Tuesday, October 16, 2007

The bottom-up economic argument for FTTH

The New Zealand Institute published an interesting document supportive of FTTH. The economic benefits are calculated bottom-up and are (conservatively) estimated at 2.7-4.4bn NZD/year. Their next report will focus on the cost of covering 75% of the population by 2018.

(All fine and dandy, but I was reminded of a recent Greenspan quote: "It is not yet settled, although I guess it should be by now, that human beings are not significantly more perfectable than we are." Still, I strongly believe in the benefits of FTTH.)

Keep in mind however that New Zealand is not your typical place:
  • Remote. It faces the risk of talented young people leaving the country. Also, it is very much reliant on the Southern Cross Cable (connecting it to Australia and the US), which needs an upgrade.
  • Thinly populated. Projections are that even by 2018, 'just' 75% of the people will be covered by FTTH.
  • Beautiful countriside! It tries to attract investments from the digital media industry specifically. Think 'Lord of the Rings' or 'Chronicles of Narnia'. One quote from the document: "It was cheaper for us to fly the data [to LA] than it was to send it over the network" (page 22).
Here are a few things that stood out for me.

The benefits are derived from enhanced productivity and growth, but also from opportunities in the 'weightless economy' ("a New Zealand Skype").
"Bandwidth demand has followed Moore's Law - roughly doubling every 18 months."
To capture the economic value, New Zealand needs to "cross the DSL wall to fibre".
Build-out should start by mid 2008. There is no mention of VDSL, so I suppose the institute recommends moving fast, and skipping the VDSL stage.

A hugely interesting topic. I will try to write a follow-up at some point. Let me just list some of the companies that are involved. Obviously, the market has many participants:
  • Telcos: KPN has e-zorg, BT is building a network.
  • B2B Media: Wolters Kluwer and Reed Elsevier publish research articles and journals and operate portals. Elsevier Science recently changed the business model to its oncology efforts: it is moving from subsciptions to a free + ads model.
  • Internet verticals: ranging from Elsevier's Oncology portal to WebMD and RevolutionHealth and from Microsoft's HealthVault and Google Health ('Project Weaver')to the Sermo social network for physicians.
  • Pharma: Pfizer is now working with Sermo.

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