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VDSL – The Way to Next Generation Access Networks
Statements for discussion
Gabriele Kulenkampff, WIK
WIK Conference, Königswinter, 22 March 2007
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Table of contents
1 Business models of Next Generation Access Networks
1.1All-IP NGNs based on VDSL
1.2VDSL and new services
1.4FTTH
2 (1.3) Access-based business models (and competition)
3 SLU, WBA, and access at MDF location (2.,3., 4.)
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Business models of NGANsAll-IP NGNs based on VDSL
3. An All-IP access network of an incumbent is financing itself as a process innovation due to
- Savings of capital costs due to higher network efficiencies,
- (significant) savings of labour costs due to O&M savings,
- lump sum extraordinary revenues due to the sale of MDF locations. Incremental revenues from TV-distribution and other (new) broadband services are an upside to the incumbent.
4. The major driver for VDSL investment is annual cost savings due to lower manpower and OPEX. Additional cost savings (or revenues) follow from the sale of MDF locations.
5. The main driver behind the incumbents’ VDSL investments is to get strategic advantages against the cable companies and the LLU competitors.
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Business models of NGANsAll-IP NGNs based on VDSL
6. The benefits of greater speed and reach due to VDSL generate sufficient incremental revenue (on top of ADSL 2+) in the form of new applications or higher market share to make the incremental investment for an incumbent profitable.
7. VDSL shortens the length of the copper loop to about 300 metres in Germany, compared to around 900 metres in France. Hence the incentive for the incumbent to deploy VDSL in France is much lower than in Germany (or in countries with a similar network topology).
8. In an “average market”, the investment required for deploying VDSL at the street cabinet level is about five times that required for ADSL at the MDF level.
9. Given the population density distribution in a country like Germany an All-IP access network based on VDSL is financially viable only for the high density areas of the country (~ 70% of population).
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Business models of NGANsVDSL and new services
10. In the past carriers always have increased bandwidth to stabilize broadband ARPUs. APRUs of the pure broadband business will continue to fall to a level of 15 – 25 € per month and household. Total ARPUs(including internet access, video, TV, telephony, games) may reach 55 –75 € in 2011.
11. Incremental revenues for VDSL arise from increased broadband speeds and from the possibility of offering IPTV services. Optimistic scenarios assume an increase of 3 to 5 € per month in 2010 and 10 to 15 € in 2015. Pessimistic scenarios assume no increase in revenues due to VDSL.
12. If there is incremental revenue to be generated by VDSL, it is basically attributed to the distribution of TV for those customers which cannot be served by ADSL 2+.
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Business models of NGANsVDSL and new services
13.Not more than 10% of all broadband connected households will use more than 30 Mbps download speed in 2011. Upload speeds of 8 Mbps anddownload speeds of 50 Mbps are sufficient to meet the relevant demand in 2011. Such transmission speeds can sufficiently be provided by HFC and DSL networks.
14.While an investment to upgrade broadband speeds from 10 – 15 Mbps (ADSL 2+) to 25 – 50 Mbps (VDSL) may seem like ‘overkill’ in light of the anticipated near to mid term user requirements, VDSL does at least allow operators to serve many of those customers not reached by ADSL 2+ today (around one-third of the relevant market).
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Business models of NGANsFTTH
21. FTTH deployment is becoming a feasible strategy for competitors in many of Europe’s metropolitan markets, and could be accelerated by pro-active fibre regulation or insufficient VDSL regulation.
22.Many European carriers whose business models rest on unbundling today are well positioned to take FTTH as their next step on the ladder of investment.
23.Competitors deploying an FTTH based All-IP access network can finance this innovation mainly by the savings in wholesale services purchased from the incumbent (ULL, SLU, co-location).
24.Successful FTTH-deployment in some European countries as well as e.g. in Japan prove that FTTH can be considered as a viable business approach for NGN access.
25.FTTH in Europe up until now is primarily driven by local and regional initiatives (Utilities, Municipalities, Local authorities, Housing associations), while European incumbents to date are laggards and not very active.
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Business models of NGANsFTTH
26.Rolling out a VDSL infrastructure enable incumbents to gradually and flexibly upgrade their networks towards FTTB/FTTH according to market demand.
27.The investment required for FTTH is about 12 times that of unbundling at the MDF level, but only about 2.5 times that of a VDSL network. When and where existing ducts can be used, FTTH may not exceed the cost of a VDSL network by much.
