Law & Disorder / Civilization & Discontents

What Google could learn from EU ISPs’ experience with fiber

Last week, Google announced its plans to build experimental fiber-to-the-home …

It is clear that, according to Google, the American telecommunications Industry has dropped the ball when it comes to getting broadband out to the people. The search giant has decided to show us how it should be done, announcing its plans to run 1Gbps fiber pipes to up to 500,000 households. For obvious reasons, reporters focused on the size of Google's bit pipe. There was less focus on open access and innovation aspects of the plan. Hopefully, Google has kept an eye on the ISP landscape in Europe and Asia, as there are many lessons to be learned from ISP experiences there. In this article, we'll remind Google of some best practices, reviewing how open access infrastructure has been implemented elsewhere and the innovative ways fiber to the home can be delivered. 

networks is expensive

The need to share the costs of a network becomes quite obvious when looking at how much it costs to run fiber to individual homes and businesses. Estimates vary for passive infrastructure, from around $500 in Paris to $3,000 in rural areas (Verizon is quoting $800-1,000 for its FiOS network). The passive network and the attendant earth moving necessary to build it are the least sexy bit of the network, but it is where 50 percent to 75 percent of the network investment goes. 

The more homes and businesses that connect to the network, the cheaper the cost per connection is, making penetration key to profitability. A network where only 20 percent of the homes in an area connect can be three times more expensive for the individual subscriber than a network with 60 percent penetration. (This is why FiOS is sometimes quoted to cost between $4,000 and $9,000 per household).

Open access

Open access involves several ways of realizing multiple competing networks and/or access providers in a region. Starting from the physical infrastructure, it can mean:

  • Shared access to the hole/pole
    in the ground, so that multiple network providers can lay their ducts

  • Shared access to a duct so that
    multiple network providers can lay their fiber cables inside
  • Shared access to the dark fiber
    from a central location. Consumers will choose an access provider and the fiber
    going to their home connects to that provider's active equipment

  • Shared access to the active
    equipment that is operated by an independent third party. The access providers
    will connect to a central location and from there to the home, the active
    equipment is operated by the independent third party.

Each of these models has been implemented around the world and has been advocated by such organizations as the OECD and the Yankee Group to increase broadband penetration.

Offering shared access to supporting infrastructure like holes, poles, and antenna sites is done all over the world. Any way of sharing the investment saves money for all the parties involved. Local governments sometimes require joint digging in order to reduce the impact of the civil works on their town. 

Shared access to antenna sites is even more common, as there are often a limited amount of acceptable sites available and local governments often restrict the number of antenna sites. Some companies have made good business out of renting out antenna sites multiple times to wireless network providers at a cost below what it would cost an individual wireless network provider to build its own network site.

A Parisian sewer 

Some communities go so far as to dig ditches and lay ducts themselves and then rent them out to network providers. One such case is the sewer system of Paris, France which was designed in the 19th century to be big enough to walk in. Now fiber providers get inexpensive access to the sewer system to lay their ducts, which has allowed them to reach the whole city at extremely low costs with a minimum of earth moving.

Providing dark fiber on open access terms is common in Sweden and the Netherlands. The Stokab agency in Stockholm provides access to dark fiber throughout the city. Its customers are not just telecom companies, but also other organizations interconnecting multiple locations. The customers bring in their own active equipment to connect the sites. Stokab doesn’t define what technology or equipment the customers use.

In the Netherlands, the Reggefiber company has introduced a commercial business model with little to no government subsidy, providing open access dark-fiber FTTH (fiber to the home) networks. The original owner of the network comes from a construction and real estate background, so its focus is not on providing telecom services. Instead, it sees its investment as a real estate investment. And like renting out a shopping mall or office building, it is more focused on occupancy (penetration rate) than on the specific business of the tenant. The business became so successful that the local incumbent KPN acquired a 41 percent stake in the company.

A managed network can provide access to all customers without the ISP needing to bring in active equipment into various parts of the network. This type of network was introduced in Amsterdam and is managed by the Citynet organization. Citynet in turn has contracted a network operator/telecom to manage the network on its behalf, which provides speeds of up to 100Mbps. Providing the active equipment makes it possible to have a LAN-type network on the city scale, with multiple service providers offering various services to end users.  There are some drawbacks, however: the independent third party is yet another party to blame when something goes wrong, and upgrades to higher speeds or alternative architectures can be problematic.

to open access

As is extremely evident in the US, incumbent telecom companies are against any form of open access that (by law) requires them to share their holes, ducts, fibers or active equipment with new market players. The argument often is that this would give the new entrants an unfair advantage and would deter investment because the builders of the new network aren’t the only ones reaping the benefits of their investment. Competition between several infrastructures should be the goal according to this view.

Another way of interpreting this position is that the incumbent telecom company has a head start compared to its competitors. The telecom can roll out its network at a lower cost because it already has some of the facilities (ducts, poles and offices) required and it has the customers to guarantee the penetration levels necessary to sustain the business case. Would-be new entrants have a hard time gaining financing because of the need to duplicate the existing infrastructure that the incumbent won't share. 

In practice, it is highly unlikely to see two competing FTTH-networks in the same region. Two (or more) networks increase price and thereby potential losses for the investors. The current competion between cable and telephony is a historical fluke because both networks used to offer incompatible services. Now they can offer more or less the same service.

What has become clear in Europe is that being regulated doesn’t have to be bad for the investor and can even provide regulatory certainty. The Reggefiber investement is mandated by the Dutch equivalent of the FCC to be operated as an open network. Even the pricing has been regulated. The price is above cost and with a reasonable rate of return. This prevents the Reggefiber from acting as a monopoly.

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