From the FTTH Council’s global rankings for FTTH penetration (Exhibit 1) we can gain some insights into the thorny question of how to achieve fibre rollout in the face of a difficult cost versus revenue equation. South Korea, Hong Kong and Taiwan are the leaders in Fibre to the Building deployment with their dense urban dwellings assisting the economic case via demographic and geographic patterns. The leaders in straight FTTH deployment are Japan, Sweden, Norway, Slovenia, Iceland and Denmark where in most cases geography is less useful for the cause. So what makes the economic case workable in these countries and who are the prime movers?

Exhibit 1: Countries with greatest FTTH penetrations, mid-2008 [Source: FTTH Council]

Japan: electricity companies and incumbent operators

Several Japanese electricity companies have deployed FTTH networks, with one particularly successful example being the Tokyo Electric Power Company (TEPCO). TEPCO decided to leverage its fibre network that was originally built for internal communications needs, starting to lease dark fibre in 1999 and in 2002 extending its core network to the last mile. In 2006 TEPCO and telecommunications operator KDDI agreed to integrate their FTTH networks, with KDDI acquiring TEPCO's network in exchange for shares. This was a strategic decision designed to improve KDDI's ability to compete with incumbent NTT.

Sweden: Government, municipalities, utilities all engaged

Sweden has the highest fibre take-up of any non-Asian country, with fibre comprising nearly 17% of residential broadband connections. There are now 152 city networks in Sweden, reflecting an investment of more than EUR2 billion (NZD3.1 billion). The networks pass three million homes (around two thirds of all households), and 95% of those networks offer dark fibre.

The Government’s aim, to ensure broadband is available to all households by 2010, is based on open access principles, including equal access to the “last mile” copper network of the incumbent operator TeliaSonera, funding open public fibre broadband networks where private investment is unlikely and giving municipalities social planning responsibility to ensure local access to broadband infrastructure.

One of the earliest public initiatives was in the city of Vasterås, located 100km west of Stockholm. The municipal authority engaged the utility Mälarenergi (also owned by the municipal authority) to build an open access Gigabit Ethernet metropolitan network which is owned and operated by the subsidiary company MälarNetCity. Construction commenced in 2000 and was completed in 2007, covering around 83% of households. There are more than 25 service providers, including national providers (including the incumbent, Telia) as well as local companies., and prices are claimed to be among the lowest in Sweden (100Mbit/s symmetric service costs from SEK299 – NZD49 – per month).

Norway: Government working on the demand side

The aim of the Norwegian Government is to ensure that everyone in Norway, regardless of where they live, will have access to broadband. The Norwegian broadband policy is based on the philosophy that:

…broadband roll-out primarily should be market driven, and that successful eGovernment applications will help creating a demand that makes it economically viable for private suppliers to provide broadband access throughout the country [source: Høykom programme]

By 2005, this policy has resulted in broadband being available to around 95% of the population. Nevertheless the Government recognises that there are some small local communities where the total demand is too small to attract market investment in infrastructure, in which case some direct funding may be required.

Slovenia: telecoms operator responds to new entrant challenges

Despite its size, Slovenia is one of the top European countries in terms of FTTH deployment. The national incumbent carrier, Telekom Slovenije, has embarked upon a fibre build programme (“F2”) that aims to achieve coverage of 70% of the population by 2015. The programme is a key part of Telekom Slovenije’s strategy to compete with new entrants and cable operators.

Estimated cost of F2 is EUR450 million (NZD1116 million), which is being part-funded by a EUR100 million loan from the European Investment Bank – the loan is also being used to fund xDSL and WiMAX rollout to areas beyond the FTTH coverage.

Iceland: telecoms operators with state support

The provision of high speed broadband in Iceland has been driven by telecom operators. The role of the state is considered to be to support the establishment of high-speed networks, in cooperation with local authorities and other interest groups in regions where it is not considered commercially viable. Local authorities and utility companies are also encouraged to consult with telecom operators on laying fibre as part of other utility projects. The government of Iceland has planned to alter construction regulations so that property owners are obliged to lay conduits for fibre to new constructions, and all electronic communications enterprises are authorised to install high-speed connections utilising these conduits.

Denmark: utilities versus the incumbent operator

Denmark has long been a leader in take-up of broadband services, as well as in fibre. DSL services are available to 98% of the population via the copper network of the incumbent operator, TDC. According to the Danish regulator, as at the end of 2007 the broadband market was dominated by xDSL (61% of the market), with 27% of subscriptions being for cable services and FTTH services comprising 3.6%.

Most of the participants in the retail FTTH market in Denmark are (both public and private) regional utility companies, however there are also some broadband providers. According to the Danish Competition Authority, the utility companies planned to cover around one million households (40%) at a cost of DKK9.5 billion (NZD1.7 billion).

The fully privatised TDC is deploying a FTTN+VDSL network, which is expected to pass 400,000 homes by 2009, however the company notes that competition by the utility companies may force it to invest more heavily in FTTN and FTTH.

Supply-side interventions are a common theme

Our quick survey reveals a heavy emphasis on supply-side interventions driven in many instances by central and local government initiatives, with the exception of Norway with its endeavours to promote broadband from the demand-side. Also striking is the engagement of utility companies piggybacking on existing infrastructure, assets and systems. Last but not least it appears that in many of the frontrunner countries incumbent operators are coming to the party one way or another – if not leading the charge then responding competitively to proactive newcomers.