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One year ago, at the FTTH Conference 2011 in Milan, there was great excitement about how the new Digital Agenda targets could catalyse the market for fibre to the home (FTTH).
The target for availability called for every citizen in Europe to have access to 30Mbps broadband by 2020. The target around uptake was even more ambitious: the European Commission wanted half of all subscribers to be taking 100Mbps services by 2020. As Chris Holden, president of the FTTH Council Europe, pointed out at the time, such a high penetration would require almost ubiquitous availability of 100Mbps services – something that FTTH is well placed to deliver.
So how are things looking one year on? The European Commission recently published the 2011 scoreboard (see below), which indicates that very little progress has been made towards the take-up goal in particular. The FTTH Conference 2012 in Munich provided the ideal opportunity to delve a little deeper into how things are shaping up.
First, the good news: FTTH continued to grow at a reasonable pace in 2011 in spite of global economic uncertainty, according to market research firm iDATE. There were 600,000 new subscribers in the region (specifically the 27 European member states plus 8 other countries on the continent) corresponding to a growth rate of 28%.
The number of homes passed by fibre grew even faster with a 41% increase year on year. However, as a result of deployment exceeding take-up by new subscribers, the overall take rate of FTTH in Europe (the percentage of people taking the service where it’s available) actually fell from 20.3% at the end of 2010 to 18.4% at year end 2011.
The fact that subscriber take-up lags deployment sounds worrying, but is quite normal. The results of a study by consultancy firm Diffraction Analysis, also unveiled at the event, confirm something that may seem self-evident – it takes time to build a subscriber base. FTTH operators in the study gained between 5% and 7% market penetration for each year that they were in business.
The detail of the market panorama also bears this out. Countries with more mature FTTH markets also tend to have higher take rates, the highest being Norway (60%), the Czech Republic (42%), Sweden (39%) and Lithuania (29%). (By the way, Lithuania continues to lead the FTTH Ranking, Norway has moved up to second place, and Sweden is in third, while major economies like Germany and the UK still do not feature.)
Looking ahead, however, the news is not so good. Analyst firm Heavy Reading has downgraded its market forecast for the third year in a row, as actors have failed to achieve the objectives they have set themselves. Heavy Reading now forecasts that the FTTH subscriber base is expected to grow from around 10.3 million subscribers today to 32 million in 2016 (this figure is for 38 European countries including Russia).
When considering European Union member states only, the numbers correspond to around 8.7% of homes subscribing to fibre by 2016. That would leave just four years for Europe to reach the 50% target in the Digital Agenda. In fact, Heavy Reading’s forecast indicates that by 2020 Europe is expected to attain FTTH market penetration of only 20%.
Incumbent operators are being particularly slow. “If incumbents were solely responsible for FTTH additions, and kept going at the same rate, then it would take about 450 years to connect all the homes in Europe,” said Graham Finnie, Heavy Reading’s chief analyst. “I think we can all agree that’s too slow.”
Incumbents only accounted for roughly one third of FTTH deployment in 2011, but the situation is not much better among municipal projects and alternative operators, who are also struggling to meet deployment objectives on time. If FTTH is to be a major contributor to Digital Agenda targets, then deployment needs to accelerate dramatically and, given that subscriber take-up lags the roll out, it needs to start soon.
The alternative scenario, which is probably slightly disturbing to fibre evangelists, is that other technologies, like cable television networks and fibre to the cabinet (FTTC), will have to play the dominant role in delivering high-speed broadband by 2020.
By 2020 all cable networks will be upgraded to offer 100Mbps – indeed in many countries they already are capable of such speeds. Improvements in copper technology, such as vectoring, could lead to VDSL becoming capable of speeds as high as 100Mbps even if only over distances of several hundred meters – something that seemed unlikely just a few years ago.
The Broadband Forum, which also unveiled its numbers at the event, reported that deployment and uptake of what it calls “hybrid FTTx” (fibre in the access network with copper tails) is currently outpacing true FTTH. There are almost three times as many subscribers on hybrid FTTx connections, and that number is growing rapidly because this approach has been popular with incumbents.
