Benoît Felten Senior Analyst

© Copyright 2007. Yankee Group Research, Inc. All rights reserved.

Benoît FeltenSenior [email protected]

FTTH and Local GovernmentsAn Overview

OECD Fiber Workshop - Stavänger© Copyright 2007. Yankee Group Research, Inc. All rights reserved. Page 2Apr 10th 2008

Me, myself and I

• Consultant at the Yankee Group (www.yankeegroup.com)

• In telecoms for over 10 years, started by deploying FTTO solutions for businesses in the late 90s

• Fascinated by the fiber revolution, prompted me to start a blog devoted to the issue (www.fiberevolution.com)

http://www.yankeegroup.com/

http://www.fiberevolution.com/


Agenda

• FTTH: why local gov’ts ?

• Design choices and constraints

• Structures for fiber project financing

• Hurdles and impacts


Fiber to the Home: why local governments ?

Economic

Social

Tactical

Image

• Attract businesses / stimulate local businesses

• Lower municipal IT Bill

• Ensuring “universal” service coverage• Social inclusion• Citizen safety

• Compensating a market failure

• Accelerating FTTH deployment

• Promote city as a digital hub.

• High-grade infrastructure has always attracted business and FTTH is no exception.

• Municipal network bills can be very high, esp. in smaller cities. DIY with fiber is a first step to FTTH

• Commercial carriers may fiber up a territory but will rarely do 100%• Disenfranchised areas are unlikely to attract commercial operators• Some local gov’ts need instant response alert systems, FTTH can provide them.

• When commercial operators simply won’t deploy, or won’t deploy fast enough…

• When current market conditions dictate that any deployment will be monopolistic…

• Some cities are strong IT/Digital business hubs and use this as part of their national and international image.

• PBC (FR)

• Burlington, VT (USA)

• Manchester Digital (UK)

• Gonfreville (FR)

• Lafayette, LA (USA)

• THD 92 (FR)

• Amsterdam Citynet (NL)


Return on Investment ?

• Leaving aside for now the issue of whether the local government actually invests money or not, what are the windfalls that can be expected from an FTTH project

• Lower IT bill for municipalities• Increased business taxes• Increased home prices (may

mean increased taxes on transactions)

• Higher employment rate (may mean less support costs and more taxes)

• Higher population (may mean more taxes and more budgets)

• More widespread cultural policy

• Better social inclusion• Happier citizens• Prouder citizens (feelgood

factor)

Tangible Intangible


Agenda






Last-mile infrastructure or full-blown network?

• The main issue with deploying commercial FTTH networks is the last mile, in fact more like the last few hundred yards and the in-building wiring.

• A local government wishing to bring competitive services to its territory evenly and fast could decide not to deploy a full-blown network, but only the terminal and in-building ends, as well as interconnect points for the operators to bring their backbones to.

• There are a number of advantages to such an approach:• Effectively, the local government would only be laying an infrastructure, not a network.

Therefore it could be argued that even if there’s no demonstrated market failure, the local government is not substituting to viable competition but fostering it.

• The last yards, and even more so the in-building penetration is what slows deployment down the most. Such a measure would therefore be what could accelerate it the most.

• The measure could even be restricted to in-building wiring, it would still generate great acceleration benefits.

• The main disadvantages of this approach are that• The local government will not be able to use the infrastructure for its own needs since

it’s not a network• Ensuring compatibility with various network design of private players necessitates

significant overbuild, which is costly.

• THD 92 in the Hauts de Seine in France has chosen this approach.


P2P or PON ?

• The technical virtues and flaws of each technology have been and will be dealt with in other presentations.

• However, here are a few words of advice when dealing with this issue:

Do not trust vendors, they are trying to sell you a technology, not a solution

Do not confuse technology and topology

Look at your design goals first, then evaluate technological choices with design goals in mind.

Open Access has specific requirements which may impact your choices in technology.

Do not trust vendors, they are trying to sell you a technology, not a solution


Open Access or Vertically Integrated model ?

• Most municipalities tend to favour Open Access models, either because they are obliged to do so by regulation (in the EU) or because they want to foster competition on their footprint.

• However, in circumstances where the local government is actually paying for the deployment, it may want to recoup that investment, just like a private player would.

• This implies being a service provider and has specific impacts on design choices.

• Often, the choice of the municipality is either to offer its own services along side other service providers (hybrid open access) or be the sole service provider until the network is paid off and then goes open access.

• Such long term strategies also have impacts on design choices.


Agenda






The three-tiered model

Passive

Active

Services

Public Private

Passive

Active

Services

Public Private

Passive

Active

Services

Public Private

Local Gov’t owns and operates the network.

It is also a service provider over the

network (though not necessarily the only

one).

Local Gov’t owns and the network and resells

dark fiber and/or capacity to service

providers. It does not directly provide service (but may operate for its

own needs)

Local Gov’t owns the passive layer. A private company

operates the active layer and resells dark fiber and/or capacity to service providers.


