UK Consumers Not Buying "Super-Fast" Broadband

There are two distinct, and different "problems" nations and policymakers face when promoting use of very-fast broadband access. First, the physical capabilities must be put into place.

But an equally-important issue is consumer demand for such services, especially when high-speed services already are widely available.

In the United Kingdom, for example, the government is pushing new fiber-to-cabinet networks supporting speeds roughly defined as access at 24 Mbps or so.  U.K. Super-Fast Broadband

However, just four percent of U.K. households subscribed to superfast services in June 2011, compared with 40 per cent in Japan and 10 per cent in the United States, although higher than in Germany (three percent), Italy (1.5 percent) and Spain (2.2 percent). Lagging adoption

To be fair, the networks still are under construction, so not every potential consumer is able to buy such services.


But 25Mbps or faster services already are available to the 48 percent of UK households passed by Virgin Media's cable service and about 20 percent of premises passed by BT's fiber to the cabinet superfast services.

Overall availability of high-speed fixed-line broadband networks in the United Kingdom does compare favorably to other European countries, though, so mere ability to buy is not the issue. By June 2011, 59 per cent of households had access to Virgin Media or BT’s superfast services. Ofcom: UK consumers not buying super-fast broadband

How Much Will Consumers and Business Pay for Really-Fast Broadband?

As the Federal Communications Commission shifts universal service programs to support broadband access rather than voice, the European Commission pushes for ubiquitous 30-Mbps service across the community, with a further objective of 100-Mbps service for roughly  half of potential consumers by 2020, it is fairly clear that there is widespread support for the idea that faster broadband can have important economic and social benefits.

If Federal Communications Commission Chairman Julius Genachowski gets his way, the FCC will set a goal of 100-Mbps service delivered to 100 milliion American homes by 2020. 100 Mbps or faster is the FCC goal

Genachowski says his preferred approach to a national broadband policy would require ISPs to offer minimum home connection speeds by 2020. The “100 Squared” initiative might in fact be too modest a goal, he suggests.

"We should stretch beyond 100 megabits," he adds. But "availability" is only part of the business equation. Demand is the other part. And at least so far, there isn't much evidence that substantial numbers of businesses or consumers are willing to pay for 50 Mbps, 100 Mbps or potentially 1 Gbps service. 

It might be a different story is the cost of such service were no more than what consumers now pay, but it seems highly doubtful investment can be raised, if that were to be the expected outcome.

Few customers now buy 50-Mbps services where such speeds are available, in large part because the cost is in the triple-digits range. Proponents might argue that the goal is 100 Mbps for not much more money than people now pay for 4 Mbps or 7 Mbps service, but it is hard to envision how even "free" opto-electronices could support such a value-price combination.

In other words, even if all the active elements actually were provided for free, could service providers actually build ubiquitous networks offering 100 Mbps or faster speeds, and price in middle-double digits? So far, the answer appears to be negative.

About 60 percent of the cost of building an FTTH network is construction work, ducts and cables, not to mention cabinets, power supplies and other network elements. Still, in some dense areas, it might be possible to do so, since the construction and cable might amount to about $1200 per home passed. Again, keep in mind we assume totally free opto-electronics.

In suburban areas the business case is marginal, at best, since about $2400 might have to be spent on construction and passive elements.

Since the FCC goal only calls for connecting 100 million homes out of possibly 113 million, we can safely assume the cost of most rural networks of such capacity need not be considered.

Of course, opto-electronics are not "free." But the point is that construction costs, were nothing else an issue, would still be a tough proposition, if the goal is very high speed access at prices most consumers would pay.

American consumers will be paying more for broadband in the future, if for no other reason than that most mobile plans will require it, and those charges will be paid for on a "per-device" basis, not "per home."

What seems improbable is that U.S. consumers are willing to increase overall broadband spending by an order of magnitude (10 times) to have 100 Mbps or faster service on a fixed basis.

One can of course argue from history. Prices for lower-speed broadband services have declined over time, while the prices for the faster tiers have remained stable, but speeds have increased. The issue is how much price compression is possible.

"In order to earn a return for investors, you have to be conscious of what consumers will pay. I don't know this is something consumers will pay for," Piper Jaffray analyst Christopher Larsen says. "It's a nice goal, but it's a little on the over ambitious side."

And in a capital-intensive business such as communication networks, being too early, with too much additional capacity, processing or storage, can be ruinous. One might point to the dramatic bubble in capacity investing, competitive local exchange networks or e-commerce sites around the turn of the century.

Equally to the point is the serious gap that developed between 3G mobile networks, especially in Europe, and the promised new applications that proponents expected would develop.

It has been roughly a decade since European mobile operators placed big spectrum bets on "third generation" mobile broadband, and then largely watched as killer apps failed to emerge, customer use of the new networks remained sluggish, and executives ruefully noted they had overpaid for spectrum.

As operators now gear up for a transition to 4G, we will hear similar talk about new applications the network will enable. The difference is that, a decade after launch, the  "killer app" for 3G turns out to be mobile broadband access.

Right now, 4G is mostly “just” faster access. But 4G looks to be a potential replacement for fixed-line broadband, so maybe, early on, a lead application for 4G will be displacement of fixed-line broadband connections, and not any particular new application.

Some might argue that a lead app for 4G is turning out to be personal Wi-Fi hotspots, for example, another “access” function. A decade from now, we are likely to have discovered that some important new applications, enabled specifically by 4G, have arisen. But it will take some time, if 3G is any predictor.

