Tele2's VDSL roll-out a no-brainer

Friday 28 August 2009 | 12:10 CET | Market Commentary

Tele2 will start offering VDSL2 services in 40 Dutch towns and cities from September. By the end of 2011, the service will extend to as many as 2 million households. The operator has been quietly testing the VDSL2 technology and surprised the market with the announced roll-out of the service called Fiberspeed. The new service offers a boost in its maximum bandwidth to 60/6Mbps, at a minimal infrastructure cost. Tele2 already operates fibre to the local exchanges and its ADSL2+ equipment (DSLAMs, cards and routers) can easily be replaced with VDSL versions. The capex budget should register barely a blip.

With the new network, Tele2 has a first on the Dutch market. Incumbent KPN currently operates a VDSL network in six neighbourhoods of five cities, but these are only trial services. KPN has chosen to put its VDSL equipment in street cabinets rather than central offices. As a result, the operator still needs to extend the fibre from the central office to the street cabinet. KPN aims to have VDSL available to around 450,000 households by the end of this year. While the downside of Tele2's strategy is a reduction in top speed and reach for the service compared to KPN's VDSL, the choice does mean substantial capex savings. Furthermore, investments in VDSL such as KPN's may not earn a return. For copper networks, VDSL is merely a stepping stone between ADSL2+ and FTTH. The topolgy of KPN's VDSL network is comepletly different than that on its fibre partner Reggefiber's FTTH networks, so 'reuse' will be limited. At Tele2, the investments are so limited, that the risk is practically non-existent.

"Why didn't we think of that?", they must be saying now at Online Breedband and BBned. These operators also have DSLAMs sitting in KPN's local exchanges. Tele2's move underlines again the advantages of having your own network. While Tele2 still uses KPN's passive infrastructure, its own active network (DSLAMs) gives Tele2 a temendous first-mover advantage. For as long as it lasts that is - as Online and BBned undoubtedly will be following closely.

With the name Fiberspeed, Tele2 is obviously having a smirk at UPC's recently launched Fiber Power broadband service, as well as the anti-ADSL campigns run by the cable operators. Tele2's Fiberspeed shows that the same copper line running ADSL still has something to offer in terms of speed. Cable operators Ziggo and UPC also admit that the material in the last mile has little significance. Whether it be copper, coax or fibre, the most important factor is the ditsance of the connection. The Fiberspeed name will also likely draw the scorn of the fibre community, which finds it misleading to talk about fibre unless the last mile is fibre-optics. The same as the cable operators though, Tele2 can respond by saying its network is still 95 percent fibre and there are more important bottlenecks than the last mile. These are often at the end-user, such as the router, Wi-Fi network, in-house cabling and even the computer.

Of course there are drawbacks to Tele2's strategy. The planned maximum reach of 2 million homes means Tele2 will only reach a minority of the some 7 million households in the Netherlands. in comparison, Ziggo's network passes around 4 million homes and UPC reaches 2.8 million. The assymetry of the connection is also a limitation. Still, given the simplicity of the roll-out, they'd be crazy not to go ahead. Cable operators are also likely to be glad of Tele2's plans, as it breaks open further the market for the next generation of broadband speeds. The 5 million homes not reached by Tele2 for the moment can only choose cable if they want to upgrade to faster speeds, with fibre still only reaching around 400,000 households. Looking at the price of Tele2's service, it's around EUR 10 cheaper. A 60/6Mbps Fiber Power package at UPC costs the same as Tele2 at EUR 40 per month, but a UPC customer also has to sign up for cable TV at EUR 16.70. Line rental is included in Tele2's offer. Meanwhile KPN is charging a whopping EUR 110 for its VDSL service. Only FTTH comes close in price, with a full triple-play package available in some cities at EUR 50-70.

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