European FTTH policy isn’t working. It’s not in any way controversial to say so, and I have done so repeatedly in the past. When it comes to offering comprehensive solutions and alternate routes of course, things get trickier. When Diffraction Analysis released Can the New Zealand NGA Model Be Replicated? a few months ago, our goal was to suggest that the example of New Zealand could constitute an inspiration for European policy makers.
A couple of weeks back, the FTTH Council published a study they commissioned entitled Financing Stimulus for FTTH. The study was undertaken by Ventura Team and Portland Advisers, and it’s frankly a stunning piece of work. The headline in the Council’s PR was that “at the present rate it will take 92 years to fiber up Europe”. It’s a strong message, and a clear incentive for change, but it only scratches the surface of what is in this study. In fact the reason it took me so long to write about it is that I had to read it and understand it first. It’s a very detailed piece of work and while the language and concepts are mostly clear, you still need a lot of focus and attention to get through it and grasp the messages.
I really encourage you to read this piece of work, even if you’re not from the EU, because there are many things in there that I haven’t seen elsewhere. In particular, the study makes the connection between the players who are likely to deploy and their incentive to do so (or not), and the players who are likely to fund the deployment and their incentive to do so (or not). That analysis puts in sharp relief the disconnect between the strategies of telecom incumbents in Europe and the expectations of infrastructure funds. It examines the nature of the financial players involved and the amount of funding they could make available for such deployment, if the conditions were right for them. There’s a table on p34 which is the clearest transverse view of funding of telecom infrastructure I’ve ever seen. Very clear and to the point.
The study also delves in-depth on one of the most important aspects of a fiber switchover, ie. the relative price of wholesale copper vs. wholesale fiber. We’ve heard all kinds of things on these issues in recent months, with both incumbents and competitive operators arguing that copper wholesale prices should go up to free up more cash to invest in fiber. One would have to be very naïve indeed to believe that either would actually invest more in infrastructure were that to be the case. The study clearly demonstrates that this approach is nonsensical if the policy goals are to be met, and that the only workable scenario is actually to have copper wholesale prices at least 15% higher than fiber wholesale prices. Not only does this make sense going forward, but it’s also part of the social contract of regulated prices, designed to ensure a re-investment in network assets that didn’t effectively happen for copper.
Finally, the study examines a framework that would enable telcos to remain masters of their own infrastructure fate in black areas but would structure the grey and white markets through institutionalised public-private partnerships that lead to the creation of NetCos in a way reminiscent of the New Zealand scenario. Needless to say that aligns with my views, but is way better argued in the study than I could ever have done.
Long story short, if you care about this issue and want to examine a really clever way to move forward, this is a must read. I can only commend the FTTH Council Europe for commissioning and publishing such a study. It’s the most comprehensive piece of work in this area that I have seen in a long while, and hopefully the fact that it’s widely distributed will win hearts and minds where it matters.