Interested parties often cite regulatory uncertainty as the largest hurdle to widespread fibre access deployment by telecoms operators. Of course, it is true that access to passive infrastructure, or regulatory interventions in operator access and market structure, can make major differences to the cost-base of fibre roll-out. However, widespread deployment in those developed economies where fibre roll-out is as yet limited – such as most of Europe – faces a more intractable problem.
Wireless devices and services will continue to capture consumer telecoms spend (whether this is incremental or substitutive) because it is in this area that there is the greatest rate of innovation. A constantly evolving set of new wireless devices (smartphones, tablets, smartbooks and so on) and of associated services fuels demand for cellular connectivity at ever higher speeds – speeds that are, nevertheless, much lower than those that next-generation fixed access offers. This growth makes it harder for wireline operators because overall consumer spend on telecoms has long since ceased to grow in developed economies. Even though many cable operators have been offering superfast fixed broadband connectivity for some time in Europe and North America, take-up of such services remains troublingly low. The vague promise of future services may appeal to some early FTTH adopters. However, it will become increasingly ineffective as a selling point unless the rate of innovation in devices and services that are uniquely suitable for FTTH gets some new impetus from vendors and service providers. The future cannot be simply plotted against increasing fixed-line bandwidth.
If telcos’ own announcements concerning the pace of roll-out are to be believed, then FTTH capex is going to be grossly disproportionate to the costs of cheaper copper-based alternatives such as VDSL. Given the new direction of consumer spending, this is highly problematic – particularly in Europe, where consumers’ willingness to pay a premium for additional bandwidth is low and where broadband prices are already significantly lower than in North America. Figure 1 shows our assessment of network and connection capex on FTTH and VDSL between 2010 and 2015, based on what operators themselves are saying about their NGA plans.
Figure 1: Total FTTx capex by region, developed markets, 2009–2015[Source: Analysys Mason, 2010]
This level of commitment to FTTH looks unsustainable and fundamentally unreasonable, especially when VDSL networks will pass far more households. We therefore expect telcos that have opted for FTTH roll-out beyond proof-of-concept trials and greenfield sites to back away from further commitment and, in some cases, reduce the scale of their FTTH roll-out plans. We would expect them to opt instead for a more cautious VDSL-based approach.
Moreover, in a economic environment where levels of government borrowing are having to be cut, we would expect more governments to reduce, or rethink, their long-term commitments to fibre roll-outs. Heavy NGA investment could be perceived as politically awkward or even inappropriate in markets where budgets for education, health and social welfare budgets are being slashed. As I write, the inconclusive outcome of the Australian general election means that the future of that most-ambitious of all state-sponsored broadband plans, the Australian National Broadband Network, hangs in the balance.
A new report by Analysys Mason, FTTx roll-out and capex in developed economies: forecasts 2010–2015, highlights the widely divergent NGA plans of operators in different national markets, and assesses their cost.