Politicians have a great deal of influence in how things evolve from here, says the FTTH Council Europe. Individual member states are required to set out their plans for meeting the Digital Agenda targets, but so far they haven’t done a great job – at least not from the viewpoint of FTTH industry.
“Generally speaking, the national plans [for broadband] are a disaster,” said Holden. “Many countries don’t have national broadband plans and of those that do, they’re not aligned with the Digital Agenda targets. Many governments say they are going to use other technologies based on ‘up to’ speeds to meet the Digital Agenda targets, instead they should be realistic about what these technologies can actually do.”
The FTTH Council Europe is also keen to see the Digital Agenda targets strengthened by including a minimum upload speed. Many studies show that the world is not asymmetric – once good upload speeds become available, subscribers start to upload far more data. It seems unlikely that the Council’s suggestion will be adopted, however, as it would virtually guarantee that Europe misses the 100Mbps Digital Agenda target.
One of the big challenges, says Holden, is to convince governments that telecommunications should be viewed as a critical infrastructure, on a par with road, rail and airports. Like other big infrastructure projects, FTTH requires significant long term investment, and patient investors to match. That’s not something that publicly traded companies with shareholder pressure and short-term investment horizons are necessarily in a position to provide; and that’s why government understanding of the situation is vital.
“Maybe we should do more work with national governments; that’s certainly something for us to think about,” Holden mused.
Is Europe on track to meet the Digital Agenda targets? What needs to change to make sure we get there? Tell us what you think by adding your comments below.
Check out more from Pauline Rigby on Optical Reflection.
Anybody who knows anything about this subject knows the incumbents are only interested in leeching the last vestiges of profit from their obsolete copper phone lines. They will not invest in fibre to the home until they are forced to.
The fact that all the funding in so called ‘digital britain’ is going to the incumbent for ‘superfast’ cabinets is a disgrace.
The funding should go to new entrants who want to deliver a futureproof service, and the government’s role is to make it possible, by levelling the playing field.
The key to it all is building networks in rural areas where folk are desperate for a connection, and let these new networks weave their webs into the cities, thus providing competition. The incumbents shout out about ‘open access’ but it isn’t really, as all the ISPs have to buy from them anyway, its a monopoly which is squeezing this country out of the digital revolution. If we don’t act soon it will be too late.
chris
..some important words from a macro economic perspective. But have you ever asked yourself why this big quantities of global available money have never found their ways to this (profitabel?) investment opportunities. Conclusion: if there is no business case there is no business besides some exceptions – charity and public programs, where I didn’t heard about sustantial volumes to make your dreams come true.
The only way to get unnaturally (meaning, outside of capitalism) high adoption rates is through some kind of government subsidy. There’s a reason it’s going slowly — the return for the companies isn’t there to invest in fiber! If those “leechers” thought there was a better return on fiber, they would do it, to the benefit of their shareholders. The EU can articulate some laudable goals, but unless they bring some dollars, either directly or through incentives, it’s not going to happen as quickly as the bureaucrats want.
cyberdoyle speaks about the imposition of “open access” requirements — this penalizes the investment that publicly traded companies make, whose shareholders are expecting a return on their investment. Building plant is capitally intensive with a high level of risk and requires a stomach for a long time frame for a return. If the government requires open access on existing plants then it dilutes the level of “monopoly” rent that can be extracted.
In regards to:
“The key to it all is building networks in rural areas where folk are desperate for a connection, and let these new networks weave their webs into the cities, thus providing competition”
I don’t follow the logic here. While rural folks may be desperate for a high-speed connection, they are the most expensive to build (per customer passed) and would do little to help “weave their webs into the cities”. There’s no indication that building a rural high speed broadband network stimulates competition or urban fiber networks.
New comment from Brian Wadsworth on the Telecom Professionals LinkedIn group: http://adva.li/v7m5h
Great insight on EU situation; but where does the UK stand in all of this? I live on the rural outskirts of Leeds and my home broadband gets squeezed via BT’s ‘copper crap’ to 100kB breakneck speeds! I’m also Chair/CEO of a digital enterprise in the centre of Leeds where our 20MB link is also squeezed into a ‘bundle’ of 20(!) copper cables, when any one of which fails, the link fails!! I/we would kill for 20MB bi-di …. let alone 100MB! Its ‘glass’ we need …….. NOW. I struggle to believe there is no demand from users …. they simply need educating and informing and the demand will be there.
