Will the next generation of Internet access in the UK come through universal provision or a patchwork quilt of competing offerings that will leave some uncovered, wonders E&T.
If you build it, will they come? That’s the quandary facing access network providers worldwide, who find themselves under pressure to invest in next-generation networks despite uncertainty over the financial viability of doing so.
The pressure comes from consumers, who want faster downloads, and from governments who see high-speed networks as vital to their countries’ economic prosperity. If we’re all knowledge workers now, then it makes sense to improve the on-ramps to that Information Superhighway of Al Gore’s imagining. That’s why so many tens of billions of dollars were set aside by governments worldwide during the financial crisis of early 2009 to extend the reach of broadband: they could see a way to create jobs, boost spending and improve the infrastructure underpinning their future economies.
Chris Holden, member of the board of directors of FTTH Council Europe, told a recent IET seminar on bringing fibre-optic home networks to Britain that deploying a full fibre-to-the home (FTTH) network - which has the greatest potential but is also the most costly to implement - could have macro-economic effects including job creation, GDP growth and increased national competitiveness. There could also be environmental benefits through increased teleworking and telemedicine, and better remote care for the elderly.
One analogy drawn is with the development of transport in the UK, where road, rail and canal networks were built to facilitate the movement of goods to and from the burgeoning manufacturing centres of the Industrial Revolution. The problem is that the analogy may be too close for many investors’ comfort.
“We deployed the first railways and a lot of people lost a lot of money,” said Professor Will Stewart of the Optoelectronics Research Centre at the University of Southampton. “But we just did it, because we had the confidence. I’m sure if we build a [FTTH] network in the UK our children will be pleased with us.”
The problem for the network providers is that simply wishing for financial viability will not necessarily bring it. As Simon Fisher, principal consultant in strategic network design for Openreach, put it: “Currently there is no tangible evidence of a market for this stuff.”
BT, Openreach’s parent, faces another problem, namely market expectation - fostered by its decades as the UK’s incumbent telephony provider - that if it provides a service to one group of customers it will, of course, provide the service to all. In a reasonably dense country such as the UK, estimates suggest that the overall cost of building a network rises fairly linearly until about 60 per cent of the population is reached. Beyond this level of penetration, costs begin to rise much more rapidly. This is why the Digital Britain report, which lays out plans to bring at least 2Mbit/s to the majority of the UK by 2012, only refers to a universal service commitment: guaranteeing universal service may prove too costly.
There’s a third issue as well: regulators are keen to ensure that competition is maintained in the communications market, even for next-generation access networks. Making this possible affects both the architecture of the network and the business model of its provider. Do you build an FTTH network and offer it as dark fibre to all comers, or do you try to run services over your network in competition with others? And what kind of investor will back each approach?
Dark fibre providers
Citynet Amsterdam has become something of a poster child for the ‘build it and they will come’ approach to next-generation networks. The company is a 70/30 joint venture between Reggesfiber, a Dutch network builder, and a group consisting of the muncipality and housing co-op authorities. The plan, according to Herman Hagter, CEO, is to build an unbundled, point-to-point, FTTH network across which third parties can compete to offer services.
The company’s network has already passed 40,000 homes, and it is working on passing 100,000 more. The cost, according to Hagter, is between €850 and €1,050 per connection, all-in. The company has also chosen to build a star network topology, where every home gets its own fibre from a physical bundle (the so-called ‘Home Run’ approach), rather than using one or a hierarchy of optical splitters to share a fibre, in order to have the most flexible architecture for competitive service provision.
Hagter dismisses other approaches, such as the ‘deep passive optical network’ architecture, in which a shared fibre arrives in a building at a cabinet, from which different service providers can run fibre connections to each subscriber’s dwelling, as ‘Rube Goldberg’ solutions.
“It’s a fantastically complicated and expensive way of not doing Home Run,” he says.
Hagter’s argument is that, once you have built the network, the thing that will define the payback on your investment is the amount it is used, so the open-access approach makes sense.
“There’s a low correlation between the topology of the network you build and the retail price you can charge,” he says. “One thing dominates your discounted cashflow calculations and that’s your utilisation, so open access for unduplicated infrastructure makes sense to increase the utilisation. Sharing a fibre means that your competitors are gaining customers but passing you a lot of the revenue. Having competitors also reduces the costs of innovation, since you can look at small innovations and then decide whether to go big with them later on.”
