13.8 million FTTH subscribers globally by 2009

"While Australia still awaits the government's response on Fibre to the Node (FTTN), other countries in the region are steadily building Fibre to the Home (FTTH) access networks", says Leith Campbell, Ovum Principal Consultant

There are four main ways in which a major network upgrade can be justified: investment in national infrastructure; new services; operations cost savings; and competitive response. See full commentary below.

Full commentary of Leith Campbell analysis

Four main ways in which a major network upgrade can be justified:

1. Investment in national infrastructure – The ability to provide higher speed broadband services should be a boost to national productivity. If we all want the line rates currently delivered to office desktops – namely, 100-1,000 Mb/s – then FTTH will be required. If government money is to be applied to the project, then the architecture should be future proof or easily upgradeable.

2. New services – is usually about delivery of IP-TV, the next generation of television with many new features. IP-TV is a secondary issue in Australia, where cable TV is still immature. Higher speed internet access, though, is a potential generator of new revenue.

Small-business producers of large volumes of digital content and online financial traders are among the users who would benefit from higher access speeds and who would be likely to pay more. One should not expect, however, that incremental service revenues would be sufficient to justify FTTH over FTTN – the cost difference is just too great.

3. Operations costs savings – is a key consideration for some companies, such as Verizon. An influential report in the US from 2004 suggested that the US telcos could justify an aggressive rollout of FTTH based on operations costs savings and new service revenues. This has been taken up by FTTH advocates. It is certainly true that the network-related operations costs for FTTH are substantially less than for current copper networks and for FTTN networks.

There is still little experience of optical terminations in the home and it is likely, for the first few years at least, that the maintenance of optical network units in homes will be a major cost. In short, the operations costs savings are not yet certain.

4. Competitive response – is a major driver for the telcos in the US, because of competition from the cable TV operators. This is also an issue in Hong Kong and Japan, but not in Australia. Facilities-based competition in Australia is patchy at best, although some see Telstra’s proposed FTTN program as a pre-emptive strike against DSLAMs by alternative service providers in Telstra exchanges.

Any significant roll-out of FTTN or FTTH will require regulatory oversight – and perhaps intervention – to provide some form of equal access for alternative service providers. FTTH raises some major issues of how alternative service providers could differentiate their offerings on an incumbent’s infrastructure. FTTN, on the other hand, permits sub-loop unbundling within its access possibilities.

The government response would do well, then, to promote FTTH where it is cost justified, while supporting or accelerating the rollout of FTTN. A broader view of the issues, such as reduced road traffic through greater home working and remote delivery of health and education services, could start to close the cost gap between FTTN and FTTH.

Could it close the gap completely? A rough estimate based on publicly available figures suggests the government would need to provide about $4.5B over 4-5 years for the first 4.5M homes to have FTTH and perhaps another $6B later for the remaining 3M homes. This is comparable to support for land transport in the federal budget (about $4B per annum) but the political will to do it is missing.