I don’t think you can mention demand without talking about price too. You could have a fibre connection right now in Leeds if you were prepared to pay for the installation and then the ongoing rental costs (that part alone would be a five figure sum, I believe).
Competition brings prices down. Ofcom says the market for business connections is competitive, but prices still seem to be beyond the reach of many small- and medium-size businesses, so you could argue that it’s not competitive enough. It will be interesting to see if the availability of FTTC/P changes the pricing for enterprise customers needing the kind of broadband speeds becoming available over consumer connections.
New comment from Brian Wadsworth on the Telecom Professionals LinkedIn group: http://adva.li/v7m5h
Aye … but there’s the rub Pauline. In my humble opinion this business model is out-dated, probably driven by bean counters and is what is holding investment in vital infrastructure back. Its not how they approach investment in the Far East and look how demand has taken up Bandwidth availability there. Even though mobile bandwidth demand is increasing based on consumer take up, the need for ‘glass’ is still huge for B2B, Health, education, etc. It needs a paradigm shift in UK business thinking for sure, but the demand will provide RoI, although perhaps the timescales for this may have to be more realistic; as opposed to be driven by short term investor demands. You may be able to determine that I’m definately NOT a traditionalist and also that (as those that know will testify!) BT are one of my favourite enemies! Yet, in fairness BT are not alone in their ‘quill-pen’ approach to investment.
PS: We did TRY to get BT to provide us with FO in Leeds but instead they only offered copper … dont know why they dont use it to pull FO cable through their way leaves and then (as one other comentator in this forum stated a number of years ago) use the redundant copper to make pots, pans and kettles! That would surely satisfy the bean counters ….?
First of all, I must say that Pauline did a great job summarizing the conference, like always.
On the topic of rural broadband we have to do a fair comparison among all the ways broadband is delivered. The main cost of connecting rural areas is in the backhaul to the next larger CO/POP. This has to be based on fiber, irrespective of the last mile technology used. Also in the case of LTE we need fiber backhaul. As soon as a fiber cable (irrespective of how many fibers it carries) sticks out from a village’s market place we can consider what kind of technology we want to use to reach the customers. In this scenario FTTH does not look like such a crazy solution any more.
In the public discussion very often wireless is considered as a silver bullet for rural deployments. However, this assumes that a miracle occurs for its backhaul while for FTTH always an expensive fiber backhaul is taken into account.
Thus, I have some sympathy of cyberdoyle’s approach.
Thanks Wolfgang!
A few thoughts on backhaul:
FTTH in the access network is just in its infancy in Europe. In the UK and Germany, for example, serious FTTH deployment by incumbents only got underway last year. I sometimes wonder if it’s far too early to shout “market failure” and throw lots of public money at consumer high-speed broadband schemes.
Instead, it would be nice to see more action to break down the barriers to FTTH. Just such a report on barriers to NGA in the UK was published five years ago, but many of the barriers remain, backhaul being one of them.
In the past, I have written about some successful broadband policy interventions which have focused on providing backhaul connections rather than direct consumer connections.
The market for fibre backhaul has been around for a good while – and it should be easier to make the call about whether there is market failure here.
Digital Agenda targets were also discussed during the regulatory panel at the FTTH Conference.
Vodafone’s Matthew Braovac, head of public policy, fixed services, said: “There is not any good evidence for optimism. I’m concerned complacency means we will all continue on the same course… When it comes to the 100Mbps target, it is difficult to see any movement.”
Reinald Krüger, head of unit for procedures related to national regulatory measures, Information Society and Media Directorate-General, doesn’t think it makes sense to change the targets: “We have eight long years ahead of us and a lot can happen,” he said. “What we need is regulatory certainty.”
Braovac agreed that regulation is important, but the perspective needs to be changed. At the passive layer, assets have a 40 year life or more, but the market has a three year review process. Telecom regulators need to take into account the longer term structure of the industry