At some point, the gap can be bridged either by “build it and they will come” improvements in processing, storage or communications that outstrip known demand, or “build it and they will come” applications that might be usable by only a fraction of potential consumers.

Some think the logjam can be broken only by moving faster towards faster networks, to create the right environment for application developers. That tends to be an opinion held by people whose core business interests do not require investing the money.

Service providers are quite a bit more circumspect, and “greed” is not the primary reason for such views. In fact, experience teaches service providers that consumers are quite careful about spending their own money on communication services, devices and features.

One case in point is a study of small-business broadband by Columbia Telecommunications Corporation, which conducted a nationwide survey on behalf of the Small Business Administration.

The really significant finding is that respondents won't pay all that much for 100 Mbps or 1 Gbps connections. Businesses Want 100 Mbps, 1 Gbps, but won't pay

And price resistance is stubborn. Even when the price for such a service is just 10 percent to 20 percent higher, businesses are significantly less likely to switch to a 100-Mbps service from what they currently buy.

As you might guess, if small businesses are hesitant to spend 10 percent to 20 percent more to get 100 Mbps, they are even more hesitant to spend more for an extremely fast Internet connection of 1 Gbps. This is especially true for prices that are 40 percent or more higher than their current prices.

If you asssume the average prices now range between $70 a month to $124 a month, then survey respondents show significant resistance to paying much more than $84 to $149 a month for 100 Mbps service, or $98 to $174 for 1-Gbps service.
This graphic might confuse you. The taller the bars, the less likely the respondent is to take the action indicated. The tallest bar, a score of "5" would mean "highly unlikely" to take the action. SMB broadband demand report

A score of "1," shown by a shorter bar, would indicate strong willingness to take the action.

The point is that small business users aren't willing to spend much more to upgrade from their current level of service to 100-Mbps service.

The most surprising finding is that even the same prices, or prices 10 percent 5to 20 percent lower do not cause small business respondents to become certain of switching. Scores around "3" indicate a "maybe, maybe not" attitude.

No matter what these respondents say about wanting higher speeds, they don't appear to be willing to pay much of anything for it.

U.K. Will Not Reach 30 Mbps Broadband Access Goal by 2020

Rural fiber infrastructure cost

BT Group Director of Strategy and Policy Sean Williams considers the EU target of 30 Mbps to all citizens by 2020 as "not achievable for any country." 


That doesn't mean complete or even substantial failure. In fact, one might argue the opposite. 


BT does seem to believe it will be possible to provide 30 Mbps access to about 90 percent of the U.K. population. 


For the final 10 percent of homes or locations, 2 Mbps might be more reasonable, for all sorts of good reasons related directly to the cost of building communications infrastructure in rural and isolated areas. Some might argue that the cost curve looks very much like the curve that describes the cost of providing health care to people, where most of the cost is incurred late in life. 


Likewise, the cost of building facilities to the last couple of percentage points of locations is very high. That's one reason satellite broadband providers have a business. The core market is about two percent of U.S. households, for example. 


The high cost of reaching the last 10 percent of locations in either the U.K. or U.S. markets always will be a problem, at least when using fixed networks, whether the services are narrowband or broadband . EC broadband target unreachable 


So some might argue that 90-percent coverage of the United Kingdom with 30 Mbps service by 2020 is not in any way "a failure." It is a success. But the problem with all infrastructure goals is that it always is a stretch to reach the last 10 percent of potential customers with networks of any kind.

Ofcom Warns of "Low Interest" in Super Fast Broadband

Ofcom chief Ed Richards has warned that cash-strapped U.K. consumers lack enough incentive from access providers to upgrade to "superfast" broadband packages. In other words, "prices are too high."


"For superfast broadband, subscriber numbers are still low, perhaps because the nearest thing we have found to a ‘killer app’ so far is the demands of the multi-user household," Richards said. "The fact that we cannot identify specific ‘killer apps’ beyond bandwidth hungry teenagers is in some ways beside the point." Ofcom boss warns of low interest in 'superfast' broadband

That argument illustrates an important, and sometimes overlooked, aspect of national broadband plans. Some supporters of faster broadband think the "problem" is availability. But there is a mounting amount of evidence that "availability" is not the problem.

For whatever reason, including compelling applications or prices, where super fast broadband is available, and a workable definition is access at 50 Mbps or 100 Mbps at the moment, demand has tended to be low, even in some markets, such as Singapore, where prices are low, by global standards.


Time Warner Cable in early 2010 had about nine million high-speed access customers. It had about 20,000 customers for its fastest DOCSIS 3.0 service, which depending on configuration can support speeds up to about 43 Mbps per 6 MHz channel in the downstream direction, or more, if more bandwidth is made available.


All that means is that few customers are willing to pay $100 a month or more to get really-fast broadband access running at speeds of about 50 Mbps maximum. Low demand for 50 Mbps?


Fiber access does not sell itself, BT has found. As it begins to market its new fiber-based access services, BT has found that consumer demand for 40 Mbps Internet access is less robust than some had anticipated.

"Cardiff has been given a head start by Openreach but some fiber-enabled parts of the city are proving to be a bit slow out of the blocks to take up the opportunities fibre presents," said Richard Hall,BT Openreach NGA Deployment Director for Wales. BT UK Frustrated by Lack of Superfast FTTC Broadband Uptake

"With the notable exception of Whitchurch, residents are proving slow to take advantage of the technology on their doorstep and so we are working with the local council to raise awareness and drive demand," he said.