Hagter says that customers in Amsterdam can now get a two-fibre connection to the Internet for between €12 and €30 per month. A 1Gbit/s TV and voice modem costs around €150. And the flexibility of the Home Run architecture means that each home in Amsterdam could have a very high capacity connection to Amsterdam’s Internet Exchange, one of the most important hubs in the global Internet, on a dedicated optical wavelength, for around €150 per month, Citynet has already dug around 120km of cable trenches, and is now trenching and installing at a rate of about a mile a day. It is taking fibres out of the bundles in the buried cable and running them straight into the buildings, where, according to Hagter, 60 per cent of installations are easy, 20 per cent are difficult and 20 per cent are “awful”. The company has even developed a way of servicing Amsterdam’s houseboats, using a military optical connector - a technique which has piqued interest in Croatia, where marina owners see it as a way of offering ‘fibre to the superyacht’.
“If you think about what you’re doing with a dark fibre network then it’s more like building a shopping centre and thinking about long-term costs, maintenance and annual cashflow than the operator mindset, in which you are trying to get payback through offering services.”
FibreCity is taking a similar approach, by offering free 100Mbit/s symmetrical fibre-optic connections in certain areas of selected European cities. Customers then sign up for services from third parties, and FibreCity derives its revenues from leasing these providers the capacity.
For Adrian Crook, business development director for FibreCity, building a successful business is all about the cost to deploy the network, the speed at which it can be deployed, and the level of penetration that can be achieved in a given area.
“We try to ensure that we get more than 85 per cent penetration in each area,” he said. “This gives enough volume to ensure that service providers will connect to these small area networks.”
For rural areas, though, he says that it is likely that last-mile connections will be made using wireless technology or “by people clubbing together”.
The business case is the same though: “If fibre to the premises is going to be the next utility then the people who are used to making utility investments [such as pension funds looking for a steady long-term income] will be happy with it.”
BT’s history means that it is the obvious candidate to build a universal UK FTTH network. However, as a standalone business with shareholders to satisfy, it has to take a more measured approach to an investment that could cost many billions. Its response is to take fibre connections to the street cabinet (FTTC) in areas with existing infrastructure and then use VDSL2 technology running over copper to make the short-distance link to each home.
In new-build areas, such as business parks and some housing estates, BT is taking fibre to the premises (FTTP).
“On a green-field site there’s almost a cast-iron case for putting in fibre to the home - it’s a no-brainer,” says Simon Fisher, principal architect for strategic network design at Openreach. The more cautious mixed approach may reduce risk, but has its drawbacks.
“The more FTTC we implement the higher our operating costs go because we’re supporting two networks,” says Fisher. “Ultimately this is a stepping-stone to FTTP, but the bitter pill is that there is not much you can reuse going from FTTC to FTTP.”
The mixed approach is far from ideal, but at least BT is going about it with gusto. In July 2008 it promised to bring its higher speed networking, whether by FTTP or FTTC, past 10 million homes by 2012. By the end of March 2010 the company will have passed over 1.5 million homes, with 25 per cent of them (a higher proportion than at first thought) being FTTP connections. The service will offer up to 40Mbit/s downstream and up to 10Mbit/s upstream connections, which compares with the 50Mbit/s downstream services offered that Virgin Media offers in some areas on its cable network.
Virgin Media, meanwhile, is pushing ahead with its plans to use FTTC and advanced cable modems to bring 50Mbit/s and even 200Mbit/s connections to the UK. Dale Barnes, head of advanced technology trials at Virgin Media, pointed out that the company (and it antecedents) had already spent £13bn to pass 12.6 million homes with its cable network. The company is now using DOCSIS 3.0 modems to bond multiple downstream channels into a single high-bandwidth channel.
“DOCSIS 3.0 was the largest investment we have made after the initial network build-out,” says Barnes. Despite the investment, though, some of the early adopters are proving hard to please.
“The 50Mbit/s triallists really liked the service for a couple of days, then when they got 48Mbit/s for a day or so they would write and complain,” says Barnes, adding that the same thing is happening with the 200Mbit/s trials. There’s a practical issue to be considered, too - a PC needs to be highly optimised if it is going to make the most of a 200Mbit/s Internet connection.
If you build it...
...will they come? According to Barnes, the average throughput on the Virgin network is just 1Mbit/s, although the top 5 per cent of users are consuming an average of 20 to 30Mbit/s. What do they do with it? Some are using it to stream or download HDTV files, or share large numbers of photos. Others would like to be able to monitor grandparents in their homes using multiple video streams, or to improve their teleworking arrangements. This does raise an important point about both the BT and Virgin networks - the upload bandwidth is less than the download bandwidth, which may limit certain applications in a way that FTTx does not.
So will the UK get a universal FTTP network any time soon? The answer seems to be ‘no’. Instead we’re going to get a patchwork quilt of high-speed offerings from a variety of dark-fibre companies, service providers and cable operators. That’ll support competition and stimulate innovation - but may leave those who could benefit the most still on the wrong side of the digital divide.
As Holden of the FFTH Europe Council puts it: “The most difficult places to reach are the ones that benefit the most.”