Network sharing: government interference done right

Network sharing is gaining (a little) momentum in several places. Two recent ones stand out (below), also in light of Benoit's post on government involvement.
On the one hand, there is the traditional capitalist view of seeing every government involvement as negative. These s#%$bags screw up all the time. They should sell to the public, so that WE shall be in control, etc.
On the other hand, infrastructure investments require a long term view, which investors do not habitually seem to foster.

Forced or stimulated network sharing is one way for governments to get involved - even passively, without any dear taxpayer dollard/euros coming into play:

• Switzerland: the regulator calls upon the mobile contenders (sunrise, Orange) to join forces by sharing their networks, in order to create stronger competition against Swisscom. In other words, governments can help by providing regulatory clarity, and by allowing companies to not take spectrum license conditions too literally (regarding sharing, trading, technology).
• France: the government considers forcing MDU owners to fiber up their buidlings. In-home networking is a bottleneck in the (stalling) FTTH roll-out in France, so this could be helpful. (The next logical step could be to force municipalities to sink ducts in every single street they open up for any kind of repair work.)

I still believe there is scope for sensible government subsidies. New Zealand (or Singapore) may be a prime example, if the NZI gets its way.

Update on FTTH: service provider issues

The world of fiber is moving fast, but it is not all good news. Since my previous update, some notable developments occured.

• Citynet (Amsterdam). First of all, I have to make a correction. Amsterdam does in principle offer enough room to allow for direct buried duct (not just direct buried cable). However, one of the project's execs points me to the fact that probably not a single Dutch town allows ducts of 30++ centimeter diameter to be buried. And that is what you would need to connect the central office to the aggregation point. Other than that, Citynet simply decided to go without ducts.
• UTOPIA and iProvo (Utah). Both projects are running into financial problems and are looking for refinancing. This article holds the key to the solution, I believe: better marketing. Wholesale projects such as these (and Citynet) require service providers for marketing. The trouble is, there may simply be too many SPs, which is confusing to the public (sources tell me this is an Amsterdam issue), or they may simply be too small, and cannot absorb the losses associated with the necessary investments (as seems to be the case in Utah). Furthermore, the Utah networks seem to be suffering from a limited product portfolio (no low tier product at a competitive price point). The issue reminds me of projects (Powell, Wyoming) that decide to allow for a service provider monopoly during the first several years of operation. Of course, pricing must be in order too (even if MSOs will launch targeted cheap offerings). EPB in Chattanooga targets to undercut market prices by 5-15%. By the way, Provo seems to have had offers for the iProvo network, but isn't ready to sell out.
• Database. I updated my FTTH 2007 - 2008 database for more details and lots of links.
• Financial models. I wonder if any of the projects has a financial model available. There are lots of consultants out there who are doing that laborious task.

FTTH: a financial model to the rescue

Last Friday I was invited to attend a meeting of the economics sub-committee within the Deployments & Operations committee of the FTTH Council Europe. A big honor and a chance to meet with some very real fiber guys, from companies such as Draka Comteq, Wavin, Corning and Van den Berg Infrastructuren.

The point of the whole council obviously is the promotion of FTTH, and this particular sub-committee wants to lure potential investors. One thing that was already agreed upon was that a proper financial model would be a great tool. The big issue with models however is that nobody trusts anybody else's model. Potential investors would no doubt be very suspicious of such a thing coming out of the FTTH Council.
So, for now it was decided that the sub-committee should aim for some sort of a generic framework (including all relevant parameters) that investors can toy around with. One consultant will be hired to build it, another to validate it. And all that is supposed to be available for next years's conference in Copenhagen.

Of course we got into all sorts of interesting discussions on this noble FTTH cause. One really stood out for me. I have been under the impression that most everybody agreed that all we need is a single FTTH network, but I have to admit that it shouldn't have come as a surprise that the vendor community (well, not all of them) have a different view. All they really want is to bury as much fiber as possible.
If the business case for FTTH is shaky to begin with, and if the FTTH Council wants to be credible, this may not be the direction it wants to go. Also, you run into all sorts of difficulties (an undesirable US style duopoly; who controls the in-home network?; there are limits to opening up the streets; etc.).

