Br0kenTeleph0n3

Following the broadband money

The search for fibre’s G spot – continues

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Finding what will trigger large scale investment in fibre networks is like the search for the elusive G spot: there is no shortage of approaches, but most are missing the mark.

This was evident at  Wednesday’s European Competitive Telecommunications Association (ECTA) conference on how to trigger investment in fibre.

The Brussels conference, designed to influence European policy makers, probably left them more confused and despairing of achieving a single market in communications services, and hence missing the aggressive Digital Agenda targets. These are to give all Europeans access to broadband by 2013, and for all to have 30Mbps by 2020, and 50% to be using 100Mbps by then.

The conference showed that each country is responding to the unique circumstances that rule in that country. That response is also heavily influenced by the market position of the incumbent, usually the former state-owned telecom monopoly, and the national regulator’s views of how best to achieve the Digital Agenda targets (whisper this – without relegating the local incumbent either to the scrap heap).

As they like to say in Brussels, the facts on the ground are these: on average incumbents still have 45% of the retail market. They have a virtual monopoly outside the cities. Their main competitors are cable operators, where they exist. Their future competitors, especially in rural areas or “white spots” areas without an adequate broadband service may be mobile operators who use LTE (Long Term Evolution) technology.

Investors think telcos risky investments, at least riskier than other utility-type service providers. To deliver the DA targets telcos must compete in an already tight capital market. Except for video, there is no “killer app” for high speed broadband. Perhaps half the people who now get a 5 to 6Mbps service don’t see the point of faster downloads speed for a premium price, and perhaps 30% of people don’t see the point of the internet at all.

There are huge philosophical differences in the appropriate response to the facts. One of the most interesting new developments is the emergence of the so-called infrastructure fund. These are privately-owned funds that invest “patient money” typically from pension funds, that look for low risk in return for predictable if lower returns.

The pitch to telcos from Henri Piganeau from Cube and Randolph Nijsse of Rabobank’s Communications Infrastructure Fund is simple: you can’t do it with your present balance sheet, so sell us your passive network, sign a long term usage contract with us, and use the cash to introduce innovative services that will draw in millions of subscribers.

Or as Nijsse said bluntly to a stunned Sean Williams, BT’s group director of strategy, policy and portfolio, “How much do you want for your copper network?”

If anyone knows, it should be Williams, a former regulator with Ofcom. But he didn’t say. He has different ideas. In fact he takes issue with almost everything anyone from the continent said.

There’s plenty of money, at least in Britain, Williams says. Besides, Ofcom had priced copper access below cost in the past, and should now let the price rise to drive consumers onto fibre, he says. BT is pricing its fibre-based £2.5bn Infinity service at the same price as copper-based broadband, he says. What’s more, it is spending as much again on copper, largely because FTTC gets higher speeds to consumers faster.

BT regards the linkage between the consumer and the network provider as crucial, but wholesaling the network’s capacity to third parties is key to its business plan, Williams says. Some 45 service providers were already testing the relationship, he says.

Williams’ strongest supporter is cable industry lobbyist Caroline van Weede, MD of Cable Europe. The cable sector is already well-placed to deliver half of the DA targets, and ahead of time, she says. “I think we can leave it to the incumbents to do the rest.”

What should happen to the price of copper access is dividing line. Ofcom economist Peter Culham suggested that pushing it up to drive consumers to fibre is ETNO’s basic position, while driving it down to force incumbents to install fibre is ECTA’s position, he says. He believes it should be held constant to act as an “anchor price” against which to measure alternatives.

The French too are taking a different view. Already 98.5% of the population has access to broadband, despite 20% of them living in 80% of the geographical area. Jerome Coutant of ARCEP says this is because of efforts of the departements (regional authorities). Now the government has said 70% should have fibre access by 2020, and everyone 100Mbps by 2025.

And they are going to encourage, if not force, cooperation between telcos. If one decides to put fibre into an area or a building, it muct tell the others. The others can then decide to buy into the initial risk, or pay a premium for joining later, Coutant says.

As to demand, Coutant says overall consumers want a “bigger story” to go fibre. “People with 20Mbps via ADSL aren’t hungry for more, but take-up in rural areas is in the 50% to 60% range,” he says.

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2 Responses

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  1. Good to know there’s plenty of money around, so all we need is someone with a business plan that delivers fibre with a sufficiently positive NPV at a 10% cost of capital ?

    I’ve always held that “anyone but the incumbent” has the best potential business plan as they can capture an additional revenue equal to the line rental which is already taken for granted as income by the incumbent. In other words an incumbent’s NGA business plan is largely about marginal revenue improvements or cost reductions, whereas a new entrant gets to lust after the whole ARPU.

    When credible competing infrastructure appears then the incumbent may start to factor in potential loss of revenue to their business case, which will improve it. But while potential competitors are hung up on duct and pole envy, obsessed with rating minutiae or holding out for BDUK / Council largesse then there is no credible threat of losing the line rental.

    PhilT

    2011/07/06 at 04:55

    • “Active consumer line losses in the quarter were at the lowest level for four years but the year on year decline, combined with lower call volumes, more than
      offset the growth in broadband revenue.” BT press release for 4Q2011.

      Ian Grant

      2011/07/06 at 19:38


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