I didn't post much last week, and I ended up my posting the week before on a sour note, quoting Telecom TV's assessement of the likeliness of NGA deployment in the UK. After the week-end that followed, it's unlikely that this post will be much more positive. Although…
Clearly, the trend amongst analysts is that following the potentially devastating effect of the death of Lehman Brothers and the demise of Merril Lynch (and no matter what you think of his report, please have a thought for Francisco Caio who released it the day before he learned his company went bust…), the telecom sector is going to tighten up on investment big time.
Dave Burstein wrote on Friday before last:
"Risk capital will be even harder to find in the West. It will be almost impossible to raise the cash to build another network(…)"
I'm guessing, from the context of the sentence, that he means mobile networks, but it could apply just as well to fixed networks. In the same vein, James Enck wrote a very articulated post on the Telco 2.0 blog outlining the challenges and opportunities of the post-meltdown telco world. Here's a quote I'd like to expand on:
"Speaking of capex, an industry contact yesterday described it as “the
elephant in the room”. If we assume that the industry globally needs a
$1 trillion access overhaul, as some are already under competitive pressure
to provide, then something’s got to give. Do you play “squeeze the
vendor” as your only card, defer certain projects, or find creative
to keep it off your balance sheet in the near term? Do you suddenly
find that the municipal broadband “hippies” are worth talking to
afterall? Some of them might have access to cheaper finance…"
There's no doubt we in for a rough couple of years (at least) and a lot of investment decisions are going to be postponed. But since I'm optimistic by nature, I try in the next few paragraphs to outline a way that things could happen in these credit lean times and not just grind to a halt. I should point out that I'm looking at this essentially at the "investment in FTTx" level and not at the vendor level which, as James suggests, is in a whole load of pain right now.
The ones hit the most by the lack of credit, I suspect, will be incumbents, for two reasons:
- they are the ones most dependant on the market and with the least latitude to make bold investment decisions in credit lean times. Orange has already announced they were late on their fiber roll-out in France, BT went for a very conservative position that they can stretch for while if they have to. Telefonica has made significant annoucements, but it still remains to see how they may play out. KPN is about the only one of the FTTH team who seems to be remaining on track for now.
- they can't envisage anything apart from a national rollout. The weight of history is clearly visible here, and issues of digital divide, while crucial from a government perspective, don't hang on their shoulders. But neither them nor regulators seem to be able to accept that incumbents could do partial or targeted roll-outs just like anyone else. Does USO expand to fiber ? It hasn't yet, and if it did I would expect incumbents to strongly leverage that…
On the other hand, players like Free or Sonae who have clear plans, know how much they're putting into rolling out the fiber and can fairly accurately assess how much they will get out of it have little reason to slow down. They are targeting high revenue/high density areas and while the financial crisis and impending recession will curb consumer spending, it's unlikely that the premiums they will ask for fiber (if any) will make customers too shy in these areas.
But the incumbent's slow down will spark or reinforce a number of local aproaches that are interesting to examine. As James mentions, municipal funding, when available, may very well become less anathema to private players. Another way to look at it is that the incumbent's frilosity will likely lift doubts for some of these local government projects. Imagine a town that badly wants to be put back on the digital map but has been hoping to be in the first wave of an incumbent's deployment: they will now know for sure that they have a 5-10 year wait ahead. In some instances, they'll sit it out, in others they'll make the jump and do it themselves (or as a PPP, but without a telco, most likely.)
So I'm expecting an acceleration in muni-fiber. Perhaps even more interestingly, and this ties back to Prof. Carlota Perez's works on investment and technology revolutions, I think we will se increased attention from national governments in boosting these investments. I may disagree with Vivane Reding on a lot of things, but she's right in thinking that Europe cannot be allowed to slip back any more when it comes to telecom infrastructure. It will start with smaller and/or less advanced countries, but it will spread.
Witness Finland. A reader in Finland pointed out to me today that Finland has decided to co-invest in fiber deployment, aiming for 100% NGA coverage by 2015. This is hot from the press and you can find some (but not much) detail here. Interesting quote:
"The target will be set that by 31 December 2015, an optical fibre or cable network
permitting 100-megabit connections shall be available throughout the country according to demand, and that at least 99 percent of permanent residences and permanent offices of businesses and public administration bodies have access, through a fixed or wireless subscriber line of no more than two kilometres’ length linked to the said network, to communications services and other information society services that require very highspeed connections."
So we're not talking FTTH here necessarily, but the availability of 100 Mb/s service within 2 km of every home (and I imagine in the North of Finland, that's no mean feat…) It's a sound policy and allows for a later (or private funded, or customer funded) expansion if necessary. It'll be interesting to find out more details.
And remember this is in the wake of Greece announcing a 2.1bn investment (more on this tomorrow, hopefully, I've interviewed Costas Troulos on this and just need to edit it before I can publish.)
So there you have it. My "optimistic" view. The crisis is shattering the all-private dogma, and that's at least one good aspect of it. Sure, it raises a number of new questions and issues for incumbents, regulators and service providers. But then these issues would have needed tackling anyway, they're just likely to be more visible in the next few years…