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Euro Telcos in trouble over broadband as fiber investment looks tough

While we focus most of the time on the way cable operators are losing TV market share to telcos in Europe, the opposite is happening in Broadband, say

By PETER WHITE

Published: 5 May, 2011

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While we focus most of the time on the way cable operators are losing TV market share to telcos in Europe, the opposite is happening in Broadband, says a new report from management consultancy Arthur D Little and equity broker Exane BNP Paribas. Telcos across Europe need to invest in fiber to the home, the report says, although we would argue and suggest that next generation DSL with Dynamic Spectrum Management (DSM) and bonding are the right way forward and lead to speeds of 100 Mbps comfortably.

But basing Telco capex investment costs entirely on installing fiber, Exane says that across the nine local markets it analyzed, incumbents will have to invest additional capex totaling €18 to 40 billion, on top of what they have scheduled already. Those countries are the UK, France, Germany, Italy, Spain, Portugal, Austria, the Netherlands and Belgium. The report is called ‘Super-fast broadband: catch up if you can,’ and is in its tenth edition.

Cable said recently through Cable Europe at its Cable Congress, that it would reach 55% of European homes with super-fast broadband offering speeds over 50 Mbps by 2015. Cable operators across Europe are doing this by investing heavily in DOCSIS 3.0, which the report seems to suggest is a low cost investment – it’s far more expensive than adding DSM to an exchange and in line with deploying DSL bonding, but they are right, it is way cheaper than installing fiber which is still above $700 per home when we last looked in the US, down from around $1,200 when AT&T began Project Lightspeed in 2005. It is closer to double that in Europe due to more competitive telecommunication regimes and lower penetration rates.

The report also says that economic returns on FTTH (fiber to the home) investment in major population centers is uncertain. So Telcos must invest in fiber now and yet it can’t make a clear business case for it?

The way ahead says Exane is by telcos engaging in build-out sharing in the same way that cellular operators have indulged in RAN sharing. This can double the return on investment for operators, the report says.

Surely if the FTTH build out done slowly and it maps the cable high population centers for DOCSIS and in parallel telcos go in for 100 Mbps DSM based VDSL and DSL, that should stretch the problem over 6 or 7 years. And if telcos do band together for investment that could speed it up or give better returns or both.

The report also states that telecom operators, especially the smallest ones, can improve the business case for super-fast broadband through the development of innovative service offerings such as “super triple-play”, targeted marketing and optimized distribution strategies.

Each country has its own distinct market dynamics, the report says, driven by competition, regulation and the sophistication of consumer demand. The report predicts that the Netherlands, Belgium and Portugal will be the most advanced countries by 2015, while roll-out in the UK, Germany and France will be average. That’s strange we thought both the UK and France incumbents had already committed to FTTH investment end to end already?

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