if connected

BT’s launch of ADSL2+ with 21CN yesterday isn’t going to make a vast difference to the ISP retail market, or to consumer broadband speeds. Initially, under one million households will benefit, none of which are in London. Even by May 2009, when BT will reach approx half of UK households, its footprint will be largely within the area already covered by the existing LLU ADSL2+ networks of O2 and Sky, and also within VirginMedia’s HFC network geography which offers similar speeds.

BT’s major competitors — Sky, Carphone Warehouse, O2, Orange, Tiscali — have largely switched away from using BT’s wholesale packages in urban areas. So, the main short term beneficiary of this launch, will be BT’s retail division plus the declining mass of small ISPs that lack their own LLU network. For those independent niche ISPs, this launch may be too little, too late. Further consolidation is likely. Ironically, BT may be the purchaser of the small guys, if regulators continue to allow it.

The long term impact is quite different. BT is building the foundations for putting fibre into the last mile, eventually. To gain speed benefits from fibre, the backhaul capacity to the exchanges and BT’s core network capacity needs to be greatly increased. Otherwise, the speed bottleneck shifts from the quality of the copper telephone line in the last mile, to back within the ISP network. (Even now, the UK has seen some issues even with ADSL1 backhaul capacity limiting speeds for users with telephone lines that run at the full ADSL1 speed of 7-8Mbps, i.e. contention.)

BT is playing the long game, and as a result is ceding ground in retail broadband acquisition now. This is a risky strategy given the ability to execute of BT’s ISP competitors, most especially Sky.

France continues to set the pace on fibre broadband roll outs in Europe. The debate here, is already focused on how to ensure competition between the various under way FTTH network deployments especially with regard to the duct access needed to make deployments efficient and keep costs down.
The alternative operators are unhappy, the incumbent is moving its ground to head off regulatory intervention.
Like the past LLU experience, ARCEP is proving itself to be an savvy and effective regulator in tackling knotty issues, and so enabling both network investment and competition.
Bottom line – the FTTH situation and necessary debate in France is far advanced of elsewhere in Europe.

Ofcom has just announced a consultation into ‘Next Generation Fibre for New Builds’.
Key points here, many have been missed by the press coverage:

• This is just a consultation, not a decision on how to regulate such networks.
• Looking at green field housing developments is the easiest regulatory aspect of fibre for Ofcom to consider, but it only covers a fraction of total households. For new build developments, there are no existing LLU operators using the copper telephone network that fibre would bypass, and no existing HFC cable networks (i.e. VirginMedia) that will lose catastrophic value when overbuilt by (true) fibre.
• Again, as ever, the UK is slow to the party with fibre. France, Sweden, Netherlands, Japan, even the US, as well as the rest, are and will remain, far ahead.
• The real reason for doing this consultation now, is the very small difference in cost for laying new copper vs fibre for green field sites, and not a business case on the revenue side (which is problematic). Additionally, there seems to be little real enthusiasm on Ofcom’s part to assist with accelerating fibre builds by laying down clear ground rules for operators.
• Without an Ofcom statement on its fibre regulatory approach — a consultation isn’t sufficient — it is impossible for an operator to create a solid fibre broadband business case.
• For the immediate future, UK residents will need to move house to receive fibre, for example to Ebbsfleet.
• When they happen, fibre broadband roll outs will inevitably lead to a new digital divide.
• For all the talk of fibre here, the UK’s incumbent is astonishingly still to roll out ADSL2+ over copper.

Moving on from the crazy UK situation on fibre, Orange in France offers real fibre broadband at 100Mbps (download speed), complete with a full IPTV service, and VoIP telephony.
Unlike fibre wannabe’s, Orange’s upload speed is also staggeringly fast at 10Mbps, which makes the service ideal for uploading high quality videos to websites.
This is a commercial service that is already available to 147,000 homes. Full details are published in Orange’s annual results. France has become one of the most interesting broadband markets in Europe and continues to far outpace the UK.

[BT] Openreach has announced plans to install fibre optic cable instead of traditional copper to connect houses on a 1,000-acre new-build project at Ebbsfleet Valley in Kent. At this site Openreach will offer all of its products on a wholesale basis to all UK CPs. From August 2008, CPs at Ebbsfleet will be able to support data at speeds of up to 100Mb, the fastest headline speed available to residential customers in the UK, allowing high-definition television (HDTV) channels to be watched simultaneously and enabling HDTV gaming and near-instant music downloads.

(from BT’s results today)
Go on Virgin, with your “fibre” network, why not deliver real fibre speeds like 100Mbps or even 1000Mbps per home?
And, why not deliver those speeds without your current evening volume limits that drop speeds in half if your customers use the service a little too much during one evening?

Today’s news is for new builds only, in Sweden, and with one specific construction firm.
This is the low hanging fruit of FTTx roll outs. If an operator is digging up streets or accessing ducting it’s almost as easy to use fibre as copper. The harder business case is for upgrading existing areas.
The planned 100Mbps per home service indicates just how great a game changer fibre will prove.

As the results season draws to a close, it’s clear all the major European operators are grappling with:
1. When to invest in new broadband infrastructure and how fast.
2. Whether to invest extremely heavily in fibre to the home (FTTH) or to the building, or whether to invest less to build fibre to the street cabinet with VDSL2 then copper. The cable guys have their own DOCSIS3 upgrade on the roadmap.
3. Will consumers pay increased fees for very high speed broadband Internet access? Or will they even continue to pay what they pay now?
4. What, if any, new value-added broadband Internet services or content could be built on these new broadband networks that consumers will pay for? Will this justify the capex? Or is the capex table stakes to remain competitive in fixed broadband?
5. Do future operational cost savings justify the capex outlay?
6. Do future bundled products that are not the Internet – e.g. HDTV, IPTV, video communications etc. – justfiy the capex spend with increased revenues?
7. If FTTH/B, which technology route to go down, PON or point to point?
These are all good questions. We’ll be covering these topics in a variety of different reports over the coming months.
But for now, I’d strongly advise all European operators to read this new Jupiter report which goes a long way to helping to understand consumers’ views of broadband access:
Net Neutrality in Europe – Navigate Through Future Internet Access and Distribution Models
The report includes a segmentation of online consumers that reveals some rather startling links between consumers that object to limitations on their broadband connection and the best consumer prospects for Internet paid content and services.
Clients – I’m very happy to discuss anything in this report on a call or by email.