28.Where competitors deploy FTTH, the incumbent’s copper network isdevalued, and the net impact of the fibre battle is likely to be negative.
29. If no higher monthly ARPUs can be achieved through FTTH, it amounts to collective value destruction for the industry, similar to an arms race.
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Business models of NGANsFTTH
30.Compared to other regions in the world, European FTTH deployment tends to lag behind, i.e. there are moderate growth rates and a low level of deployed infrastructure.
31.Growth rates in FTTH are significantly lower than in Asia or in the US where 40-50% growth rates have been recorded. Even in 2009, Europe will have less FTTH connections than Japan had in 2005. Europe is likely to lag the rest of the world in the transition to very high-bandwidth access NGNs.
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SummaryBusiness models of NGANs
• Drivers of VDSL roll out:
- Bandwidth demand, triple play competition (graveyard spiral?), cost savings (clearly NGN-driven, but also VDSL-driven?)
• Common sense that VDSL roll out it is not ‘either … or’ strategy
- Topology and associated economics determine access technology offirst choice (but cost difference probably remain, as cost of individual access lines, in fact, differ)
• Increasing ARPU is one building block for a profitable VDSL / FTTx roll out
- Against the background of the existing price competition in the market which services are likely to increase ARPU?
• Municipalities – FTTH facilitators of the NGN age?
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Business models of NGANsAccess-based business models
15.VDSL threatens competition: VDSL is expensive for incumbents, but difficult for competitors to replicate. In some markets VDSL may eventually destroy today’s unbundling business model.
16.VDSL has different economic implications depending on the incumbent’s network topology, the strategy pursued by the regulator and the new entrant’s market share.
17.The determinants of a competitor’s business case towards VDSL depends on national and local conditions regarding
- The incumbent’s network topology,
- Access to ducts,
- Access to SLU/street cabinets,
- Current and achievable market share.
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Business models of NGANsAccess-based business models
18.Depending on market share, regulation and network topology the incremental cost of providing VDSL rather than ADSL for a broadband competitor varies significantly (e.g. from ~ 5 € per month per line to 10 – 20 €/month).
19.Given the increase of economies of scale in Next Generation Access Networks possible strategies of alternative providers might include:
- WBA everywhere
- SLU in dense urban areas and WBA elsewhere
- SLU only to large street cabinets and WBA elsewhere.
20.The economics of NGNs and VDSL access require the introduction of de-averaged wholesale pricing.
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SummaryAccess and Competition
• VDSL roll out threatens competition
- Paul de Bijl’s statement; NetCologne’s business case (5 year pay back period) - common sense?
- Increasing economies of scale
- Withdrawal of regulation – Are monopoly rents a precondition for a profitable VDSL roll out?
• Infrastructure based competitors require new access portfolio including SLU, SLU backhaul, access to ducts, WBA (also taking account of an FTTH environment)
• Infrastructure sharing – a realistic strategy in order to overcome economies of scale?
• Does the concept of the ‘ladder of investment’ still holds in a NGN All IP environment (incl. triple play)?
• Is de-averaged wholesale pricing mandatory for facilitating infrastructure based competition?
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Sub-loop unbundling (SLU)
32.Compared to access to the MDF SLU is characterised by stronger economies of scale, reducing the (viable) competitive opportunities.
33.There is no relevant viable business case based on sub-loop unbundling for alternative providers.
34. It is not economically viable and therefore possible for alternative providers to deploy SLU for the mass market. Only a development strategy targeting or focussing on business customers may be viable.
35.Only under very optimistic (and unrealistic) assumptions there is a viable business case based on sub-loop unbundling for alternative providers.
36. It may be viable to deploy SLU for alternative providers for a small subset of the largest street cabinets in the dense urban areas.
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Sub-loop unbundling (SLU)
37.Any viable business case based on SLU for alternative providers critically depends on
- The wholesale tariffs of the incumbent for SLU line rental,
- The conditions of co-location, and
- The prices/costs of the backhaul links to the street cabinets.
38.A necessary (not a sufficient) condition for a viable business approach of alternative providers with regard to SLU is to cooperate among each other. Due to the increase of economies of scale of rolling out alternative networks to the street cabinet level it is hard to imagine that more than one alternative provider can profitably seek access for SLU.
