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A World of Fiber

By Benoît Felten, Chief Research Officer
January 2011

Executive Summary
Fiber to the premises (FTTP) became a major talking point in the first decade of the 21st Century, but it’s not yet a reality everywhere. Moving from intent to planning and from planning to implementation is complex. The underlying reason for this complexity is that with liberalization legacy telecom operators became ill-suited to the kind of long-term investment that FTTP requires and yet refuse to relinquish their historical role as monopoly network providers. As a consequence, deployment and adoption are slow.
Exhibit 1: Availability of 100Mbps download services over FTTP

Source: Diffraction Analysis, 2011

Diffraction Analysis | www.diffractionanalysis.com

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Italy.diffractionanalysis. Australia and New Zealand have chosen structurally separated deployment models with heavy state intervention. China. but that alone rarely leads to deployment. the vital nature of communications infrastructure has led local and national governments to examine this space in great detail and. France and Portugal are the most advanced markets although in comparison with Northern Europe they are still in the early stages. In Western Europe the Netherlands. In Canada. trying to build a context where the investment is easier to bear or more likely to succeed. While incumbents would seem to be the natural players for FTTP deployment. When no deployment occurs. the United Arab Emirates.com 2 . Exhibit 1 shows the availability of 100 Mbps downstream services over FTTP all over the world.Asia is where the market erupted in the late 1990s. The other driver for incumbents is the opportunity that content delivery offers for increased revenues. They are often. but those who aren’t are already facing threats from alternative players. Russia is the largest and fastest growing market in Europe. Furthermore. In the Middle East and Africa. the Nordic countries were the forerunners of deployment and adoption with Sweden leading the pack. In Europe. These deployments tend to be localized but a number of them have been quite successful. While that doesn’t perfectly match FTTP deployment since some (including Verizon in the US) don’t offer 100 Mbps downstream services despite having launched FTTP. but not always. with statefunded deployments frequent at a local level. they must decide between continuing to rent access lines from the incumbent or investing in their own network. Two more waves of FTTP-enabled countries are now coming to the forefront: Singapore. in some instances. deployment is limited with only one country. India and Malaysia are exploring different deployment models better suited to emerging markets. very little has happened beyond good intentions. The main reason for patchy deployment across the world is that the key driver for incumbent operators is network competition. Verizon’s FiOS represents the vast majority of North American FTTP deployment and adoption. Drivers for deployment are different for the different stakeholders. They can also be more direct. others have started to look into the opportunity that fiber could represent. competitive operators are co-investing in new networks in the hope of reaching critical mass faster. utility companies who see fiber broadband as an adjacent utility market. They can do so with a light touch. although again adoption doesn’t necessarily follow. Brazil is the only country with significant deployment both through Telefónica Brazil in Sao Paolo and GVT throughout the country. Other US FTTP initiatives include SureWest in Northern California and a number of municipal networks. Diffraction Analysis | www. In most other European countries FTTP is little more than announcements. Competitive operators only move towards FTTP when they reach a critical mass of customers in a given geographical area. to intervene directly. it tends to be a good indicator of dynamic FTTP markets. with a high rate of deployment (but limited adoption). both of which now have massive deployment and high adoption. In Latin America. Regulation and policy also need to be more targeted at accelerating adoption and facilitating deployment without sacrificing competitive dynamics. more specifically Japan and Korea. In some countries. The Baltic States and many Eastern European countries are now the most dynamic when it comes to FTTP deployment. How could deployment be accelerated? A mix of external pressure (especially from growing bandwidth needs) and internal shift (as business models and market approach evolve) will probably push incumbents to be more proactive. only in countries where cable networks have a strong footprint does that level of competition exist. Other middle-eastern countries are in early stages of deployment as are countries in North Africa (especially Algeria) and in West Africa (namely Kenya). New entrants go after opportunities left wide open by incumbents reluctant to invest in FTTP. local and national governments tend to get involved. and a few examples at a national level. At that point.

