Dieter Elixmann Dr. Karl-Heinz Neumann Andrej Schöbel WIK-Consult (Germany) Berlin, 07.09.2004

1. ITS 2004Session 6.4. - Infrastructural Bandwidth to the CustomerBuilding up Fiber Infrastructures: International Analysis and Assessment Dieter Elixmann Dr. Karl-Heinz Neumann Andrej Schöbel WIK-Consult (Germany) Berlin, 07.09.2004

2. Overview • Collecting empirical evidence: Features of the WIK-Consult study • Main results • Example: FTTx activities of Swedish cities • Building up fiber infrastructures: issues to be discussed • Conclusions

3. Collecting empirical evidence: Features of the WIK-Consult study (1) • FTTx: Fiber to the … • Home • Building • Curb • Premise • Cabinet • … • i.e. solutions bringing fiber optic access lines nearer to the customer • Study performed on behalf of Alcatel SEL Stiftung

4. Collecting empirical evidence: Features of the WIK-Consult study (2) • Identification and evaluation of FTTx activities in the world • Main focus on projects in France, Japan, Sweden and the U.S. • Objectives • Highlight characteristic features of FTTx projects • Main actors • Motives and driving forces • Technical and economic characteristics • Investment and financing • (Planned Business Case • Legal, regulatory and policy frame • Assessment of activities

5. Overview • Collecting empirical evidence: Features of the WIK-Consult study • Main results • Example: FTTx activities of Swedish cities • Building up fiber infrastructures: issues to be discussed • Conclusions

6. Main results (1) • Numerous FTTx activities worldwide • Japan is leading worldwide FTTx penetration (FTTH) • More than 1 mill. subscribers today • By 2006: 7.7 mill. subscribers • Level and dynamics mirror country specific factors • Implementation of FTTx virtually in ist infancy… • … yet, plans and activities already started underline serious commitments and obviously viable business cases

7. Main results (2) • Main players (varies across countries and projects) • Telecommunications carriers • (Energy) Utilities • Jurisdictions (regions, cities, villages) • Real estate companies • Level of FTTx activity of telco incumbents varies across countries • France (France Télécom): low • Japan (NTT East, West; KDDI): high • Sweden (Telia-Sonera): low • U.S. (RBOCs): still low, however, ambitious plans

8. Main results (3) • Basically, two different business models regarding FTTx • Business Model 1: • Deployment and operation of infrastructure as well as service provision by one single entity • Examples: usen, NTT in Japan; Fastweb in Italy; RBOCs and regional carriers in the U.S. • Business Model 2: • Deployment and in parts also operation of fiber infrastructure by one entity • No service offerings to end users • Neutrality with regard to carriers and service providers • Examples: Swedish and French cities

9. Main results (4) A priori, the government has different options regarding FTTx • Legal and regulatory frame, political promotion: Usually, government involved in setting the frame and establishing specific broadband support programmes • Player • Active role of jurisdictional entities as player high e.g. in France and Sweden, in the U.S. and Japan relatively low with respect to market at large • Primary motives for governmental activities: Increase regional competitiveness, care for future generations • Financing • Corporate shareholder, credits, tax reliefs, etc. • Support programmesto safeguard universal service objectives (in rural areas, e.g. in Sweden and Japan), often not technology-related (without FTTx-specification) • Demander: increase demand for services e.g. by e-government solutions

10. Overview • Collecting empirical evidence: Features of the WIK-Consult study • Main results • Example: FTTx activities of Swedish cities • Building up fiber infrastructures: issues to be discussed • Conclusions

11. Example: FTTx activities of Swedish cities (1) • Basic motives and incentives for FTTx-activities • Mission (of the Swedish Urban Network Association) • Give the city an open infrastructure for everyone • Stimulate the market by offering capacity at below new operators‘ costs • Reduce digging in the streets • Create an own network for the city • Expectation that future bandwidth/capacity needs are dramatically increasing

12. Example: FTTx activities of Swedish cities (2) • Out of 290 municipalities in Sweden 200 have already an own network • Plans are discussed with several regional players to link their network with those of others to reach a broader regional coverage • Schools, libraries, hospitals, city administartive sites etc. are especially hooked upon the local networks

13. Example: FTTx activities of Swedish cities (3) • Business model • Deployment of infrastructure; focus of marketing FTTx infrastructure: primarily dark fiber • Usually also operator of a network for the local administration • Carrier neutral • Local pricing policy • Often exclusive arrangements between municipally owned energy utility and municipally owned real estate company; opens up control of a significant portion of the value chain of providing broadband services

