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11/3/13
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Successful service strategies for FTTH operators
One of the arguments often used to defer or avoid deployment of fibre networks is that there is no evidence of demand for ultra-high-speed services and applications. But a study commissioned by the FTTH Council Europe shows that this perception does not match the reality. Benoît Felten at Diffraction Analysis analysed the subscriber growth of a number of established FTTH service providers. The most significant factor influencing the take-up rate was the length of time that the business had been in operation. This can be explained by the simple fact that the service can only grow in places where the infrastructure has already been deployed. As the potential customer base expands, marketing becomes
more effective, and the number of people taking the service increases accordingly. While demand builds up fairly gradually, the research shows that there is no inherent problem with demand. Interestingly, this finding was independent of the strategy being pursued by the FTTH service provider. Essentially there are three strategies: Players following 'acquisition' strategies aim to maximise the number of customers through aggressive pricing. At the opposite extreme are service providers following 'premium' strategies, who position their products at premium end of the market. And there are service providers who fall somewhere in between, typically because their pricing is constrained by competition and the local market. The study also showed that service providers offer a wider range of services over FTTH, with triple-play being standard. While most service port-
folios centre on content, some enterprising service providers have expanded into home automation and security, and healthcare and education services are on the horizon. Others have formed partnerships with over-the-top service providers to speed up the introduction of new services. The wider choice in services is one reason that FTTH subscribers purchase more services and add-ons, such as video on demand, than DSL customers do. The other reason is improved stability and instantaneous access, which makes the user experience more reliable and comfortable, and in turn leads to higher consumption. The increase in user activity typically translates into significantly higher average revenues per user (ARPU) for the service provider. Among the sample in the study, FTTH ARPUs were on average 47% higher than DSL ARPUs for the
same service provider (or, where unavailable, in the same market); and can be much higher. However, the chosen service strategy of the FTTH operator has a big effect on the ARPU. 'Premium' FTTH service providers had ARPUs on average 280% higher than those following an 'acquisition' strategy. The difference in revenues between competitive and incumbent service providers also turned out to be notable. Competitive players, on average, had ARPUs only 21% higher than the average DSL ARPUs whereas incumbents had ARPUs 71% higher. Competitive players are more likely to drive acquisition through aggressive pricing, whereas incumbents often take a cautious approach to the transition to fibre infrastructure – partly because they cannot offer the new, improved services to all customers simultaneously.
TARGETS. “If Europe wants to be a global leader in the new Internet economy we must set ambitious targets,” he declared, echoing Ahl's 'Vision'. “In 2020, I want all Europeans to be connected to 100 Mbps, with at least 50 per cent of the households connected to 1 Gbps.” He noted previous progress in this area: “The radio spectrum programme for which I was responsible will play a crucial role in releasing more spectrum for mobile services. Europe has set a world-leading target of identifying 1.200 MHz for mobile broadband. Europe must now deliver on these targets. We have put new rules in place to get rid of the roaming problem. From 2014, consumers will be able to connect their iPad or iPhones directly to a local operator within any Member State, without having to roam back via their national network. We have put in place some important competition triggers such as local loop unbundling.” He accepted that much more was needed to be done. “Investments in fixed lines are crucial if we should reap the benefits of the new digital revolution. As we move towards a cloud based universe consumers and business
wants to access high-speed Internet anywhere and everywhere without caring about the particular access. The fixed network needs the mobile and vice versa,” he said. “Take the example of Stockholm, the pre-existence of an extensive fibre network throughout Stockholm has allowed 4G mobile broadband competition to a degree not seen anywhere else in the world yet. I have received the Industry Committees support for ensuring that networks which are funded via the EU budget should deliver 100 Mbps to rural areas and 1 gigabyte to urban areas. Although the money for funding telecommunication infrastructure has been severely reduced by heads of state in the latest EU budget compromise, I want these criteria to be a template for public broadband investments in Europe. At the same time, it is the market players that should continue to be the main drivers in Europe's broadband deployment. A fully competitive landscape is the best way to nurture innovations, lower consumer costs and better user experience. Updating old copper networks is not a long-term solution. Instead of continuing to invest in the copper network, we must
drive investments from the copper network, to fibre networks with unlimited speeds and capacity. The fibre networks must be open and accessible for all services that want to use it. We need to continue to open up spectrum for mobile services. The 700 Mhz band should be opened up for mobile services and licences sh ould be awarded on a pan European basis. More capacity is also needed in the 5 GHz band to enable a continued growth for short-range connections such as WiFi. Finally, we need reforms driving content such as combating fragmentation in European digital markets, addressing especially fragmented IP rights. If Europe is to be home to the new digital revolution where new services and innovations create prosperity and economic growth, we need to have the fastest broadband speeds in the world. To generate growth and to get out of the crisis, Europe must display leadership regarding the Internet, broadband, mobile data traffic and other services. All governments know that. The European Commission knows that. The industry knows it. And the rest of the world knows. All we have to do is to act, and we have to act now,” he concluded.
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