Orange (France). then why do they seem so hesitant? Does their inaction open up opportunities for other players to move into the network infrastructure business? Can policy and regulation encourage the deployment of FTTP or in some cases substitute public players for reluctant private ones? In this report. II . ECI Telecom. Huawei. Cisco. OFCOM (UK) and more. This means that a transformation of the network to next-generation access (NGA) needs to happen in the relatively near future.I . PacketFront and more. Stokab (Sweden). Federal Communications Commission (US). With 9 million Diffraction Analysis | www. But the question of how that transformation needs to occur has not yet been fully addressed. Via Europa (Sweden). Radius Infratel (India). Vodafone (Global). started in the early 2000s. Other entities: Autorité de la Concurrence (France). we will examine the actual state of FTTP deployment across the globe. Ericsson. and it still generates more heat than light. ECTA (Belgium). FTTP became a topic in Japan in the late 1990s as incumbent NTT started considering ambitious NGN plans. Vendors: Alcatel Lucent. As a consequence. Nokia Siemens Networks. all deployment and adoption numbers are sourced from the FTTH Council North America. While growth in Korea and Japan – the early movers – is slowing down. They know that the copper network that has powered telecom services for the last 50 years or more will not be able to sustain the market for the next 50 years and probably not even the next 10 years. and from an analysis of said deployments outline the drivers that have caused them to happen.   Unless otherwise stated. FTTP in South Korea (mostly FTTB) emerged in the early 2000s thanks in part to a significant government tax incentive. FTTP is now considered by most players in the market as an inevitability. and was aligned with the explosion of internet usage. AT&T (US). a second wave of FTTP active countries is emerging in the region suggesting that the worldwide epicenter of FTTP will remain in Asia Pacific for some years to come. nearly 75% of which are using incumbent NTT for service. By March 2010. Telecom Italia (Italy). Are the legacy players of the copper era necessarily the best placed to lead this transformation? If yes. and more. 91. ETNO (Belgium). Free (France).com 3 . Ministry of Telecommunications (Netherlands). Only by understanding these drivers can players (both private and public) approach the considerable issue of FTTP deployment with some sense of where to go and how to get there. In June 2010.Worldwide Fiber Deployment Asia Pacific Asia Pacific is by far the leading region in terms of FTTP deployment and adoption. Wind (Italy). soon followed by KDDI. City Telecom (Hong Kong). telecom vendors and other stakeholders in the FTTP ecosystem:  Access and service providers: Altibox (Norway). South Korean service providers didn’t really need to manage a transition from a mature copper-based broadband market to a fiber-based broadband market. Wide-scale deployment by NTT.diffractionanalysis. Methodology The material for this report was built up over a considerable number of interviews with access and service providers.6% of homes in Japan were connected to either a fiber to the home (FTTH) or a fiber to the building (FTTB) infrastructure.5 million FTTP subscribers. the FTTH Council Europe or the FTTH Council Asia-Pacific.Introduction Fiber to the premises (FTTP) has been a hot topic for some 10 years now. but it has only recently become a mainstream idea. Japan boasted over 18. NTT (Japan). Glasvezelnet Amsterdam (Netherlands). and the number of FTTP subscribers in Japan overtook the number of DSL broadband subscribers in June 2008. BT (UK).

which explains why the average revenue per user (ARPU) is comparatively low. China Telecom and China Unicom are the main operators deploying FTTP in China today. Australia was the most radical. For a long time the regulatory framework in South Korea didn’t allow service providers to offer services other than pure internet access. In nearby Hong Kong and Taiwan. Incumbent Kazakhtelecom intends to use the infrastructure to deliver IPTV and video on demand services to affluent areas of the city. Nucleus Connect (a wholly owned subsidiary of cable operator StarHub) operates the active layer and wholesales it to retail service providers.2 million homes in or around Kuala Lumpur. while much smaller scale in absolute terms than mainland China. Diffraction Analysis | www. 35% of households subscribe to FTTP and the market has been led and stung by alternative operator Hong Kong Broadband Network (HKBN). soon to overtake DSL subscribers. In most other markets in Asia. In Malaysia. Over in Hong Kong. Most of the growth is driven by the demand for Greenfield accommodation in urban China.5 billon. The over-the-top industry. although fewer than 100. of which there are five so far. like the project will genuinely go ahead. Split ratios of 256 or even 512 are not unheard of in China. Malaysia and India are two countries where things are starting to coalesce. In New Zealand. the penetration rate of fiber broadband in the country is close to 55%. A little under half of the broadband market is still in the hands of incumbent Korea Telecom with challenger SK Broadband holding about one quarter of the market. the capital city of Khazakstan. Failure to offer compliant submissions on Telecom New Zealand’s part explains why none of the bids were awarded to the incumbent. has thrived as a consequence. While deployment and commercialization have started in remote and under-served Tasmania. an FTTP GPON deployment of unknown size was recently announced. FTTP services have been available for longer and. China currently has around 10 million FTTP subscribers. In Taiwan. however. deployments and adoption as a proportion of households are significant. Australia and New Zealand also started exploring separated business models.000 households have subscribed to date. and the broadband services offered on top of these fiber connections are comparable to the service levels that Europeans and North Americans are currently enjoying over DSL.5 million households) in a threetiered fully separated business model. and commercial services are now available. it may also explain why the Auckland bid hasn’t been attributed yet. In India BSNL launched commercial service around Jaipur in 2010. including the aforementioned SingTel and StarHub. announcing in 2009 that it would create a fully structurally separated NBN reaching 90% of the Australian population. however. most of them FTTB or highly split Passive Optical Network (PON) FTTH. FTTP isn’t anything like a mature market yet. Singapore was the forerunner with the announcement in 2008 that the government would subsidize a National Broadband Network (NBN) roll-out (which on Singapore’s scale is 1. Neutral access infrastructure provider Radius Infratel is deploying in the Delhi area and aims at 200. in absolute numbers the market will soon be the most important in the region and will likely dwarf any other market except possibly India. While penetration remains low. It now looks. and includes the purchase of incumbent Telstra’s physical assets. OpenNet (a consortium in which incumbent SingTel is a minority shareholder) invests in the passive infrastructure and deploys it. a self-described commodity broadband provider who controls over 50% of that market. Following in the footsteps of the Singapore NBN. three countries are in the early stages of massive FTTP deployment. the approach was somewhat less financially heavy since government investment in a separated infrastructure will only be NZD 1.000 homes connected by the end of 2011. The first bids were awarded in late 2010 although the key bid covering the capital city Auckland hasn’t been awarded yet. Now IPTV and IP Telephony are part of the service ecosystem and revenues per subscriber are growing. incumbent Chunghwa Telecom has been leading the way in terms of fiber deployment and currently boasts close to 2 million subscribers.diffractionanalysis. the highest in the world. incumbent Telekom Malaysia (TM) won a government bid to deploy FTTP to 1. Deployment is well advanced and targeted for completion in 2012. In Astana. the rest of the process has been slowed down by political shifts. In the South Pacific.com 4 . HKBN is one of the few service providers in the world to offer 1 Gbps broadband.FTTP subscribers. and aims to connect 2 million homes by 2012. all three following similar models of massive state intervention. Financing will be offered to wholesale operators in 33 different geographical bids covering different areas. TM will be footing 80% of the bill in exchange for the right to keep the access network closed to competitors until 2015. The other fast growing market for FTTP is mainland China. The state investment is estimated at AUD 27 billion over 15 years.

