FTTH networks: no sure bet

Here is an Ovum comment from David Kennedy, Research Director.

UK: A basic policy model seems to be emerging in these three countries:
* A preference for FTTH technology, with a recognition that this cannot be extended to 100 percent of the population. FTTH is supplemented in larger countries with rural wireless proposals.
* A ‘wholesale-only’ operator for the fibre access network. All three countries are aware of the danger of recreating a vertically integrated monopoly.
* In both New Zealand and Singapore, the importance of access to raw ‘dark fibre’ is also clear. This is consistent with experience in other Asian markets such as Japan.
in all three markets, substantial government investment is being committed.

Lessons learned
The key lesson that has emerged from these initiatives is the importance of a thorough policy development process to underpin commercial investment in FTTH networks. Singapore ran a time-consuming but structured process which ensured that commercial and regulatory issues were addressed before tender bids were solicited. New Zealand is also pursuing this structured approach.

In contrast, the Australian government pressed ahead with an FTTN tender process in advance of any public policy development process, and paid a heavy price as the process was aborted in April 2009.

The jump to a full FTTH network will only make the issues harder. A host of complex regulatory issues must be addressed. Should the geographically de-averaged wholesale ULL price be carried over into wholesale access to the FTTH network?

How can the USO be funded on the new network? Will customers in the FTTH footprint be encouraged to move to the new network, and if so how? How will the transition between the old and the new be managed smoothly? Detailed answers will be needed before private investors will be able to make substantial investments.

In particular, the ‘wholesale-only’ model preferred by the Australian and New Zealand governments is still an experimental approach. Incumbent profit and growth have been hit hard by the strict structural separation applied in the UK and New Zealand, and it is still not clear whether incumbents placed in these dire straits will be able to afford to make major investments in FTTH networks.

Finally, the idiosyncrasies of different markets are important. Singapore is a city-state where the cost of FTTH rollout is relatively low. In contrast, Australia and New Zealand are characterised by sprawling low-density suburbs. To make matters worse, both governments envisage public contribution in the form of commercial investments, not the grants being offered in Singapore.