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ITS 2004Session 6.4. - Infrastructural Bandwidth to the Customer

Building up Fiber Infrastructures: International Analysis and Assessment

Dieter Elixmann Dr. Karl-Heinz Neumann

Andrej Schöbel WIK-Consult (Germany)

Berlin, 07.09.2004

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Collecting empirical evidence: Features of the WIK-Consult study

Main results

Example: FTTx activities of Swedish cities

Building up fiber infrastructures: issues to be discussed

Conclusions

Overview

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FTTx: Fiber to the …

- Home

- Building

- Curb

- Premise

- Cabinet

- …

i.e. solutions bringing fiber optic access lines nearer to the customer

Study performed on behalf of Alcatel SEL Stiftung

Collecting empirical evidence: Features of the WIK-Consult study (1)

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Identification and evaluation of FTTx activities in the world

Main focus on projects in France, Japan, Sweden and the U.S.

Objectives

- Highlight characteristic features of FTTx projects

• Main actors

• Motives and driving forces

• Technical and economic characteristics

• Investment and financing

• (Planned Business Case

• Legal, regulatory and policy frame

- Assessment of activities

Collecting empirical evidence: Features of the WIK-Consult study (2)

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Collecting empirical evidence: Features of the WIK-Consult study

Main results

Example: FTTx activities of Swedish cities

Building up fiber infrastructures: issues to be discussed

Conclusions

Overview

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Main results (1)

Numerous FTTx activities worldwide

Japan is leading worldwide FTTx penetration (FTTH)

- More than 1 mill. subscribers today

- By 2006: 7.7 mill. subscribers

Level and dynamics mirror country specific factors

Implementation of FTTx virtually in ist infancy…

… yet, plans and activities already started underline serious commitments and obviously viable business cases

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Main results (2)

Main players (varies across countries and projects)

- Telecommunications carriers

- (Energy) Utilities

- Jurisdictions (regions, cities, villages)

- Real estate companies

Level of FTTx activity of telco incumbents varies across countries

- France (France Télécom): low

- Japan (NTT East, West; KDDI): high

- Sweden (Telia-Sonera): low

- U.S. (RBOCs): still low, however, ambitious plans

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Main results (3)

Basically, two different business models regarding FTTx

- Business Model 1:

• Deployment and operation of infrastructure as well as service provision by one single entity

• Examples: usen, NTT in Japan; Fastweb in Italy; RBOCs and regional carriers in the U.S.

- Business Model 2:

• Deployment and in parts also operation of fiber infrastructure by one entity

• No service offerings to end users

• Neutrality with regard to carriers and service providers

• Examples: Swedish and French cities

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Main results (4)

A priori, the government has different options regarding FTTx

Legal and regulatory frame, political promotion: Usually, government involved in setting the frame and establishing specific broadband support programmes

Player

- Active role of jurisdictional entities as player high e.g. in France and Sweden, in the U.S. and Japan relatively low with respect to market at large

- Primary motives for governmental activities: Increase regional competitiveness, care for future generations

Financing

- Corporate shareholder, credits, tax reliefs, etc.

- Support programmes to safeguard universal service objectives (in rural areas, e.g. in Sweden and Japan), often not technology-related (without FTTx-specification)

Demander: increase demand for services e.g. by e-government solutions

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Collecting empirical evidence: Features of the WIK-Consult study

Main results

Example: FTTx activities of Swedish cities

Building up fiber infrastructures: issues to be discussed

Conclusions

Overview

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Example: FTTx activities of Swedish cities (1)

Basic motives and incentives for FTTx-activities

- Mission (of the Swedish Urban Network Association)

• Give the city an open infrastructure for everyone

• Stimulate the market by offering capacity at below new operators‘ costs

• Reduce digging in the streets

• Create an own network for the city

- Expectation that future bandwidth/capacity needs are dramatically increasing

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Out of 290 municipalities in Sweden 200 have already an own network

Plans are discussed with several regional players to link their network with those of others to reach a broader regional coverage

Schools, libraries, hospitals, city administartive sites etc. are especially hooked upon the local networks

Example: FTTx activities of Swedish cities (2)

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Business model

- Deployment of infrastructure; focus of marketing FTTx infrastructure: primarily dark fiber

- Usually also operator of a network for the local administration

- Carrier neutral

- Local pricing policy

- Often exclusive arrangements between municipally owned energy utility and municipally owned real estate company; opens up control of a significant portion of the value chain of providing broadband services

