Tuesday, July 22, 2008

KPN's stealth advance in the FTTH market

A new site (Fiber Update, in Dutch) recently launched in the Netherlands, tracking mainly grassroots FTTH projects. What comes forward is a picture of KPN gradually fibering up the country. After their stealth move to hoover up ISPs, they have now embarked on a quiet mission to make FTTH widely available (as predicted).

Another issue for this post is Poll #1, which I ran in the right hand column for about a month: "Do we need infrastructure-based competition?" (see also Costas' post). The results are below.

First, KPN's fiber initiatives so far:
  • Greenfields in new housing areas, run by KPN Glasnet, in Enschede, Amsterdam, Etten-Leur and Vleuten/Vleuterweide.
  • Business parks.
  • Reggefiber FttH, a 41/59 joint-venture with Reggefiber. Setting up this JV is still pending and may get some scrutiny from NMa (competition commission), but it looks like it will be approved, since it is a passive layer operator only. It is not entirely clear what will and what will not be included, but I suppose Reggefiber will contribute most of its munifiber-assets. So far, we have: Almere, Deventer, Nuenen, Hillegom, Veghel, Uden, ...
What strikes me in most of the grassroots developments (see my updated FTTH 2008 database), is that these communities mostly team with Reggefiber (for the passive layer) and XMS (as a service provider). I am not sure who takes care of the active layer, but I suppose it is BBned (Telecom Italia).

Now let's see how these parties are tied together:
  • As stated, KPN will own 41% of Reggefiber FttH (+ an option to increase this to a majority stake). Other Reggefiber assets (business services) are left out of the JV.
  • Reggefiber (named after a river called De Regge) is owned by billionaire Dick Wessels, who gathered his fortunes in the construction sector (VolkerWessels), but mainly by selling, at precisely the right moment, his World Online stake in its IPO. World Online subsequently headed for a melt-down and was ultimately bought by Tiscali. A few years ago, Tiscali NL was acquired by ... KPN.
  • XMS is a service provider, owned by InterNLnet, which was bought by ... BBned, a unit of Telecom Italia.
What are the implications and most likely outcomes of these developments?
  • KPN, Reggefiber and municipalities are apparently making sure just a single super-highway is being constructed. That is, if cable (Liberty Global's UPC and Warburg/Cinven's Ziggo) remain on the sidelines.
  • This way, a new monopoly is born: the passive network owner. However, nobody seems to care, since all these networks follow the open access three-layer (passive, active, services) model, and there are plenty of service providers. Perhaps both Reggefiber and KPN will spin-off all their passive network assets into the joint-venture?
  • OPTA, the Dutch NRA, however will not accept a monopoly in the active layer. It looks like KPN and BBned could be the main contenders, togeter with the other current LLU operators (Tele2 and Orange (T-Mobile)).
So let me now turn to the poll in the right hand column. Since I will be taking a two week holiday, I will cut it short to this day. There were 35 responses:
  1. 1 vote for pure infrastructure-based competition (i.e. no open access whatsoever, I suppose).
  2. 7 votes for services-based competition only.
  3. 13 votes for competition in the active layer (i.e. the model I described above).
  4. 14 votes for competition at all levels.
It was just a quick & very dirty poll, so no heavy handed conclusions here, but I do find it striking that people seem to disagree on such a fundamental issue. Let me round off with a few short remarks:
  1. OPTA says: "two is not enough". I agree (see the US duopoly). But three (or more) seems totally unrealistic.
  2. Services-based competition will be a reality, according to the recent OPTA rules, in FTTC markets. I suppose this, in itself, could be no problem in consumer markets, but I think it wouldn't be sufficient in business markets (providers want to distinguish themselves by offering a rich portfolio of services).
  3. The big question remains: Who will really be committed to the Dutch market? Telecom Italia and Tele2 could exit the Netherlands altogether, and T-Mobile has put up Orange BB for sale.
  4. Cable will probably, at one point or another, construct its own FTTH network. The next question would be: must it offer open access? Do we need symmetry between infrastructures (both OA or both closed), as well as within? (Which brings to mind two conditions for FTTH investments: a decent return and regulatory clarity.)
Last remark: full symmetry arises only when networks are structurally separated. Only then are all providers equal.

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