External financing, wholesale and networking sharing strengthen FTTH business case

Monday 28 March 2016 | 12:36 CET | Background

The incumbents, both the former PTTs and cable operators, are upgrading their broadband networks steadily, but few have chosen FTTH, as the business case is still in question. The few exceptions are largely local projects, for example Swiss operator UPC Cablecom is expanding its network to new locations by building fibre to the building. Nevertheless we see more new parties entering the broadband market around the world, and they nearly all choose to use FTTH. There are a wide range of strategies and business models behind the technology choice. 

Deploying greenfield FTTH network is of course always possible, if enough capital is available and investors have enough patience for reachoing breakeven. Deutsche Glasfaser is among the operators doing this. However, operators around the world are making clever choices to strengthen their business models and bring forward the breakeven point. We outline a few below:
  • CIF. The fund was started to consolidate what was left of the Dutch cable market outside Ziggo. This was largely successful, with only a few remaining independent operators left in the country. Partners, including CIF's subsidiary Caiway, provides the services on the networks. Nevertheless the fund is not yet fully invested and so its focus has shifted to rural areas without sufficient networks. It's using a form of end-user contributions to finance the network roll-outs. 
  • Inexio. The German operator is rolling out fibre in rural areas, mainly in the Black Forest area, connecting towns and villages. It then uses the existing copper infrastructure to bring VDSL to end-users with speeds up to 100 Mbps.
  • CityFibre. A British company, led by Greg Mesch (known previously from Versatel). It's deploying fibre networks in a number of British cities, with connections to public sector organisations (FTTI) and businesses (FTTO). The infrastructure also supports the eventual roll-out of FTTH, for which it's working with Sky and TalkTalk.
  • Apart from BT (which is mainly using FTTN but also some FTTP) and CityFibre, the UK market also has a number of FTTH operators, such as B4RN (rural areas of Lancashire), Gigaclear (various smaller towns) and Hyperoptic (multi-dwelling units). Hyperoptic wants to expand its reach by making use of BT's ducts and poles. While this is technically possible, Hyperoptic has complained of long waiting times for gaining access, and Ofcom has announced this will be subject of its ongoing Strategic Review.
  • Enel, the Italian energy company, wants to roll out fibre to help connect its smart meters. While FTTH is hardly needed for a smart meter alone, Enel is considering setting up a wholesale network open to telecom service providers. Vodafone and Wind are in talks to participate.
  • Delcom Telecommunications in Florida is rolling out FTTH networks for home owners associations, based on long-term 'bulk service agreements'. Partner Aeon Funds is issuing Fiber Income Notes as part of the plan. Investors receive interest of 6 percent over 10 years, with monthly pay-outs.

The above few examples show a wide range of creativity in solving the big problem of building fibre access networks: high capex. External financing (CIF, CityFibre and Delcom), wholesale and partnerships with service providers (Enel), and re-using existing infrastructure (a form of network sharing, like at Inexio and Hyperoptic) expand the possibilities and help in securing the necessary funds. Choosing a longer investment horizon also helps, as the eventual opex benefits will add to the business case. For parties able to combine all these elements, the business case for FTTH only gets stronger.

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