Etisalat intends to provide full coverage of Abu Dhabi and 90% coverage of the entire country by 2011. An FTTP project connecting 100. in Denmark the utility companies have been at the forefront of FTTP deployment. especially in the Arabian Peninsula. with less than 5% of households subscribing to FTTP services. Success is less striking in Estonia and Latvia although the respective incumbents in these countries are actively deploying FTTP infrastructure. the private players launched their own large scale deployments with incumbent TeliaSonera in the lead. In Finland. It’s the first such project in West Africa but could spark other similar projects in the region if successful. most of them operating under open access models. but adoption hasn’t really followed as of yet. Sweden was at the forefront of the fiber access revolution. FTTP initiatives go back several years and are essentially split between two players: Etisalat and Du. where the wireline market remains fragmented with different infrastructure and access providers owing different parts of the copper footprint. The neighbouring countries. a number of municipalities extended coverage to all of their constituents. In the Baltic countries where Nordic incumbents own stakes in many operations. Europe FTTP deployment in Europe started in the Nordic countries in the late 1990s. In South Africa an FTTP project was announced in Cape Town in 2008.000 FTTP subscribers. which makes Lithuania the European country with the highest penetration of FTTP subscribers. After the initial wave of municipal deployments.000 homes with GPON technology. FTTP has also been expanding fast. In the United Arab Emirates (UAE). the Middle East and Africa weren’t part of the early wave of FTTP deployment. it’s worth keeping in mind that Algeria’s overall wireline footprint is only 3 million lines. Both are focusing on a FTTP deployment in and around Dubai. In Egypt there have been some limited-scale deployments by Telecom Egypt. Finally.com 5 . Qatar and Oman have announced pilots and intentions. as many of the countries in the region. and the failure of Dong Energy’s project Fibernett (and its subsequent purchase by incumbent TDC) seems to have dampened enthusiasm for the time being.000 homes. however. Other deployments in Africa include an ambitious plan by Algeria Telecom to deploy FTTP to 250. In parallel. Take-up has been fast and TEO recently announced over 100. While this seems to represent a limited scale in absolute numbers. are considering or actively deploying next-generation infrastructures. In Norway. particularly around the capital Helsinki and large cities. Diffraction Analysis | www. but it appears to have seen little progress.000 subscribers. a number of FTTP initiatives have emerged. The leading country is Lithuania where incumbent TEO has deployed a mix of FTTH and FTTB infrastructure to a little less than 300. Du’s footprint is focused on Dubai itself and covers roughly 400. adoption remains modest. followed by competitive operator Bredbandsbolaget.000 homes using Ethernet point-to-point technology. so this plan actually represents an upgrade of one tenth of the national network. and a little under 15% of Swedish households are currently subscribing to FTTP services.Middle East and Africa With the exception of the United Arab Emirates. Etisalat is the most ambitious and currently connects around 750. This in turn has pushed incumbent Telenor to counter with its own deployment of FTTP. mostly in Greenfield real-estate developments. competitive operator Altibox (previously Lyse Tele) has successfully deployed FTTP networks in many Tier 2 cities and currently boasts close to 200. While take-up was very slow coming. Overall.000 homes in Kenya’s capital Nairobi was announced in early 2011 by broadband operator Jamii Telecoms Limited (JTL). the latest numbers from the UAE suggest that subscriptions are finally growing. however. This is changing.000 homes by the end of 2011. The Swedish development of fiber led to some emulation in the neighbouring countries. Today there are over 150 municipal networks in Sweden. STC in Saudi Arabia also has some limited pilot programs but nothing definite at this stage. but actual deployment hasn’t picked up yet. in part due to state aids designed to help municipalities connect public buildings. Leveraging these deployments. mostly to high-revenue gated communities in and around Cairo.diffractionanalysis. the city of Stockholm deployed a dark fiber backbone to public administrations and businesses through a public company called Stokab.

