Light Reading
Will the fiber laggards think that playing catch-up is worth the expense? The jury's still out...

No Easy Answers on FTTH Investment

Graham Finnie
2/18/2014
50%
50%

This week, Heavy Reading will be presenting its European FTTH forecast at the FTTH Council Europe's annual conference in Stockholm – and the news this year is good.

After years of dampening down demand, we're pleased to report that prospects are looking much better across the region, and we're projecting nearly 50 million deployed lines by 2018. And whereas in previous years, it was the innovators -- utilities and competitive telcos in northern and eastern Europe -- who were leading the way, now many incumbent telcos in Western Europe are joining the fiber party, among them Telefσnica SA (NYSE: TEF), Portugal Telecom SGPS SA (NYSE: PT), KPN Telecom NV (NYSE: KPN), Swisscom AG (NYSE: SCM) and Orange (NYSE: FTE). Between them, the EU's incumbent telcos added almost a million FTTH or FTTB lines in 2013, almost double the total back in 2011. For many of these incumbents, the cost-benefit balance has finally tipped in favor of fiber, and looking across Europe as a whole, the FTTH skeptics are now in a distinct minority.

So where does that leave the fiber laggards? As a Brit, I'm naturally pained to see the UK right at the foot of the FTTH league table. On any reasonable planning horizon, even if the UK (mainly BT Group plc (NYSE: BT; London: BTA)) suddenly got religious about FTTH, it would likely take more than ten years to catch up with leading nations like Sweden, where over a quarter of households are already connected to FTTH or FTTB.

Does it matter? That's a simple question that requires a very complicated answer -- far too complicated to fit in a short blog. It would need to take in a host of factors that include localized capex and opex projections and comparisons, projections of end-user demand, the local competitive and regulatory environment, the nature of the local housing stock and many other things besides.

For now, however, laggards such as BT, Deutsche Telekom AG (NYSE: DT), Telekom Austria AG (NYSE: TKA; Vienna: TKA), Belgacom SA (Euronext: BELG) (and others like KPN and Swisscom who are pursuing a hybrid FTTH/FTTC strategy) are placing a big theoretical bet that vectoring (and perhaps G.fast) will take them far enough up the bandwidth curve to meet all likely demand for at least the next five years, for a fraction of the (capex) cost of FTTH. For who, they say, really needs more than 50-100Mbit/s downstream and 5-10Mbit/s upstream?

In truth, no-one really knows the answer to that question. Although Nielsen's Law of Internet Bandwidth suggests that households will be enjoying near-1Gbit/s line speeds by the end of the decade -- far beyond vectoring -- skeptics are entitled to question whether this "law" will really pan out. Whereas ten years ago it was easy to predict that video would eventually be delivered via the Internet, driving bandwidth demand, it's not at all clear what services will be driving 1Gbit/s demand in 2020. Which is not to say, of course, that there won't be such services. Nor is it to say services themselves will be the deciding factor: There's evidence out there that some just want the highest speed available, while others now see fiber as a must-have residential investment, like double glazing.

And that, of course, is just the start of the debate. On the cost side, for example, do opex savings outweigh the high upfront cost of laying fiber, and how is that equation changing? Again, that requires analysis of a whole host of micro- and macro-issues, and the answer is not clear-cut, nor the same for every operator or region.

The truth is that while FTTH investment is often characterized as a high-risk investment, FTTH non-investment might turn out to be equally risky: it all depends on your assumptions and projections. In today's telecommunications investing environment, there are very few sure bets.

— Graham Finnie, Chief Analyst, Heavy Reading

(4)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View
Duh!
50%
50%
Duh!,
User Rank: Light Sabre
2/18/2014 | 12:16:28 PM
Sad irony
BT Labs invented PON back in the early '90s.  FSAN was organized by BT Labs.  BT was a key driver of BPON and GPON standardization.    For years, BT Labs has been preaching that a PON deployment with reach extension could dramatically cut the number of central offices in their network, and that the resulting opex savings would quickly pay for the CAPEX.  BT was a key partner in at least five PON-related EU demonstration projects.  BT Labs still has incredibly sharp PON researchers, and piles of PON patents. 