Another topic was the buried cable v. buried duct views. Did you know that the way the city of Amsterdam was constructed precludes ducts being put in the ground? There simply isn't the space for them. So, no business for Wavin here.

Finally, one of the commitee members said he notices interest in a fiber connections as such. This runs counter to conventional wisdom, according to which people are not interested in technology but rather value whatever they can do with it. Who knows, people are being educated on FTTH at a quick pace and understand the benefits. That bodes well for real estate developers who see FTTH investments as enhancing the value of their properties. Personally, I would add that having an office space in your home is another smart move to real estate riches.

I hope to be posting a lot more on the progress of this sub-committee. (Next meeting: May.)

New telco insights are catching on

While the STL conference is ongoing, it is striking to see how their very original views are catching on, to say it nicely. I've written about their 'brainstorm' and accompanying report before and stumbled over no less than three institutions who seems to be taking a page or two from STL's Telco 2.0 (TM) views (yes, they trademarked the term): IBM, Accenture and Heavy Reading (a unit of UBM). Follow the links, and here are a few quotes.

The common theme: telcos face marginalisation and must act now to prevent it.


RegLugtu of IBM Philippines: A future in content

Reinventing “walled garden” involves: leveraging capabilities such as presence and location to enhance collaboration among subscriber social networks; providing trusted and third party authentication among participants in a social
network; and encouraging user and community content such as college sports and
community programming over IPTV.
Telecom providers can also provide a “white label” content distribution service to third-parties to distribute branded content to their subscriber base without having to invest in building their own infrastructure.
Telecom providers can also collaborate with new platform aggregators by enabling the integration of network capabilities such as location, presence, voice and conferencing in Web 2.0 and virtual world applications such as Second Life.
Finally, as professional content owners bypass traditional content distributors and deliver content directly to consumers, telecom providers can lower their entry costs by providing them with managed open content distribution platforms with end-to-end service quality and management and multi-channel capabilities.
In short, telcos must look to combine their investment in service delivery platforms and Information Management Systems (IMS) with new digital content services; invest in service quality management to enhance the end-to-end user experience across multiple networks and devices; and enable users to control their content experiences.

Andy Zimmerman of Accenture Global Communications

Operators have assets relating to the end user - like presence, identification, authorisation and credit information - that give them a richer customer relationship than other members of the value chain, says Zimmerman. "But they haven't been particularly proactive about bringing those to the table," he says.
Despite this, he argues that there is a rough 50/50 split in the carrier community today, with one half ready to accept a redefined role, and the other convinced that it needs to play end-to-end to avoid being marginalised. "It depends on the individual personalities, and where their company is at the moment," he says. "There are a fair number of executives out there who say that they're never going to be in the [end-to-end] business, and that they should focus on the enabling business."
Zimmerman's assessment of the structure of the industry may not be what everyone wants to hear. But he's not the first observer to suggest the carrier community might be heading up a blind alley. Whether any of his consulting customers heed his advice or not remains to be seen.

Graham Finnie of Heavy Reading: Reinventing the Telco

Telcos and their suppliers still believe that the future lies in telcos themselves provisioning a wide range of packaged services to end users. However, a significant minority of survey respondents believed that telcosshould focus on providing basic bandwidth along with enabling capabilities(such as QOS) for third-party service providers.
At the same time, telcos believe that they can add value to third-partyservices by offering them a wide range of enabling capabilities. The mostimportant of these capabilities, our survey found, are the ability to billsubscribers; the ability to authorize subscribers and manage theiridentities; the ability to offer security tools; and the ability to offerQOS guarantees on a per-application or per-subscriber basis.

