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The commercial challenges of delivering the gigabit society

Andrew Daly Manager, Consulting

The telecoms industry is embarking on its next important phase of development. Fixed operators continue to (gradually) roll out more fibre into their networks, while mobile operators continue to upgrade capacity and expand their networks as they include the technologies that will deliver 5G.

In its communication "Towards a European Gigabit Society", the European Commission (EC) has set three targets for connectivity across Member States to be achieved by 2025:1

  1. Gigabit [1Gbit/s] connectivity for all main socio-economic drivers such as schools, transport hubs and main providers of public services as well as digitally intensive enterprises
  2. All urban areas and all major terrestrial transport paths to have uninterrupted 5G coverage
  3. All European households, rural or urban, to have access to internet connectivity offering a downlink of at least 100Mbit/s, upgradable to gigabit speed.

These targets are ambitious. In Europe in 2016, 49% of homes were covered by a network capable of supporting 100Mbit/s.2 Significant further investment and deployment will be required to meet the targets.

It is noteworthy that the EC stopped short of targeting ubiquitous gigabit services at this stage. Analysys Mason undertook a detailed piece of analysis for the EC, shortly before the three targets were formalised.3 The main result of our work is shown in Figure 1.

Figure 1: Summary of incremental costs between scenarios [Source: Analysys Mason, 2017]

Summary of incremental costs between scenarios [Analysys Mason, 2017]

The work was based on six scenarios:

A. Providing 1Gbit/s to large socio-economic drivers and professionals (SEDPs), e.g. medium enterprises, hospitals, schools and local authority

B. Providing 50Mbit/s wireless connections from macrocells, covering 95% of the population

C. Providing 1Gbit/s wireless connections from small cells (equivalent to a wireless 'hotspot' model), covering 95% of the population

D. Providing 1Gbit/s to small SEDPs, e.g. micro and small enterprises, teleworkers, libraries, museums and other cultural sites

E. Providing 1Gbit/s to all residential areas

F. Providing 50Mbit/s wireless connections from macrocells, covering all major transport links (road and rail).

The analysis revealed the following interesting insights:

  • Fibre deployed to cover residential areas can also be used to connect SEDPs and wireless base stations (both macro and small)
  • Economies of scale are crucial for deploying 1Gbit/s-capable fibre connections: although connecting on large SEDPs is relatively low cost, the cost of each connection is very high.
  • Regarding future mobility, anticipated developments in mobile technology should ensure that average speeds of 50Mbit/s can be achieved
  • However, significant additional costs would need to be incurred to either a) extend mobile coverage to all major transport links, and/or b) deploy very dense small cells to realise mobile speeds of 1Gbit/s or more, across a wide area.

Another important insight is the role of the commercial sector. For example, our analysis forecast that the commercial sector is expected to meet around 30% of the cost of providing 1Gbit/s to all residential areas. As noted above, this investment can also help meet the other targets, to connect SEDPs and provide wireless connectivity. Commercial operators will be concerned about the return on their investment, and the uncertainties around deployment of new networks will cause them to take a cautious approach. These uncertainties include the cost and practicalities of deployment, take-up of new services and the prices that can be charged. Policy makers have an important role to play here, to help reduce these uncertainties, for example by lowering deployment barriers, facilitating co-investment or demand-guarantee arrangements, and providing regulatory certainty over wholesale prices.

It will be interesting to see how the new European connectivity targets translate into action at the Member-State level. National broadband plans will continue to play an important role here, enabling policy makers to outline their ambitions whilst also taking account of their own market's specific supply-side and demand-side conditions.