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Sub-loop unbundling (SLU)
39. In general there are two co-location options for SLU at the street cabinet distribution frame:
- Building a second cabinet adjacent to or in a certain distance to the incumbent’s cabinet (= virtual co-location),
- Physical co-location at the incumbent’s street cabinets.
What are the technical and economic pros and cons of both types of co-location?
40.A multitude of (outdoor) street cabinets is limited regarding accessibility or even excluded due to municipality restrictions.
41.(Missing) power supply is a serious bottleneck for any alternative replicability of street cabinets or sharing of street cabinets.
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Sub-loop unbundling (SLU)
42.Migration to SLU requires to extend the backhaul (from the MDF site to the core) to the SDF site. What are the economically viable options for extending the backhaul network:
- Own build
- Leasing dark fibre from a third party
- Leasing dark fibre from the incumbent?
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Wholesale broadband access (WBA) for VDSL
43.WBA at the Metro Core locations of a Next Generation Access Networkwould significantly reduce the number of access points at the current MDF locations and therefore generate stranded investments for today’s unbundlers.
44.WBA at the MDF level would optimize the opportunities for unbundlers to make use of their existing network infrastructure to provide VDSL. It is, however, unclear or doubtful whether WBA at the MDF will be a technically viable access option.
45.Existing WBA offers in fact are an 'empty box' for alternative operators as far as WBA usually is offered not lower than the BRAS level. This requires the alternative operator to expensively route its 'triple play' services through the whole Broadband Access Network. Thus:
- WBA for VDSL requires WBA access at
- DSLAM level,
- MDF level.
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Wholesale broadband access (WBA) for VDSL
43.WBA at the Metro Core locations of a Next Generation Access Networkwould significantly reduce the number of access points at the current MDF locations and therefore generate stranded investments for today’s unbundlers.
44.WBA at the MDF level would optimize the opportunities for unbundlers to make use of their existing network infrastructure to provide VDSL. It is, however, unclear or doubtful whether WBA at the MDF will be a technically viable access option.
45.Existing WBA offers in fact are an 'empty box' for alternative operators as far as WBA usually is offered not lower than the BRAS level. This requires the alternative operator to expensively route its 'triple play' services through the whole Broadband Access Network. Thus:
WBA for VDSL requires WBA access at
- DSLAM level,
- MDF level.
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Future of ULL at the MDF
46.Access at the MDF level (local loop unbundling) is no viable (technical and economic efficient) access option in a next generation access network. The only viable access options are SLU and WBA.
47.The continuation of the MDFs (and access to them) in parallel to setting up VDSL infrastructure is a long term (> 5 years) stable networkarchitectural approach for the access networks of the incumbent.
48.Spectral interferences limit the co-existence of the metallic local access network and a fully fledged VDSL 2 roll out.
49.A further important potential benefit of VDSL for the incumbent lies in its ability to eventually dismantle the Central Offices which are no longer required by the incumbent in a VDSL environment. This means that today’s unbundling equipment would be stranded, after a suitable migration period.
50.The discontinuation of the Central Office is a necessary condition for the incumbent to fully exploit the potential cost savings of VDSL.
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Future of ULL at the MDF
51. If the incumbent is choosing an overlay network migration path towards the Next Generation Access Network, bitstream access at the MDF level is necessary to protect the current degree of local competition.
52.ULL implementation in the ISIS/OPAL environment may serve as a master for implementing access at the MDF location.
53.The notice period for closing down a MDF at which ULL is provided should be five years.
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SummarySLU, WBA, and access at MDF location
• Common sense that SLU based competition is realistic only for a small subset of (large) street cabinets
• Although SLU can be made mandatory, there exist numerous barriers for OLOs to successfully implement such network roll out (collocation, power supply
• 43. WBA at the Metro Core locations of a Next Generation Access Networkwould significantly reduce the number of access points at the current MDF locations and therefore generate stranded investments for today’s unbundlers.
- - or is WBA simply a means for ensuring competition (incl. tripleplay)in regions that are not viable for SLU roll out?
• Should MDF access prevail for the sake of infrastructure based competition?
• How to allocate the costs of transition?
wik GmbHWissenschaftliches Institut fürInfrastruktur und KommunikationsdienstePostfach 200053588 Bad HonnefTel 02224-9225-0Fax 02224-9225-68eMail [email protected]. wik. org
