Fixed broadband operators throughout Europe tend to charge a premium for next-generation access (NGA) services. In this article, we discuss whether such premiums could undermine the target set by the Digital Agenda for Europe (EDA) of reaching 50% household penetration for services with an access speed of 100Mbps or more by 2020.
Definitions of NGA vary, although here we assume that NGA refers to broadband services with an access speed of 30Mbps or more.1 The most-common fixed technologies that are capable of providing these speeds are fibre-to-the-cabinet (FTTC), fibre-to-the-premise (FTTP) and cable. At the moment, cable broadband is the most widespread form of NGA because most European cable operators have upgraded – or are in the process of upgrading – their networks to the DOCISIS3.0 standard, which enables their networks to provide speeds of 100Mbps or more. Fibre services are also emerging throughout Europe, and are widely available in some countries (such as Slovenia).
Tiered pricing structure
Almost all cable operators in the 31 European countries we sampled use a tiered pricing model that allows them to extract the maximum value from their fastest products while maintaining a minimum level of service (the coaxial part of the network could become congested if all customers subscribed to the highest speeds).2 These price premiums can be significant: 100Mbps single-play cable services are on average 54% more expensive than 30Mbps services (see Figure 1).
Figure 1: Cable-based broadband service pricing by access speed, Europe [Source: Analysys Mason, 2012]
FTTH networks – particularly those that use point-to-point architecture – are less likely to suffer from congestion at the access point, and it appears that fibre prices in Europe are typically lower than cable prices.3 The price premium for high-speed fibre services is significantly lower than that charged by cable operators: on average, single-play fibre services with speeds of 100Mbps or over are only 7% more expensive than 30Mbps services – and in some cases they are even the same price as standard broadband services.
The issue of take-up
To date, the take-up of NGA services has been low in most European countries for several reasons, including Internet users' failure to see the benefit of NGA compared with standard broadband in some cases. As a result, some operators such as BT in the UK are charging a low or negligible price premium for fibre services in order to encourage their ADSL customers to migrate to NGA. We estimate that cable networks pass 51% of European homes, while fibre networks cover only 25% of homes. However, cable operators may be forced to reduce the price of their high-speed offerings as fibre coverage and take-up increase.
If customers continue to perceive no advantage in 100Mbps speeds compared with, for example, 10–60Mbps speeds, then they are unlikely to be prepared to pay a price premium for them. However, if customers do recognise value in 100Mbps services and are willing to pay for them, NGA operators are likely to maximise revenue by continuing to charge a price premium for such services. Therefore, even if the basic subscription cost of an NGA connection becomes comparable to that of a basic broadband connection, and operators are able to migrate standard broadband users over to an NGA technology, there is still likely to be a price premium for the fastest services. This could represent a significant roadblock to reaching the goal of 50% household take-up of 100Mbps services in the European Union. Some member states may achieve 50% coverage of households with a 100Mbps-capable network by 2020, but it is less likely that all of these households will actually subscribe to 100Mbps services.
1 This is to be consistent with the other EDA target, which requires 100% coverage of 30Mbps services by 2020.
2 The 27 EU member states plus Croatia, Iceland, Norway and Turkey.
3 However, it should be noted that all of these technologies will suffer from contention at some point in the network.