In the U.S. market, service providers have not fared much better with sales of 50 Mbps or faster services, which largely remain products bought by business customers. Another typical U.S. market issue also could be a factor. Customers in these areas already can buy fast service from Virgin Media.

Google Doesn't Want to be a Service Provider

From a return on invested capital perspective, the difference between Google’s current business model and that of a facilities-based wireline service provider like Verizon could not be starker,” say Sanford Bernstein analysts Craig Moffett and Carlos Kirjner.

“In 2011, we expect Google to post an ROIC of 56 percent, or 38 percent when including goodwill,” they say. “In 2010, Verizon’s wireline segment (which includes FiOS) sported an ROIC excluding goodwill and ‘one-time items’ of  just 1.6 percent.”

“Including goodwill and similar intangible, and smoothed one-timers, it was minus one percent,” the analysts say.

Those are good reasons why Google will not want to become a service provider, even as it considers the virtual necessity of offering entertainment video and voice services in addition to broadband access on its 1-Gbps test networks in Kansas City, Kan. and Kansas City, Mo.

Wireline networks have the weakest returns on invested capital with a 1.5 percent gain over the last decade, Moffat says Wireless networks had a meager return of 0.3 percent. Cable garnered a 2.5 percent return. Low returns from invested capital
Satellite networks had the best return on invested capital at 5.5 percent. It’s no wonder that DirecTV shares have trounced other companies in 8-year returns. Others stocks—AT&T, Comcast, Dish, Sprint and Verizon—have negative returns.



Google, reports the Wall Street Journal, is looking to add video entertainment services, and possibly voice, for customers of its 1-Gbps fiber to home network in Kansas City, Mo., and Kansas City, Kan. The moves would be logical.

Many observers have wondered how such a network, delivering only 1-Gbps Internet access service, at prices "comparable" to existing services provided by telcos and cable companies, could possibly generate enough revenue even to break even.

As it turns out, Google has no magic rabbit to pull out of its hat. The costs of its network are not dissimilar from the costs any other service provider would incur. And few service providers would contemplate building a fiber-to-home network with a single revenue stream, namely Internet access.

Of course, Google could have chosen to operate as a "wholesale only" provider of bandwidth to other service providers. It could still do so. But the few U.S. examples of access network providers who attempt to operate "wholesale only" have not proven highly viable, most would probably conclude.

The only way to approach break-even apparently is to operate the network the way all other such networks are operated, namely providing retail triple-play services to consumers.

Nobody expects Google to become a "service provider" with its own facilities, on a wider scale. But that isn't the point. To some small extent, Google might become a distributor of voice and video services, not just a broadband access provider. But once it secures distribution rights, there are other possibilities.

So far, it seems unlikely Google would get licensing rights that will immediately save consumers money. In fact, any video rights will likely include the normal clauses that require Google to pay as much as other video distributors. But if Google were to focus its services only on "over the top" delivery, it might still have a clear price advantage, compared to other service providers who must build and operate access facilities, of course.

Google might also find it only can get content rights if it agrees to bundle channels in the typical way cable, satellite and telco TV providers do, which would limit the amount of innovation Google could attempt. Also, until Google got serious volume, the prices it pays for content rights will not allow significant retail price discounts.

But any move by Google into the triple-play services market would be a bit of a shock, even if nobody thinks Google wants to become a traditional service provider. The broader issue is that if Google can get what essentially amounts to "streaming rights" to most of the standard TV channels, it would have a bit of room to challenge not only the telco, satellite and cable providers, but over time might gain some leverage to package those channels differently.

In the near term, we should anticipate little change, as the content providers will act in ways to protect the existing distribution model. Longer term, if Google should get traction, matters will change. Google Ponders Pay-TV Business

Google Looking at Triple Play Services

Google, reports the Wall Street Journal, is looking to add video entertainment services, and possibly voice, for customers of its 1-Gbps fiber to home network in Kansas City, Mo., and Kansas City, Kan. The moves would be logical. 


Many observers have wondered how such a network, delivering only 1-Gbps Internet access service, at prices "comparable" to existing services provided by telcos and cable companies, could possibly generate enough revenue even to break even.

As it turns out, Google has no magic rabbit to pull out of its hat. The costs of its network are not dissimilar from the costs any other service provider would incur. And few service providers would contemplate building a fiber-to-home network with a single revenue stream, namely Internet access.

Of course, Google could have chosen to operate as a "wholesale only" provider of bandwidth to other service providers. It could still do so. But the few U.S. examples of access network providers who attempt to operate "wholesale only" have not proven highly viable, most would probably conclude.

The only way to approach break-even apparently is to operate the network the way all other such networks are operated, namely providing retail triple-play services to consumers.

Nobody expects Google to become a "service provider" with its own facilities, on a wider scale. But that isn't the point. To some small extent, Google might become a distributor of voice and video services, not just a broadband access provider. But once it secures distribution rights, there are other possibilities.

So far, it seems unlikely Google would get licensing rights that will immediately save consumers money. In fact, any video rights will likely include the normal clauses that require Google to pay as much as other video distributors. But if Google were to focus its services only on "over the top" delivery, it might still have a clear price advantage, compared to other service providers who must build and operate access facilities, of course.

Google might also find it only can get content rights if it agrees to bundle channels in the typical way cable, satellite and telco TV providers do, which would limit the amount of innovation Google could attempt. Also, until Google got serious volume, the prices it pays for content rights will not allow significant retail price discounts.

