Analysis: Broadband World Forum questions the economics of fibre

11 October 2011 | Guy Matthews

Anybody attending the Broadband World Forum event in Paris last month will have been aware that the process of putting fibre into the ground and running it into people’s homes and businesses is not rocket science any more.

However, generating a return out this investment over a decent timescale is something that keeps network operators and other would-be stakeholders up at night.

Paris was predictably abuzz with the finer points of the economics of fibre. The consensus among delegates seemed to be that partnership between industry players, allowing them to share the cost of a fibre project, is the only way to extract a satisfactory return.

A passive fibre network –  including the trenches, ducts and fibre – generally amounts to around 80% of the cost of a next-generation access project. The model of one operator taking on the whole cost of building a passive network before making it available wholesale to other service providers can land that company with anything up to a 50 year wait before it sees all its investment back with a profit. It’s not a fast buck.

An investment in the active side of the network, with no messy building and digging and local authority negotiation to bother with, takes by comparison a mere five years to repay, on average. Even so, this is not a fast buck either.

The suicidal model of multiple operators each building their own passive fibre access network in the same metropolitan area is losing ground. Better, surely, for several operators to co-invest in the same project.

The not-for-profit FTTH Council Europe, which backs the adoption of FTTH and FTTB but not FTTC, believes collaboration needs to go further than simply intra-operator deals. The risk of an NGA project, it argues, is best shared by as wide a range of stakeholders as possible – landlords, housing cooperatives, local authorities, construction firms, big national telcos, smaller local service providers, even equipment makers. This, it points out, is often the model adopted in Europe’s leading fibre adopting countries, such as Norway and the three Baltic states.

Neelie Kroes, commissioner for the digital agenda for the European Commission, agrees. She also believes regulators must try harder to play along with other interested parties in the spirit of the EU’s digital guidelines: “While broadband for all is central to our economic future, it’s clear that time is against us,” she says.

“We aren’t investing enough – there aren’t enough new connections each day. That’s why the clarity provided by the EU’s Next Generation Access recommendation is essential. I really can’t stress enough the importance of consistent application by national regulatory authorities of the principles laid down in the recommendation. As it stands, some national regulators are not ‘playing by the rules’ of the recommendation, which is a pity given that it offers clarity and supports attractive margins and returns for investors, while ensuring efficient competitors have a fair chance to compete.”

The good news is that there were almost 4.6 million new FTTH and FTTB subscribers in Europe at the end of June this year, up 14% over six months, according to figures from the FTTH Council Europe and researched by French analyst firm iDate.

Over 25 million additional European homes were passed by fibre networks in that period, up 26% from the start of the year. Scandinavia and eastern Europe lead this growth, just  as they have been doing for the last four or five years. Lithuania still leads the FTTH Council’s rankings, with 26.6% of households subscribing to FTTH or FTTB, followed by Norway, Sweden, Slovenia, Russia,  Slovakia, Latvia, Bulgaria, Estonia and Denmark, all with a penetration of at least 6%. The UK does not yet have the  required 1% to even qualify for inclusion. Hungary and Ukraine are the latest countries to enter the ranking, at 11th and 16th places respectively.