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Wednesday, April 15, 2009

Ovum on Global Broadband: FTTH Emerges As Preferred NGN Access in Asia, But Questions Remain

(Ed.: American analysts and policy makers have pointed to recent events in Asia as framing national broadband models, good and bad, for Americans. StimulatingBroadband.com is pleased that Ovum, a Datamonitor company, and the global leader in telecoms market analysis, has allowed David Kennedy to give us his perspective. David is Ovum's Australia-based Research Director. His view of Asian national Next Generation Networks (NGNs) is current and based on his direct knowledge of the economies involved. We welcome David and his colleagues. We look forward to bringing other Ovum global broadband insights to our readers.)



David Kennedy/Ovum


via StimulatingBroadband.com



In the last few days, Singapore , New Zealand and Australia have all taken decisive steps towards national fibre to the home (FTTH) networks, albeit from very different starting positions.



Singapore and New Zealand Press Ahead

On 31 March 2009, the New Zealand government called for submissions on a proposal to build an FTTH network in New Zealand reaching 75% of the population (the top 25 cities) and taking at least six years to roll out.



The New Zealand government will invest up to NZ$1.5 billion in the network, and seek additional private sector investment to create a national market in dark fibre and wholesale broadband access. The funding will be invested in a government-owned enterprise, which will jointly invest with the private sector in local fibre companies (LFCs) in the 25 cities. Last Friday Singapore announced a StarHub-led consortium as the winner of its OpCo tender for the national FTTH switching infrastructure. This was the culmination of a tender process launched by the Singapore government back in 2006. The passive fibre infrastructure will be built by a SingTel-led consortium. Completion is expected by 2013.



Australia Changes Direction

Instead of announcing a winner of its FTTN tender on April 9, the Australian government instead announced a significant policy change. It rejected all of the bids, and announced that it would instead pursue a wholesale-only FTTH network over a significantly longer 7–8 year timeframe. The government will commit its promised $4.7 billion investment, and will seek additional private investment directly and through the issue of infrastructure bonds. In our view, abandoning the FTTN proposal is realistic.



First, the global financial crisis made the original 4–5 year timeframe problematic. Second, it had become clear that achieving sub-loop access to Telstra's copper network would be a legal quagmire. The new 7–8-year timeframe will give the project more financial and commercial flexibility to manage risk. In addition, the choice of FTTH technology will bypass the copper network. The government also announced a comprehensive review of telecommunications regulation. Of course, access to copper remains important, but access to ducts will be even more important as FTTH rolls out.



The review therefore canvasses further functional separation of Telstra, which could include its passive infrastructure. The industry has generally welcomed the open regulatory reform process that the government is now launching. The review will also address the outstanding regulatory issues around the FTTH network. Crucial issue will be the access price for the fibre network. A low price will discourage private investors, but a high price will discourage consumer uptake and service innovation. Finding the right balance will be a major challenge.



An Emerging Model

Out of these three countries, a basic policy model seems to be emerging: The preference for FTTH technology has become clear in all three countries, with a recognition that this will be focused on urban populations. All three countries want a ‘wholesale-only’ operator for the fibre access network. In both New Zealand and Singapore, the importance of access to dark fibre is also clear. This is consistent with experience in other Asian markets such as Japan. In all three markets, substantial government investment is being committed.



The level of government investment is a consequence of the problematic business case for investment in national FTTH networks. The high capital cost of fibre access and uncertainty over future revenues, especially in dispersed and diverse markets such as Australia and New Zealand , undermine the business case.



Government investment cannot eliminate the underlying technological and commercial risks. All that is happening is that taxpayers are bearing these risks instead of private investors. A great deal is riding on the capacity of the industry to create the innovative services and new revenues needed to justify these large-scale investments. Voice and broadband access clearly won’t do it, and video alone will struggle to make up the difference. Of course, both the Australia and New Zealand governments have left themselves considerable latitude in the fine print. Politically, this is wise. It is one thing to roll out FTTH in the urban environment of Singapore; it will be quite another to achieve this feat in the sprawling cities of Australia and New Zealand.



David Kennedy is a research director at Ovum.




This article is © Ovum 2009, and used by StimulatingBroadband.com with the permission of the copyright holder. Ovum is part of the Datamonitor Group.
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