But any move by Google into the triple-play services market would be a bit of a shock, even if nobody thinks Google wants to become a traditional service provider. The broader issue is that if Google can get what essentially amounts to "streaming rights" to most of the standard TV channels, it would have a bit of room to challenge not only the telco, satellite and cable providers, but over time might gain some leverage to package those channels differently.

In the near term, we should anticipate little change, as the content providers will act in ways to protect the existing distribution model. Longer term, if Google should get traction, matters will change.

Google Ponders Pay-TV Business

Google considers building fiber network in Europe

Google Senior Vice President David Drummond Friday said Google is considering building a fiber network in a European country. As was the case when Google earlier began experimenting first with municipal Wi-Fi and now the fiber to the home network in Kansas City, the effort is to sway policy debates. 1 Gbps test


Google believes rightly that its own business benefits from ubiquitous and capacious broadband. So anything it can do at reasonable cost to stimulate further investment is viewed as a reasonable marketing investment. Municipal Wi-Fi

During a meeting at the French Industry Ministry, Drummond said that Google was "looking very closely" at a potential project in Europe, without specifying where this project would be launched or when. Google considers building fiber network in Europe

This wouldn't be its first foray into networks. The U.S company has already announced a plan to build an experimental ultra-fast broadband network in Kansas City.


Google's interest comes as European telecoms operators are under pressure to up investment in high speed broadband networks across the continent. 


What isn't so clear is whether the demonstration projects will have much impact. Fixed-line broadband access plant is not primarily a "software" matter that is amenable to clever coding. The input costs are well known, and Google will not have access to any tools the rest of the global industry is unaware of or unable to use or buy. 


That suggests Google will not be able to produce some new investment cost breakthrough that has wider commercial implications. Google might suggest that this is not the issue, rather the point is to provide lots of bandwidth and then see what users and developers can do. 


It is hard to see how a small test will offer the scale to entice any serious new applications, either. Since many studies suggest that people spend more time online and consume more bandwidth when they have access to faster connections, nobody would be surprised if there was some stimulative impact. 


But the likely impact in the consumer space is likely to be that people watch more streaming video, play more games and spend more time on social networks. 

Is "4G Plus DirecTV" a Viable Alternative to FiOS?

Verizon Wireless seems to be cooking up an out of market “video plus broadband” plan, working with DirecTV. During its recent quarterly earnings report, Fran Shammo, Verizon Communications EVP said that the company was working on such an effort.

“You're going to see that come in the fourth quarter with the what we now call the Cantenna, which is not a commercial name obviously, but it's the antenna that we actually trialed with DIRECTV, which was extremely successful,” said Shammo.

Some will legitimately wonder whether that approach might even wind up being used in some Verizon markets where FiOS has not already started to be deployed. LTE plus DirecTV

There are some significant Verizon markets including cities like Boston, Buffalo, N.Y, Baltimore and Alexandria, Va. where FiOS construction has not started.

The obvious new question is the rational approach Verizon should take to upgrading its fixed-line network. There isn’t much doubt about optical access media being more resistant to some weather-related impairments than copper networks, nor is there much doubt that new optical facilities cost less to maintain than older copper networks.

But the business question is how much incremental investment ought to be made in the fixed network,  if video and broadband services can be provided using the wireless network. One might rationally argue that the cost of maintaining the fourth generation wireless network is lower than the cost of maintaining the FiOS network.

Obviously, if that is true then the avoided capital investment in new optical facilities is significant as well. That isn’t to argue that fixed and wireless networks are in any way equivalent in terms of absolute bandwidth. But there is a financial question.

If the expected revenue and operating cost advantage of FiOS, compared to 4G, does not provide the optimal financial return, then a wireless solution might be the most-rational way to invest new capital.

The problem is that voice is a negligible contributor to incremental revenue on a FiOS network, while video, though an important contributor of revenue, is not such a great contributor to profits. That leaves broadband, and revenue upside is tough.

That is not to say fiber to home facilities are unimportant, merely to say that they might not be the best use of capital for a provider that also is investing heavily in mobile broadband.

In fact, there is an interesting bit of data in the latest report from Akamai on global Internet usage. The global average fixed-line connection speed was 2.6 Mbps, and the global average peak connection speed was 11.4 Mbps.

Looking at mobile broadband connections, average connection speeds on known mobile providers ranged from 5.3 Mbps down to 209 kbps, while “average” peak connection speeds ranged from 23.4 Mbps down to 1.2 Mbps.

The interesting observation is that wireless broadband has the higher peak speeds, about double that of fixed line connections, with a variable “average” speed that in some cases also is twice as high as fixed-line connections, though such sessions are highly variable. When mobile broadband is slow, it is an order of magnitude slower than fixed line connections. Global broadband speeds

Sometimes Fiber to the Home is Not Enough

Sometimes, even optical fiber access isn’t enough. Consider Yukon Telephone, which serves extraordinarily isolated communities in rural Alaska. The company recently installed a fiber-to-the-home network serving Tanana, a village of about 300 people, mostly Athabascan indians, on the Yukon River in the vast interior of Alaska.

So you would  think Yukon Telephone customers in Tanana now can take advantage of optical fiber speeds. But there’s a problem, company  President Don Eller says. All the backhaul is by satellite (Tanana is really isolated. Historically, moving bulkier goods in and out of the village has required waiting until the Yukon unfreezes in the spring, and then halting again when the winter freeze comes again.)



And given the high cost of satellite backhaul (up to $12,000 a month for a single T1 circuit), the entire Tanana fiber to home network has 3 Mbps worth of bandwidth. If you wonder why so much of the “broadband stimulus” spending was for middle mile projects, Tanana shows why.