have also deployed open-access FTTP infrastructure. In summer 2010.000 homes in a neighborhood of Rome. Although the competitive landscape in France led many to suspect that FTTP deployment and adoption would be swift. however. the situation is even more radical as some of the grassroots deployments are grey networks. the lack of availability of DSL from incumbent Vivacom led people to take matters into their own hands and deploy micro-broadband operations whose footprints were sometimes as small as a single building block.000 subscribers) but in such a small country is an increasingly important component of the broadband landscape. In neighbouring Romania. to announce its own plans for PON deployment.5 million homes said to be high-speed broadband enabled (about half of Numéricable’s national footprint). their consumer service portfolio never really exploited the capabilities of fiber. Today. FastWeb. rented accommodation complexes with single decision makers. Reggefiber started FTTP deployment in 2005 in an openaccess model and in late 2008 KPN acquired a minority share in the operation and in parallel (but in different geographies) launched its own FTTP and FTTC deployments. In parallel. in particular ER-Telecom. In Western Europe. Wind and Tiscali formed an alliance to co-invest in FTTP infrastructure. cable operator Numéricable in that same period underwent a massive network upgrade to DOCSIS 3. with 220.000) but carries less weight since Slovenia is a much larger country. T-Systems has also started deployment of FTTH in the Czech Republic in the face of strong cable competition from UPC.Eastern Europe is where the growth of FTTP is the fastest at the moment.000 homes had been passed by fiber at the end of 2010. regulatory battles. faced with inaction on the issue of NGA from incumbent Telecom Italia. The announcement by broadband competitor Free in late 2006 that they would deploy point-to-point FTTH led another alternative operator. Russia is the fastest growing market in FTTP in Europe with over 10 million homes passed in late 2010. Deployment passed close to 2 million homes in Milan before FastWeb started expanding its broadband offerings geographically via unbundled copper local loops. Early movers were Romania and Bulgaria where a grassroots deployment model was adopted. Deployment in Slovenia has been very aggressive.com 6 . the leading country in terms of adoption is the Netherlands where the early initiatives of real-estate company Reggefiber precipitated a move from incumbent KPN. a Milan-based FTTP operator. Players at the forefront of the (mostly) fiber to the building deployments are incumbent Vimpelcom (under the Beeline brand) and Comstar UTS. continental European incumbents Deutsche Telekom and France Telecom are waging a proxy FTTP war. these FTTB deployments account for 57% of Bulgarian broadband access. execution issues and lack of clear strategic vision on the part of the players involved led to a situation where deployment is Diffraction Analysis | www.) Several local governments. Take-up rates. SFR. and invested in an upgrade campaign to allow a sharp increase in the quality of services delivered. the market hasn’t quite evolved as anticipated. In Bulgaria. led by competitive operator T-2. principally in Moscow and other large cities. FTTP has been an important component of the competitive play. aggressively marketed triple-play over fiber starting in the early 2000s. said alliance launched a pilot project to 10. Deployment costs in Russia are extremely low due to a combination of low labor costs. FastWeb. are also upgrading fast to deliver high-speed services. Italy is another country where FTTP deployment happened early. and FastWeb’s take-up on its Milan FTTP footprint stagnated at around 10%. aren’t great with fewer than 10% of connections actually being subscribed to. Despite the flurry of announcements however. In addition. but has ambitions to connect 4 million homes if the pilot proves successful. Incumbent Telekom Slovenje was forced to follow suit. In other parts of Eastern Europe. Vodafone Italy. Cable operators in Russia.diffractionanalysis. In nearby Slovakia. These grassroots operators precipitated the emergence of fiber and broadband. Competitive operator Orange Slovensko (owned by France Telecom) launched FTTP services in 2007 forcing incumbent Slovak Telecom (a subsidiary of Deutsche Telekom) to follow suit. accelerating the competitive play.000 customers subscribing to services over FTTP (Source: Stratix Consulting. however.0 with 4. Incumbent Orange (France Telecom) soon followed suit. Close to 600. Nuenen). The company announced in 2010 that they were shifting gears on their FTTP products. which suggests that deployment of FTTP will continue for the foreseeable future. Adoption is in the same range as it is in Slovenia in absolute numbers (around 65. FTTB technology choice and large. both large and small (Amsterdam. As a consequence. riding (illegally) on top of existing metropolitan networks. pushing the incumbent to launch its own DSL services. FTTP adoption remains modest in absolute numbers (around 75.

