Vodafone, 3 Plot UK Fiber Moves Amid Rules Shake-Up
UK mobile operators Vodafone and 3 are eyeing the use of new fiber-network products to boost backhaul connections to mobile towers, with Vodafone also keen to bolster its role in the country's broadband sector.
The operators largely rely on so-called "active" network products sold by UK fixed-line incumbent BT Group plc (NYSE: BT; London: BTA), but both have been agitating for better access to "passive" infrastructure, including the ducts and poles that support fiber-optic cables.
In parts of the country, opportunities have also opened up thanks to the rise of CityFibre , a small wholesale rival to BT that sells another passive network product, dark fiber, to retail service providers in a number of UK towns and cities. (See CityFibre Aims High in BT Battle.)
Dark fiber allows customers to select, install and manage the electronics that support broadband services, giving them more control over connections than on BT's wholesale offerings.
BT has resisted the introduction of dark fiber, arguing it would increase complexity and be unsuitable for most wholesale customers, but forthcoming regulations could see the operator forced to provide dark-fiber services to business customers. (See BT Kicks Up Stink Over Dark Fiber Proposals.)
Next week, regulatory authority Ofcom is also due to reveal more details of plans to make BT open its ducts and poles to rivals on improved terms.
BT CEO Gavin Patterson has previously played down interest in duct-and-pole access (or DPA), claiming that Sky -- its biggest consumer-oriented wholesale customer -- has said it would prefer to continue using BT's active network products. (See Eurobites: Sky Prefers Openreach to Ducts, Says BT CEO.)
"When we are connecting basestations or enterprise customers or technical facilities, then maybe we want to be capable of rolling out our own infrastructure, for which access to ducts and poles is important," he said during a conference call about the operator's April-to-June results. "In less dense areas, we need to have the possibility to buy from BT at a decent price."
Vodafone launched its own broadband service last year, using active network wholesale products from BT, but has previously hinted at the possibility of rolling out its own fiber networks if conditions are right. (See Eurobites: Vodafone UK Rolls Out Fixed Offer and BT Split Could Spur Vodafone to Invest in Fiber – Colao.)
Ideally, the operator would like to see BT's Openreach access networks division carved off as a different company, in which it might even take a stake. A regulatory announcement on this could be made next week, when Ofcom provides updates on other proposals, but such a dramatic step seems unlikely. (See Ofcom Could Still Make BT Do Splits.)
Instead, Vodafone will be anticipating improvements in other areas, including DPA.
One possible bone of contention is whether DPA should be mandated in the business connectivity sector as well as other fixed-line markets.
Ofcom thinks dark fiber is a sufficient remedy in the business sector, with DPA mandated elsewhere, but CityFibre says the inconsistency does not make sense. Judging by Colao's comments about using DPA to connect enterprise customers, it may have an ally in Vodafone on this point.
CityFibre is also concerned that dark fiber pricing controls on BT could undermine the investment case for rival dark fiber providers.
In particular, that could upset CityFibre's aim of becoming a major provider of backhaul services, based on dark fiber technology, to mobile operators including Vodafone and Three UK .
CityFibre has signed a "framework" agreement with Vodafone that could precipitate a backhaul deal in future, but the companies have yet to announce any firm plans. (See Eurobites: CityFibre Hooks Up With Vodafone.)
Nevertheless, through its MBNL network-sharing joint venture with mobile market leader EE , 3 has already moved ahead with a "fiber-to-the-tower" deployment in Hull in partnership with CityFibre.
While BT's takeover of EE earlier this year could pose a threat to CityFibre's deal with MBNL, 3 appears eager to use dark fiber in other parts of the country, where its networks are struggling to cope with soaring levels of data traffic. (See BT Restructures, Boasts Best Quarter in 7 Years.)
"We need to decouple cost and capacity because the current model is not sustainable," said Panos Kontogiannis, 3's head of IP, network security and transmission, during a presentation at a CityFibre event in London earlier this week. "We cannot continue and we need radical change."
Forecasting carried out by 3 suggests that using dark fiber instead of "managed" backhaul products would reduce the "total cost of ownership" by 30% over a ten-year period, driving up capital expenditure in the short term but resulting in much lower operating expenditure over that timeframe.
Kontogiannis also appears eager to reduce 3's reliance on a "single supplier" -- a clear reference to BT. "Backhaul is dominated by a single supplier and competition is non-existent," he said. "[In future] we will have multi-provider transmission access networks with more dark fiber penetration."
Besides helping 3 to reduce backhaul costs, Kontogiannis believes dark fiber would allow his company to increase capacity more easily as circumstances dictate.
"One challenge is a step change in capacity requirements and we need to find a way of providing more into cell sites," he said.
That capacity problem looks set to grow more acute with the rollout of higher-speed 4G networks and the arrival of 5G technologies in the next few years.
— Iain Morris, , News Editor, Light Reading