Thursday, February 26, 2009

FTTH - the effects of regulation

Regulation may hinder FTTH

Regulatory uncertainty continues to challenge fiber-to-the-home (FTTH) investment globally, as regulators struggle to find a way to encourage competition without discouraging investors or disadvantaging incumbents, according to a global report issued by the Yankee Group Dec. 31.

While incumbents remain convinced that open access or wholesale models won’t enable them to earn a return on their investment, regulators would prefer open access models, said Benoit Felten, senior analyst with Yankee Group and author of “Fiber to the World: A State of the Union Report on FTTH,” along with co-author Vince Vittore. In the report, Felten advises regulators to be more decisive, choose a model for regulating next-generation access networks and move on, since regulatory uncertainty is almost guaranteed to slow investment in new networks.

“I think the core issue especially right now with [the economic] crisis going on is that the regulators are under a lot of pressure, moral and governmental, not to hit the big guys,” Felten said. “But if you want to ensure competition in a new market from day one, you have to take a tough stand. At the end of the day, a solution is not going to come from regulators, it will come from competition.”

In markets such as Japan, where open access was mandated, NTT built a network designed to allow competitors in, including sizing cabinets to provide access and providing access at multiple layers, including at the passive optical network (PON) splitters, Felten said. In areas such as the US, where no open-access requirements exist for broadband networks, FTTH and fiber-to-the-node networks being built today can’t be easily adapted to enable open access later.

In Europe, competition is emerging from alternate providers and from municipalities, and some regions – namely Scandinavia – are proving that open access FTTH networks can thrive, Felten said.

“Once the competitive pressure is high enough, and it may come from munis – then the incumbent has to act,” he said. For example, Deutsche Telekom can’t afford to lose major markets such as Cologne and Munich to competition, so DT must build its own FTTH networks, regardless of the regulatory scheme at the time. But this model gets harder in tough economic times, where there is less investment money available, Felten added.

“Depending on the countries, it is going to take a lot of time,” Felton said. “A couple of years ago, we could have imagined a lot of players willing to invest, but right now, incumbents look like the only players who will invest. This will be an issue for the next 18 months. I would say to regulators, you have 18 months to find the right solution.”

At minimum, Felten’s advice to governments that don’t want to subsidize FTTH deployment -- as the Japanese, South Koreans and Nordics have -- is to make sure the legal environment aids rather than hinders the network rollout and to make sure that laws regarding in-building wiring, dig-sharing or aerial networking don’t disadvantage potential new competitors. In low-density rural areas where deployment is most expensive, governments may need to consider funding deployment of FTTH, Felten said.

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