No Easy Answers on FTTH Investment
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