FTTH network sharing goes mainstream in Spain
Vodafone and Orange have announced plans to jointly build a nationwide FTTH network in Spain in an effort to strengthen their positions in the converged services space and compete with Telefonica in the Spanish FTTH market. The plan involves the two partners using the same technical specifications to independently deploy street-level fiber in complementary areas.
These complementary networks will then be combined to create a single network, with each partner guaranteed access to the entire infrastructure. Both companies have stated that they plan to provide FTTH to 800,000 households and workplaces by March 2014, 3 million by September 2015, and 6 million by 2017. By this time, they plan to have covered 50 major cities and expect to have a residential penetration rate of approximately 40%.
While the notion of alternative telcos rolling out FTTH is not necessarily a major revelation, Orange and Vodafone’s deal will influence the trajectory of private sector-driven FTTH network sharing across Europe.
Is this the new model for FTTH rollout in Europe?
If this deal is approved and successful, it will demonstrate that rivals can co-invest to build a FTTH network without government involvement. This will not be the first network sharing deal between Vodafone and Orange in Spain, with both operators already sharing their rural 3G mobile networks in the country.
Through this arrangement, the operators must have built up a sufficient understanding of each other to be confident that they can make a shared FTTH network work. Vodafone has also signed a deal with O2 in the UK to co-invest in the building of a complementary LTE network, which suggests that the company is looking to partner in many of its European markets.
Vodafone and Orange’s FTTH network sharing agreement could have a significant impact on the wider telecoms industry. There are many other models of network sharing for FTTH (e.g. in Sweden and the Netherlands), most of which involve a government entity.
However, Vodafone and Orange’s agreement will prove that two large non-incumbents can reach a private commercial deal to build a shared nationwide FTTH in a major European market.
Similar deals to the one between Orange and Vodafone are already present for mobile infrastructure, but such an idea has not gained much traction as a way to build fixed infrastructure across Europe. For more information on the different ways in which market players can come together to build infrastructure, see Ovum’s report The Neutral Host Model: The Devil is in the Detail.
Co-investing in a shared network is commercially expedient
Orange and Vodafone’s joint FTTH rollout is a commercially expedient step by both operators to limit their capex and reduce the risks associated with the uptake of FTTH. In the past, alternative telcos relied on local loop unbundling to provide DSL services, but these are increasingly insufficient for users’ growing bandwidth needs and inadequate for the digital future of Europe.
However, the resources required to build out a nationwide FTTH network has made it difficult for alternative operators to commit to a full-scale FTTH rollout. As a result, it is not surprising to see that Telefonica controls approximately 95% of the FTTH lines in Spain.
By entering into a partnership, Vodafone and Orange are looking to catch up with Telefonica’s FTTH footprint while staying within their affordable capex limits. Vodafone took over Tele2’s Spanish business in 2007 and needs to take action to retain its position in the country’s fixed broadband market. Likewise, Orange added Deutsche Telekom’s Ya.com to its Wanadoo portfolio in June 2007.
In June 2012, Orange announced that it would invest $300m over four years to build a FTTH network in Spain. Neither player stated how much they will commit to the FTTH rollout, but they both expect to spend half of what they would have had they decided to roll out a nationwide network on their own.
Saving money on the rollout of a FTTH network also makes sense as neither telco can guarantee customer uptake, especially given the current economic challenges in Spain. In the report Monetizing High-Speed Fixed Broadband: Insights and Strategies, we noted that there is no “killer” selling point for high-speed broadband and that there is little potential for tariff premiums.
Achieving convergence requires bold decisions
Rather than charging a price premium for FTTH, we expect that both Vodafone and Orange will use it as part of their converged services strategies. At Mobile World Congress 2013, Benoit Scheen, Orange’s senior executive vice president of Europe (excluding France), was emphatic about the operator’s goal of offering converged services across its European footprint.
Scheen said that Orange will achieve this goal through partnering, M&A, launching greenfield operations, and using LTE and satellite services to offer fixed wireless access.
Similarly, Vodafone has not hidden its desire to break away from its mobile-only legacy, especially in Europe. It already offers fixed telecoms services in several of its markets and has spoken about future fixed telecoms infrastructure developments across Europe.
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