster rate in that timeframe, 26%. However, the IDATE report points out that there continued to be no major FTTH deployments in the 10 new EU members in June 2005, with 97% (!) of deployments being concentrated in just five EU countries: Sweden, Italy, Denmark, the Netherlands, and Norway.

Of more interest, despite the EU’s double-digit growth in both subscribers and homes/buildings passed, these rates of FTTH growth are eclipsed by other regions of the world, namely Asia and the United States, which are indicated as having growth rates of 40% and 50% per year, respectively, according to Tauber. As such, it’s not surprising that the FTTH Council Europe is attempting to play a key role in addressing this issue.

But with FTTH pioneers like FastWeb (Italy) and B2 (Sweden) paving the way in the EU, why do Europe’s growth rates appear to pale in comparison to other parts of the world? Well, for the most part, it seems that Europe’s forays into FTTH are driven primarily by municipalities and housing companies, rather than by market competition, as is clearly the case in the U.S. and Asia. The latest FTTH market report from IDATE states that the overwhelming majority (72%) of the FTTX projects in Europe were initiated by municipalities and power utilities. Incumbent telecom providers, in contrast, accounted for less than 8% of activity.

With DSL revenues for incumbent European telecom providers growing and regulations complex, their short-/medium-term incentives to invest in FTTH are moderate to slight. The truth is that the factors that really drive the need for FTTH investment are modest in Europe, particularly when compared to Asia and the U.S. These factors include:

Strong competition-Competition drives a need to innovate in service offerings and improve operational performance over time. European wireline services markets are decidedly less competitive than its mobile markets and certainly less competitive than in Asia (particularly China) or in the U.S. The absence of several large incumbents is the main contributing factor. Additionally, it seems that the startup FTTH providers have stopped deploying fiber, possibly due to limited demand or competition from municipalities.

Regulatory environment-European telecom regulations vary by country, with many of the most advanced FTTH countries having regulations to facilitate deployment. However, in countries such as France and Germany, regulatory conditions are considered negative and favor the incumbent.

Potential demand for future or more advanced network-based services-For consumers, this revolves around multiroom TV usage, video-on-demand, the potential for HDTV and/or IPTV, and high-speed Internet use; for business, this is all about high-speed access and video services. Cable TV is not as well developed in Europe as it is in the U.S. Many countries still have “basic” cable offerings, which do provide an opportunity for alternative providers to offer something new. However, adoption will likely be slow, as it will be easier for incumbents to deliver more advanced programming/content for an incremental increase in price, whereas an alternative provider would have to charge premium pricing. This may not go over well with the masses.

So, given these conditions, most expect FTTH to continue forward in the EU (reaching 2.1 million subscribers and 6.6 homes/buildings passed in 2008), but don’t expect it to surge forward until some of the negative market conditions are addressed. Given the turnout at this year’s FTTH Council meeting, we can expect the environment to continue to improve over time…slowly and steadily. Th 210750

Kneko Burney is president and chief strategist of Compass Intelligence (Amsterdam; www.compass-intelligence.com), a research-driven strategic consulting company.

The most recent statistics:
• 646,570 FTTB subs in June 2005 in EU18 (includes Norway, Iceland, and Switzerland).
• 2.51 million homes/buildings passed.
• 97% of FTTX subscribers concentrated in Sweden, Italy, Denmark, the Netherlands, and Norway.
• 72% of EU FTTX projects (166 in total; 13 are new since mid-2004) are initiated by municipalities or power utilities, with the remainder instigated by housing companies, alternative providers, and less than 8% by incumbents.

The Netherlands-Amsterdam: 40,000 homes by 2006 (made at the end of 2005).
Germany-Deutsche Telecom plans to connect 10 cities with a fiber-to-the-curb network (with copper links to the home) offering up to 50 Mbits/sec per household in 2006, extending to 50 cities by the end of 2007.
France-Paris plans to launch a bidding process for a citywide FTTH network, and France Telecom has an upcoming pilot project to link a few thousand homes with GPON-FTTH.
Spain-The regional government of Asturias plans to have 30,000 homes covered by FTTH by 2006.
Austria-The City of Vienna announced plans to deploy to 950,000 homes and 70,000 businesses, with the first phase passing 50,000 homes in the next two years. As is typical of European FTTX deployments, the network is to be built by a consortium of city-owned utility companies, including Wienkanal and Wien Energie, and then made available to service providers.

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