The future for fiber to the home is… altnets

Last week I attended the FTTH Conference in Berlin. I’d guess that most of you reading will know what FTTH (fiber to the home) is, but for anyone who isn’t involved in the telecom or tech industries, it’s basically a broadband connection where the fiber cable goes all the way to your house (or office/premises), instead of ending at a cabinet or junction box down the road somewhere, where copper wire takes over the last bit of connectivity. Most countries in Europe are at some stage of transition between legacy and new, fiber-based broadband infrastructure, which is why we still need to have conferences about it.

There were many interesting presentations and discussions, but to be honest, the most thought-provoking part of the whole event was hearing from one of my fellow speakers on the opening panel, Yuriy Kurmaz from Ukraine's Ukrtelecom. We have got so used to telecoms being talked about as a utility that it’s easy to forget what a vital role it plays in countries’ critical infrastructure – what’s needed to “keep the lights on” from a societal, economic, healthcare, you name it, perspective. I’ve been known to moan about it when regulators are a bit slower than I’d like, or when some silly fault causes an outage, but running a network during a war? There’s no comparison.

So, to be talking about where the UK and other European countries are at with full fiber after that conversation probably changed my perspective a bit, because it brought home what a privileged position it is to be doing that. And in essence, while there are challenges around, I would say that the future for strong FTTH altnets (alternative networks) in Europe has never been better.

In terms of challenges, the economic and investment climate is probably the most significant. This has changed quite dramatically for altnets during the past few years. Let me put this in context. Not so long ago, all it took to secure ￡100 million in the UK was a few ex-BT engineers, a shed, some shovels, and a PowerPoint FTTH build plan ??. Ok, so maybe it wasn’t that easy. But investors have definitely become more selective recently, which means altnets are having to fight for every penny of investment. There are various reasons for this.

1. High interest rates and inflation have made funding more expensive and challenging for everyone. Neither has fully stabilized, and investment strategies are erring on the side of caution. Everything is also more expensive these days, whether it’s the fiber cable itself, or the engineer to lay it. That shovel you could have started your altnet with in 2018 is now probably double the price.
2. Secondly, the FTTH market is maturing. This means more competition, which generally also means lower margins, smaller customer bases, and fewer untapped areas of potential. And so investors are looking more carefully at altnets for solid business models, clear paths to profitability, and sustainable returns. It’s not enough to be talking about the number of homes passed anymore.

All of this means we are seeing new winners and losers emerging. For example, few FTTH companies are able to build at the right unit cost, at the right density levels to secure wholesale agreements, and with the right tech to guarantee fast customer installation and scalability of their fastest speeds. And even fewer are managing to marry network expansion with decent customer take-up and excellent service.?

However, there are also still many positives for altnets.

1. Demand for high-speed internet is still growing as streaming, gaming, remote working and online learning grow in popularity. Let’s consider the fact that in 2023, the share of EU internet users was 92%, compared to 67% in 2010. Data use is also reaching new heights. A report from Arthur D. Little states that Europe’s mobile data consumption per user will increase from approximately 15 GB/month in 2022 to 75 GB/month by 2030. Fixed data consumption per household is also expected to grow from 225 GB/month to 900 GB/month in the same timeframe.
2. It’s no use building out a network that nobody is going to use, but countries with high fiber coverage, like Spain, Singapore, Japan and Korea, have also experienced high FTTH take-up, with adoption rates of around 80% or higher. This suggests that FTTH take-up will rise as fiber deployment continues. One, because of the data demand I already mentioned and two, because pay TV services are losing subscribers. A recent report from Digital TV Europe suggests that Western Europe will lose 9 million pay TV customers between 2023 and 2029, with Germany, the UK, France and Italy dropping 2.7 million, 2.1 million, 1.5 million and 1.1 million respectively. This is good news for altnets, because as consumers increasingly prefer to stream and consume content online, demand for high-speed, high-capacity broadband connections will go up even further.
3. Customer satisfaction rates with existing broadband services are extremely poor, with net promoter scores (NPS) for broadband typically trailing those for mobile by around 20 points. Again, there are many reasons for this, ranging from terrible installation times to customers being held “hostage” to hefty price hikes because switching was a nightmare, to larger internet service providers finding it difficult to make digital work in smaller, regional communities, to the fact that customer service has been treated as a cost center, rather than as a key source of quality and differentiation. However, things are changing: I recently reduced my 4-play package by 75% and also have a better service and TV experience. In addition, new regulatory measures, similar to those covering mobile and FTTH compatibility, will start to remove difficulties with new contracts, technology and so on.
4. Last but not least, fiber is a more environmentally friendly option. And that is now an important dealmaker (or dealbreaker) for many consumers, investors and shareholders. Fiber is inherently sustainable and energy efficient. For a start, it is made from silicone, a plentiful and naturally occurring material. It also offers a longer lifespan, lower electromagnetic-radiating source for producing high-bandwidth broadband. Compared to traditional copper wire, it’s estimated that fiber uses around 70% less energy to transmit data.

All of this should give altnet challengers hope that the current struggles they are facing in the market can, and will, be overcome. In reality, the UK and European countries are in a strong position to drive FTTH much further. Will they do so? I’m going to stick my neck out and say yes.

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Photo credit: Lucent_Designs_dinoson20, pixabay