Proof is finally in: FTTH beats cable networks

Never trust the FTTH or the cable lobby for predicting the future. But the recent numbers from Ziggo and UPC NL are starting to show that indeed cable infrastructure is NOT future-proof. There is a clear relation between the rise of FTTH (and even VDSL) and the deterioration of the cable market in the Netherlands.

The point is that the fiber lobby has been stating for years that cable networks have inferior infrastructure. However, one could never tell from looking at the numbers, but that is now changing.

Ziggo and UPC have entered a phase of negative revenue growth (UPC NL Q2: -2.0%), network penetration is dropping (UPC NL: now below 60%), loss of market share on the video market is accelerating, growth on the broadband/VoIP market is slowing and is only sustained by upselling 3P's to 1P and 2P subs.

At the same time, profitability is falling to a structurally lower level: Liberty Global: "... the Netherlands is experiencing significant competition from the incumbent telecommunications operator, who is overbuilding our network in the Netherlands using FTTH and advanced DSL technologies. As a result, the Netherlands is experiencing lower operating cash flow margins during 2013, as compared to 2012, and we believe the Netherlands will be challenged to maintain its current operating cash flow margin during the remainder of 2013 and future periods".

Entering the mobile market, not with a WiFi-based network (as Ziggo has been testing) but with a true MVNO, will boost revenue growth. But there is much less room to maneuver on the Dutch market, compared to Belgium where Telenet shows +12% revenue growth. And worst of all: margins of an MVNO are very small and will first be negative, further reducing profitability.

And it's not only opex that is rising, it is capex as well. At the end of 2009, capex/rev (-12 months) at UPC NL stood at 13.1%, it now stands at 19.2%.

Hence, a merger of Ziggo and UPC makes sense - for the short term. But it will be only a matter of time before Liberty Global decides to abandon the Dutch market. Two losers can't make a winner.