Financing models

DirectSubsidy(PBC)

Investment(Amsterdam)

MunicipalBonds

(Lafayette)

Public ServiceDelegation(THD 92)

• Local Gov’t pays for passive network• Concedes mg’t of active layer to private carrier’s carrier• Pays back network deployment with fee paid from active layer resell.

• Local gov’t invests as would a private player in a private venture deploying the passive infrastructure.

• Local Gov’t borrows money on credit market• Revenues from the network and/or service are then earmarked to pay back the debt

• Private player deploys FTTH network with or without partial public subsidy• That player then has (15 yr) concession to resell the passive or active layers to service providers

• Local gov’t retains ownership of infra.• Local gov’t can ensure own needs are covered.

• Not state aid

• Local gov’t does not bear the risk of failure alone.

• No impact on taxes

• Risk is bourne by outside player

• Deep pockets needed• Impact on local taxes ?• State aid

• Need to find private partners willing to invest

• Forces a period of full service ran by local gov’t• Risk of bankruptcy

• Subsidy might be necessary to attract private players

pros cons


Local Gov’t focus: Pau

Passive

Active

Services

Public investment (and Axione rental) to build, but the actual passive network is managed by

SPTHD for a 15 year concession.

15 year concession to Axione who manages the network and resells to SPs lit only.

Theoretically open, but Neuf is the only SP currently serving the PBC network

• In 2004, the Communauté d’Agglomérations (city regroupment) of Pau Pyrénées launches fully public financed FTTH/FTTO project. Cost is 17 mEUR (so far), half of which was financed by various grants, and half by the “rental” paid by Axione (~200-250 kEUR/year).

• Currently, 40.000 homes/offices are passed, with an aim of 55.000 within a couple of years. Service providers pay 19 EUR/month for 100Mb/s symetric link from Axione. Network investment should be covered in between 25 and 30 years at no cost to the constituents.

• Only 6.000 users, mostly due to a lack of commercial offers on the network, but growing strong now that Neuf has effective monopoly.

• Economic impact hard to evaluate, but local economy is using facilities and growing.• PBC launched innovation program, hosting companies who trial dedicated FTTH services.

Public Private


Local Gov’t focus: Amsterdam

Passive

Active

Services

Public Private Partnership with co-investment from the City and Private Investors

Concession to BBNed who manages the network and resells to SPs.

Open with local operators providing services to customers

• Amsterdam Citynet has been a landmark municipal project in Europe with the ultimate goal of serving over 450.000 homes.

• First 40.000 homes connected will be achieved by end 2008.• BBNed (Telecom Italia) has been selected in a European wide bid to handle the active

layer and resell bitstream in an open access model.• The project faced legal challenges by cable companies. The European Competition

bodies examined accusations of State Aid, but found that since the City of Amsterdam is acting as a normal investor, the claims were debunked.

• Amsterdam Citynet is the first project worldwide to bring fiber to home-boats with detachable fiber!

Public Private

Passive


Local Gov’t focus: Lafayette

Services

Municipal bonds were emitted to cover the costs of the network deployment.

Lafayette will be service provider to its population.

• The city of Lafayette, LA decided to roll-out its own fiber to the home infrastructure because it felt the existing duopoly (one telco, one cable operator) provided neither quality of service, neither competition.

• The city was immediately challenged in court by private players, but after a long period of uncertainty, the courts rules in favour of Lafayette.

• A public vote was held and a majority of the population voted in favour of Lafayette Fiber.

• The city intends to offer “social” services with unlimited on-net access even for those who cannot afford it.

Public Private

Passive


Local Gov’t focus: Hauts de Seine

Active

Services

Private money with limited public subsidy to develop multiple access loops (20% subsidy)

Operators and service providers directly purchase the passive infrastructure to build their network

• The concession to build the passive access loops that connect back to the fiber backbones has been attributed in January 08.

• There is a clear regulatory issue facing the THD 92 project since market failure cannot be in any way argued, and private operators are all deploying in the 92 already.

• Network topology is designed to accommodate all the topology choices of private players.

Public Private

Passive


Agenda






The main hurdles

Network roll-out is “easy”. Providing services is not.

Passing homes is “easy”. Entering homes is not.

Open Access is laudable, but the ‘field of dreams’ effect does not work: how will you attract service providers?

Market failure does not distinguish fiber and dsl. It’s all broadband.


Living with a patchwork network

The days of one network are gone.

The new paradigm is the patchwork network.

How will service providers spread out to the patchwork network ?

How will multiple and often non-interoperable networks provide seemless service ?

Regulators are used to imposing one model. How will they handle the patchwork model ?


For schedules, please visit our website:

www.yankeegroup.com

Thank you for your interest!

Benoît [email protected]: +33 6 18 24 31 89

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Benoît Felten Senior Analyst