14. Example: FTTx activities of Swedish cities (4) Example: Stokab (1) • Owners: 91 % City of Stockholm, 9 % Stockholm County Council • FTTx activity: Infrastructure provider in the Greater Stockholm area • Single dark fiber infrastructure provider in this area, i.e. only Stokab has a licence to deploy fiber • Customers: Network operators, companies with a high communications budget (like banks and insurance companies)

15. Example: FTTx activities of Swedish cities (5) Example Stokab (2) • Financing: benefits from usage of municipal funds • Motives for FTTx-extension by Stokab • Idea that network provider generate lower costs for infrastructure, if they buy dark fiber from Stokab instead of deploying own facilities, because of shared costs characteristics for important assets • Avoidance of extensive digging activities • Competition policy with the goal of lower (affordable / decreasing) prices (Wettbewerbspolitik mit dem Ziel der Förderung niedriger Preise)

16. Example: FTTx activities of Swedish cities (6) • Reaction of market players (e.g. Bredbandsbolaget) • Basically existence of infrastucture as input is positively appreciated • Local provider neutral networks are local monopolies and therefore a-priori a case for regulation and competition policy, this holds particularly true, if a municipal utility places an exclusive contract with a city owned real estate company • Overall missing standardisation for broadband networks; FTTx-activities of cities etc. should be limited to the provision of dark fiber • Decentralised deployment (i.e. limited to a particular city) entails diseconomies of scale; room for regional cooperation • FTTx activities of cities etc. should rest on a legal basis • Activities of cities should mirror long run business model, clear market driven deployment policy, depreciation periods over 25 years

17. Overview • Collecting empirical evidence: Features of the WIK-Consult study • Main results • Example: FTTx activities of Swedish cities • Building up fiber infrastructures: issues to be discussed • Conclusions

18. Building up fiber infrastructures: issues to be discussed (1) • Regulatory and competition policy frame • Rights of way • Access to premises and buildings • FTTX infrastructure essential facility? • Conformity with national and EU wide rules with respect to granting exclusive right to an entity deploying infrastructure • Is public financing (nationally, EU funds) in accordance with the State Aid rules? • Technical aspects of infrastructure deployment and operation

19. Building up fiber infrastructures: issues to be discussed (2) • Demand side factors, e.g. • Who are the (potential) demand(ers) for FTTx infrastructure (a-priori incumbent, OLOs, cable TV operators, (facilities based) Internet Service Providers, non-facilities based Service Providers, cellular operators • Variables that impact decision behaviour • Competitive situation within the market, e.g. • Deployment status of competing infrastructures • How do the “traditional“ telcos react? E.g. in USA Qwest (incumbent) announced, to undertake massive efforts to stop UTOPIA.

20. Building up fiber infrastructures: issues to be discussed (3) • Cost considerations, e.g. • Deployment • Economies of scale regarding procurement? • Factors driving demand for services provided via FTTx, e.g. • Willingness to pay • Price level, pricing policy • Media budgets • Socio-cultural aspects

21. Building up fiber infrastructures: issues to be discussed (4) • Financing issues, e.g. • Appropriate legal status • Availability of capital, access to capital markets • Who are potential investors? • Expectations and risk perception of investors • Eligibility for EU funds • Role of the State

22. Building up fiber infrastructures: issues to be discussed (5) • Carrier neutral deployment model? Concept: • Let physical infrastructure be deployed by a neutral investor… • …investor, however, is not operating it • Wholesale model • Neutraliy with regard to service provision, i.e. foster service competition (innovation, technology mix, marketing mix…)

23. Overview • Collecting empirical evidence: Features of the WIK-Consult study • Main results • Example: FTTx activities of Swedish cities • Building up fiber infrastructures: issues to be discussed • Conclusions

24. Conclusions • Status of worldwide FTTx deployment mirrors the fact that FTTx is viewed as superior and future proof compared to other access technologies • In many countries unambigous tendency • It is no longer an issue if FTTx is reasonable at all and can be a viable business case … • … rather, the focus is on identifying challenges for FTTx deployment on the basis of country specific conditions and … • …to derive a concept of an appropriate deployment plan and means to secure financing • Broadening the scope of broadband discussion in Germany indispensable • Carrier neutral deployment model: Carry out a model calculation with “real world data“ for Germany in order to assess the economics behind and the challenges ahead (“Synthetic Business Case“)

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