Did Spain just become the most dynamic fiber broadband market in Western Europe?

Now that France's Orange has tabled a €3.4 billion (US$4.4 billion) offer for Spanish broadband player Jazztel, the economically stricken country could soon find itself home to three major European operators of both fixed and mobile infrastructure – all ploughing funds into fiber-to-the-home (FTTH) networks in a battle for broadband supremacy.(See Eurobites: Orange Agrees €3.4B Jazztel Buy.)

Yet as recently as last year, the only major FTTH player in Spain was Telefonica, the former state-owned monopoly.

Orange's move was clearly prompted by rival Vodafone's €7.2 billion acquisition of Spanish cable operator Ono in July. Besides making Vodafone a major force in Spain's broadband market, that deal left Orange looking dangerously exposed as the only one of the country's big three telecoms players without a sizeable fixed-line business. Following a merger with Jazztel, Orange would control approximately one quarter of Spain’s broadband market, according to market-research firm IHS, with Vodafone serving about a fifth.

But what made Vodafone think 'oh yes' to a bid for Ono back in March? For one thing, the UK-based operator had just raised $130 billion from selling its 45% stake in US mobile operator Verizon Wireless to Verizon Communications, indicating it would use the proceeds partly to fortify both fixed and mobile operations in Europe. Spain was clearly a priority. As in Germany, where it recently bought cable giant Kabel Deutschland, Vodafone faced a powerful incumbent eager to corner the market for multi-play offerings bundling fixed and mobile services. Without a strong fixed-line business of its own, Vodafone looked in peril. (See ONO Says Yes to Vodafone.)

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Even so, Vodafone, Orange and Jazztel had all taken their fledgling steps in FTTH before any of this consolidation was mooted. According to Fernando Herrera, a regulatory economic manager with Telefonica, the reason for that was the absence of a wholesale option for superfast broadband services. As Herrera points out in a recent blog on the incumbent's website, Telefonica has not had to provide regulated network access to connections of more than 30 Mbit/s. If rivals wanted to compete against Telefonica's 50 Mbit/s and 100 Mbit/s FTTH services, their only option was to invest in their own networks.

And that is just what they have been doing. Jazztel was first out of the FTTH blocks, signing an agreement with Telefonica in late 2012 for a "shared deployment" that would cover some 3 million premises. Vodafone and Orange inked their own deal in early 2013, promising to spend up to €1 billion on building a jointly operated network covering seven million households by 2017.

Consolidation could have an impact on the scope of these arrangements -- indeed, Vodafone and Orange made changes to their plans soon after the former bought Ono -- but it should definitely spur FTTH deployment and competition as consumers show growing interest in higher-speed services.

Last quarter, Telefonica claimed to have nearly doubled its number of fiber customers, to 861,000, compared with June 2013, signing 197,000 up to its 100 Mbit/s service over the first six months of the year -- a 66% increase on net additions in the first half of 2013.

Jazztel, meanwhile, had 60,697 FTTH customers on its books at the end of June, up from 35,561 in March. Having extended FTTH availability to some 2.2 million households by the end of July, it is well on track to hit a coverage target of three million by the end of the year. Tantalizingly, it has also said it is now working on a new FTTH plan that would see networks rolled out to as many as 7 million households altogether. More details on that scheme should emerge later this year.

Encouraging as these figures may be, Telefonica and Spanish regulatory authorities have faced criticism for their stance on wholesale access to superfast connections. Indeed, Vodafone has been particularly scathing in its attacks on European fixed-line incumbents, including Telefonica, that do not want to play the fiber wholesale game.

But that hasn't stopped it and other alternative operators from finding investment solutions to the Spanish problem. Whatever pricing regulations authorities might now introduce, multi-operator FTTH rollout looks to be a fait accompli. (See Brighter Outlook For Dark Fiber in 4G Era.)

— Iain Morris, Site Editor, Ultra-Broadband