FTTH in a bad economy

The global economic slowdown will probably slow fiber-to-the-home deployment, which could give regulators time to figure out how best to mediate competition in that arena, according to one leading analyst.

Benoit Felten, Paris-based senior analyst with Yankee Group, took an in-depth look at global FTTH deployment and found, among other things, that regulators remain unsure of how to both encourage competition and enable incumbents to get the investment dollars they need to upgrade their networks.

Right now with investment dollars tight, very few competitive carriers will be out there spending, giving regulators what Felten believes is an 18-month window to get policies in place. The conundrum they face won’t go away, however. If they mandate open access to FTTH networks, incumbents may refuse to build them, and if they don’t, competition is much less likely to develop.

Interestingly, Felten believes — and I agree — that incumbent and investor fears of open access aren’t well-founded. If you are building a big pipe, you want to make the most of it, and one way to do that is to sell wholesale, as well as retail, services. This is particularly true where video is concerned because video is a high-cost, low-margin business compared to selling broadband services.

“Even the financial markets are convinced that if you have to share your network, you are going to make less money,” Felten said. “If you look at projects that are financially successful, which I would describe as break-even in five to seven years, these are projects with over 60% take rate. Today, these are relatively small-scale — up to a few million homes passed. On the scale of a country or a large region, if you want these take rates, you can’t do it on your own. Wholesale may be a lower [average revenue per user] business, but it is a higher-margin business because costs are much lower.”

Some FTTH networks, such as the one Verizon is building in the U.S., are easily adapted to open access but could still support a wholesale offering. Verizon has said from the outset that it would negotiate commercial agreements to wholesale some services over FiOS.