Chile might be the location of the next wave of investment since Telefónica announced in late 2010 a project to fiber up 700. Overall. Telefónica in Spain has been talking about FTTP since 2008. but the deployment has so far focused on fiber to the cabinet (FTTC). The government change and economic turmoil the country has faced explain in part this lack of advancement. Incumbent Portugal Telecom. there are other.diffractionanalysis. the Turkcell subsidiary connects 600. There are no other such large FTTP players in North America since Verizon’s largest competitor AT&T has decided to deploy FTTC. a consequence of visionary regulation on duct access and government loans to facilitate the financing.com 7 . Deutsche Telekom has announced a plan to deploy to 4 million homes. but again no significant deployment has been seen. In Belgium and Ireland. mostly on the east coast of the United States. smaller. either private players like SureWest in North California and Kansas. In Canada there has been little actual deployment even though Bell Alliant has announced ambitious plans to upgrade its footprint to FTTH in the face of fierce competition and market share losses to cable. Openreach (the functionally separated infrastructure entity of the BT Group) announced an ambitious plan to connect 10 million UK homes with superfast broadband. or municipalities like Lafayette in Louisiana or Chattanooga in Tennessee. The biggest question mark for the North American market at this point in time is to understand how Google will deliver on its promise to build a test bed Gbpsenabled FTTP network under an open-access model for one of more communities yet to be announced. The latest figures from national regulator ARCEP indicate 100. actual deployment is only seen in Brazil where Telefónica has an operational large-scale pilot for 200. however. but only 100.000 customers.000 customers have actually subscribed so far. but there seems to be little actual deployment yet. has stalled. Local Governments are waiting for this project to move forward before weighing up their own plans for municipal fiber. Diffraction Analysis | www. Swisscom has signed collaborative deals with energy companies to build FTTP infrastructure to alleviate the risk of seeing a parallel wireline network emerging.000 DOCSIS 3.000 homes in Sao Paulo.limited and adoption even more so.000 homes. FTTP operations. Present in Istanbul and 10 other major Turk cities. but although deployment has begun. Elsewhere on the Mediterranean coast. although there have been talks of FTTP plans. private operator Superonline is actively deploying FTTP. 25% of which should be FTTP. Americas The largest FTTP initiative in North America is the deployment of Verizon’s FiOS.4 million homes (about a third of the country) is eligible for service. In Latin America. various degrees of FTTP announcements have been made but little implementation has been seen yet. In Switzerland. there are deployment projects but no significant commercialization yet. 1. In neighbouring Turkey. and has announced that it would extend that project to reach a total of 2 million homes within the next few years. announced in 2008. Competitive operator GVT has a significant hybrid FTTC and FTTH footprint in Brazil as well with over a million customers. In other countries in Europe. Verizon announced in 2010 that they were putting further deployment on hold and focusing on commercializing services over FTTP for the foreseeable future. these projects are still considered to be in the pilot phase. the ambitious plan to deploy a state and European financed national FTTP network in Greece.5 million). Verizon serves close to 4 million customers with FTTH service for a footprint of 15 million lines.000 homes and boasts 200.0 subscribers (for respective footprints of 1 million and 4. In other parts of Latin America.000 FTTH subscribers and 350. cable operator Zon Multimedia and competitive players Vodafone and Optimus have all deployed infrastructure to a greater or larger extent. Despite this success. none of the market players have made any significant moves in that direction. In Germany. Portugal is probably the most active European country in terms of FTTP deployment. FiOS is very successful financially with ARPUs close to USD 140 per month.

