Fibre in the Last Mile: the Business Case for FTTP and VDSL

SUMMARY

Incumbent telcos, and some alternative operators, are investing heavily in a next generation of broadband suitable for the delivery of TV. Fibre in the Last Mile: the business case for FTTP and VDSL assesses the last-mile options (ADSL2+, FTTP/PON, VDSL as well as the role of WiMAX) available to operators wishing to launch or upgrade their TV services and examines the business cases for VDSL and FTTP roll-outs. It brings together an assessment of the costs of deployment, the evidence of consumer demand for bandwidth, and an overview of the important regulatory dimension of incumbent second-generation broadband build, in order to offer return-on-investment scenarios for operators in European country markets. This report provides forecasts of bandwidth demand to 2014, and models the return on investment for the next 20 years. It is aimed at any operator, investor or manufacturer wishing to know their markets better, and the potential applications for their services and technologies.

Fibre in the Last Mile: the business case for FTTP and VDSL answers your key questions:

• Should operators invest in fibre yet, or will xDSL technologies be sufficient to meet near-future demand?
• When can a return on investment be expected for VDSL and FTTP build-outs?
• What impact will IPTV and HDTV have on revenues and on bandwidth demand?
• What bandwidths will consumers demand by 2014?
• To what extent will video compression weaken consumer demand for bandwidth - and if so, will ADSL2+ and VDSL2 be sufficient?
• Ultimately, can operators afford fibre?

Who should read this report

• Incumbent operators: understand broadband drivers and demand, through detailed forecasts to 2014. This report will tell you whether you can, or should be, rolling out fibre.
• Broadcast TV companies and other media-industry players: discover the opportunities that VDSL and FTTP provide for VOD solutions, or how it could otherwise benefit your direct competitors.
• Financial institutions, investors and analysts: understand the demand and financial implications of next-generation broadband access for the European media and telecoms industries.
• Cable operators: develop a view of how the competitive landscape is changing and how different access technologies and applications can have an impact upon customer spend and adoption.
• Vendors of telecoms equipment: focus your marketing of broadband and video distribution solutions by being aware of the potential demand for these services.

TABLE OF CONTENTS

Summary

1. Exchange-based DSL will not be enough to support a full range of TV services

• 1.1 Operators have a range of options to upgrade the last mile
• 1.2 Faced with growing competitive threats, operators have to make long-term decisions now

2. FTTP may cost three times more per home than an FTTC deployment

• 2.1 Remote cabinet-based ADSL2+ is the next step beyond ADSL2+
• 2.2 VDSL2 expands the capabilities of cabinet-based ADSL2+
• 2.3 VDSL2 will cost EUR300- 400 per home passed
• 2.4 FTTP is typically deployed in point-to-point Ethernet or PON architectures
• 2.5 Video distribution introduces a further significant cost
• 2.6 FTTP will cost around three times more than VDSL2

3. Compression and access technologies compete to meet demand for new services

• 3.1 Applications will continue to demand higher bandwidths
• 3.2 Major uncertainties remain over latent demand for pay VOD and videotelephony
• 3.3 Demand for bandwidth will be offset by the continual development of compression technologies
• 3.4 Some demand is created by the very existence of the technologies
• 3.5 FTTP can offer the future-proofing that VDSL cannot
• 3.6 Demand trends suggest that in receptive markets 58% of homes will want over 30Mbit/s of guaranteed bandwidth by 2014

4. The structure of TV markets will be a major factor in investment decisions

• 4.1 Considerable regulatory uncertainty remains over VDSL and FTTP
• 4.2 Operators may find it hard to tie in content, though the regulatory situation is improving
• 4.3 Dominant pay-TV broadcasters may choose IPTV for interactive services only

5. Demand for bandwidth may be categorised into four distinct scenarios

6. Under most scenarios, VDSL looks a sound investment option

• 6.1 The model forecasts ROI in a typical Western European country over 20 years
• 6.2 The existing pay-TV market structure creates different outlooks for ARPU
• 6.3 Operators must consider losses from not upgrading networks as well as gains from upgrading them
• 6.4 There are very few scenarios where widespread FTTP deployment makes good commercial sense
• 6.5 In most circumstances, VDSL looks to be a sensible option - at least within a time frame of ten years
• 6.6 No market looks ideal for widespread FTTP roll-out, but France comes closest

Actions

Companies discussed in this report include:

Skype, BSkyB, France Telecom, TeliaSonera, Telecom Italia, BT, Deutsche Telekom, Verizon, Belgacom, SBC, B2, FASTWEB, Time Warner Cable, 3vision, Comcast, Microsoft, FIFA, Google, Easynet, Freenet, United Internet, Mediaset, KPN, NTL, Telewest.

Figures and tables

• Figure 0.1: Positioning of Western European countries under four demand scenarios
• Figure 0.2: Four scenarios for ROI on FTTP deployment, plus negative cashflow from not upgrading network
• Figure 1.1: DSL downstream speeds by length of copper loop
• Figure 1.2: Distribution of local-loop lengths in selected Western European countries and the USA
• Figure 1.3: Options for last-mile fibre deployments by telcos
• Figure 1.4: Comparison of the frequency distribution of xDSL technologies
• Table 2.1: Key cost components of VDSL2 deployment
• Figure 2.1: Home run network infrastructure
• Figure 2.2: Active star network infrastructure
• Figure 2.3: Passive Optical Network (PON) network infrastructure
• Table 2.2: Strengths and weaknesses of different FTTP network topologies
• Figure 2.4: Video in an xDSL network
• Figure 2.5: Estimated capital costs of various network installation techniques
• Table 2.3: Key cost variables involved in a GPON deployment
• Figure 2.6: Sensitivity analysis of GPON deployment per home passed
• Figure 2.7: Cabinet interconnection topologies
• Table 3.1: Demand for bandwidth from broadband applications
• Figure 3.1: The impact of codec compression on the bandwidth demands of digital video
• Figure 3.2: Forecast of demand for broadband access in a receptive market, 2006- 14
• Figure 5.1: Four scenarios of demand for bandwidth
• Figure 5.2: Demand for bandwidth modelled under four scenarios, 2006- 14
• Figure 5.3: Broadband access demand in Scenario A, 2006- 14
• Figure 5.4: Broadband access demand in Scenario B, 2006- 14
• Figure 5.5: Broadband access demand in Scenario C, 2006- 14
• Figure 5.6: Broadband access demand in Scenario D, 2006- 14
• Figure 6.1: Telcos' share of residential broadband market under three network build scenarios
• Figure 6.2: ROI on FTTP deployment under the four scenarios
• Figure 6.3: ROI on FTTP deployment, four scenarios, plus negative cashflow from not upgrading the network
• Figure 6.4: Broadband versus TV bandwidth demand
• Figure 6.5: ROI on VDSL deployment, four scenarios
• Figure 6.6: ROI on FTTP deployment under the four scenarios, plus negative cashflow from not upgrading the network
• Figure 6.7: Household pay-TV penetration, 2005
• Figure 6.8: Disposable income and receptiveness to new goods and services in Western Europe
• Figure 6.9: Positioning of Western European countries in relation to the four scenarios