FTTH vs LTE : Friend or Foe

Dr.Ir.Joko Suryana

Lab of Radio Telecommunications and Microwave

STEI-ITB

Reference : Delta Partners and other sources from internet

Outline

• FTTH Fixed and Mobile Operators

• LTE for Fixed and Mobile Operators

• Basic Strategy Doing FTTH and or LTE Businesses

FTTH for Fixed and MobileOperators

FTTH Drivers: Fixed vs Mobile Operator

• The data revolution is pushing fixed and mobile operators across developed and emerging markets to roll-out FTTH/B as customers use video and cloud services across multiple devices.

• Fixed operators facing stable or declining revenues and increasing operational costs (driven by legacy services and technologies) have embarked on comprehensive transformation programmes .

• Meanwhile, mobile operators are also considering (and in some cases already rolling out) FTTH/B.

• In developed markets, the rationale is to defend against incumbents.

• In emerging markets however, the rationale is to capture untapped growth potential in the home and SME segments and to optimiseinvestments in LTE networks (reducing macro sites) by enabling a strong converged offer.

FTTH/B Drivers: Fixed vs Mobile Operator

FTTH/B Drivers: Fixed vs Mobile Operator

• Fixed Operators :

• China, Hong Kong, Japan, the USA and EU and GCC countries but are also in progress in countries including Brazil, Colombia and South Africa.

• Mobile Operators :

• In developed markets, the rationale is to defend against incumbents: Vodafone Portugal

• In emerging markets : Turkcell, Mobily, Maxis Malaysia and MTN in South Africa and Nigeria

Fixed Broadband Operators

• Wealthy countries including South Korea, Hong Kong and the UAE already have high FTTH penetration as a percentage of fixed broadband connections

• While countries such as China (the largest country by subscribers), Lithuania, Romania and Bulgaria are gaining prominence through the support of strong government incentives

• According to NetIndex, five of the world’s top ten cities by average downlink speed fall within Lithuania, Bulgaria or Romania, the others being Hong Kong, Singapore, Seoul and Taipei. The top 30 ranking includes cities in Russia, Latvia, and Portugal, as well as from some other developed countries such as the Netherlands, Denmark, Sweden, Japan, France and UK.

Fixed Broadband Operators

• Notably, there are no cities in the USA , Germany or Italy.

• It comes then as no surprise that Google is trying to heat up competition for AT&T, Verizon and Comcast by rolling out FTTH/B in Kansas City and Austin with other cities being announced.

• Just one week after this announcement, AT&T announced their own 1Gbps FTTH rollout in Austin, suggesting that it is indeed feeling the competitive pressure.

• There are already more than 100 million FTTH/B subscribers in the world, of which more than 65% are in Asia and more than 7% are in EU27 countries

Fixed Broadband Operators

Mobile Operators

• Furthermore, despite the high investment required, FTTH/B rollouts are not the exclusive domain of fixed incumbents.

• Evidence shows that simultaneous, competitive rollouts are occurring in many markets, with mobile operators such as :

• Vodafone in Portugal

• Turkcell in Turkey

• Mobily in Saudi Arabia

• Etisalat and MTN in Nigeria

• Vodacom and MTN in South Africa

Mobile Operators

FTTH/B Take up Rate

• The take-up achieved (customers as a percentage of homes passed) shows that customers are welcoming fibre services.

• early FTTH/B rollouts have secured a take-up rate of 15-30% within four years of rollout (e.g. Verizon, Turkcell Superonline) and 35-70% within eight years of rollout (e.g. Altibox, HKBN).

• This high take-up of FTTH/B is despite the ability of VDSL2 and cable (DOCSIS 3.0) to deliver the bandwidth required for most services.

• This is a function of the superior quality-of-service provided by fibreconnectivity (GPON/NG-PON2 and Active Ethernet) which permits:

1. higher downlink and uplink bandwidths which are necessary to cope with simultaneous use of multiple devices (HDTVs, tablets, smartphones, games consoles, etc.)

2. lower latency which is generally considered essential for real-time and cloud services

3. an easy (and cheap) path for future technology upgrades, ensuring products remain competitive.

FTTH/B Take up Rate

Market Share Evolution: FTTH/B rollout

• Although still in the early stages, evidence suggests that operators rolling out FTTH/B are gaining market share and, more importantly, growing revenues.

• Portugal Telecom’s and Telefonica’s Q4’12 results in their home countries show positive trends in their respective Meo and Fusion services

FTTH/B Investment

• Most fixed incumbents in developed markets have been hesitant to roll-out FTTH/B due to the significant investment required to compete with the existing coverage of cable operators (typically more than 60%-70% of homes).

• Investors also have doubts: a recent report by Goldman Sachs on Verizon’s US fibrerollout concluded that the business case only achieves free cash flow breakeven in the longer-term (over five years) and returns negative cumulative NPV over the first ten years of investment.

• The economic reality is that FTTH/B investment varies from US$600-2,000 per home connected.