Tanana now has a state of the art fiber to the home network. What it doesn’t have is an affordable way to connect with an Internet point of presence at speeds that take advantage of that local access capability. The middle mile issue is the barrier, not the local access network.



The backhaul problem faced by Yukon Telephone, show the huge investment challenges and revenue models for fiber to home services. Everyone agrees people need more bandwidth, and for a fixed network, optical fiber is the long-term solution.



What remains unsettled is the revenue model, and therefore the wisdom of investing in such infrastructure.

Does FTTH Lead to Economic Growth?

If fiber to the home could show clearly that it boosts service provider revenue and reduces cost, more observers would be unabashed supporters. But large-scale deployments in the United States are relatively ambiguous, one might argue. Verizon has the overwhelming footprint and much of the total industry experience, and observers still cannot agree on whether FiOS has been a clear success or not.

Likewise, nearly everybody seems to believe that fiber to the home is required for economic development. But even there, the impact is hard to discern. David Russell at Calix tried to test the hypothesis, looking at communities where FTTH had been in place for at least five years, was deployed ubiquitously and was deployed at a regional commercial center.

Based on what is available today (data through 2008) Russell looked at the growth between 2004 and 2008 and compared the results from the towns served by FTTH with the rest of their states. It turns out that of the five (Bristol, Va./Bristol, Tenn.; Dalton, Ga.; Jackson, Tenn.; Reedsburg, Wisc.; and Windom, Minn.) only three did better in business creation than other towns in their state. In both Dalton and Reedsburg, business creation trailed other areas of Georgia and Wisconsin, respectively.

When it came to job creation, only Bristol and Dalton did better than other towns in their states. But that's not to say they added jobs. Bristol actually lost three percent of jobs and Dalton nine percent.

So only the Bristol area did better than the rest of its state (Virginia) in both job and business creation.

Unfortunately, when economic data is available for the 2008 to 2010, the data isn't likely to improve, given the effects of the Great Recession of 2008. So it is likely to remain more a matter of faith, not fact, that FTTH indeed clearly underpins economic growth.

FTTH's Benefits Are Not Obvious

Fiber to the Home in Shanghai

So long, broadband duopoly?

Analysts at the Federal Communications Commission appear to agree with forecasts that project 90 percent of the U.S. population is likely to have access to broadband networks capable of peak download speeds in excess of 50 Mbps as cable systems upgrade to DOCSIS 3.0. See http://www.broadband.gov/download-plan.

But FCC analysts also estimate that about 15 percent of the U.S. population is likely to be able to choose between two providers, both cable a telco. At first glance, this would seem to be a problem for most telcos other than Verizon.

If in fact a large percentage of the U.S. broadband customer base does decide to buy 50-Mbps services, or even faster services, many telcos are going to be at a huge disadvantage, if one assumes broadband access will be the foundation service for most telcos.

As necessity typically is the mother of invention, one wonders whether ways of using fiber-to-neighborhood networks will be capable of upgrading to speeds not possible so far, much as cable operators are working on new ways to boost their own broadband speeds. One should not discount the possibility, or the incentives for suppliers to come up with such solutions.

On the other hand, "headline" speeds, as important as they are for marketing purposes, might not necessarily correspond to consumer buying preferences in the near term, or even in the medium term. So far, few U.S. consumers have decided 50 Mbps access services were valuable enough to buy them, where such services are available.

If that remains the case, services offering 20 Mbps or 25 Mbps might be good enough, at least for the medium term, and urban fiber-to-neighborhood networks ought to be able to reach 40 Mbps, as Qwest already offers in Denver, for example.

Telcos with lower density serving areas and longer loop lengths will find it rather expensive to match that sort of speed using any hybrid network (fiber distribution, copper access). But much might hinge on the actual state of end user demand (willingness to pay).

Nor should observers think there is no more speed that can be wrung out of all-copper access networks. A reasonable way of putting matters is that additional copper pairs can be bonded to achieve higher speeds. There are technical issues, of course, ranging from availability of requisite pairs in existing cable, and interference issues within cables. But researchers already are working on ways to create higher-speed circuits by using more extensive bonding.

Oddly enough, the dwindling number of fixed-line voice circuits actually helps to some extent, as it frees up additional copper pairs, in some cases. It isn't easy, but sometimes extensive pair bonding will prove workable. Beyond that, the costs of fiber-to-customer infrastructure continue to improve, especially where either aerial plant or underground conduit are in place.

So it is not clear that cable's current advantages are of a permanent nature. That might be the case, in some areas and perhaps in many areas. But telco executives have powerful incentives not to concede the long-term future.

And since all observers now agree that the goal of 100 Mbps, within a decade, is the aspirational target the market likely will support, technologists and business planners will be looking at any number of solutions. At one level, the issue is technological: how can it be done? At an equally important level, the issue is how to match investment to expected revenues.

One might argue that with multiple 4G wireless networks and growing use of mobile devices, actual end user demand at fixed locations might not grow as rapidly as some forecast. A large number of fast, but not super-fast connections--both mobile and fixed--might well prove quite workable.

That doesn't mean telco planners can avoid the work of figuring how to pay for and build networks running up to 100 Mbps at some medium term point in the future. But the scaling might wind up being more graceful than people sometimes assume.

So long, broadband duopoly?

Australia National Broadband Network Pricing Clues

Australia's planned National Broadband Network (NBN) expects, over a decade, to build a fiber-based broadband access network providing 93 percent of Australian homes and small businesses with 100 Mbps service. Some locations will be served by wireless or satellite services that will operate at 12 Mbps. Fixed wireless will be used to supply service to about four percent of locations, while satellite is used to deliver service to about three percent of locations.

