FTTH: The European cat and mouse game
It’s a paradox that our “fair play” mentality in Europe can be virtuous about protecting the rights of individual parties at one level while compromising at another an emerging industry that is seen as vital by the European Union as a catalyst for the future wellbeing of our economy—as well as our competitive situation in the global marketplace. The FTTH European marketplace today has all of the elements of a thriller, with the entry of the municipalities to add some spice to the story.
The creation of next-generation high-speed broadband networks will be of increasing significance over the coming decade. And it is interesting to see that today, right now, we are at a tipping point as the old xDSL “broadband” networks face redundancy in the face of fibre-optic-filled infrastructures that will become the catalysts for a massive distribution of wealth and market share.
It’s not the figures of the FTTH cable and connectivity markets that are truly significant, but the impact of the future revenues that will be enabled when these super-broadband structures are in place. Saying this, most analysts estimated the FTTH market for cable alone in Europe in 2007 at around €62 million, with the expectation of growth to €120 million by 2015. The connectivity part of the business almost doubles this.
But this is a small piece of the complete market space. When you total up the passive component with the connectivity market and estimate the revenue from municipalities, this gives a projected market size of some €20 billion by 2012. Of course, there are cost variables for the kind of connections (such as sewers, aerial, direct buried, or microducts), but the figures mount up when you take into account some 17 million connections from subscribers. This is the number generally agreed to be FTTH connected by the end of 2011, representing around 8% of European homes.
So it’s an exciting time for cable system providers to be in this business as high-speed broadband networks become a top-of-mind theme in the communications industry.
However, the European FTTH market does not project a coherent image of a united Europe rolling ahead in unison; it is more of a question of different gears for different countries, compounded by a hesitant EU and other regulatory authorities. At another level, we see the complex cat and mouse game being played out between the new entrants and the incumbents who are fearful of losing their monopolies over the last mile and the potential revenues that will be opened up by next-generation broadband.
In the United Kingdom the FTTH market appears to be stuck in neutral gear, perhaps compounded by the functional split between Openreach and BT and the relatively high (but sometimes misleading) broadband penetration figures largely composed of users seemingly content with 256 kbit/s. So here, it all depends on the definition of “broadband.”
In France, the cats and mice are at play, as a result of the initiatives taken by Neuf Cegetel and Iliad motivating the local incumbent to expand the scale of FTTH networks. Now the French government is getting into the act with ambitious targets to connect 4 million customers by 2012.
The Netherlands, my home country, and Scandinavia have been early adopters, especially as cities and municipalities are really turned onto fibre-optic access networks. With 70,000 homes connected today and the first phase of the Amsterdam CityNet project expected to be completed by mid-2008, Amsterdam looks as though it could be a true European FTTH showcase, with up to 1.5 million connections expected by 2015 (“Broadband Networks of the Future” report by WestLB, August 2007). Stimulated by this competition in the Netherlands, local incumbent KPN is now beginning various FTTH projects in various districts of Amsterdam.
In Sweden, IDATE is claiming 300,000 active FTTH customers, and in Norway the local utilities company has an ambitious FTTH project for more than 2 million households in the cards.
Italy is planning a massive €6.5 billion modernisation program that includes FTTB, with an ultimate goal to provide 65% of Italian households with broadband access of up to 100 Mbit/s by 2012. Germany appears to be the big question mark at present, though this perception could change. This country has several FTTB and FTTH projects on the go, but the lack of a clear regulatory framework is slowing down the modernisation of the entire communication infrastructure. In addition to Deutsche Telekom and the cable network operators, WestLB ratings recently published a report backing the alternative fixed network operators to create successful FTTB/H networks, as well as an expected consolidation that could accelerate expansion as well. But there are still fears that Germany has lost its headstart gained from the early expansion of its VDSL network.
Spain, with its strong incumbent, has ambitious FTTH projects moving ahead. Particular initiatives have been shown by the Government of Asturias to revitalise the economies of the three mining valleys in the area by bringing fibre to 22,000 homes with a network open to all service providers and operators, piping in broadcast TV, IP video, data, Internet access, and telephony. Local incumbent Telefónica not only has a healthy local market share but also has a solid presence outside its home market as well as a proactive investment strategy for services and content.
The dynamics behind this complex and disparate European FTTH scenario are fascinating, with the incumbents defending their metro access and local loops on the one hand and with the new entrants and alternative operators attacking the FTTB/H market space aggressively. And to further complicate this scenario, regulation, or the prior lack of clear, well defined regulatory conditions, and EU anticompetition legal concerns have so far contributed to an air of uncertainty to make investors hesitant.
But there are positive signs that Europe will take the necessary steps to remove these obstacles so that next-generation networks can take off. Broadband growth remains strong, with the top EU countries now world leaders in broadband penetration, according to a recent EU report. But which type of broadband? Being content with xDSL penetration figures is no way to leap into the future. The major investment decisions are in fibre and this is where the future lies.
Things are firming up. EU Telecoms Commissioner Viviane Reding has stated that Europe must act now to get its broadband house in order. We’ll see if the package of reforms for the EU Telecom Rules will set a more positive note. My personal impression is that the new recommendations will leave high-density implementation to a competitive marketplace (as it’s difficult to control), and low-density regions will have some level of investment protection to motivate and stimulate activity in this area.
Whatever decisions are made, they will hopefully give some sense of a clearer direction. New alternative operator models such as the “open access” model, in which end users are given discrimination-free access to any provider (as in Asturias in Spain) will obviously give more transparency to EU markets. Leadership is needed, but who will take the first step?
Karel Helsen is director of marketing for Draka Comteq (www.draka.com).