Example: FTTx activities of Swedish cities (3)

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Example: Stokab (1)

Owners: 91 % City of Stockholm, 9 % Stockholm County Council

FTTx activity: Infrastructure provider in the Greater Stockholm area

Single dark fiber infrastructure provider in this area, i.e. only Stokab has a licence to deploy fiber

Customers: Network operators, companies with a high communications budget (like banks and insurance companies)

Example: FTTx activities of Swedish cities (4)

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Example Stokab (2)

Financing: benefits from usage of municipal funds

Motives for FTTx-extension by Stokab

- Idea that network provider generate lower costs for infrastructure, if they buy dark fiber from Stokab instead of deploying own facilities, because of shared costs characteristics for important assets

- Avoidance of extensive digging activities

- Competition policy with the goal of lower (affordable / decreasing) prices (Wettbewerbspolitik mit dem Ziel der Förderung niedriger Preise)

Example: FTTx activities of Swedish cities (5)

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Reaction of market players (e.g. Bredbandsbolaget)

- Basically existence of infrastucture as input is positively appreciated

- Local provider neutral networks are local monopolies and therefore a-priori a case for regulation and competition policy, this holds particularly true, if a municipal utility places an exclusive contract with a city owned real estate company

- Overall missing standardisation for broadband networks; FTTx-activities of cities etc. should be limited to the provision of dark fiber

- Decentralised deployment (i.e. limited to a particular city) entails diseconomies of scale; room for regional cooperation

- FTTx activities of cities etc. should rest on a legal basis

- Activities of cities should mirror long run business model, clear market driven deployment policy, depreciation periods over 25 years

Example: FTTx activities of Swedish cities (6)

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Collecting empirical evidence: Features of the WIK-Consult study

Main results

Example: FTTx activities of Swedish cities

Building up fiber infrastructures: issues to be discussed

Conclusions

Overview

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Building up fiber infrastructures: issues to be discussed (1)

Regulatory and competition policy frame

- Rights of way

- Access to premises and buildings

- FTTX infrastructure essential facility?

- Conformity with national and EU wide rules with respect to granting exclusive right to an entity deploying infrastructure

- Is public financing (nationally, EU funds) in accordance with the State Aid rules?

Technical aspects of infrastructure deployment and operation

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Building up fiber infrastructures: issues to be discussed (2)

Demand side factors, e.g.

- Who are the (potential) demand(ers) for FTTx infrastructure (a-priori incumbent, OLOs, cable TV operators, (facilities based) Internet Service Providers, non-facilities based Service Providers, cellular operators

- Variables that impact decision behaviour

Competitive situation within the market, e.g.

- Deployment status of competing infrastructures

- How do the “traditional“ telcos react? E.g. in USA Qwest (incumbent) announced, to undertake massive efforts to stop UTOPIA.

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Building up fiber infrastructures: issues to be discussed (3)

Cost considerations, e.g.

- Deployment

- Economies of scale regarding procurement?

Factors driving demand for services provided via FTTx, e.g.

- Willingness to pay

- Price level, pricing policy

- Media budgets

- Socio-cultural aspects

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Building up fiber infrastructures: issues to be discussed (4)

Financing issues, e.g.

- Appropriate legal status

- Availability of capital, access to capital markets

- Who are potential investors?

- Expectations and risk perception of investors

- Eligibility for EU funds

Role of the State

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Building up fiber infrastructures: issues to be discussed (5)

Carrier neutral deployment model? Concept:

- Let physical infrastructure be deployed by a neutral investor…

- …investor, however, is not operating it

- Wholesale model

- Neutraliy with regard to service provision, i.e. foster service competition (innovation, technology mix, marketing mix…)

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Collecting empirical evidence: Features of the WIK-Consult study

Main results

Example: FTTx activities of Swedish cities

Building up fiber infrastructures: issues to be discussed

Conclusions

Overview

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Conclusions

Status of worldwide FTTx deployment mirrors the fact that FTTx is viewed as superior and future proof compared to other access technologies

In many countries unambigous tendency

- It is no longer an issue if FTTx is reasonable at all and can be a viable business case …

- … rather, the focus is on identifying challenges for FTTx deployment on the basis of country specific conditions and …

- …to derive a concept of an appropriate deployment plan and means to secure financing

Broadening the scope of broadband discussion in Germany indispensable

Carrier neutral deployment model: Carry out a model calculation with “real world data“ for Germany in order to assess the economics behind and the challenges ahead (“Synthetic Business Case“)

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