Amsterdam is to embark on a major fiber-to-the-home project, potentially the largest in Europe, that could see most of the Dutch capital's homes connected by 2010.

The €30 million (US$35.9 million) FTTH project -- officially called Glasvezelnet Amsterdam BV (GNA) but better known as CityNet -- will initially connect 40,000 homes, about 10 percent of the city.

Heavy Reading senior analyst Graham Finnie calls this "very significant." Most of the municipal network projects are in small towns, says Finnie, who is tracking broadband developments in Europe, but this is a big project in a Tier 1 city: "It'll really set the cat amongst the pigeons." (See HR Tracks Europe's Need for Speed.)

If additional funding is raised, the project will be extended to the whole city, about 420,000 connections, says CityNet senior public affairs executive Frans-Anton Vermast. The total cost is projected at about €300 million ($359 million).

The initial rollout will be funded by three parties: the municipality; a consortium of housing developments; and Dutch finance firm ING Group NV. Each will contribute €6 million ($7.2 million), with another €12 million ($14.4 million) to be raised from external investors. "As soon as we can find the extra funding we will build out to all 420,000 homes," says Zernast.

Construction is due to start early next year once the plans are approved by the City Council, which instigated the initiative, later this month.

The network will be capable of delivering capacity-hungry services such as video on demand, IPTV, and video telephony. Capacity on the network will be made available for any service provider to use, whether commercial or not-for-profit, at "non-discriminatory conditions," states CityNet in its official announcement. CityNet believes more than half the homes connected could sign up at a fee of €50 ($60) per month.

Amsterdam's deputy mayor, Mark van der Horst, stated: "This enables our city to compete with other European cities. The fiber network delivers to Amsterdam an innovative and freely accessible infrastructure, suitable to support growth in demand for the next 30 years or more."

CityNet says its plans meet the European Commission's Market Economy Investors Principle requirements by developing the project as an investment and not state aid. CityNet officials say initial, informal discussions with the EC have been well received: "I’m glad all signs read green," said van der Horst. Regulatory issues have been seen as a major barrier to the FTTH ambitions of European municipalities. (See Utilities Key to Euro FTTH.)

The pigeons -- in Heavy Reading analyst Finnie's metaphor -- are the incumbents and major cable operators. "This is a different way of delivering high-speed broadband services, and it's competitive to the large players. It's an open access network that anyone can use to provide services, and the big service providers are likely to lose customers who want a higher-speed connection at a more competitive price," reckons Finnie.

The major pigeons most affected in Amsterdam are {dirlink 5|98} (NYSE: KPN), which is undergoing its own broadband transformation, and cable giant United Pan-Europe Communications NV (UPC) (Nasdaq: UPCOY). (See KPN Lays Out IP Migration Plan.)

Daiwa Securities SMBC Europe analyst James Enck agrees. "This is an incredibly significant event for European broadband, and it's going to be fascinating to watch," he writes in his blog. "How will traditionally access-oriented service providers adapt to differentiate themselves solely on price, user experience and customer care? For those who choose to sit out or attempt to fight back, what are the options open to them? What happens to pricing?"

Enck adds that a number of other Dutch cities "have been watching closely and drafting their own plans. Today is a green light to anyone with the vision to shake things up, and I’m sure that won’t be limited to the Netherlands."

The construction contract has been awarded to partners Van den Berg Infrastructuren (BAM) and Draka Comteq Telecom, which will lay the fiber.

Once the fiber is in place it will be lit by local broadband wholesale operator bbned, a subsidiary of Telecom Italia SpA (NYSE: TI).

KPN also bid for that role, but was beaten on price by bbned, according to CityNet. KPN did not return calls requesting comment.

Zernast says bbned will source some equipment from {dirlink 2|19} (Nasdaq: CSCO), which has confirmed it is supplying Ethernet switches. Sweden's PacketFront AB is believed to be providing FTTH access equipment, but the vendor's CEO Martin Thunman declined to comment, saying only that CityNet is not an official customer.

— Ray Le Maistre, International News Editor, Light Reading