In both emerging and developed markets. usually) have an image or customer satisfaction weakness. In this section. The main driver. and this is what drove KPN in the Netherlands.com 8 . Drivers are. but may nonetheless deploy an FTTP infrastructure. for example.Fiber Drivers Despite the seemingly impressive overview that forms the first section of this report. content distribution is a high-ARPU potential business and therefore can strongly contribute to an FTTP business plan.diffractionanalysis. It’s worth noting that this driver is not just one for developed markets. In markets where the addressable opportunity for premium TV is still significant and/or where the existing providers of TV content (cable or satellite. New entrants are players who neither own a legacy network nor have established positions in the market. In fact at this stage in time bandwidth needs are perceived as a negative driver: since most incumbents haven’t found reliable ways to monetize the use of extra bandwidth. there is very little incentive for said incumbent to deploy a new infrastructure while the old is profitable and functional. as soon as such a player starts seeing line switching (i. Exhibit 2 summarizes the drivers for each category of private player. The competitive threat is most often from cable. They don’t have to be ex-PTT and they don’t have to be regulated although they often are both. As long as an incumbent enjoys a monopoly position in the provision of network infrastructure. of course. and drivers that may lead a player to want another player to deploy an infrastructure. and whether they have established positions in the market. there are essentially three drivers (although the case of emerging markets can be somewhat different as highlighted below). we will examine the differences between these two types of regions and try to assess what the drivers to deployment are for a variety of players. This was another driver for Verizon’s FTTH play. Incumbent operators For incumbent operators. Tele 2 (Sweden) or KDDI (Japan). and is also a determining factor in the moves of China Telecom and China Unicom towards FTTP deployment. and the one that has overwhelmingly led to FTTP deployment by these players. Drivers for private players The positions of private players are essentially determined by whether they own a legacy copper network or not. For the purpose of clarity. they will not be covered in this report. but it isn’t. and it’s important to distinguish between drivers that may lead a player to deploy an infrastructure.   Note that there are also drivers for cable operators to migrate towards FTTP. Competitive operators are players who don’t own a legacy copper network but have established positions in the broadband market. we will distinguish between three types of private players and two types of public players. Swisscom in Switzerland and Verizon in the US. Negative Diffraction Analysis | www. but can be even more relevant in emerging markets where the copper network might not allow for any IPTV distribution and where the addressable market is much more significant. Examples of incumbents include Orange (France). customers disconnecting from its network completely) the situation changes. Examples include Altibox (Norway) or City Telecom (Hong Kong). but as these drivers are complex and highly market or player specific. to start deploying FTTP.III . One would think that meeting customer bandwidth needs would be the first driver for FTTP deployment. That leads us to identify the following categories of players:  Incumbent operators are players who own a legacy copper network and have established positions in the market. However. this can be a powerful driver. there are many more countries and regions with no FTTP deployment than regions where deployment and adoption are booming. they see the increase in usage with dread as opposed to excitement. different for different types of organization. Examples of competitive operators include Wind (Italy). is network layer competition. generally through regulated access to unbundled copper local loops. Another positive incentive for incumbents is the opportunity to enter the TV distribution business.e. Airtel (India) or Verizon (US).

growth in end-user bandwidth will become an unavoidable fact in the next few years as emerging content and applications. Even accounting for the limitations in purchasing power. for example. but instead see their economics being degraded by less favorable conditions on the new infrastructure and a painful transition from old to new. Developed markets have reached a certain level of saturation in broadband subscription. In other words.diffractionanalysis. India.driver though it may be. and the multiplication of end-devices in the home (especially tablets) continue to pressure the access network. One of the success factors of this approach is concentrated market share: the model only works if a competitive operator can hope Diffraction Analysis | www. which explains in part why players like Telekom Malaysia or Telefónica (in Brazil) have undertaken sizeable FTTP deployments. but that isn’t the case for many emerging markets. the addressable market remains considerable but is limited by the quality of the copper currently deployed.3 billion. Exhibit 2: Drivers to FTTP for private players Source: Diffraction Analysis. they decide to invest that money into a network that will be their own. Free in France was the first operator to look at things this way and decide on a deployment purely on that economic basis. FTTP can be a driver not just for IPTV. instead of paying roughly one third of their broadband revenues back to the incumbent as line rental charges. a number of initiatives from competitive operators in FTTP worth examining. There are. however. only has 10 million broadband subscribers for a population of 1. The overall revenue potential combined with the lower cost of deployment in such countries can make the business case more compelling. as seen above. The most important driver for competitive operators to deploy their own FTTP infrastructure is the opportunity to transform access network rental charges into investment. The promise is a radical improvement of their economics once the FTTP infrastructure is paid for. but also for basic broadband connectivity.com 9 . 2011 Competitive operators Competitive operators find themselves in a strange position as a consequence of the looming access revolution: their current existence and business model are predicated on the capacity to lease a copper network they don’t own. As a consequence. for them NGA is essentially a regulatory play. As a consequence most of these players don’t consider the access revolution as an opportunity to deploy their own infrastructure. In such countries.

