From leader to follower: Running the gigabit broadband race

US telco giant AT&T, one of the world’s leading telecommunication companies, has announced that it is joining the “gigabit broadband race”. Has this monolith of the US telecommunications industry actually decided to counter Google Fiber or is the announcement just thin air?

Even if AT&T’s announcement amounts to nothing more than just a slick marketing campaign, it signifies a small but significant step by a company that was caught napping by its competitors.

AT&T’s move to include fibre-to-the-premises to existing access network offerings, fibre-to-the-node and hybrid fibre coaxial, means that the Coalition government’s multi-technology mix National Broadband Network 2.0 will mirror AT&T’s new offering.

So how does NBN 2.0 stack up against access networks being rolled out around the world and what should we now make of the government’s claims that “up to” 100 Mbps FTTN is all that we need?

State of the internet

The latest Akamai Technologies State of the Internet Report, which covers the December 2013 quarter, showed Australia has average download connection speeds of 5.8 Mbps -- an increase of 27 per cent during 2013. However, Australia has not kept pace in global rankings and is now placed 44th, with New Zealand close behind at 45th.

To get a perspective of the gap between Australia and other nations, South Korea sits on top of the ladder, with average download connection speeds of 21.9 Mbps.

The World Economic Forum’s Global Information Technology Report 2013 ranks Australia 18th for competitiveness in information and communication technologies, a significant decline from Australia’s ninth place in 2004.

Australia’s increasing ICT costs -- it is ranked 49th -- and slowing next generation infrastructure rollout mean that Australia has fallen to 24th on the business usage index.

Scratch BT and AT&T

The Coalition government has often pointed to Britain's BT, Germany's Deutsche Telekom and America's AT&T as large international telecommunication companies focusing on FTTN rollouts that Australia would do well to follow.

BT, Deutsche Telekom and AT&T currently offer FTTN utilising VDSL2, and trials have been carried out using VDSL2 with vectoring, a technology that can use much shorter copper lengths (up to 300 metres) than VDSL2 (up to 800 metres).

BT and AT&T are now offering FTTP and both have been offering Fibre on Demand in areas where FTTN has been rolled out. The on demand option is possible because extra fibres are typically rolled out to the street cabinets when the FTTN rollout occurs.

However, BT’s Openreach Fibre on Demand product has not been a roaring success in Britain and price increases set to be introduced on May 1 will further dampen demand. The price increases for BT’s Openreach FoD include:

• The monthly rental charge for the first three years rising to £99 ($179) per month (from the current £38 per month).
• The current one-off fixed connection charge increasing to £750 (from the current £500).
• And the current one-off, distance-based charge (which varies according to the distance between the fibre aggregation node and the customer premise) edging up to £3.50 per metre (from the current £2 per metre).
• As a result, we estimate that more than half of premises will face a total connection charge of between £1100 and £2500 (these premises would have incurred a total connection charge of between £700 and £1500 under the original pricing).

The Australian government has often quoted the BT FoD product positively and indicated this option will be included in NBN 2.0. Australians may decide to wait for the next change of government and a shift back to an all-fibre network before signing up for FoD.

Now that BT and AT&T have either announced or started rolling out FTTP, the government is likely to focus their attention on Deutsche Telekom and other European companies currently rolling out FTTN in speeches and media announcements.

Do BT and AT&T care about infrastructure competition?

In Britain, two of BT’s major retail broadband rivals, BSkyB and TalkTalk, have decided to do a $20 million FTTP trial in York during 2014. Both companies have stressed the York trial is only experimental, but by teaming up with Fujitsu and CityFibre -- which has a fibre network in the city -- there is clearly a plan to gauge customer demand and to learn more about rolling out an FTTP network.

Hyperoptic, a British fibre broadband start-up, has now connected more than 35,000 homes and businesses to its fibre optic network and with financial backing provided by Quantum Strategic Partners, an investment company owned by billionaire George Soros, Hyperoptic has plans to continue its FTTP rollout to more than 500,000 premises, at which point it will become profitable.

