A perfect fibre-to-the-home storm

All around the world, commercial providers are stepping in to match the rising demand for FTTP. That spells trouble for the Coalition's multi-technology NBN.

With more than 100 countries now involved in the rollout of fibre-to-the-premises (FTTP) networks, there’s increased evidence that commercial demand exists for this infrastructure. In developed economies FTTP demand will, over the next five years, grow to between 30-50 per cent of the population.

Competition aimed at the top end of this market will trigger a broader rollout.

A Bernstein study of Google’s rollout of FTTP in Kansas City concluded that the penetration measured by them was much higher than they had expected. The survey saw penetration rates of up to 83 per cent in more affluent neighbourhoods and 27 per cent in lower income areas. Bernstein believes that in three to four years Google will capture 50 per cent or more of potential homes passed with its $US70 offering, and at least 10 per cent of the homes passed with the company’s ‘free’ 5Mbps (megabits per second) offering (which requires a $US300 install fee).

Another indication of the demand for FTTP is that AT&T has unveiled plans to roll it out in 100 American cities, with a similar number of municipalities are ready to do the same as soon as the FCC -- which already has the backing of President Obama -- keeps its promise to make it easier for these cities to do so. 

Most of Scandinavia, the Netherlands, and many of the Arab oil states are now reaching FTTP penetration levels of more than 50 per cent. Even countries such as Estonia, Lithuania and Bulgaria are rolling out FTTP at an ever-increasing speed, and by the end of this year China aims to have 100 million households connected to fibre.

There are now also FTTP rollouts in developing economies such as Indonesia, South Africa, Brazil, and India, where there is demand in at least the top five per cent of the market. In such economies this immediately translates into tens of millions of users.

The latest data from the Australian government is showing 90 per cent uptake rates of FTTP in the brownfield areas where it is becoming available. In greenfield areas the uptake is as high as 95-100 per cent, especially in new high-rise buildings; many of these are built by Asian investors who are very keen to obtain FTTP access for their apartment customers. Despite this success the Coalition has opted to pursue a so-called multi-technology mix (MTM), using fibre-to-the-node (FTTN) with copper and HFC as its last-mile access infrastructure.

Looking at previous developments in the internet/broadband market, it is safe to say that from now on demand for FTTP connections will only increase around the globe.

Fibre ‘haves’ and ‘have-nots’

Countries are increasingly viewing the developments in broadband infrastructure as a utility, similar to models used for gas, electricity and water, and such a model is the key to universally affordable broadband access. Treating the infrastructure separately from the services would bring telecoms investments more in line with that notion and therefore make investment in pure infrastructure models (such as FTTP) more effective.

As a result of this we see a whole range of new infrastructure companies becoming involved in this market. They quantum leap over all of the ageing infrastructure providers, since in most cases the incumbent fixed broadband providers have been slow off the mark in upgrading their infrastructure. The demand for rich media and high-speed broadband services may be going through the roof, but the incumbent telcos in the US and Europe seem to have adopted a business model that is based on penalising and discouraging customers from high usage and, with the help of anti-net neutrality rules, they could even actively limit supply while demand in the market is rising sharply.

In markets that are working properly, increased demand usually results in increased supply -- but that's apparently not the case for the telco industry.

What is now happening around the world is that these new companies are aiming to cherry-pick, with FTTP aimed at the more affluent top 15-25 per cent of the market. By not following the market-driven demand and supply model the incumbent telcos now see themselves as being ‘robbed’ of these highly profitable markets and this is forcing some to act. AT&T’s plans are driven by Google Fibre and in the Netherlands KPN was pushed by Reggefibre. Britain's FTTP battle is led by BSkyB and a couple of other providers, with BT struggling to keep up with these companies.

In Australia, with the government now basically stopping new FTTP rollouts, companies such as Telstra and TPG have shown interest in filling that gap. However, similar to the situation in other countries where this has led to an undermining of the business model of the incumbents, in Australia it’s NBN Co that’s in the firing line.

We are now seeing a perfect storm brewing whereby competition is forcing new FTTP rollouts, which in turn is pushing a reluctant incumbent market forward, and whereby investment models are favouring more targeted and different business models for infrastructure and for services.

If the incumbents are able to deliver different MTM solutions with a universal equivalent outcome there will be, as they argue, less demand for FTTP, but the jury is still out on this. Australia is embarking on such a strategy but recent announcements are watering down the promise of an already very low universal 25Mbps service to be delivered over the planned NBN. This isn’t very encouraging and it’s safe to say that by the time people are beginning to be connected to MTM solutions to any significant degree, 25Mbps will be insufficient to satisfy the demand in at least 50 per cent of the market.

It will also be interesting to do a case study in a couple of years’ time to explore the impact of FTTP between the ‘haves’ and the ‘have nots’ -- a case study on the social and economic inequity of people who live in towns with FTTP access and people who may never get it, or at least where it may take 10 or more years.

The Coalition has stated that people who want FTTP can get it if they pay for it, however this obviously requires centralised design and well-considered, large-scale technological and commercial planning. Combining this with the hodgepodge of mixed technologies is going to make the rollout even more complex than it already is. Furthermore, most of the FTTP knowledge base within NBN Co has been sacked.

Communications Minister Malcolm Turnbull agrees that FTTP will have to be the end game for most of the broadband infrastructure but the government isn't really interested in providing that for the moment. What we have instead is an inordinate focus on all sorts of technical details but little in terms of the long-term strategy or vision that forms the foundation for all of this.

This is an edited version of a post originally published on May 14. Paul Budde is the managing director of BuddeComm, an independent telecommunications research and consultancy company, which includes 45 national and international researchers in 15 countries.