Let's just say that traffic growth will remain 100%

Rudolf pointed me to this great Ars Technica article. I included it in the right hand column (under 'Favorite Articles') and here is a link to a Google Doc for easier downloading (Ars Technica allows the .pdf file to be downloaded to paying subs only, but hey: Content is not king anymore).

First, here are the main points:

• There is no 'exaflood' (Bret Swanson), since traffic growth is at a manageable (for backbones, that is) 100% sort of level, and actually falling. Put quite differently: it is here already, since worldwide traffic totals 3-5 exabytes/month. In itself, this undermines arguments aimed against net neutrality. Capacity can rather easily and cheaply be upgraded.
• The last mile is the real bottleneck. In this respect the US is falling behind (even if there are different points of view) because of a lack of competition (no line sharing). South Korea has almost as much traffic as the US, or 6-7 x more per capita.
• Media companies (such as the Hulu venture) face exploding bandwidth costs. They will flee to P2P delivery systems.
• Andrew Odlyzko suggests ISPs should stimulate usage rather than limit it. In David Isenberg's words: "In other words, the problem is completely mis-framed. Comcast and Verizon -- and even Net Neutrality Advocates -- are talking how to manage scarcity. We should be talking about how to achieve abundance."

Second, let's make another effort at pinpointing sources of traffic growth and reasons to build FTTH networks. I don't know if growth will keep falling, stay around the 100% level or actually accelerate (to the 300-500% level Cisco's John Chambers predicts), but there is a lot yet to come:

• Video. Include 3-D, HD, holography. Not 'just' YouTube, but also VoD, streams, Hulu and BBC's iPlayer, place-shifting (SlingBox, PC-to-TV boxes such as Daily Media, etc.).
• User-generated content.
• Gaming and virtual reality. Massive multi-player online gaming, which depends on very low latency. Second Life moving to a level of realism we know from Pixar.
• Cloud computing, teleworking, telepresence, e-health, e-learning, monitoring.
• P2P (even though the effect will be mitigated somewhat by P4P). Includes legal filesharing. Traffic on munifiber explodes when on-net filesharing among subscribers is enabled.
• In other words, there is truth in 'Field of Dreams' after all: 'Build it, and he will come'. Don't forget about new applications!
• There are some cross connections. Many of the above require symmetric connections, i.e. FTTH. Also, 3-D, HD and holography will be coming to gaming, telepresence, monitoring etc.
• Not to mention regular growth contributors and enablers such as increasing penetration (Internet, broadband, PC, credit card), emerging markets coming on board, etc.
• And from a different perspective: don't forget all the social, economic and environmental benefits of true broadband (i.e. FTTH) networks.

Off-topic: extending reach

As of yesterday I am a contributor to Wall Street Greek, run by Markos Kaminis. It is much more market focused than what we are doing here at Communications Breakdown. We'll see how it develops.
See right hand column for a complete list of blogs that I own or contribute to.

Update on FTTH

There has been a large amount of news on many aspects of FTTH this month alone. Here is an overview, using my own classification (details and hyperlinks are in my updated FTTH 2007 & 2008 database).


Deployments

• This month several US muninetworks were announced or reported on: Rosemount (Minn), St. Paul, Glenwood Springs (Col), Smithville (Ind), Salisbury and Wilson (NC), Rutland (VT; hitting a bump), Highland (Ill).
• In the Netherlands, KPN and BreedNet are stepping up their FTTB (business parks) efforts (Huizen, Urk).
• Etisalat has plans for the UAE.

Demand, usage, penetration, VAS

• The FTTH Council North America reported 12m homes passed, etc.
• The World Economic Forum released its 'Global Information Technology Report 2007-2008'. The free web-based version is great to toy around with.
• Wilson (NC) targets a mere 30% penetration to make the business case work.
• Keep an eye on CERN and its Large Hadron Collider (LHC), to be operational this summer. Processing power (and even power supply) are too limited on a local level, forcing the institution to go international. The grid is made avaliable to other researchers. Who knows, in the future it will be the basis of a superfast internet, enabling cloud computing, holographic video conferencing, etc.
• BT is buying Wire One. It appears to be a reseller of all the usual suspects, including Cisco. It will be a while, but I am sure telepresence will be made available to the masses at some point and be a FTTH driver.