The next step (NGA). Typically. The connection between quality of national infrastructure and attractiveness to foreign investment has also been demonstrated and governments hope that deploying a state of the art broadband infrastructure can be a strong factor to convince foreign businesses to invest in their territories instead of their neighbors’. the situation can also occur in dense urban areas. The propensity of utility companies (and more generally new entrants) to seize the FTTP opportunity is largely determined by the inaction of incumbents. but collectively they do. The emergence of IP communications and the internet led to a fundamental shift of the network assets to multi-purpose service delivery. and governments anticipate that superfast broadband as enabled by next-generation access infrastructure can generate a further round of innovation. or otherwise intervene in a more direct way. as demonstrated by City Telecom in Hong Kong. This logic has led competitive operators Wind. New entrants By nature it’s difficult to categorize new entrants as they can come from all kinds of backgrounds. unfortunately. This is particularly true in Tier 2 cities. Decisions to liberalize markets and privatize incumbent players. In countries where electricity or water companies are national in scale. usually considered secondary markets by incumbents although. This is just as much an opportunity for new entrants as it is for competitive players.diffractionanalysis. The link between broadband adoption and economic growth has been amply demonstrated by economists. When the above is well understood. the biggest trend in FTTP is for utility companies to make a lateral move into what they see as an adjacent utility market. but essentially all these reasons (at least until now) boil down to one: economic growth. the trend is non-existent. FastWeb and Tiscali to join forces in Italy and initiate the deployment of a shared FTTP infrastructure: individually. local and national. the future of national and local networks is again at the forefront of their collective minds. For utilities (companies that already own and operate networks and are used to long-term business plans). however. job creation and thus economic growth. Examples abound. but don’t necessarily feel the need to invest themselves. Nonetheless. were made at a time where network and services were one and the same and served a single purpose: offering telephony services. however.com 10 . leading to an inability to serve customers with adequate broadband and associated services (especially IPTV). seems to be prevalent only in countries where the utility footprint is geographically fragmented. This trend. none of these players could hope to reach the critical mass of customers in a given area. governments will try to facilitate deployment by: Diffraction Analysis | www. and by and large competitive operators tend to be more risk averse. Exhibit 3 highlights the various drivers for governments to either attempt to accelerate NGA deployment and adoption or to directly intervene in making it happen. FTTP can look like a perfect fit provided that it is managed as a utility. but equipment innovation allowed the network to be upgraded in relatively painless ways without necessarily (depending on regulatory context) sacrificing competition. Vodafone. Governments. isn’t without its pains and while governments had largely focused their policy tools on other aspects of the economy and society. are driven to a more or less interventionist approaches based on the market context and their perceived need for NGA. Other reasons for competitive operators to deploy FTTP exist. National Governments National governments have many reasons to want to see FTTP develop and become adopted fast in their territories. from Altibox in Norway to Chattanooga’s EPB in the US to numerous initiatives in Denmark and Germany. but are largely determined by local market conditions and especially the opportunity offered by incumbent failings to deploy decent broadband service.to migrate a large proportion of customers in a given area to the FTTP infrastructure. Drivers for public players The trend in public action in the last few decades when it comes to telecoms has generally been one of less involvement rather than more. governments start to put in place policies to encourage investment.

There is. it’s not just a matter of economic competitiveness.diffractionanalysis. whether fully public (municipal bonds in the US) or public private partnerships (as in Amsterdam). some local governments like that of Amsterdam are trying to tackle the issues of job location and commuting by encouraging the development of FTTP-enabled. the state can take a more radical stance. as exemplified in Australia. with the remote work possibilities offered by good quality broadband. and incumbents are quick to point out that the numbers are wrong. that alone can constitute a reason to envisage the deployment. This will result in the effective structural separation of incumbent Telstra in parallel with the FTTP deployment. When these costs are too high. however. pass laws or encourage regulation designed to maximize re-use of existing infrastructure (ducts and poles in particular). when national governments feel the need to intervene directly in getting the network deployment off the ground. are more acute and that the means of action. being on a smaller scale. This explains why Washington goes abuzz every time the OECD releases its international broadband rankings: the US is slipping. LA. Furthermore. Local Governments The needs and expectations of local governments in respect of broadband infrastructure are roughly comparable to those of national governments.com 11 . a near immediate benefit for local governments deploying their own FTTP infrastructure. and that is a significant reduction in their own internal IT costs as they no longer pay (often) extortionate rates to incumbents for their internal networking. decentralized work locations in suburbs. they take the matters into their own hands. In other words. however. it’s also a matter of economic survival. in countries that have a perceived or real lag in terms of broadband infrastructure and usage. The Portuguese regulation on duct access in 2005 or the 2009 French laws to limit the ability of residents’ associations to block access into multi-dwelling units for network operators are examples of such legal or regulatory measures. while examples of direct intervention on a national scale are few and far between. political will might be mustered to enforce some structural changes that the incumbents want to prevent at all costs. While no national government has truly embraced the potential of broadband to redistribute the workforce in service jobs on a massive scale. the willingness of politicians to intervene might be higher. In many countries in Europe and North-America in the last decade municipalities have deployed their own fiber infrastructure. Diffraction Analysis | www. Similarly. are generally easier to mobilize. that the rankings are wrong and that there isn’t a broadband issue in the US. for example. In some instances. These projects are complex to set up and usually take time to be deployed and commercialized. from dozens of Swedish towns big and small to European capitals like Amsterdam to Tier 3 US cities like Lafayette. except that the issues. France for example set aside a EUR 2 billion envelope from its national loan (“grand emprunt”) to help co-finance fiber network deployment in rural areas. When local governments feel that the available broadband service offered by private players will not allow them to survive in the long term. Telstra’s repeated breaches of regulation and general contempt for regulator AAAC led the Australian government to a massive AUD 27 billion investment over 15 years to deploy a national FTTP infrastructure through a public company (NBN).   generally easing the administrative burden. especially when the incumbent operator has regularly indulged in anti-competitive behavior. similar examples on a local scale are much more numerous. There are circumstances. municipalities in rural areas see it as a vital link to enable people to work in places other than where their business is. by simplifying digging authorizations. As a consequence. New Zealand has gone down a similar route and for similar reasons. but the consequences of the absence of broadband can be more readily felt: lack of investment means fewer jobs. pass laws to lower hurdles to penetrate multi-tenant buildings. They often face legal and political opposition from incumbents and cable operators (as well as the occasional competitive operator) and frequently have to deal with complex financing models. where they exist. Local governments want state-of-the-art broadband for all the same economic reasons that motivate national governments. Generally this intervention is in itself relatively light and aimed mostly at ensuring that areas where no private business case exists for FTTP can be covered with partial public funding. They are fully aware of the risks: if the rankings become too low. and fewer jobs mean families move out.

