Stimulus Driving Optical Developments

By Paul Budde
Paul Budde

FttH networks had begun to arrive well before the financial crisis hit, but surprisingly it is the crisis itself that is now driving fibre beyond its first stage.

This first stage was basically a continuation of the 100-year-old vertically-integrated telephone business model. This saw more of the same delivered at higher speeds and higher costs, and there was only a limited market that was willing to pay a premium for such a FttH service. Typically penetration on these networks hovers around 10% to 25%, well below the minimum 40%-60% penetration required to keep these vertically-integrated models viable.

With stimulus money flowing into these infrastructure developments different business models are required by the governments who are making the investments. The requirements include elements such as:

Furthermore these government investments are 'sold' to the public with messages that these networks are essential for a range of social and economic developments (e-health, tele-education, smart grids, etc). This potentially will see a quadrupling of the size of this market, and will thus significantly alter the business models.

The USA, UK, Australia and New Zealand are among the countries that are including broadband networks in their economic stimulus packages.

These developments are also assisting the countries that had already embarked on FttH and these countries are now also increasing their activities in their fibre markets. They include Finland, Norway, Switzerland, Greece and Japan.

All of this is leading to a boom in optical developments. All telecoms infrastructure providers are now either implementing, or at least planning for, new optical infrastructure. From their own business perspective these investments are going to significantly lower the maintenance costs of their network, as well as enabling more efficient and cheaper delivery of new services such as video-based communication and entertainment services.

And, finally, the early FttH networks — which saw a rather low consumer demand — are all confronted with large demand from their business users. There is large pent-up demand for fibre networks in this market, for data centres, data hosting and video-based services, and many FttH networks are now extended and/or diverted to at least include business centres.

These combined developments are producing an unprecedented boom in optical investments. And what we have seen so far is only the tip of the iceberg.

By Paul Budde, Managing Director of Paul Budde Communication. Paul is also a contributor of the Paul Budde Communication blog located here.

Related topics: Access Providers, Broadband, Policy & Regulation, Telecom