LOCAL TELECOM

FTTx Drives Fibre Deployments

The impact these two countries had in local telecom-related fibre deployments can be seen more clearly in slide 4, which shows deployments from 2000 through 2008. NTT was ramping up its FTTH program, whereas the RBOCs and other local exchange carriers were focused on extending fibre's reach to increase DSL throughput.

 

Fibre Demand Takes a Hiatus

Global fibre demand in 2002 and 2003 fell by almost 40% with installations in both North America and Western Europe down by more than 70% from peak installations in 2000, which is characterized by the dip in US demand in 2002 and 2003.

 

FiOS Debuts Due to Regulatory Support

Regulatory rulings supporting Incumbents' investment in the local loop in the US helped North America and the developed markets grow out of the doldrums following 2001 market collapse. Under the Telecom Act of 1996 the FCC had ruled that the RBOCs must furnish copper-based loops to competitors for voice and DSL services. But in early 2003 the FCC said that the RBOCs were not required to “unbundle” and furnish fibre network elements for fibre to single-family homes and businesses.

 

Verizon Demand Takes Off

That decision helped increase annual RBOC fibre demand in 2004 by almost 180% from 2003. Verizon's demand increasing by more than 500% as it began its first year of FiOS installations. Since 2003 Verizon has installed 34 million fibre-km. Verizon announced in its Q109 results that it had reached 2.2 million FiOS TV subscribers for a 23% penetration and 2.8 million FiOS Internet subscribers for a 27% penetration, and FiOS average revenue per user (ARPU) is $133.

 

Verizon to be 6th largest MSO

By Q209 Verizon should pass Bright House Networks, which now ranks as the sixth largest US multiple system operator (MSO) in terms of subscribers. And the contribution of video/broadband revenue growth has lifted consumer revenue ARPU from $52 in mid 2006 to $70 in Q109.

Fibre Offers Operational Cost Savings

Another benefit for Verizon in pursuing FTTP is a significant cost savings in provisioning and maintaining the fibre optic network relative to copper.

 

Verizon Divests More Rural Networks

Verizon's announced on May 13, 2009 its plan to divest its local wireline operations serving residential and small-business customers in predominantly rural areas in 14 states with those operations to be acquired by Frontier Communications. CEO Ivan Seidenberg added, “All of Verizon's remaining local landline operations have high concentrations of FiOS in more densely populated markets. We believe our focus on reshaping our asset base will drive higher growth over time and improve long-term returns.” The divested territories at year-end 2008 had a combined 110,000 FiOS Internet customers and 69,000 FiOS TV customers, which amount to 3%-4% of Verizon's FiOS Internet and TV subscribers. All properties except for West Virginia are former GTE properties. This pending sale follows the 2008 approved sale of Verizon's New Hampshire, Vermont and Maine properties to Fairport Communications:

 

EU Regulators Differ From FCC

The European regulatory authority has taken an opposite tack to encourage competition. Since incumbent providers are considered to have a dominant market position, the EU has mandated that incumbent operators provide access to their network to all competitors. This means incumbent providers have resorted to intermediate strategies to offer higher bandwidth services such as fibre-to-the-cabinet (fibre-to-the-node) and VDSL. In fact, Belgacom said in 2008 that it would not pursue FTTH because of uncertainly relating to return on investment given regulatory issues/environment.

BT Chooses FTTC over FTTH

BT announced in March that 29 exchanges serving 500,000 subscribers would be upgraded to FTTC, which is designed to deliver broadband Internet speeds of 40 Mbps to 60 Mbps. BT has announced pilot programs for FTTH in some greenfield construction, but generally has said that wide scale FTTH deployments are not justified. As recently as April 17, 2009, BT chief executive Ian Livingstone defended his company's limited plans for faster broadband, saying there is not enough demand for fibre to the home to justify its cost. In Germany DT's VDSL program has been implemented in forty cities and is supposed to provide service of 50Mbps.

 

FiOS Effect on Fibre Demand

For comparison, slide 6 shows estimated cumulative fibre-km deployments for DT, BT, Verizon and AT&T. In Verizon's case, its average annual cabled-fibre demand from 1985-2003 was approximately 700,000 fibre-km; with FiOS Verizon's demand from 2004-2007 averaged almost 7 million fibre-km. The FiOS effect is evident from 2004 onward. In contrast, BT and DT's fibre deployments do not reflect a large-scale initiative involving FTTH.

 

FTTx Developments in Europe

Denmark, Sweden and the Netherlands have been the three leading countries in Western Europe to pursue FTTH, and much of the activity has been undertaken by utilities (Denmark) and municipalities (Sweden and Netherlands.)

 

Alternative FTTH in Germany

In Germany NetCologne and M'Net are underway with FTTH in their serving areas. Alternative operator Arcor launched an FTTH pilot in Hanau in a greenfield housing project of 300 homes that will offer data rates of up to 100Mbps, although initial download and upload speeds will be 50Mbps and 10Mbps respectively. Arcor also has been trialing VDSL technology in the Th