Study Says Europeans Have Long Waited to Put Fiber in their Diets

By Peter Bernstein November 26, 2012

If you live in Europe and think your home is going to be brought into this century via fiber-based broadband connectivity, a new study by Ventura Team and Portland Advisors done for the Fibre-to-the-Home (FTTH) Council Europe says you may have to wait until the next century. 

You read correctly: it argued in the study, “Financing Stimulus for FTTH: Funding Europe’s EUR260 billion access fibre upgrade: A rationale and specific recommendations for a new approach by industry, policy makers and governments,” that it could be as much as 92 years from now before you get connected if the EU governments do not intervene to accelerate deployment.

Bad for everyone 

The authors start with the premise that for Europe to be economically competitive, it needs ubiquitous fiber-based broadband deployed to every home and business. That premise is in fact the reason for the length of time it would take to effectuate a full switchover from copper-based to completely fiber-based broadband (FTTH).  

The current switchover is happening at a snail’s pace and it could seriously obstruct economic growth across Europe for a long time to come, the report says. It calculated that a full switchover would cost an estimated $339 billion in CAPEX. The 92 years comes about based on the current rate of telecoms investment into fiber, which has a run rate of roughly EUR3 billion a year.

According to co-author Stefan Stanislawski, ‘father’ of local loop unbundling (i.e. the author of the 1993 report for the EU that started the entire unbundling process in Europe):

Every technical expert will agree that fibre is the only real technological option capable of meeting the demand for broadband in the long run. But in Europe we are still not investing enough money into fibre, and this is not for lack of capital. The industry could fund the switchover itself over a period of 25 years with the right regulation…In our view the telecoms industry must uphold what we call their ‘social contract for timely renewal of assets’. In fact, regular telecoms consumers all over Europe are already paying for the switchover to happen over the next 25 years through tariff regulations – except it won’t, unless new regulatory schemes are adopted and enforced.

The study advocates changes in regulations in the form of a coordinated program to drive the fiber switchover. It notes that service providers currently have little incentive to affect a switch to fiber since the cash keeps flowing from the old copper networks. Its authors also believe that if there is enough political will and the right regulatory changes are made a fiber switchover would generate jobs and growth to repay the investment.

To affect the complete switchover in a maximum of 25 years the study advocates a seven-point action plan:

  1. Modify the regulatory approach to the local loop, putting long-term contractual relationships to the fore and thereby creating public, operator and investor confidence in a stable, transparent and predictable regulatory environment. Commitments to delivery by operators should be public, reinforced by performance guarantees, and non-delivery should be penalized with appropriate penalties and/or cash clawbacks.
  2. Enforce the existing social contract for replacement so customers get the modern infrastructure that they are already paying for.
  3. Change the economics of grey and white areas using targeted transfers or interventions so that PPPs and similar project financing approaches stimulate renewal of the natural monopoly access network.
  4. Use strategic pricing to ensure that regulated wholesale prices for copper access reflect its long term higher costs and charge a sufficient premium to drive technological migration in retail markets. Additional cashflows generated by such strategic copper prices should be directly used to help fund the Fibre Switchover.
  5. Update the concept and mechanisms of universal service to fully support the Fibre Switchover in the grey/white areas. Greater symmetry in fixed market regulation of black areas should ensure that Cable TV operators make a fair contribution in any Member States where they do not already do so.
  6. Smarter interventions by Government and EU Authorities to both emphasise stimulus rather than subsidy (thereby also reducing total life costs of intervention to the taxpayer) and the establishment of Fibre Development Corporations to act as impact investors - creating a pipeline of bankable deals and a financing ecosystem to accelerate the Fibre Switchover.
  7. Provide active support for community self-provision in those areas where this will either deliver faster modernization or significantly reduce whole-life costs to other customers and taxpayers.

While the report makes for interesting reading, it does have its shortcomings. 

For example, since it is funded by FTTH Council Europe, it was constructed as a model to prove that the EU could fiber 100 percent of residence in 25 years instead of almost 100. Thus, little things like the use of VDSL2 Vectoring to provide state-of-the-art broadband so that a phased deployment of fiber could be done when and if necessary, such as is being planned by several major European operators to provide services without having to do a network forklift in an expedited fashion, is not considered. 

For that matter, also lacking consideration is the impact of the plans of cable TV operators or wireless broadband companies which belies the statement that, “fibre is the only real technological option capable of meeting the demand for broadband in the long run.”

The implication is seemingly that the study is about fiber from a traditional telecom fixed network provider.

While there’s no denying the earnestness of the authors nor the justifications and recommendations provided, one doubts that regulators are going to warm to the findings. After all, their mandate is in theory to assure ubiquitous access to broadband and not to any particular access technology. In fact, in places such as Asia Pacific, where operators own fixed and wireless networks and are busy deploying substantial Wi-Fi hotspot presences in heavily congested areas, it’s all about providing users with a seamless everywhere broadband customer experience, and not just to the home. Their business models are based on the customer capture and keep imperative, and fiber deployment is strategic under this broader context.  

It does not mean they are fiber slackards, but it does mean they are being very careful as to when, where, how and why to deploy. That is a lesson the EU is surely keeping an eye on.


Edited by Braden Becker
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