Cable operator Com Hem to compete on services over FTTH

Tuesday 30 October 2012 | 16:23 CET | Market Commentary
Com Hem, the biggest cable operator in Sweden, is planning to offer services over the Lunet fibre-optic network in Lulea. Com Hem was earlier spun off from incumbent Telia and later absorbed the UPC Sweden activities. It's now owned by BC Partners and operates cable service in Lulea. The company has connected around 40 percent of Swedish households, or around 1.7 million homes. Lunet is rolling out a FTTH network in the city, on which a variety of service providers are already active, including Telia, Tele2, CanalDigital and Viasat. Lulea is in the north of Sweden and counts around 74,000 residents.  

Whereas most telecom companies, and especially cable operators, are sticking to a model of vertical integration, Com Hem is moving beyond this. Sweden has a number of municipal networks, and Telia already preceded Com Hem in accepting the reality of 'open access'. Each party specialises in a certain network layer, recognising the required focus demanded by the business model and that different network layers have different profiles. The lowest level, infrastructure, is marked by its low risk, high investments and limited depreciation. In contrast, the services level has high depreciation and an even higher risk. The services level also has much more intense competition. 

In other countries as well, where fibre is gaining ground on cable, it can be sensible for the cable operator to offer its services on competing fibre infrastructure. The cable sector has been assuming that its HFC infrastructure has enough life in it still to compete with fibre (see for example a recent TNO for NLkabel on "Evolution and prospects cable networks for broadband services"). Ultimately every inch of the network can be converted to fibre to eliminate any gaps with FTTH. For this reason, cable companies have decided to compete on infrastructure grounds. 

Com Hem shows this can be done differently. Especially if a large part of the market cannot be reached with its own network, it's a pragmatic choice quickly made by any operator to offer its services portfolio on alternative infrastructure. Furthermore, while HFC in terms of capacity does beat copper, it can't overtake FTTH. For the cable sector, there is a choice: invest in order to compete with FTTH or focus on services and become infrastructure-neutral. 

In the Netherlands Caiway has been pursuing this path and has a smart migration strategy: the level of services on HFC is frozen and in order to access new services (more channels, VoD, interactive TV, HD, etc.) customers need to switch to FTTH. Com Hem could also follow this strategy. In this way the life of the HFC infrastructure is extended, without having to invest a lot. It also avoids duplication of FTTH networks. 

This is a significant step for the cable market. Partly letting go of infrastructure is already a big turnaround. To then become a wholesale customer of the incumbent is for many cable companies a step too far. This may be why Com Hem was more willing to take the step: Lunet is owned not by Telia, but by the local energy company and a property developer. 

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