In total, about 13 million connections will be supplied.

"Retail pricing structure for fiber products is based around bundled (cheap or free) voice, fast broadband access and multi-channel TV," the NBN plan suggests. That little tidbit largely reflects the prevailing view that voice communications, though still a huge part of the overall value proposition, will not be the revenue driver for the network. Some might wonder about the relative contribution of multi-channel TV, over the medium or longer term, as well.

Of course, since the NBN will only supply wholesale access and transport, the specific retail plans will be determined by the retail providers themselves. Some may elect not to provide any one of the potential constituent services. Also, the NBN and its retail partners will continue to compete in a market with existing cable competition and expected growing competition from mobile networks as well.

One might guess, based on prior instances of robust wholesale regimes, that Telstra's current 70-percent-plus share of voice, and nearly-70-percent share of fixed broadband, could drop to about 40 percent, as already is the case in the wireless services domain. Market share of about 40 percent for fixed services would be consistent with other markets where robust wholesale competition is possible.

Some idea of the "retail pricing floor" can be gleaned from planned NBN pricing. Wholesale prices for a single 12 Mbps circuit are set at $24. A retail service provider will add operating, sales and capital costs to derive retail pricing. Other prices include wholesale charges of $27 for a 25 Mbps service with 10 Mbps return; $30 for a 25/20 service and  $34 for a 50/20 access; $38 for 100/40 service.

Wholesale pricing for a 250/100 plan will cost $70; $100 a month will buy a 500/200 service and $150 is the wholesale price per month for a 1 Gbps/400 Mbps service. The charges intentionally are designed to encourage wholesale partners to buy and retail services running at 100 Mbps.

The NBN also will sell symmetrical services with guaranteed quality of service (committed information rates).

NBN Co will "provide a layer two bitstream service only, using a GPON (gigabit passive optical etwork) architecture. The company is not preparing for the provision of layer one services, layer one unbundling, functional or structural separation. Retail partners will not be able to buy "dark fiber," in other words.

Wholesale products will be sold supporting downstream bandwidths of 12 Mbps, 25 Mbps, 50 Mbps, 100 Mbps, 250 Mbps, 500 Mbps and 1 Gbps, with upstream bandwidths ranging from 1 Mbps up to 400 Mbps. The NBN also will offer wholesale voice capabilities.

The NBN will add video streaming delivery, but will not supply the rest of the video infrastructure. Also planned are features to support multi-location enterprises and 1 Gbps virtual LAN services, as well as protected diverse-routing services.

The entire fiber network will take 9.5 years to build, assuming no materials or labor delays, and is projected to cost $36 billion. Revenues to 2020 are expected to be about $21 billion and operating costs are expected to run about $22 billion through 2020. The Australian government is contributing R27.5 billion, with debt financing of about $13 billion. The internal rate of return is expected to be seven percent.

For Telstra, the stakes are high, as Telstra will essentially be out of the infrastructure business, and purchase access and transport services from the NBN. Telstra also will divest its cable network customers as well.

You can read the full report here

Fiber to the Home for Smart Grid Apps

Will Access Rules Kill New Fiber to Home Investment?

A number of vendors at the FTTH Council meeting said their business in Europe, where the European Union imposed open access rules, has come to a virtual standstill, and that's something they want to avoid in the U.S. market, Carol Wilson, Light Reading events chief editor, reports.

Much will hinge on whether Title II regulation is imposed on broadband access services, or whether, by some other mechanism, mandatory wholesale rules, especially with discounted access rates, are on imposed on the owners of fiber-to-customer networks.

To be sure, competitive providers would get a new lease on life if such rules were put into place. But just as surely, incentives to build new fiber-to-customer access plant will diminish.

Some will argue this won't happen. But it apparently is happening in Europe, at least by some accounts.

FCC Could Crash FTTH Party

FTTH Penetration Grows, But Relatively Slowly

The number of U.S. locations with a fiber-to-the-home connection available continues to grow. The number of customers who decide to buy services from those FTTH passings is growing much more slowly.

In part that is because there is a gap between facilities being made available and services being marketed.

But even when it is marketed, some of us would say the take rate is lower than we would have anticipated.

At the moment, about 36 percent of homes able to buy FTTH services actually do so. You can attribute much of the resistance to consumer willingness to stick with cable operator access services and the comparable value of cable triple play services, compared to telco alternatives.

New Hurdles for FTTH Investment?

Is the investment case for fiber to the home networks getting more challenging? Yes, says Rupert Wood, Analysys Mason principal analyst. A shift of revenue, attention and innovation to wireless networks is part of the reason. But the core business case for triple-play services also is becoming more challenging as well.

All of that suggests service providers will have to look outside the traditional end-user services area for sustainable growth. Many believe that will have to come in the form of services provided to business partners who can use network-provided information to support their own commerce and marketing efforts. Those partners might be application developers, content sites, ad networks, ad aggregators or other entities that can partner with service providers to add value to their existing business operations.

Current location, type of device, billing capabilities, payment systems, application programming interfaces and communication services, storage services, profile and presence information might be valuable in that regard.

Fiber to the home long has been touted by many as the "best," most "future proof" medium for fixed access networks, at least of the telco variety. But not by all. Investment analysts, virtually all cable and many telco excutives also have argued that "fiber to the home" costs too much.