• For a typical greenfield rollout, the investment ranges from US$800-2,200, of which trenching and in-building or in-community cost represents more than 70%.

• The average FTTH/B revenue per line is only US$17 higher than the average DSL revenue per line (according to statistics from the FTTH Council Europe).

FTTH/B Investment

Key Success Factors

• Commercial

• 4/5P offering with VAS for Residential and SME

• Pre-registration and cross-selling to reduce risk

• Customer experience driving operational requirements

• Network and operations

• Network rollout is geo-focused, and considers economics and competitors' rollout sequence

• Network rollout leverages existing infrastructure

• Network technology/capacity is ready for bandwidth competition

• Operational efficiency focus to optimise return on investment

FTTH/B Service Offering

• Broadband Services :

• position fibre as the premium technology for broadband offer.

• Voice is always present in incumbent offers to enable disconnection of the PSTN services.

• Pay-TV is also fundamental, in particular when competing with an established cable operator.

• More than 85% of FTTH/B connections include voice services and more than 65% IPTV services.

• Content and VAS :

• Content and VAS associated with operator platforms and cloud are essential for maximising take-up by further differentiating fibre services from the competition.

• FMC :

• Bundling with mobile services further accelerates take-up through additional discounts and the enablement of Wi-Fi offloading for tablets and smartphones

FTTH/B Service Offering

FTTH/B Service Offering

Guidelines for Rolling Out FTTH/B

• Fixed incumbents have four key considerations in terms of network rollout:

• Greenfield deployments

• Network upgrades

• Deployment efficiency

• Legacy network decommissioning

• For a mobile operator or alternative fixed operator, the only relevant areas of consideration are :

• Greenfield deployments

• Deployment efficiency.

Guidelines for Rolling Out FTTH/B

LTE for Fixed and MobileOperators

Fibre killed DSL in the metros : Will LTE finish it off everywhere else?

• Key players in the US market seem to think so: together with Verizon discontinuing naked DSL while planning to have LTE deployed across the entirety of the 3G network by 2014.

• AT&T’s CEO Randall Stephenson admitted that DSL is an “obsolete technology, which is slowly being replaced by wireless and fibre”.

• In November 2012 AT&T has decided to drop DSL, as the company believes that an all-IP network is the path to more profitable future.

• But the US market is fairly peculiar: cable is the incumbent in most areas, even rural (cable has ~40% market share in the broadband residential market), and offers faster speeds than the legacy DSL of Verizon and AT&T.

• In these areas LTE is a viable alternative, given the technology’s superiority and its capability to provide high enough speeds to serve the Home and synergies with Verizon’s and AT&T’s mobile businesses.

Fibre killed DSL in the metros : Will LTE finish it off everywhere else?

• Beyond the USA, cases of LTE substituting DSL for last mile connectivity are still few and far between.

• One of the few worth noting is Australia, where Telstra is complementing its newly launched NBN’s fibre network with LTE as an alternative to ADSL+ to serve the traditional fixed broadband market.

• To do so, it is extending its LTE footprint to two-thirds of Australia’s population by the end of 2014, with the objective to capture a segment of the traditional fixed broadband market.

• AT&T, Verizon and Telstra’s thinking is understandable: LTE provides advantages over DSL and can be a viable alternative even to FTTH, as long as some conditions are met.

The killing zone for DSL

• Low density - rural deployments

• LTE can provide speeds similar to DSL but they can be variable and difficult to guarantee given the customer mobility and the fact that bandwidth is shared amongst customers in the same area.

• Other elements such as topography, buildings, indoor vs. outdoor coverage and weather can also degrade LTE speeds

• On the other hand, DSL speeds are usually dependent on the quality of the copper and backbone contention, together with the distance from the exchange, both of which can be predicted.

The killing zone for DSL

• Availability of low spectrum frequency

• Spectrum plays an important role in determining the benefits of LTE vs. DSL, both from a QoS and financial point of view.

• If LTE deployed on lower spectrum (e.g. 700 / 800 MHz), it can deliver speeds similar to DSL in sparsely populated areas

• higher spectrum deployments (generally more suitable for capacity purposes than coverage) will generally deliver poor indoor QoS.

• In fact, the majority of the examples of rural LTE deployments mentioned beforehand (e.g. Verizon, Vodafone Germany, Telstra) leverage on low frequency spectrum bands.

The killing zone for DSL

• Greenfield deployments /Too costly DSL infrastructure

• In greenfield deployments operators would never consider deploying DSL at this stage, as Fibre and LTE are more modern and cost efficient technologies.

• If the number of subscribers on DSL is not high enough, LTE can easily become a more profitable option.

The killing zone for DSL

• Low usage customers

• LTE packages have affordable entry prices and, for comparable speeds, an LTE plan (dongle/router) carries a minimal premium (less than 20%) over DSL or is occasionally cheaper.

