Are Scarce Access Assets Still So Valuable?

Telefónica Group, Crédit Agricole Assurances and Vauban Infrastructure Partners are joining to create Bluevia Fibra to build fiber to premises networks in rural parts of Spain. 

The consortium formed by CAA/Vauban will acquire a 45 percent stake in Bluevia from Telefónica España. Telefónica Group will retain a 55 percent stake in Bluevia. 

The 55 percent stake owned by Group Telefónica will be held by Telefónica España and Telefónica Infra, with 30 percent and 25 percent stakes respectively.

Operating with a wholesale model, Bluevia will offer wholesale FTTH access to all telecommunication services providers. Based on an initial footprint of 3.5 million premises currently passed, Bluevia will increase its network to five million premises by 2024.

Bluevia’s anchor tenant, as you might guess, will be Telefónica España. The deal is among many globally where service providers try to decrease the cost of building new infrastructure by partnering with investment firms looking for long-term, stable cash flows in the digital infrastructure area. 

Other joint ventures that, in part, are aimed at reducing investment and debt burdens, are happening in other markets, by other fixed network providers. Liberty Global, Telefónica and InfraVia Capital Partners have formed a joint venture to build seven million fiber-to-premises passings in the United Kingdom. 

Liberty Global and Telefónica will jointly hold a 50 percent stake in the venture through a holding company, with InfraVia owning the remaining 50 percent. Telefónica Group’s participation will be held through Telefónica Infra, the firm's infrastructure unit. 

Both deasl might also raise issues about the value of access assets to tier-one telcos and other different stakeholders. Though access assets always have been seen as sources of business value, the perception of value has changed over the past few decades. 

Though necessary, access infrastructure often is not viewed as adding proprietary value. So full ownership is less valuable than in the past, while the freed-up capital is deemed more valuable. 

Historically, scarcity has driven the value of access networks. It still does. Institutional investors value precisely that relative scarcity as a driver of long-term investment value, as such investors have valued real estate assets. 

But network infrastructure scarcity is largely eliminated as a competitive issue when assets are structurally separated, it can be argued. While it also can be argued that owners’ economics often are important, compared to renting access from a wholesale provider, the loss of potential margin and differentiation is counterbalanced by the reduction of capital investment burdens as well. 

Wholesale access also arguably changes the nature of competition. When every retail provider has the same access to network features (latency, speed, wholesale price), competitive distinctiveness has to be found elsewhere. 

And, most of the time, such distinctiveness happens with non-network features and value, typically when different features are bundled as part of network-based offers. The larger point is that competition seems to be shifting away from “scarcity” and towards other elements of the experience. 

In the mobility business, spectrum scarcity remains an issue, but is improving, relatively speaking. That is reflected in declining per-MHz spectrum costs, even if physical infrastructure costs intensify. 

And much traditional infrastructure--especially towers and radio sites--no longer are considered “must have” assets to own. To the extent networks are differentiated, it is on the basis of ownership of spectrum assets and other bundled features, not radio sites. 

Executives likely hate the idea, but physical access assets are more commoditized, and less value-driving, than access assets used to represent. Increasingly, it is the intangible assets that drive value.

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Is Cable Home Broadband Market Share Dominance Reached a Turning Point?

Comcast continues to claim that fixed wireless is not damaging its home broadband business, and that might well be correct. For any ISP, a customer move is an opportunity to gain or add an account, so lower rates of dwelling change should logically reduce the chances of adding new accounts. 

In the second quarter of 2022, Comcast reported a net loss of customer relationships and “flat” home broadband accounts. 

That might suggest to some observers that stepped-up telco fiber-to-home and fixed wireless account gains might be starting to change market share dynamics. Those trends possibly were not obvious in the first quarter of 2022. 

All that said, there are possible signs of change. Fixed wireless already is driving net home broadband additions for T-Mobile. In the fourth quarter of 2021, fixed wireless represented 74 percent of Verizon net home broadband additions.  

Comcast did not gain net accounts for the first time, ever, according to market watchers. Verizon added significant numbers of new home broadband accounts in the same quarter.  

One might suggest that, eventually, share loss could become a sustainable trend, as internet service providers step up marketing of FTTH and fixed wireless services. Home moves and housing starts always have been significant drivers of home broadband account gains. 

Both of those might be slowing, so slower growth overall is not unexpected. But market share shifts need to be watched, as mobile and fixed network operators increase availability and marketing of competitive home broadband services.

25 Gbps or 50 Gbps?

As long as I can remember, optical network access platform upgrades have offered potential buyers two choices: upgrade with a next-generation choice that is available now, or wait for a faster version available in a few years. 

The choice of access platforms supported by 25 Gbps or 50 Gbps optical access platforms poses such an issue: upgrade now with backwards compatibility or wait for the next platform that offers more performance. 