Financing: PPP and other

• BT asked for some exemption from USO (united service obligations) in exchange for committing to fiber.
• In New Zealand, Peter Macaulay proposed a Fibre Fund to which investors could contribute and anyone could draw upon. "The fund will enable councils to enter public-private partnerships drawing on a common fund rather than drawing money from ratepayers or telco customers. The investors will want to stay in rather than looking for a quick repayment of a loan." He, as well as the New Zealand Institute, misteriously predict that the value of the network will increase over time. That is a bit funny from a DCF point of view (which implies that everything is discounted to the present day), but what they obviously mean to say is: more fiber can cheaply be blown through the ducts; gear (WDM) can be added; usage will go up.
• In the US, Glenwood Springs and Wilson count among muninetworks financed by bonds to be paid (interest) for by subscriber fees.
• Smithville seems to count on a government grant from the Department of Agriculture.

New Zealand: another Amsterdam look-alike

It didn't take the New Zealand Institute long to come up with an answer (April 2) to the question ("What investment vehicle", March 12) who should operate New Zealand's FTTH network. (In response, InterNZ calls for a debate.)


What it comes down to is a PPP (public private partnership) for a 3-layer model, that the Institute compares to the Amsterdam (Citynet) solution (page 9), which also seems to be coming to Singapore. Some questions remain, though (see below).


The highlights:

• FibreCo: a regulated monopoly "created by the government" charged with building an FTTP network covering 75% in 10 years time.
• "... because there is insufficient market value to build redundant fibre infrastructure and no technical reason to do so." (page 7) A peculiar way of defending this option. However (page 11) "... the value of fibre infrastructure will increase over time." This can be related to new services, rising demand and decreasing costs over time (page 15).
• Open access: FibreCo will have to rent dark fiber capacity on an equal basis.
• "Owners of existing (copper and fibre) networks can sell these assets to FibreCo on a commercial basis."
• Services based competition (page 20): "FibreCo works closely with appropriate companies to light the network and provide a range of services. (...) A single provider lights the network. May be provided by a service provider or an independent third party." This hooks in to current separation plans at Telecom NZ.
• Breakeven. Total cost of reaching 75% by 2018 is estimated to be NZD 4.0-5.0bn, of which two thirds for passive components and one third for active components (page 12). Assuming ARPU of NZD 50 per home (compared to current Telecom NZ ARPU of 80-100 NZD/mo/home) and other input, the breakeven cost per home is NZD 3,000 (page 13). The private sector would be expected to pay for such homes and the government would have to put up another NZD 1bn to cover homes that are more expensive to cover.
• Stimulating uptake: entry level service at a comparable cost; extended period of free services (here a reference is made to Nuenen in the Netherlands); require a switch from copper to fiber in order to be able to retire the copper wire (page 16).
• Stakeholders: government bodies (who will also be anchor tenants: today's annual spend on telecoms of NZD 200m will migrate completely) and private investors may contribute cash, existing operators contribute assets (existing fibre, ducting) and cash - all for a stake in FibreCo (page 18-19).
• Timeline. Operational separation is underway at Telecom NZ. Chorus, the network operator, should be priced within 12 months. Within another 6 months it should be sold to FibreCo (i.e. structural separation).

