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FT's FTTH Crawl

12:15 PM -- Is it any wonder Europe is lagging Asia/Pacific and North America in fiber access broadband deployments when a major carrier that's been banging the FTTH drum for years still has only a handful of customers and is just reigniting its investment in the technology?

Yes, Orange (NYSE: FTE), we're talking about vous!

Basically, Europe's not doing too well in providing its residents with very-high-speed broadband, with countries like France and Spain failing to live up to expectations, and the UK hardly started. (See FTTH Europe: Reality Sinks In and FTTH Fever Hits Europe.)

But that's not because the national operators just couldn't give a hoot (or a zut!). For example, France Telecom, along with its domestic rivals, has been hampered by regulatory issues for the past few years, so its aspiration to have 180,000 FTTH customers by the end of 2008, as set out in early 2007, turned out to be wishful thinking. (See FT Fleshes Out FTTH .)

Then, even though the French carriers appeared to have agreed on some ground rules by the end of 2008, it was only recently that France Telecom felt the regulatory landscape was clear enough for it to start committing to FTTH rollouts again. (See FT Plans €2B FTTH Spend and French Do Deal on FTTH.)

So the green light is on, but there's a lot of ground to make up.

Buried in the mass of detail that comprises its first-quarter 2010 earnings report were details of France Telecom's current FTTH status. (See France Telecom Reports Q1.)

At the end of March this year, the operator had 37,000 FTTH customers, while a further 38,000 customers had signed up for the service but were not yet connected. In total, France Telecom has what it calls "managed agent agreements" to hook up buildings that would give it access to just over 560,000 households with its FTTH product.

And included in its 2010 capex plans is its commitment to FTTH in France –- €100 million (US$132.4 million), to start during the second half of the year. That's only 5 percent of the total the carrier has pledged to spend by the end of 2015. And why wait to ramp up the investment if the environment is positive again?

As France Telecom is no longer hampered by a regulatory barrier, a more aggressive near-term plan should surely be in order.

If this is an example of Europe's commitment to a fiber-based broadband future, the region is likely to be always lagging behind APAC and North America, and that could have implications for industrial growth and competitiveness.

— Ray Le Maistre, International Managing Editor, Light Reading

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stelabokun 12/5/2012 | 4:37:53 PM
re: FT's FTTH Crawl

I wouldn't necessarily blame the Europeans for being cautious given the experiences of the NA and Asian operators. NTT's fiber network will become  profitable only 12 years (!!!) after the first rollout in 2000, and Verizon missed the 2009 target to generate positive operating income with FiOS. 
Stela



 


 




digits 12/5/2012 | 4:37:51 PM
re: FT's FTTH Crawl

Hi Stela


Then surely they should say 'We're going to be very cautious about FTTH and just do it a little at a time..." -- but they don't. Time and time again the major European operators have created false expectations and then failed to deliver, whether it's because of regulatory issues or because they're trying to call souped-up, not-so-great FTTC superfast (and yes, that's a dig at BT).


I get your point Stela -- these companies are looking to boost their top and bottom lines, ultimately, and need a decent ROI story -- but if you look at it from the point of view of the consumer and business market, the folk who base their expectations and hopes on promises unfulfilled, then it's a pretty poor show. 


And if I was deciding where to base some offices right now that needed fast, affordable broadband for multimedia and cloud service access capabilities, backed up by the efficiencies that scaled rollouts can bring, I'd be looking outside Europe.


By the way, when did you get your hair dyed?


 

stelabokun 12/5/2012 | 4:37:49 PM
re: FT's FTTH Crawl

Hi Ray,

Thanks for replying.

Fair enough…I agree that the European telcos should keep their promises (though, frankly, while I am saying these words, my mind is playing “heal the world, make it a better place, for you and for me, and the entire human race…lalala”).

By the way, if you want to start a business and you want it to be in Europe, may I suggest Norway?!  Lyse, the Norwegian fiber ISP, will provide you with pretty decent speeds; only, with them, you’ll have to dig your own fiber trench (they cut CAPEX, you save around $400, everybody's happy) – talking about a fun business model...