Over the last decade or so, though, something new has happened. Innovation, access, usage and growth have shifted to wireless networks. None of that is helpful for the FTTH business case. That is not to say broadband access is anything but the foundation service of the future for a fixed-network service providers. Fixed networks in all likelihood always will provide orders of magnitude more usable bandwith than wireless networks.

The issue, though, is the cost of building new fiber networks, balanced against the expected financial returns.

“FTTH is often said to be ‘future-proof’, but the future appears to have veered off in a different direction,” says  Rupert Wood, Analysys Mason principal analyst. Regulatory uncertainty, the state of capital markets and executive decisions play a part in shaping the pace of fiber deployment. But saturation of end user demand now is becoming an issue as well.

The basic financial problems include competition from other contestants, which lowers the maximum penetration an operator can expect. FTTH has to be deployed, per location. But services will be sold to only some percentage of those locations. There is a stranded investment problem, in other words.

The other issue is that the triple-play services bundle is itself unstable. FTTH networks are not required to provide legacy voice services. In fact, the existing networks work fine for that purpose. One can argue that broadband is needed to provide the next generation of voice (VoIP or IP telephony), but demand for fixed-line voice has been dropping for a decade. So far, there is scant evidence that VoIP services offered in place of legacy voice have raised average revenue per user. Most observers would note the trend goes the other way: in the direction of lower prices.

And though entertainment video services offer a clear chance for telcos to gain market share at the expense of cable operators, there is at least some evidence that overall growth is stalling, limiting gains to market share wins.

Broadband access also is nearing saturation, though operators are offering higher-priced new tiers of service that could affect ARPU at some point. So the issue is that the business case for FTTH has to be carried by a declining service (voice), a possibly-mature service (video) and a nearly-mature service (broadband access).

And then there is wireless substitution. Fixed-line voice already is being cannibalized by mobile voice. Some observers now expect the same thing to start happening in broadband access, and many note new forms of video could displace some amount of entertainment video spending as well.

The fundamental contradiction is that continued investment in fixed-line networks, which is necessary over time, occurs in a context of essentially zero growth.

Atlantic-ACM, for example, now forecasts that U.S. wireline network revenue, overall, between now and 2015, will be flat at best. Compound annual growth rates, in fact, are forecast to be slightly negative, at about 0.3 percent. Where total industry revenue was about $345 billion in 2009. By 2015, revenue will be $337 billion, Atlantic-ACM predicts.

That is not to argue against replacement of aging networks; in fact that is a necessary and normal part of any network deployment. The issue is the declining amount of revenue any such network can generate.

"Overall consumer spend on telecoms has long since ceased to grow in developed economies," says Wood.

And though FTTH promises dramatically-higher bandwidth, demand is a bit uncertain at the moment. "Even though many cable operators have been offering superfast fixed broadband connectivity for some time in Europe and North America, take-up of such services remains troublingly low."

Aside from some early adopters, Wood argues, new services that uniquely take advantage of FTTH are needed. Industry executives are aware of that need, and have been for quite some time.

The issue is that the scale and pace of innovation in wireless now outstrips what is happening on the fixed line network. That makes the revenue upside for FTTH a tougher challenge. In some markets, cheaper copper-based alternatives might continue to make more sense, Wood argues.

That is particularly true in Europe, says Wood, where consumer willingness to pay a premium for additional bandwidth is low and where broadband prices are already significantly lower than in North America.

"This level of commitment to FTTH looks unsustainable and fundamentally unreasonable, especially when VDSL networks will pass far more households," says Wood. "We therefore expect telcos that have opted for FTTH roll-out beyond proof-of-concept trials and greenfield sites to back away from further commitment and, in some cases, reduce the scale of their FTTH roll-out plans."

So the strategic issue now would seem to be whether continued FTTH momentum can be sustained. It would be an unexpected turn of events, if it turns out Wood is correct.

BT Has Same Cost Problem as AT&T, Verizon, CenturyLink

BT has said that there is a commercial case for it to upgrade about two thirds of its national network to fiber-to-the-cabinet and fiber-to-the-premises networks. The rest of the country, though, is too sparsely populated to justify wholly private investment, BT insists.

People sometimes forget how sensitive infrastructure costs are to the vagaries of population density, terrain, soil composition and duct or pole access. In the United States, as elsewhere, loop length (distance from customer location to the nearest central office) is inversely proportional to population density. So are capital requirements. The cost of serving the last 10 percent of customers is extraordinarily high compared to the cost of reaching the most-dense 30 percent of locations (click on image for larger view).

Whitehall invites broadband subsidy goldrush • The Register:

After 10 Years of Big Bandwidth, Where are the New Apps?

After a decade of fiber-to-the-home access, what do service providers have to show for it? Not as much as you might think, suggests Benoît Felten, Yankee Group principal analyst.

"Surprisingly perhaps, considering the decade’s worth of experience some Asia-Pacific countries have with FTTP, they face many of the same issues surrounding FTTP that have been prevalent in the West," says Felton.

The business model, for example, is no less an issue than in other markets. "Finding a sustainable business model" is as important for private players in the Asia-Pacific markets as you can guess it is for service providers elsewhere. High bandwidth provided at low cost might be great for consumers, but is challenging for providers.

Government subsidies and support in some markets is part of the answer for some providers, though.

Service innovation also is an issue. FTTH provides "more" bandwidth. But does it stimulate new applications and businesses that did not exist before? The answer, so far, seems to be "no." That is not to say broadband is unimportant as an enabler of economic activity.

