Municipal Mania: Lessons From Europe
Are municipal FTTH networks a good idea?
This question is currently gripping some American towns and cities, partly as a result of Google's Kansas City build, and partly because of the wider upsurge in interest in so-called "Gigabit Cities." (See Atlantic Broadband Grabs Gigabit Torch, North KC Says Free Gigabit for All and Connecticut Cities Crowdsource Gigabit Nets.)
Fear of being left behind as FTTH spreads through the US is also a powerful motivator.
Although much of this debate has focused on the US itself, US cities can certainly learn some useful lessons from the European experience. In Europe, municipal FTTH has made significant progress -- but the experience has by no means been a universally happy one.
In Heavy Reading 's ongoing research on European FTTH, we define the sector to include not just municipal governments directly financing or selecting builders of FTTH, but also energy utilities diversifying into FTTH. This makes sense, because these utilities are usually publicly owned by the citizens or local authorities themselves.
How have they fared? There are now builds underway or complete in Denmark, Finland, Germany, Norway, Sweden and Switzerland, as well as limited builds elsewhere in Europe. In total, these networks had connected about 2 million households to FTTH or FTTB at the end of 2013, and had passed millions more homes.
However, this figure is less than many had originally anticipated, largely because some high-profile plans in Austria, France, Germany and Switzerland have faltered or failed altogether, in some cases leading to a good deal of local acrimony (in Vienna, for instance, where a planned city-wide municipal network launched 8 years ago has made very little progress). Many projects that are still theoretically on the map have fallen far behind schedule. So in the cold light of experience, much of the idealism which characterized the European muni fiber movement three or four years ago has dissipated.
Yet despite that, there have been some shining successes. The most notable, perhaps, is in Norway, where electricity utility Lyse Tele AS has achieved the double whammy of very high penetration (around 60% of homes passed) and very high ARPU -- about €100 (US$128.56) per month -- with its Altibox range of services, all built on FTTH (unlike many others, it supplies services directly to end users).
Meanwhile in Sweden, Stokab AB , owned by the City of Stockholm, is perhaps the most successful of all municipal wholesale city fiber networks. It has connected almost every residential building in the city, as well as most business premises, without any public subsidy; as a wholesaler, Stokab's customers are the telcos and service providers that provide the end user services.
And in Denmark, where FTTH had faltered a few years ago, regional electricity utilities have boosted penetration with a new and much more sophisticated pooled marketing program; more than 300,000 households are now connected by these utilities, which together pass one-third of all Danish homes.
There are now increasing links between the municipal builders and the incumbent telcos, blurring the boundaries between these erstwhile enemies. This is most obvious in the Netherlands, where a strong local muni movement became dominated by a successful entrepreneurial network builder called Reggefiber BV . As a wholesale-only operation, Reggefiber has passed 1.8 million homes by mid-2014 (almost a quarter of all homes in the Netherlands) and "activated" nearly 600,000, making it one of Europe's most successful fiber builders.
Now, however, Reggefiber is 51% owned by Dutch incumbent telco KPN Telecom NV (NYSE: KPN), and there is some evidence to suggest that the build-out has slowed as KPN continues to build out its VDSL network. It's highly possible that incumbents elsewhere may also take over local initiatives; in Switzerland, for instance, there's already close cooperation between Swisscom AG (NYSE: SCM) and some municipal utility builders, and Deutsche Telekom AG (NYSE: DT) in Germany may yet end up taking this approach with the many muni/utility initiatives there.
As this all suggests, the European experience has been quite mixed, and shows that success is far from assured. Space precludes a full discussion of all the pitfalls, but those that stand out include:
- Lack of appropriate skills and experience within the municipality or utility.
- Poor marketing of the new service to households and landlords, resulting in uneconomic levels of penetration.
- Lack of coordination with other city actors to streamline the civil works.
- Poorly planned build-outs: the best projects have carefully scoped out which areas to cable first, and often required opt-in from customers before construction starts.
- Unrealistic timescales: most of the larger European projects have taken more than five years (sometimes more than 10) to complete.
- Difficulties gaining access to apartment blocks (most builds in Europe are to multi-dwelling units rather than single dwellings).
- Political resistance within the local area, especially if the build is being financed initially from tax revenues.
This is by no means an inclusive list; building new access networks is a highly complex endeavour. The European experience shows that where they are well-designed, FTTH builds initiated by municipalities or regional utilities can work very well. But it requires a hard-headed business mentality, not simply civic idealism, to really make a success of it.
— Graham Finnie, Chief Analyst, Heavy Reading