No killer app for fibre to the home

Many telcos are still trying to figure out what to do with the huge bandwidth on 1Gbps FTTH networks. Most agree that getting a return on their huge investments will require more than just one single application.

It is one of the standard questions that Asia Pacific ultrafast broadband operators get asked: What on earth are you going to do with the huge bandwidth on these 1Gbps FTTH services? In the past few weeks, as I’ve attended Broadband World Forum Asia in Hong Kong and then travelled around the region talking to operators and vendors about superfast broadband, some answers have become clearer.

First, in Hong Kong, two of the region’s leading broadband operators, Korea Telecom and Japanese operator NTT West, outlined how they were aiming to get a return on the huge investments they had made in their FTTH networks.

Put simply, both operators say that there is still no “killer app” for FTTH and that they will use the huge amount of bandwidth they have available to launch a broad range of digital content services.

This strategy was amusingly referred to as the “salami effect” by Huawei fixed-broadband executives at the company’s Global Analyst Summit in Shenzhen last week, because it is as if the operators are slicing up their content – the “salami” – into small pieces, rather than focusing on a single application, such as HD video or videoconferencing, though KT’s and NTT West’s strategies in doing so are substantially different.

The great partner grab

For NTT West, a slowing domestic FTTH market – partly caused by the huge popularity of LTE services – means the company has had to concede that although it owns the broadband pipe, it cannot be all things to all people and needs external partners, including OTT players.

Company officials say that because of competition from LTE, NTT West must now position FTTH not simply as a broadband-connectivity provider – subscribers can get that cheaper from LTE – but as a critical enabler of a range of high-bandwidth applications.

NTT West says it has spent a huge amount of time building up partnerships in order to expand the portfolio of services offered to its FTTH subscribers, ranging from a groundbreaking alliance with US-backed OTT content provider Hulu Japan to deals with home-security, healthcare and power companies.

What’s more, NTT West says that with rival broadband operator KDDI looking to deploy a similar strategy, it is trying to wrap up exclusive deals with the best OTT content and services partners in the market.

But despite being optimistic about its strategy, NTT West concedes that the bigger problem will be keeping its partners “inside the tent” and stopping them from simply offering their services directly to NTT West subscribers on an OTT basis. “We can keep our partners on board by acting as a gatekeeper for them to reach our subscribers,” an NTT West official said.

KT plows a lone furrow

No doubt bruised by its jarring clashes with OTT players such as Samsung and Kakao Talk in the past year, KT is still far less eager to embrace a partner strategy and is content to go it alone for the most part. In February at Mobile World Congress in Barcelona, KT CEO Lee Suk-Chae said that the future of the company was as a retailer of digital goods.

“KT is directly entering the virtual-goods market and transforming from a ‘traditional telco’ to a global ‘ICT convergence corporation,’” he told MWC delegates. “KT’s fierce struggles today will be exactly the future of what global telcos will be faced with.”

KT is already well down the path of offering new value-added services, such as home security, education services, banking and healthcare, as well as a wide range of digital content, including video and music, as it seeks to recoup its huge network investments.

The company has already made massive strides in the content market on a local and regional basis – a good position to be in, with South Korean content becoming ever more popular in Asia – but this is still a challenging market to conquer, even for a company with KT’s financial muscle.

Anything but a dumb pipe

KT and NTT West – as well as virtually every other major fixed-broadband operator on the planet – are desperate to avoid being “dumb pipe” players, with the OTT players taking all the content-and-services spoils. The question is how successful each operator will be in avoiding that fate.

The bottom line remains that despite operators’ huge efforts over the past couple of years to move away from being “traffic carriers” and become “content and services” companies, most are still far from comfortable in their new skin.

It is an uncomfortable reality for operators, but one that is critically important for them to grasp, that for all the cash they have poured into their transformations, the most popular and lucrative applications are still being developed by fresh-out-of-college kids in Silicon Valley rather than the operators themselves.

And in terms of physical services, such as home security and healthcare, it remains hard to see – certainly once the online-services market matures – how operators such as NTT West will be able to keep their partners inside the tent. After all, there is nothing stopping these companies from, once services become more widely accepted in the market, jumping ship and offering their services on an OTT basis directly to consumers.

After traversing the region and talking to various operators these past few weeks, it appears that one of the few operators sitting pretty is Hong Kong Broadband Network.

Having built its 2-million-home network – offering speeds up to 1Gbps – for under US$500 million, HKBN says it has plenty of capacity to deal with any surge in demand for high-bandwidth content and applications. But it adds that it can still turn a decent profit even if consumption of bandwidth remains relatively flat.

I think that’s called a win-win scenario, and there aren’t many of those around these days.

Tony Brown is a senior analyst with Informa Telecoms & Media. He is a key member of the Broadband and Internet Intelligence Centre team, covering the broadband and Internet markets of the Asia Pacific region.

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