Conclusions and recommendations There is a general consensus amongst governments and operators that next-generation access needs to be deployed in the relatively near future. all the way to content and application players – and will lead to structural changes in the market. if the incompatibility between current telecom business models and long-term investment prove irreconcilable. when incumbents embrace FTTP they hope (secretly or not so secretly) to regain market share in the broadband market. However. The solutions are holistic – in other words they need to address the needs of (and issues raised by) all players involved. governments and regulators will need to examine the potential roles of other players. utilities) to deploy their own networks. The drivers for public entities are clear and well understood.com 12 . and regulation. however. Here are some high-level recommendations to the various players in the ecosystem who want to see NGA networks in the not too distant future: Diffraction Analysis | www. has encouraged this framework of infrastructure competition. In particular. Lack of incumbent initiative creates an opportunity for other players (competitive operators. It is becoming clear. as was the case with NTT in Japan. especially in Europe. public or private.diffractionanalysis. the main players who should naturally be involved in deploying the next-generation infrastructure only tend to react when faced with a clear and present danger of losing their monopoly or quasi-monopoly in infrastructure. Yet what is often called regulatory uncertainty by incumbents is simply regulation that doesn’t easily let them maintain or reestablish dominance on the market. Furthermore.Exhibit 3: Drivers to FTTP for Governments Source: Diffraction Analysis. 2011 IV . The issues related to FTTP deployment incentives won’t be solved by simply looking at the investment. that there will be very little effective competition since the business potential of most markets can’t sustain more than a single FTTP deployment. Regulators are often blamed for a relative lack of dynamism in deployment. to allow the next generation of network to emerge. especially in Europe and North America.

High initial demand ensures that incumbents and cable cannot easily respond (because their economics are degraded by the smaller addressable market). One way to look at the long term is to separate services and infrastructure: Structural separation may be seen as the big bad regulatory threat. Public money can then be injected in such a structure for an even wider coverage. A shared infrastructure is inherently more economical and this will extend the reach of privately funded deployment. This is misguided and counter-productive: revenue-share models on the basis of bandwidth won’t allow the internet economy to thrive (which in turn would degrade the value of access products) and would be grossly insufficient to pay for the network investment.   Recommendations for competitive operators and new entrants  A successful infrastructure project is one where demand grows fast: Successfully entering a market already served by one of more players requires preparation and demand build-up. Collaborative models work: Another way to ensure demand build-up is to have several service providers offer services on top of the infrastructure. If service providers can share access to cell towers. This means open access. An incumbent who wishes to retain that role in the market needs to start to upgrade its outside plant fast.   13 . It could allow the infrastructure offshoot to find appropriate long-term funding and the service offshoot to compete on a wider geographical basis. ensuring that public money spent on digging (typically in electricity network burial and water mains renewal) is leveraged for FTTP roll-out by laying ducts before the trenches are filled.Recommendations for incumbents  The waiting game is no longer a winning game: Indecision or active stalling are become massive risks for the future of incumbents as the dominant infrastructure players. Incumbents need instead to stake out their service territories and aggressively build portfolios instead of watching the content and application players slowly replace them. or risk losing sections of its territory to public or private initiatives. This points either to pre-sell strategies or commodity approaches to broadband. Examine how public services and governments can leverage FTTP: If local and national governments. regulators and policy makers  Collaboration should be encouraged: Collaborative deployment models also make sense for policy makers and governments. which in turn will make the business models look better and accelerate deployment.  Recommendations for governments. they can share access to fiber infrastructure. and ensuring that service providers can get easy access to multi-dwelling units for network deployment. The temptation to protect the incumbent as the sole network player through policy or regulation should be resisted. The solution to future service revenues is not in net discrimination: Incumbent policy people often tie investment in infrastructure to the end of net neutrality. but it’s also a sensible way to disentangle business models that have widely divergent timeframes. Facilitate build-up through policy and regulation: Policy and regulation should be geared towards facilitating deployments: ensuring availability of underlying infrastructure like ducts and poles. collaborative builds or both. through public services or e-administration can become anchor tenants for FTTP networks they will accelerate demand.