Cable upgrade to Docsis 3.1 puts pressure on KPN to resume FTTH roll-out

Wednesday 29 November 2017 | 16:53 CET | Background

Fibre roll-outs are gaining pace around Europe. Several countries are migrating steadily to fibre, and some are showing an acceleration in the adoption of fibre access networks. The Netherlands cannot be an exception, and at some point KPN, will need to restart and expand its FTTH roll-out. 

There are a number of reasons to migrate to fibre, also in the access network. While there are costs upfront (capex), this will lead to savings later (opex). Other important reasons driving the decision to switch from copper to fibre include:

  • The growing demand for bandwidth. This is a complex element, as supply determines in part the demand ("If you build it, they will come.").
  • Infrastructure-based competition (copper, coax, 4G). In countries with national cable networks, we often see a form of leap-frog, with copper and cable each swapping places for the lead - ADSL followed by Docsis 3.0 followed by VDSL followed by Docsis 3.1. With the arrival of 4G and 5G (as well as other wireless technologies such as Webpass and Huawei's WTTx), part of the network can be replaced with mobile/wireless technology. 
  • Willingness to invest. Companies listed on the stock market have a shorter horizon than pension investors. A long-term investment horizon means a greater willingness to absorb start-up losses. Essential is that the investments (capex) are made good with later cost savings (opex) and reflected over time in improved results. Fibre has much lower maintenance costs. Capex obligations weigh much more heavily for listed companies than opex benefits. There's also the question whether anyone is willing to go up against the PTT and/or cable, as the barriers to entry in telecom are high. 
  • Subsidies. Many countries are offering subsidies to help expand faster broadband services in rural areas, such as the UK or Austria.
  • Regulation. Certainty over regulation is more important than the regulation itself. Businesses need to know where they're at and what to expect before they start big projects. KPN and Ziggo are likely waiting to hear what the ACM has to say in its latest market analysis. It's unclear whether a regulated player (such as the former PTT) is de facto at a disadvantage from an 'open' network. The same as it's uncertain whether Apple has an advantage with its closed ecosystem compared to the 'open' world of Android. A player like KPN competes together with its wholesale customers (Tele2, T-Mobile, NLE, Youfone) against 'the cable' (Ziggo).

The power game is resulting in a new wave of fibre expansion across in Europe. New plans are starting in almost every country:

  • Belgium: under pressure from Telenet and its upgrade to Docsis 3.1, Proximus has started its 'Fiber For Belgium' project.
  • France: SFR is trying to turn around its performance with an accelerated roll-out of fibre (Fibrer La France).
  • UK: while the government is threatening BT with structural separation, Virgin Media is busy with its Project Lightning, and several regional players are expanding their fibre networks. Vodafone has partnered with CityFibre to roll out a fibre network.
  • Ireland: both the PTT (Eir) and the SIRO joint venture between Vodafone and utilities group ESB are deploying fibre. Sky is also entering the fixed market with access to the open SIRO network.
  • Germany: Deutsche Telekom has been among the laggards, but recently started stepping up its efforts. As proven by Reggefiber already, DT is using demand aggregation to ensure itself of customers on the new networks. It's also focusing on smaller cities, where there is likely to be cable and residents are more interested in faster speeds. 
  • Italy: the same as France, Spain or Ireland, the PTT is competing with challengers. Alongside TIM, also FastWeb (Swisscom) and Open Fiber (Enel) are rolling out FTTH. There is no cable in Italy, and competitors are increasingly choosing to work with Open Fiber's network. There are also plans to cover rural areas.
  • Spain: Orange and Vodafone are coordinating their roll-out of FTTH. Big challengers such as Masmovil and Euskaltel have access to these open networks.
  • Greece: new wholesale tariffs have been set, spurring both the incumbent and rivals Vodafone and Wind Hellas to expand thier coverage. 

In the mean time, the Dutch market is practically standing still. Relatively small projects are underway at CIF, independent (non-Ziggo) cable networks and various rural areas. KPN has chosen to focus on DSL technologies, and even with that, is not delivering the speeds promised. In Europe, infrastructure-based competition is driven either by cable (e.g. Belgium), challengers or both (UK). With this in mind, and Docsis 3.1 coming at Ziggo and Delta, it can't be impossible that KPN resumes its roll-out of FTTH, after only covering 30 percent of the country so far. 

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