Tuesday, November 19, 2013

FTTH vs. HFC is about opex, capex and timing

The FTTH/HFC controversy continues. Our views are always in flux and here is an update.

  1. The government should stay out. And if they wish to interfere, there's only one way to justify this: nationalize the infrastructure, and separate the network from services.
  2. We assume that an all-fiber network requires 'high' capex, but saves 'considerably' on opex. Evidence is growing:
    • KPN states that FTTH opex is at least 30% less than copper opex.
    • FTTH capex is continuously falling, as best practices grow.
    • At Ziggo, opex and capex are continuously rising. Capex is doubling over the last 3 years.
    • UPC states that EBITDA (OCF in Liberty Global speak) margins will structurally head lower.
    • Small cable companies in the Netherlands, that have no shareholders demanding decent quarterly returns, all do FTTH. Some even skip Docsis 3 and go straight from Docsis 2 to FTTH.
    • Netflix is taking a toll. It simply must.
    • Better compression and other efficiency gains are nice, but even at a 50% improvement, they only buy 1 year of delay, since data traffic grows at roughly a 50% rate.
    • Stratix put out a report that calculates what the roadmap, as laid out by TNO, would cost in terms of capex. Stratix claims the TNO gigabit (!) roadmap would be more expensive than overbuilding with fiber.
  3. "Cable (HFC) will serve the market well beyond 2020". This statement from TNO must be read in 2 different ways:
    • To say this, is to state the obvious. Any network can last. But one network will require more work (HFC) than others (FTTH) in terms of opex.
    • Most importantly, it is a responce to an earlier TNO report, covering the 2010-2020 period. It suggested to some that cable companies would cease to exist on December 31, 2020. Which is of course total nonsense.
  4. What the opex/capex implications of infrastructure choices are, ...
    • ... is relevant to the cable operator. "Do we upgrade our old car, or do we buy a new one?", so to speak. It's a matter of timing.
    • ... is a priori irrelevant to the end user. It may translate into a slower network and/or higher tariffs, and then the end user hopefully has an alternative to go to.
    • ... is also irrelevant to the government (see 1.).
    • ... is not irrelevant to shareholders, which is why public cable operators claim that they have future-proof networks.
UPDATE December 3, 2013
  • Supply side: is about fiber (or 5G), future-proofing, skipping interim technologies (VDSL, Docsis 3, ...) versus legacy
  • Demand side: expected traffic growth and business model (scarcity or abundance)
  • Customer's role is limited to becoming a subscriber or quit.
  • Shareholder's role is limited to buy or sell shares.
  • Government role is to regulate, facilitate and when the market fails: intervene.
  • Management's role is to make a choice between scarcity/minimising capex and abundance/maximise capex; or strike a balance between customer interest (maximise capex) and shareholder interest (minimise capex).

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