• Contrary to fixed broadband, LTE products tend to be volume-based, having caps often below 10 GB, which is less than the average household consumption. For instance, in March 2011, AT&T reported that its DSL customers used an average of about 18GB per month, and more recently 21GB. While Cisco forecasts worldwide broadband consumption to more than triple by 2015, reaching 69 GB

LTE and Fixed to Mobile Substitution

• LTE has become the fastest growing wireless technology so far and has started a wave of fixed-mobile substitution, but its effect may not be so radical nor so imminent, due to a number of factors, including:

1. The intrinsic limitations of wireless technologies

2. The lack of availability of low frequency spectrum to deploy LTE effectively

3. The wide-spread presence of competitive DSL infrastructure in mature markets

4. The need for usage caps.

Operator Strategy

• However, LTE still remains a viable alternative in a number of cases:

1. Mobile-only players that want to tap into the Home market (both in rural and urban areas).

• LTE offers a new potential revenue stream to mobile-only operators without fixed infrastructure. Mobily is a fitting example. Contrary to the other two players in the market, it started its LTE deployment in smaller cities and offering “millions of [remote] home users across Saudi Arabia access to fast broadband speeds that will exceed speeds of a fixed line connection.

2. Mobile-only players already serving the Home market through partnerships with fixed line players, but who want to cut the cord with their fixed partners for last mile connectivity.

• LTE is likely to be cheaper than leasing DSL from the fixed incumbent – see the case of Vodafone Germany where its CEO Friedrich Joussen believes LTE is a much better investment than DSL as it avoids paying 10 Euro per month to DT for every last mile fixed-line connection leased

Operator Strategy

3. Fixed providers wanting to expand into rural areas currently not covered by fixed technology

• Fitting case is Verizon’s program called “Connecting Rural America”, aimed at providing home connectivity via LTE to the 19 million rural Americans who don’t have Internet access at home

4. Fixed providers wanting to boost their residential market penetration by offering lower-end urban /sub-urban areas an affordable broadband solution

• Tele2 in Sweden is the perfect example where the operator has a small share of the DSL market (~10%), and decided to launch LTE for the Home as a way to elbow out DSL rivals, providing greater speeds at more affordable pricing

When is LTE a suitable replacement for DSL to address the Home?

Basic strategy

Choosing A Network Investment Strategy

• When deciding on a strategy for investing in tomorrow’s telecom networks, we need to resolve four interlinked questions.

• The answers to these questions can help top managers decide which network technologies offer the best return on investment (ROI) and how their companies can capture the most powerful fixed/mobile network synergies.

1. How far should I roll out fiber-to-the-home and curb?

2. Can I use LTE as a last-mile substitute?

3. Should I roll out 4G LTE rapidly, or push 3G HSPA+ to its limit?

4. Can technologies such as femtocells and WiFi effectively reduce mobile network investments?

Choosing A Network Investment Strategy

Choosing A Network Investment Strategy

1. How far should I roll out fiber-to-the-home and curb?

• Fixed-line industry has moved quickly to meet consumer bandwidth needs, and have progressed from ISDN to DSL to ADSL/ADSL2 to VDSL and FTTH

• FTTH installation costs per home could vary three- to five-fold depending on the “density” of the housing involved and the accessibility of the horizontal and vertical ducts that installers use to thread fiber cable into homes.

• In locations where fiber makes no economic sense, operators can expand the performance (and useful life) of their traditional copper networks in a number of ways.

Choosing A Network Investment Strategy

2. Can I use LTE as a last-mile substitute?

• Wiring up the last mile to a customer’s residence can be expensive in rural areas.

• One alternative is to use mobile 4G LTE technology to wirelessly bridge that last mile.

• LTE not only has the potential to lower network costs, but it also offers better speeds at longer distances from the base station than ADSL2+.

• LTE could substitute for fixed networks in 10 to 30 percent of households. However., LTE has yet to become economically feasible for high bandwidth applications such as IPTV, for instance.

Choosing A Network Investment Strategy

3. Should I roll out 4G LTE rapidly, or push 3G HSPA+ to its limit?

• Planning new network technology roll-outs requires leaders to trade off cost against performance.

• Operators seeking technology leadership often make the leap from basic HSPA to LTE, while those who are quick to follow have the option to upgrade current networks to HSPA+ and can only switch to LTE at a date.

• However, even for mobile leaders, market broadband demand and the availability of 4G frequencies will ultimately trigger a decision LTE roll-out.

Choosing A Network Investment Strategy 4. Can technologies such as femtocells and WiFi effectively reduce mobile network investments?

• Ballooning mobile data consumption could make LTE economics less feasible in the mid-to long-term.

• To reduce the escalation of data traffic, operators can explore opportunities to offload traffic to public WiFi networks.

• Along with WiFi, femtocells and picocellsoffer an attractive option for limiting network capacity investments.

• Operators could offload a significant amount of mobile network traffic, since most wireless traffic (up to 70%) occurs in places that have fixed-line connectivity options nearby.

• WiFi, femtocells, and picocells could theoretically double network capacity at a fraction of the cost of adding new network sites.