Head of Research, Telecoms Business Unit, IDATE
Deployment costs & access market revenue in Europe
The goals set by the European Commission for ultra-fast broadband (UFB) are ambitious. By 2020, they aim to provide all European households with ubiquitous coverage of 30 Mbps and 50% of households with 100 Mbps access.
Cost of NGN deployment for reaching the goals of the DAE
NGN deployments are underway in all countries of the European Union but are progressing at very different rates from one country to the other. Some governments have created national programs that lay down their own goals to try and accelerate deployments, through both private operators and public players. IDATE has published a report in which NGN deployment costs have been modeled according to various scenarios. We will look closely at three of these: the "Base Case" scenario, which considers a gradual evolution of current NGN access; the "Vectoring" scenario, which anticipates improvements in copper-based technologies to reach the speeds laid out by the DAE; and the "FTTH" scenario, in which FTTH/B would be deployed on a massive scale and would provide the most future-proof performance in terms of speed. This last scenario is itself analyzed according to two different options (90% or 100% FTTH coverage), which lead to significantly different costs. The cumulative costs of these scenarios between 2011 and 2020 range from 71 to 230 billion EUR.
Cost comparison of NGN deployment scenarios en Europe
Revenues tied to the UFB access market
In parallel, IDATE has also conducted a study to evaluate the value of the UFB access market. This study is based on a thorough analysis of UFB services offered by key players in markets that represent different degrees of UFB maturity. This analysis allows us to identify different types of delivery model that may include one or more goals (maintaining positioning, increasing ARPU, reducing churn, unbundling withdrawal, etc.). The commercial positioning of operators will thus match a given delivery type that will depend on the level of competition, in particular. From there, it is possible to determine what the trends will be in terms of UFB ARPU over the coming years and thus assess one of the two key variables of access revenue. The other variable is the number of UFB subscribers, which should continue to grow relatively steadily through 2020 if we take all technologies into account. According to our estimates, the UFB access market is expected to reach 48 billion EUR by 2020.
Costs vs. revenues: Which scenario should we prioritize?
Despite some very interesting revenue potential (combined revenues exceed the cost of the most expensive scenario by 2020), the FTTH scenario is not really feasible (regardless of the coverage option considered) because cable operators—whose infrastructures offer faster speeds, are less expensive to upgrade and offer very good performance—will continue to play a major role in this market. The Base Case scenario seems to be a more feasible option in that it represents a continuation of what currently exists, namely a combination of technologies and accelerating deployment. However, it also presents risks, particularly the possibility of slow migration of broadband subscribers to UFB. Whichever scenario is implemented, operators will still need to invest significantly in deployment while reserving some investment for generating demand, without which their expected revenues cannot be achieved.
Head of the Telecoms Business Unit at IDATE
Measuring costs for each EU-27 member state to reach the Digital Agenda in Europe
In May 2010, the European Commission adopted its Digital Agenda policy programme. It was one of the first flagship initiatives of the EU 2020 strategy. It sets ambitious targets to provide all European households with ubiquitous coverage of 30 Mbps as a minimum and half of them with a subscription of 100 Mbps by 2020. IDATE has published recently a report providing different possible cost scenarios – with a breakdown by technology and by population density (urban, peri-urban, rural).
Today, some voices are raising concerns that the goals of the Digital Agenda (DA) will not be reached in many Member States as the necessary expenditure is beyond reach, especially in the current European economic situation. This is why this report focuses in particular on the cost of the Digital Agenda in reaching the ambitious goal of coverage of 30 Mbps and 100 Mbps, and further tries to clarify, per country, what it will be. It puts forward a theoretical model with the distinction of various scenarios involving distinct technologies, namely fixed and wireless.
"In several European countries, the rollout of FTTH networks has started and the European Union disposes already of a 40% NGA net coverage amongst all its member states. Indeed, copper local loop will ultimately be replaced by fibre, it being the medium that can guarantee an almost infinite bandwidth capacity for the future. Nevertheless, good quality copper, especially in Western Europe, and the current economic situation, could lead some telcos to consider other alternative scenarios involving VDSL, LTE or even satellite in Ka band", says Roland Montagne, Director of the Telecom Business Unit at IDATE. He adds: "The adoption of a FTTH-oriented scenario by telcos will not only depend on the amount of capex necessary but also on a viable business model. On this, telcos should be innovative not only with the services they propose but also on their pricing approach (tiered pricing) and their strategy regarding smart access."
Deployment costs by scenario
- Four scenarios in different constellations have been modelled, including a full FTTH/B coverage scenario. Depending on the mix of technologies deployed, these scenarios will cost between 51 billion EUR and 229 billion EUR.
- These amounts, whilst certainly substantial, are within the expected range and therefore come as a confirmation of the ambitious nature of the broadband objectives of the DAE.
NOTE: Scenario names are chosen to reflect main technological characteristics, but do not express a preference for any given
technology to reach the broadband objectives of the Digital Agenda.
90% FTTH/B = 90% FTTH/B only + 10% LTE
Base case = FTTH/B+FTTLA+VDSL2+LTE
Vectoring = FTTH/B+FTTLA+VDSL Vectoring+VDSL2+LTE)
Wireless = LTE+FTTH/B
NGA Costs model
In order to build our theoretical model of the costs of reaching the DA goals, IDATE started by drawing up several assumptions about ‘overlapping’ in each country with the aim of establishing the ‘net’ number of FTTx homes passed, and thus the effective level of NGA coverage. Consolidating this in the EU27 gives a net NGA coverage rate of 41% of European households in late-2011. Among the four fixed NGA architectures considered (FTTH/B, FTTLA+DOCSIS 3.0, FTTN+VDSL and FTTx/LAN), regarding our estimates at that time, FTTH/B accounted for 22%, FTTN+VDSL for 25% and FTTLA+DOCSIS3.0 for 50% of the European NGA coverage.
Using these coverage estimates as a baseline, IDATE modelled the investment required for each of the 27 Member States to reach the broadband objectives of the Commission's DA. We also took into account, nevertheless, for each Member State, the national broadband or ultra-fast broadband plans already launched, with their associated objectives of coverage up to 2020.
We then considered no duplication of infrastructure in our cost model. Indeed, the model's output shows the minimum cost of reaching the DA targets by rolling out one single network per coverage area1.
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