BT Openreach actually came close to pulling the trigger on FTTH in 2007-8.  It was a part of Matt Bross' 21CN vision.  There was a direction change in late 2008, just after the financial crisis, and just before Ben Verwaayen got pushed out and Bross got marginalized. 

Pretty sad that BT, having pioneered FTTH, is behind the rest of Europe in deploying it.
brookseven
50%
50%
brookseven,
User Rank: Light Sabre
2/18/2014 | 10:30:04 AM
Re: Settling in
FTTH investment on a global basis is either from competition or government intervention.

Carriers are going to milk copper until they have to replace it from age.  They have been able to maintain pricing by giving away high bit rates at the access point, but there is no gain for them to proactively change things.  Unless there is competition or government intervention.

Three large deployments:

NTT - Competition (remember when Softbank was killing them in DSL?)

Verizon - Competition

KT - Government Intervention

The small carriers in the US are essentially government intervention as well.  

I have said in the past that we did a business case for FTTH as part of our work on FiOS.  Our #1 factor was line loss.  More than construction costs.  If a carrier perceives that it will lose lots of lines, then it can use FTTH to slow the line loss dramatically.  The business case for this is better than anything else.

seven

 
gfinnie
50%
50%
gfinnie,
User Rank: Moderator
2/18/2014 | 10:10:27 AM
Re: Settling in
Absolutely. In an ideal world, incumbents would like to have relief from unbundling, limited competition and no net neutrality, alllowing them much more control over services and service pricing. But most have at best two of those three conditions. All the same, quite a few incumbents are charging down the FTTH route to allay competition from cable MSOs with "100Mbit/s" offers, and because of the long-term opex benefits of an all-fiber net. 
mendyk
50%
50%
mendyk,
User Rank: Light Sabre
2/18/2014 | 10:01:25 AM
Settling in
Graham -- I wonder if the bigger issue regarding FTTH deployment is that operators have to come to grips with the idea that they will be building out a network over which they will have far from total revenue control. After years of hearing about (and believing) that they could have a dominant position in digital services, operators now see that this dominance is far from assured. Operators can't stop the transition to Gbit broadband, but they can slow it down if only because they see less in it for them.
More Blogs from Heavy Lifting Analyst Notes
The latest highly integrated silicon components are enabling a massive acceleration of LTE worldwide.
WebRTC has the potential to enable armies of developers to create their own real-time communications apps in previously unheard-of ways.
As Release 10 and 11 of the 3GPP's LTE standards are being turned on, operators are seeking features that offer the biggest bang for their buck.
Cable and over-the-top (OTT) providers are striking up an unusual friendship, yet this unexpected pairing may lead to profitability for both sides, once some significant challenges are hurdled.
As M2M matures into the Internet of Things (IoT), the technology and network requirements are becoming much more complex.
Flash Poll
LRTV Custom TV
A New Security Paradigm in SDN/NFV

7|28|14   |   02:54   |   (0) comments


Paul Shaneck, Global Director Network Solutions for Symantec, discusses the evolving virtualized network, explaining how Symantec is leading the security discussion as it relates to SDN and NFV, and helping to ensure the network is protected and compliant.
LRTV Documentaries
Sprint's Network Evolution

7|24|14   |   14:59   |   (0) comments


Sprint's Jay Bluhm gives a keynote speech at the Big Telecom Event (BTE) about Sprint's network and services evolution strategy, including Spark.
LRTV Documentaries
BTE Keynote: The Software-Defined Operator

7|24|14   |   18:43   |   (1) comment


Deutsche Telekom's Axel Clauberg explains the concept of the software-defined operator to the Big Telecom Event (BTE) crowd.
Light Reedy
Numbers Are In: LR's 2014 Salary Survey