As always, some operators, faced with an immediate upgrade choice, are going to choose the existing standard. Others who can wait will often do so.  Technologists often debate the merits of alternative choices.

But deployment remains a business issue. What must be done to maintain or improve market share, how much time is available to do so, what resources are available, what will customers demand, what will they pay, what are our competitors doing and where are we most vulnerable to share loss?

Some of you with longer memories will remember that debate about upgrades to 40 Gbps versus 100 Gbps. Network choices have changed as all telecom networks become data networks, but two decades ago the choices were shaped by backwards compatibility with the legacy telco networks versus upgrades more in tune with the way data network standards tend to progress (1, 10, 100, 1,000 times). 

U.S. Cable Operators Might Still have 65% Market Share in 2027

U.S. cable operators will still have 65 percent share of the home broadband market in 2027, analysts at GlobalData predict, despite more fiber-to-home and fixed wireless deployments. 

That might sound incongruous--and perhaps it will prove too optimistic--but relative stability in the home broadband market can be explained in a few ways. 

Competent competitors with lower cost structures and lower or equivalent costs to upgrade bandwidth--and that will still be the case for cable operators in 2027--should be able to limit share losses, even if competitors equally skilled try to attack them. 

source: GlobalData 

The other issue is that upgrading most telco facilities to fiber to home will take time. There is only so much capital that can be put to work; only so much construction capacity; only so much network infrastructure than can be produced in any year. 

By Prysmian Group estimates, for example, FTTH will serve only about 26 percent of U.S. households by 2027, and that includes cable ISPs and independent ISPs, not just incumbent telcos. So telco FTTH share will be less than 26 percent in 2027, if Prysmian proves correct. 

source: S&P Global Intelligence

In fact, other analysts at S&P Global Intelligence  think FTTH share of home broadband (again including telcos and other competing ISPs) will only reach about 17 percent by 2025. 

As cable industry executives have pointed out for quite some time, the amount of new FTTH infrastructure that can be deployed by telcos--for reasons of capital limitations, market opportunity or other choice--is limited.

It takes time to build out a new ubiquitous access infrastructure in a continent-sized country. Also, as cable operators themselves start to deploy FTTH, it will be increasingly necessary to delineate market shares by type of competitor, not choice of physical media. 

Telco FTTH is not going to move the market share needle as much as some might hope.

Business Case Drives Platform Choices, Always

Fixed network next-generation platform choices are virtually never as “easy” as choices possible for mobile networks. For starters, mobile platform choices are always global and unitary: there is one standard to replace the prior standard. 4G is replaced by 5G as 5G will be replaced by 6G. 

In the fixed networks segment there always are multiple choices. Cable operators have multiple architecture choices when driving optical fiber deeper into the network, or can switch platforms entirely and replace hybrid fiber coax with fiber to the premises. Then there is the timetable: upgrade HFC now and then switch to FTTP later versus moving directly to FTTP. 

Fixed network operators have several choices of FTTP platform as well. Capabilities are one matter, but deployment cost; business strategy; expected financial return; capital investment and expected level of competition all are issues to be considered. 

source: Broadband Library 

When an immediate upgrade from copper is envisioned, some might argue XGS-PON is more future-proof, if more costly. But scale matters, in some instances. Capex for one choice that is four to five times that of the other relevant choice can be a powerful incentive. 

Split ratios and the number of wavelengths also might be considerations if one platform has range significantly different from other platforms. A network architect might require more wavelengths per fiber if longer distances are covered, to support dropping wavelengths along the route to serve enterprise or other high-volume customers. 

source: Medium 

In all cases, though, the business case influences platform choices. "First installed cost" is never the only consideration.

Switching Locations Lose Relevance for Network Architectures

Of all the changes in fixed or mobile network architectures over the past few decades, one of the notable physical layer changes is the application of optical fiber more densely in distribution and access networks.

But also noteworthy is the disappearance of switching or computing locations as demarcation points.

In the past, we could always demarcate the access network from the distribution network at a central office or rermote terminal location. That makes less sense these days, as processing is increasingly distributed.

Both fixed and mobile networks use similar architectures in the core network, diverging mostly in the access network. Core network transport these days always uses optical fiber media. Transport networks (sometimes known as distribution networks) that move traffic from the access network to the core network also are commonly based on optical fiber platforms. 

source: Dgtl Infra 

Access networks that move traffic from customer sites to transport aggregation points rely on different media (cable versus wireless radios). 

The other common change is that both fixed and mobile networks can be described without reference to places where processing operations occur. In virtualized and distributed networks, that can happen at many different places. 

In past days transitions between portions of the network would happen at processing locations such as central offices, which traditionally terminated the access network. These days, processing no longer is a consistent demarcation point between network segments (core, transport/distribution and access).