My take on this:

• Very much in line with my own preferred solution (single infrastructure, separation, 3 layers, open access).
• A focused, regulated, natural monopoly at the passive layer should be viable (page 11), even for a life at the stock exchange. Check out tollroad stocks (page 19) in Europe, which have done very well. It remains to be seen who the government will be able to attract as passive, private investors, but I am sure FibreCo will be an interesting vehicle for investors who prefer utility style investments. In case of emergency, would the government be ready to step and nationalize FibreCo?
• Chorus is to be sold to FibreCo, but at what price? This must be the toughest part to negotiate. The Institute says 'the value' will increase over time (see above) - whatever that means - so that assessment won't exactly help.
• Also, incumbent telcos are very much network focused, so they may oppose the idea of a monopoly operator. Doing operational separation is one thing, but structural separation may feel like another matter entirely to such a company.
• Some vertical integration would still be allowed (between the active layer operator and one of the the services providers). So, regulation should pertain to both the passive and the active layer, I suppose.
• Could some form of infrastructure based competition be possible by allowing more than one player at the active layer (transmission providers)?

OECD reports on FTTH

Last week the OECD published two must-reads for FTTH aficionados.

Developments in Fibre Technologies and Investment was written by Rudolf van der Berg. He also recommends the model Arcadis developed for the Dutch MinEcon.

Public Rights of Way for Fibre Development to the Home was written by Byung Wook KWon.

Teleworking steadily progresses

Ernst & Young in the Netherlands published its new bimonthly 'ICT Barometer'. This is the result of an online survey among 600 managers and professionals across several industries.
Some more or less remarkable developments stand out:

• Teleworking is rising, but slowly. This will continue, esp. in large companies and in industrial sectors.
• Teleworking is valued higher by managers (over professionals), in the services idustries (over government, trade and industrial sectors), in SoHo companies (over SMEs and large companies) and by older workers (over younger ones).
• Efficiency of teleworking is higher (than working in an office) across all sectors and company sizes.
• The stated benefits of teleworking include: efficiency and avoiding traffic congestion.
• Those preferring the office cite these reasons: the nature of the job, direct contact with colleagues, company culture, separating work from personal life, lack of facilities.

Obviously, not all work will migrate from the office to the home, but we haven't seen the end yet. One bottleneck, a lack of facilities, will be addressed by the roll out of FTTH networks.

Lafayette needs the Daily Media box

Two interesting blog posts on FTTH from Geoff Daily at App-Rising.com.

First, a review of Lafayette's network roll out. Geoff pinpoints two interesting new focus areas:

• On-net file-sharing to boost traffic and the sense of community. Obviously, this could involve copyright issues.
• Targeting late adopters of the internet by offering 'a special STB' for web access on TV. Geoff has a couple of concerns over the planned capabilities (no YouTube, no storage, no support for peripherals), which could all be addressed if LUS chose to go by UCD's Daily Media box that I wrote about a few days ago.

Second, his review of Amsterdam's local hero Dirk van der Woude, who gave a keynote speech at the Freedom 2 Connect conference.

Update on FTTH deployments

Just updated my private little database on FTTH. Drawing some obvious conclusions:

• Yes, it's gaining momentum! However incomplete and unscientific the database is, 07Q1 had 33 entries, whereas 08Q1 has 85 (admittedly, I added sources in the meantime).
• FTTH seems to spread beyond the obvious deployments in wealthy and densely populated Western markets (including greenfields). How about Bangladesh, the UAE, Algeria, North Dakota (which specifically targets rural areas), Virginia and Bronckhorst (NL).
• The familiar names are roaring ahead (Verizon, Reggefiber). Increasingly, they include new housing developments.
• Among the largest new developments to keep an eye on are Singapore (3-layer model: NetCo to be announced 08Q3, Opco 09Q1), Athens, Australia (will the FTTN pland be expanded to include FTTH?), Sonaecom in Portugal (serious plans), Versatel Deutschland (are they serious?), H2O Networks in the UK, Austria, Seattle and the ValleyFiber Project (to name a few in the US, which has both telco (Verizon, Citizen Telephone, etc) and muniprojects in the works).
• State funding is still a conundrum. Of course there are muniprojects, but financing is a tricky matter. Malaysia will simply pay part of Telekom Malaysia's plan; Singapore will plow mony into the passive layer; the New Zealand Institute is in search of an investment vehicle.