But it is fair to say even after a decade of having FTTH, there is little to point to except online gaming, in terms of new and widely-used applications. "Even in Japan and South Korea, there aren’t that many disruptive or innovative services available to end-users, with the exception of online gaming," Felton says.

"While there’s been a vibrant development of Internet activities, especially in South Korea, this hasn’t necessarily resulted in the kinds of services that are generally expected, such as health care or connected communities," says Felton.

Sustainability, especially in a market context, remains an issue as well. While things have been slowly improving for early deployers, especially NTT, which announced at the conference that its average revenue per user  for FTTP services has increased from 4,800 yen to 5,590 yen between 2006 and 2009, the revenue from fiber-grade services that actually benefits the telco remains limited.

Regulators, on the other hand, must continually monitor the degree of competition in the access market as well, and Felton notes that NTT has 75 percent market share in the fiber access market, but only 30 percent or so in the digital subscriber line market.

Asia-Pacific is still by far the most advanced region of the world when it comes to fiber to the premises deployment and adoption. Asian FTTP adoption is estimated at 40 million subscribers, compared with just eight million in North America and 3.5 million in Europe.

The Korea Communications Commission and KT have ambitions to upgrade to a national target of 1 Gbps connectivity. That's an important national goal, but such government-lead policies arguably are not replicable in other markets that must rely on normal supply and demand constraints.

In some "state-lead" markets, the advantage for incumbent operators is an easier business case. In Malaysia, the government has decided to co-finance a fifth of the cost of an urban deployment of FTTP. As you would expect, Telecom Malaysia customers are able to buy service that is quite attractive compared to what one would find in a market where such subsidies are not available, says Felton.

In Australia and New Zealand, deployment models involve heavy government intervention, both in funding and investment structure establishment.

The biggest anticipated growth of this second wave is China. The Chinese government itself is not directly involved in the FTTP push, but all of the competing Chinese telcos are state owned, which imposes different constraints on their investment decisions compared to private players.

The somewhat discouraging news is that, after 10 years, FTTH has not produced unambiguously new and lucrative applications. That doesn't mean such applications will not develop, but simply that a private market cost-benefit analysis might suggest it still isn't so smart to charge ahead with a robust FTTH program at all costs.

Verizon Slows FiOS Build: Implications for National Broadband Plan?

Many things have changed since Verizon Communications first began its FiOS construction program in 2004, and in the years leading up to that decision, when hot debates were held about the wisdom of fiber-to-neighborhood versus fiber-to-home networks.

Mobile broadband, especially the faster 3G and new 4G networks, now will begin to offer a serious alternative for a signficant number of end users.  Consumer resistance to paying higher prices for higher-speed fixed broadband (50 Mbps and above) has not lessened.

Cable companies have solidified their position as specialists in the consumer services segment, with the exception of wireless. Given cable's position in consumer video and voice, financial returns from fiber-to-home deployments, in the mass market, are getting harder to justify, not easier.

In many ways, leading U.S. telcos have found that their strengths in wireless and enterprise services are matched by relative cable strength in the mass market video and voice product segments.

Also, opportunity costs arguably have risen over the last 10 years, opportunity cost representing the potential gains a company might have made if capital had been deployed elsewhere,, such as wireless or software, instead of high-capacity fiber access.

In the background are concerns about the long-term relative value of multi-channel entertainment and voice revenues as well, which dampen financial returns from those two core services.

Take all of that into account and the apparent lessening desire on Verizon's part to continue investing in fiber to the home is logical, perhaps even prudent.

Given capital scarcity, burgeoning wireless and mobile broadband opportunities, as well as the slower growth for legacy services such as entertainment video, fixed access and voice, it would be hard to argue with an argument that effort is better placed squarely in the wireless arena, rather than fixed line services.

For that reason, it is not a complete surprise that Verizon seems to be slowing its FiOS program, which had been nearing the end of the major construction phase, in any case. The company says it no longer will seek to build FiOS in communities where it has not already gotten video franchises issued.

That means Verizon apparently will not undertake FiOS builds in Baltimore and downtown Boston, for example, a scenario many of us would not have predicted.

Verizon is still negotiating for franchises in some smaller communities, mainly in New York, Massachusetts and Pennsylvania, but it is not working on securing franchises for any major urban areas.

Verizon never committed to bringing FiOS to its entire local-phone service area, originally planning to make service available to about 18 milliion households by the end of 2010, a goal it will reach. Since the program began, however, Verizon also has been selling assets in less-populated areas in the Midwest and West Coast.

The recruitment of new FiOS TV subscribers slowed last year. In the fourth quarter, it added 153,000 subscribers, little more than half of the number it added in the same period the year before.

At the end of last year, Verizon had 2.86 million FiOS TV subscribers and 3.43 million FiOS Internet subscribers (most households take both).

Investors never have liked the FiOS program, which will wind up costing an estimated $23 billion. FiOS likely has been a key reason Verizon has been able to compete with cable companies.

Verizon is the only major U.S. phone company to draw fiber all the way to homes and the only one to offer broadband speeds approaching those available in Japan and South Korea. But the financial returns have not been so overwhelming that the decision to expand the program is completely clear.

Verizon's experience might be an implicit warning to policymakers that although the goal of 100 Mbps service, provided to 100 million U.S. homes, by 2020 is a fine stretch goal, but might face trouble if it means consumers have to pay significantly more for such service. Consumers might prefer 20 Mbps to 30 Mbps for $50 to $60 a month, rather than 50 Mbps for $100 a month, and certainly more than 100 Mbps for $150 to $200 a month.

related article