Europe's fibre to the premises dilemma

The FTTH Council Europe's recent event in London examined a number of interesting questions about the investment case for fibre-to-the-premises (FTTP), with many of them striking interesting parallels with the mobile industry's push towards LTE. However, in the current economic climate, it seems unnecessarily dogmatic to espouse ubiquitous FTTP, particularly when the broader ecosystem and regulatory support is out of step with market realities. We left the event feeling that although deeper penetration of fibre into the network is a must, universal FTTH is an impractical luxury that telcos cannot really afford.

Fibre yes, but not necessarily to the home

We have no issue with the benefits of fibre technology or the relative performance gains that it offers when it reaches the home compared to other points in the network. However, the almost religious fervour with which the FTTH Council Europe is pushing for fibre to reach the home seems to lose sight of the more basic principles of strategic investment. Just as the Small Cells Forum and Mobile World Congress now embrace Wi-Fi, it is time for the FTTH Council Europe to adapt too.

In our Next-Generation Broadband Investment Strategies series, we highlighted pragmatism as a key foundation for any next-generation broadband deployment. Nowhere was this more evident than in the report TDC: Next-Generation Broadband Investment Strategy, in which TDC's “Fibre Deeper” strategy showed how pushing fibre deeper into the network offers a more cost-effective upgrade and investment path. By planning a strategy that optimises the benefits of its fixed and mobile assets, TDC has been able to deploy fibre across its network. It does not have 100 per cent home penetration, even though it does offer FTTH in some areas. However, it has spread costs through a series of upgrades that have pushed fibre closer to the network edge in strategically important locations. It also has a platform to increase FTTH penetration when desirable, affordable, and practical, but in the meantime it can provide customers with a better fixed and mobile access experience.

The FTTH Council Europe's event seemed to ignore commercial and macroeconomic realities, demanding more creativity from telcos when it is cash that is needed. It was interesting that none of Europe's major incumbents were present, with deployment examples coming from operators in smaller markets, such as Jersey and Andorra, where the geography makes deployment costs relatively low. Clearly, telcos want to sweat their existing assets and stretch out the investment cycle, particularly when returns are far from certain.

Applications are needed to justify end-user demand

One of the most noticeable aspects of the event was the relatively narrow focus on content. The entire first day was devoted to content and applications, but this only seemed to include video, e-health, and smart homes and cities. While all are valid opportunities, they hardly represent a burgeoning ecosystem that exemplifies breadth and depth. More particularly, it is difficult to see where enough applications requiring FTTP will come from. Of the examples shown, most could be delivered over existing DSL services. Only if all of these applications were to run concurrently or with multiple streams would the need for fibre become more pressing.

This “application vacuum” arose in several of our discussions at the event, and provides a reason as to why the uptake of fibre services has been muted and telcos are reluctant to move aggressively to FTTP. It is difficult for a significant volume of users to justify paying a premium for higher speeds when the applications that they currently use function sufficiently well over high-speed DSL lines. Indeed, one of the most interesting charts on the second day of the event showed a close correlation between high fibre penetration and a lower premium between fibre and DSL pricing. Therefore, given the limited potential revenue uplift and return on investment, why should telcos deploy FTTP?

Not everyone needs to be SMART

However, we do not believe that telcos should suddenly start investing in application development. As we stressed in our Telco Services Innovation Radar series, innovation for a telco is as much about fostering an ecosystem and environment for innovation as it is about developing specific services. ISPs in particular need to be aware of their role, and it was refreshing to hear a spontaneous round of applause when the CEO of Danish ISP Waoo introduced his company as proud to be a “dumb pipe”. We believe that “dumb” is too derogatory a term. As we stated in our Telecoms in 2020 series, being LEAN (low-cost enabler of agnostic networks) requires sophisticated network operation skills and technologies, and is therefore simply a different strategic path to being a SMART (services, management, applications, relationships, and technology) player.

Regulators need to keep step with changing realities if they want to hit targets

The policy perspective was another recurring theme that suggested that FTTP investments, especially in Europe, will remain limited in the near term. In an interesting parallel with the mobile industry, the desire by regulators to promote competition has created an environment in which investors are now rightly cautious. For example, why should an incumbent invest in FTTP if it has to open it up to everyone else? Yet at the same time, governments set aggressive “digital agenda” targets founded on little more than technological nationalism. Governments and regulators must work to overcome these imbalances as all they do is scare off investment.

There were repeated calls at the event for open-access networks, and there must also be government funding if aggressive targets are to be met. As one vendor put it, “competition is great for getting customers from no broadband to 2Mbps services, and then from 2Mbps to 50Mbps and triple-play services”. Thereafter, it is difficult for users to see the difference, hence the importance of the “application vacuum”. Ovum believes that government funding is the only way to overcome private sector reticence. Yet do the targets really need to be for FTTP? Even in government-funded schemes, pragmatism must prevail to protect the already straining public purse.

Steven Hartley is a practice leader at Ovum's industry, communications & broadband division.