7|24|14   |   1:25   |   (7) comments


Our fourth annual Salary Survey paints a picture of who's hiring, firing, earning, and yearning for a change in the telecom industry.
LRTV Custom TV
Driving the Network Transformation

7|23|14   |   4:29   |   (0) comments


Intel's Sandra Rivera discusses network transformation and how Intel technologies, programs, and standards body efforts have helped the industry migration to SDN and NFV.
LRTV Custom TV
Distributed NFV-Based Business Services by RAD

7|18|14   |   5:38   |   (0) comments


With the ETSI-approved Distributed NFV PoC running in the background, RAD's CEO, Dror Bin, talks about why D-NFV makes compelling sense for service providers, and about the dollars and cents RAD is putting behind D-NFV.
LRTV Custom TV
MRV – Accelerating Packet Optical Convergence

7|15|14   |   6:06   |   (0) comments


Giving you network insight to make your network smarter.
LRTV Custom TV
NFV-Enabled Ethernet for Generating New Revenues

7|15|14   |   5:49   |   (0) comments


Cyan's Planet Orchestrate allows service providers and their end-customers to activate software-based capabilities such as firewalls and encryption on top of existing Ethernet services in just minutes.
LRTV Custom TV
Symkloud NVF-Ready Video Transcoding, Big Data

7|9|14   |   3:41   |   (0) comments


Kontron and ISV partner Vantrix demonstrate high-performance video transcoding and data analytic solutions on same 2U standard platform that is ready for SDN and NFV deployments made by mobile, cable and cloud operators.
LRTV Huawei Video Resource Center
The Evolving Role of Hybrid Video for Competitive Success

7|4|14   |   4:09   |   (0) comments


At Huawei's Global Analysts Summit in Shenzhen, China, Steven C. Hawley from TV Strategies speaks to us about the evolving role of hybrid video for competitive success.
LRTV Huawei Video Resource Center
How CSPs Leverage Big Data in the Digital Economy

7|4|14   |   4:48   |   (2) comments


Justin van der Lande from Analysys Mason shares with us his views on how telecom operators can leverage customer asset monetization with big data. His discusses the current status of big data applications and the challenges and opportunities for telecom operators in the digital economy era.
LRTV Huawei Video Resource Center
Accelerator for Digital Business – Future Oriented BSS

7|4|14   |   3:08   |   (0) comments


Mobile and internet are becoming intertwined; IT and CT are integrating; and leading CSPs have begun to transform to information service and entertainment providers. How should the BSS system evolve to enable this transformation? Karl Whitelock, an analyst at Frost & Sullivan, shares his views.
Upcoming Live Events!!
September 16, 2014, Santa Clara, CA
September 16, 2014, Santa Clara, CA
October 29, 2014, New York City
November 6, 2014, Santa Clara
November 11, 2014, Atlanta, GA
December 9-10, 2014, Reykjavik, Iceland
June 9-10, 2015, Chicago, IL
Infographics
Packet Design asks network professionals how they handle the cloud, SDN, and network management.
Today's Cartoon
Vacation Special Caption Competition Click Here
Latest Comment
Hot Topics
The Municipal Menace?
Jason Meyers, Senior Editor, Utility Communications/IoT, 7/22/2014
Cisco Puts a Fog Over IoT
Sarah Reedy, Senior Editor, 7/23/2014
Apple Earnings: Strong iPhone Sales, iPad Sales Slump, $7.8B Profit
Mitch Wagner, West Coast Bureau Chief, Light Reading, 7/22/2014
Salary Survey Report 2014
Sarah Reedy, Senior Editor, 7/23/2014
Facebook: 30% of Users Are Mobile-Only
Mitch Wagner, West Coast Bureau Chief, Light Reading, 7/24/2014
Like Us on Facebook
Twitter Feed