VDSL as an interim solution isn't going to save KPN

The Netherlands isn't the first place to see wide VDSL deployment, but it will be an interesting test case to see how VDSL holds up against cable and FTTH.




The current situation in a nutshell:

• ADSL: available nationwide, but with very low bandwidths in rural areas (which could number as many as 500k on a household total of 7.3m).
• ADSL2+: available to around 60%.
• VDSL2: roll-out by Tele2 is probably finished, but applied at MDF locations (VDSL@CO). KPN does the same. Coverage of this technology is probably 2m homes, delivering speeds of up to 50 Mb/s. In reality, that probably means 20-25 Mb/s. KPN is also deploying VDSL from street cabinets, giving it a coverage of roughly 6%. KPN is also constructing fiber rings ('outer rings'), enabling more SDF locations for VDSL. It is not exactly clear where this will take VDSL coverage. Further, techniques including pair bonding, vectoring and phantom mode will raise VDSL's powers to 100 Mb/s and more (maximum speeds).
• Cable/Docsis 3: near nationwide (our guess would be 90-95%).
• FTTH: available to probably almost 900k homes by now (the 1m milestone could be passed at YE 2011).

Today, Ziggo's results over 11Q3 proved to be extremely strong, with 38k broadband net additions. That raises the question: how much of an interim strategy is VDSL against cable? It is a bit early to tell, because the VDSL roll-out isn't completed yet. However, given VDSL's limited reach, the fact that Tele2 is done building and Ziggo's results, it doesn't look good. VDSL is a defensive strategy against cable, but probably is insufficient. It can only work where it has the first mover advantage and nationwide street cabinet coverage (see Belgacom's 19k cabinets), or where cable is absent altogether (see inexio in Germany).

It will be interesting to see where KPN is going with VDSL (results are due October 25). It is rather ambiguous about the chances of xDSL against cable. To investors, KPN claims that it can match cable speeds with its xDSL network, but to the regulator KPN appears to be much less self-assured. Tele2 (results: October 19) so far hasn't been able to impress (negative net additions since 10Q4), although one can always say that without VDSL Tele2's net additions would have been a lot worse.