Ah the hair…it’s my attempt to raise my profile as a telecom analyst…I figured out that long, voluptuous blond hair and a red swimming suit are unlikely to do harm…

Hey, if I were you, I’d stay away from Hugh Fearnley-Whittingstall (http://www.telegraph.co.uk/foo... )

See you around,
Stela

pogo 12/5/2012 | 4:37:48 PM
re: FT's FTTH Crawl

It's easy to blame regulators for hampering FTTH adoption in Europe, but that's not the full truth, at least in the case of France. There are already millions of homes passed by FTTH/FTTB in France, but there has been very little uptake.  You can't blame regulators for that. After passing millions of homes with FTTB, Numericable, an MSO, stopped deployment when the uptake rate did not meet expectations. They are now trying to market to the existing footprint in an effort to get some ROI before committing to further expansion.


While regulatory action is playing a role, I think many consumers are deciding that ADSL is offering a better value and sufficient performance.  ADSL2+ performs well on the short loops of France and the hyper-competitive unbundled market ensures very low prices. Why pay extra for 50 Mbps when 15-20 Mbps is sufficient for mainstream subscribers? It's the same reason DOCSIS 3.0 adoption has not taken off in North America - DOCSIS 2.0 is still competitive for most subscribers.

paolo.franzoi 12/5/2012 | 4:37:45 PM
re: FT's FTTH Crawl

 


The thing is Verizon and NTT had some very peculiar competitive environments.



NTT was getting hammered by their DSL competition.  Sorta stopped now eh?


Verizon was getting pounded by the cable companies in what are basically no growth properties (NY, Philly, Boston, etc).  They have staunched that bleeding somewhat.


So, the one thing that people leave out of these profit calculations is the loss rate of customers.  I recall that numbers in this category could be the biggest swing in the ROI of a FTTH deployment - even above construction costs.


My guess is that most European operators are feeling pushed by competition to move forward.


seven


 

stelabokun 12/5/2012 | 4:37:42 PM
re: FT's FTTH Crawl

Agreed. Competitive environment always plays an important role. Apart from this, there are other factors to take into account too. Take the example of Portugal (the European fiber success story), where the Gov has made significant investments in the deployment of fiber networks to lower the CAPEX burden. I think governments are those that should have the highest stake in fiber deployments in their respective countries; atthe end of the day, it is their mandate to attract FDI. If I am a DSL operator, and the environment in which I operate is not highly competitive, what’s my motivation to start a high-risk super-costly investment in fiber network deployment?!

shygye75 12/5/2012 | 4:37:40 PM
re: FT's FTTH Crawl One thing we tend to downplay is the fact that our original telecom networks were built with massive government protection. The big investments required for end-to-end buildouts today don't have that same level of protection. Thanks for reminding us, Stela.
paolo.franzoi 12/5/2012 | 4:37:40 PM
re: FT's FTTH Crawl

FTTH in the US is not subject to unbundled access if that is where you are going.


 


seven


 

Duh! 12/5/2012 | 4:37:37 PM
re: FT's FTTH Crawl

No, where he seemed to be headed was the old "natural monopoly" theory,  and the resulting exclusive franchises, which meant that the cost of the infrastructure was covered by the entire customer base.  Facilities based competition results in duplicative infrastructure, and arguably inhibits recovery of capex. Fred Goldstein makes this point in his argument for structural separation.


What nobody has mentioned thus far is the cost dynamics of civil works.  Verizon is fairly advantaged in that respect, since about 60% of their distribution plant is aerial, and a significant part of their footprint is suburban.  From what I understand, NTT and KT are  fairly advantaged because unoccupied duct is relatively plentiful in their urban areas and/or aerial plant being extensively used in order to facilitate recovery from earthquakes.  I understand that in Europe, there are a lot of places where new trenching is required, and that engineering and permitting are difficult.

paolo.franzoi 12/5/2012 | 4:37:36 PM
re: FT's FTTH Crawl

I would strongly argue that AT&T and Verizon were in nowhere near the same situation when the decisions about FiOS and U-Verse were made.


The reason is demographic.  Outside of the Washington DC area the metro regions and states that Verizon has are not experiencing growth in population.  AT&T having CA, Texas and with BellSouth the Deep South is not in that boat.


What does this mean?  Verizon is not getting new customers as there are no new ones to be had where AT&T is getting brand new customers.  So, customer loss is much more important to Verizon than it is to AT&T.  I would argue our model that showed change in customer retention was the most highly dependent variable in the equation.  Since I am sure you realize that I worked at AFC during the JPC RFP for BPON you should have an idea that we ran the analysis for AT&T and Verizon. 


I am not saying that other factors did not change the end RoI.  What I am saying is a 10% shift in the retention variable caused the RoI to move more than any other single thing we could change.  I believe the model was proven by what has happened at Verizon and AT&T.


seven


 

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