Transcript Some lessons learned on NGN deployment and take up Tiziana Talevi Brussels, June 16th 2011 PG.

Some lessons learned on
NGN deployment and take up
Tiziana Talevi
Brussels, June 16th 2011
PG. 1
Fastweb’s experience in NGA deployment
2
Fleming Area – NETCO trial
Upgrade of existing fiber footprint
Roll out of a FTTH Point-to-Point network
from central office to customer locations in a
Rome neighborhood as a trial field to test
technical and financial viability of the roll-out
of PtoP NGA.
Upgrade of existing Fastweb’s fiber network
from 10/20 MB to 100 MB
 Area covering approximately 7k HH
 1,7 Mln HH passed and not connected
 A joint project of Fastweb, Vodafone
and Wind
 Upgrade to 100 MB completed in
September 2010
 Around 280K active customers on fibre
with limited growth after 10 years
A technical and economic success…
P2P FTTH affordable and
technically easy to roll out
Total investment per
household less than
410 euro…!
Single infrastructure to
Mpop leads to lowest
unitary cost per home
passed allowing
FiberCo to reach
minimum efficient
scale
Focus on the Fleming P-to-P trial
Deployment of network completed in line with timescale and budget: deploying a P-to-P is technically
feasible and financially viable.
Strong marketing push to migrate customers in the footprint to the new network.
Marketing strategy focused strongly on:
 direct contacts with building’s administrators in order to advertise availability of 100 MB service;
 Advertising campaign to create awareness of the advantages of 100 MB
 outbound campaign to reach all potential customers in the area
Retail price offered for 100 MB services same of traditional 20 MB ADSL services (no premium price, no setup fee)!
Analysis of RFC customers (Apr'11)
Despite strong marketing push and no premium price, take up very low.
Will be contacted
again ; 21,46%
Activated; 46,35%
Reject NGA, not
interested; 24,89%
Reject NGA for inhouse
infrastructure
problem; 7,30%
PG. 4
Focus on the Fibra100 nationwide fibre network
Take-up rate 2010-2011 (Fibra 100)
0,80%
Lowering price did not
trigger a strong response
from the market
0,70%
• “FIBRA100” commercial offer available
since September 2010 for residential
customers on the majority of our fibre
footprint.
0,60%
0,50%
0,30%
0,20%
0,10%
• Pricing strategy:
i) Premium price of 10€ + set-up fee;
ii) Trial test in March/April 2011: Fibra 100
offered with no premium price
iii) trial test brought no satisfactory results
 premium price reintroduced.
• There is no perception of the value of the
UBB
Trial test period
0,40%
0,01%
0,03%
0,07%
0,08%
0,10%
0,13%
0,16%
0,18%
0,00%
Sett
Oct
Nov
Dec
Jan
Feb
March
April
Reasons for rejecting "Fibra 100" services
Not interested in
Internet
6%
Not willing to
pay premium
price
3%
10 MB/s
enough. No
need of 100
MB/s
91%
PG. 5
The bad and the good news
• Demand and willingness to pay premium price is
not enough to trigger a roll-out model based on
competing passive infrastructures: “first mover”
doesn’t get any advantage
• The high return enjoyed on the legacy networks
creates for the incumbents the incentive to
preserve copper as long as they can
• There are not enough financial resources within
the telecom industry
 Incumbents have huge cash flows which are
though used to pay their debt and dividends
 Most alternative operators’ cash generation is not
enough to finance a large scale effort
• Institutional investors (pension funds,
infrastructure funds) would be willing to
invest in a passive infrastructure and they
have enough resources to cover most of the
equity required
• In order to unlock this potential source of
financing need to make all players converge
towards the deployment of a unique
passive infrastructure to “derisk” the
investment and make it compatible with
their risk profile
No chances to trigger a roll-out paradigm based on infrastructure competition outside the areas in
which there are already two competing access infrastructures
The only possibility to trigger NGA roll-out is to create the conditions for the development of a
“utility” model, similar to the Australian one, employing financial resources made available by
institutional investors and infrastructural funds
PG. 6
What model and what would the advantages be
A structurally separated NETCO engaged only at the passive layer and providing wholesale
access to any access seeker downstream
An open network allowing a high degree of competition at service level
Minimization of risks and unitary costs
A rapid switch off of copper to signal end-users they have to migrate to the new infrastructure
Possibility for operators to participate to NETCO with assets and/or equity
A new financing and investment paradigm transforming the roll-out of FTTH into a “utility” model
allowing:
 A cooperative arrangement that provides advantages to all stakeholders
 Channel existing resources in single network maximizing efficiency and cost optimization
 A profile risk compatible with those of pension and infrastructure funds
 Migrate customers seamlessly from copper to fibre, even before a demand for UBB develops
PG. 7
How to turn it into a win-win for all
• Remove distorting incentives to remain with the status quo:
 Robust monitoring and enforcement of the existing telecom framework
 Implement and enforce non discrimination measures: despite the European framework foreseeing
equality of access, incumbents know they get advantages from vertical integration by
discriminating access seekers and getting extra-normal profits from wholesale services: until they
can leverage vertical integration they will hold on to it.
 Move away from cost methodologies for wholesale access services that allow incumbents
supernormal profits on copper creating a further reason to hold on to legacy networks.
• Put in place the right incentives to encourage all operators to move towards a cooperative
arrangement
 Allow for the voluntary separation of existing providers into separate companies which better
reflect the different risk/reward characteristics of these underlying businesses.
 Allow industrial equity partners to commit to a minimum number of lines (volume discount) in
exchange of a lower per line rental fee.
 Signal that once THE COPPER NETWORK IS SEPARATED AND PLACED INTO A NETCO PROVIDING
OPEN ACCESS TO THIRD PARTIES, NETCO will be allowed to average wholesale prices of copper
and fibre. If operators pay the same price for copper and fibre, they would have no reason not to
migrate.
PG. 8
Conclusions
• Deployment of NGA networks essential but need to find a balance between investments
and competition.
• Investments cannot be bargained with de-regulation
• No single operator can deploy a large scale network with limited market shares and lack of
demand
• Utility model with open access architecture is the way forward.
PG. 9
The utility model is the only way forward
End Customer
Payment of service
Broadband retail
services
Service Operators
Incumbent,
OLOs, ?
Fee to compensate
access network
VODAFONE
FASTWEB
Competition on Services
& Innovation
WIND
Wholesale access services
FiberCo
Incumbent,
OLOs?
VODAFONE
Assign Network
Construction
Contract
FASTWEB
WIND
Network Constructor
FASTWEB
10
Network
setup &
management
Cooperation on
infrastructure investments
and processes design