Though there still is no firm consensus about the number of firms that a home broadband market can support, the math suggests that in markets with one or more smaller specialist providers, as many as five firms could sustain themselves. When competition across a full market is necessary, it is possible that, in some markets, that number drops to about three.
Globally, observers note that take rates for the new FTTH services often run in the 20 percent of homes passed up to 40 percent of homes passed range, with the threshold for a payback generally being somewhere around 35 percent on a blended basis.
In other markets there are two ubiquitous providers and several small specialists who serve only parts of a city. It is too early to know how the long-term market will shape up, as most of those new contestants are just entering the market now, or have operated for only a handful of years.
Still, those possibilities far exceed older thinking about access markets, when it was assumed only a single provider could sustain itself. In some markets, we already see that two access providers, competing on a whole-city basis, can sustain themselves.
Many other large questions, such as the role of wholesale mechanisms, open networks, the role of mobile versus fixed networks and the mix of revenue from consumer and business customers, all are open questions at the moment. Nor can we rule out some eventual move, in some markets, back to monopoly regulation of fixed network access services.
A related question is the ultimate shape of mobile service provider markets as well. At the moment, many observers believe markets with four leading mobile operators are unsustainable. Those observers believe markets will stabilize only when the number of suppliers is reduced to three (or perhaps fewer, in some cases).
Much of the debate over "fair share" mechanisms in the European Union countries seems to revolve about support for mobile networks rather than fixed networks.
But observers might also have questions about the sustainability of private equity investments into fiber-to-home networks as well, and for similar reasons: payback on potential investments.
According to consultants at Bain and Company, private equity investors have poured about $32 billion into building fiber-to-home networks between 2019 and 2022. It is not clear whether that sum also includes the cost of acquiring copper access assets that are then rebuilt using FTTH, though.
Payback can be obtained at lower levels when construction costs are low, such as in rural areas and when aerial construction is possible, rather than underground. Payback periods also are affected by other issues such as the availability of wholesale transit or access fiber, ability to pull new cables through widespread duct infrastructure, government subsidies and so forth.
The point is that profitability often hinges on local conditions, including the level of expected competition from other internet service providers.
Other studies and transactions might confirm the risk involved. In many cases, before an FTTH network actually is built, a firm will buy an existing telco service provider business. That can add $1,000 per home to the payback model for an eventual FTTH build.
Some recent transactions, especially those made by private equity, have involved purchase of existing telco assets, with the intention of building FTTH to change the revenue model. But that also can effectively double hurdle rates for earning a financial return, all other things remaining equal.
In other words, instead of building a greenfield FTTH network for about $1100 per passing, the acquisition cost, plus FTTH cost, can effectively double the payback hurdle.