In a study released last week by Enders Analysis, the cost for BT to upgrade FTTN customers to FTTP was estimated at about $300. The cost to BSkyB and TalkTalk to connect 20,000 premises in York is about $1200.

But Enders found that if BSkyB and TalkTalk covered the “highest value” 15 per cent of the UK with FTTP the cost would be about $4.8 billion, while the cost of BT’s FTTN rollout to two-thirds of UK premises would be about $5.5bn.

What this means is that BT will have to spend about $700m more than BSkyB and TalkTalk and both would be able to offer FTTP speeds to the highest value 15 per cent. For BT to be able to compete with BSkyB and TalkTalk, it would face an additional cost of about $600m to upgrade FTTN to FTTP.

Will BT be concerned about the potential for Hyperoptic, BSkyB and TalkTalk to cherry-pick high value customers?

In a report by The Telegraph on April 19, Enders said: “While the extent of the announced fibre build-out is very modest, it is a move that strikes at the heart of BT, in much the same way as BT struck at the heart of Sky in bidding for sports rights. The rollout may be in limited areas, but these are very profitable areas from BT’s perspective (dense housing makes line maintenance etc cheaper), and in any case removing revenue from a largely fixed cost base will be painful.”

In the US, Google Fiber is undoubtedly a major reason behind AT&T’s FTTP announcement. In an article on DSLReports the AT&T announcement was dismissed as a marketing exercise to counter a recent Google announcement that it “might” continue the Google Fiber rollout to 34 more urban municipalities. It was argued that AT&T’s fibre rollout would be an upgrade in areas that AT&T already had fibre, and had been capping the connection speeds to match FTTN connection characteristics.

There should be no doubt that AT&T will be closely watched to see if the US giant has decided to counter the growing FTTP threat or is simply participating in the marketing hype growing behind the “gigabit broadband race”.

And what of Asia, Africa, the Middle East and Latin America?

China leads the way with FTTP rollouts simply by size and scale, but small countries in the Middle East such as the United Arab Emirates lead the way with FTTP uptake. In the UAE, about 70 per cent of premises are now connected to FTTP and many of the wealthy Middle Eastern countries are not far behind.

Japan and Korea have been world leaders when it comes to fibre rollouts and their access networks utilise FTTP and fibre to the basement (FTTB). In Japan, a mix of Ethernet Passive Optical Network (EPON) and the more recent Gigabit Passive Optical Network (GPON) are used.

FTTP marketing hype is not confined to the US, Britain and Australia. An article in PCWorld on April 15 last year claimed that a Sony-backed Japanese ISP was going to offer 2 Gbps FTTP connections when in reality the GPON FTTP rollout would typically offer 100 Mbps connections to customers.

Indonesia and South Africa made recent announcements about FTTP GPON rollouts. In Latin America more than 350,000 premises have been connected (more than 4.2m homes passed) with Mexico leading the way from Brazil, Chile and Argentina.

An excellent summary of FTTP rollouts can be found here.

From leader to follower

Irrespective of how you look at what’s happening around the world, there is a common theme. The larger incumbent telcos with large copper access networks are rolling out FTTN to reduce costs and optimise return on existing infrastructure. Meanwhile, this model is being challenged by companies that have seen the opportunity to cherry-pick high value customers by rolling out FTTP/FTTB before the larger slower incumbent telcos react to what is happening.

In an effort to bring about wholesale and retail separation and increased retail competition Australia found itself leading the world by attempting a national FTTP rollout, something that is inevitable based on the evidence of what is happening internationally.

But, the Coalition government’s NBN 2.0 will position NBN Co in the same mould as BT, Deutsche Telekom and AT&T. Unless the government can find a way to stop TPG Telecom, it will continue to roll out fibre as quickly as possible in an effort to mimic Google Fiber, Hyperoptic, BSkyB and TalkTalk.

The scene is set -- let the games begin.

Mark Gregory is a Senior Lecturer in the School of Electrical and Computer Engineering at RMIT University