Muni Fiber Vogue Won’t Dent Broadband Market, Analyst Says

European cities have “much more ambitious goals” for broadband networks than U.S. cities, Strategy Analytics Broadband analyst James Penhune said. American projects focus on delivering wireless access, while Amsterdam, Vienna and Paris “plan to set a new performance standard for high- speed Internet access by constructing ultra high-capacity” FTTH networks, he said. European cities see such access becoming a key utility for businesses, with publicly owned fiber networks benefiting citizens via universal access and more advanced Internet Protocol-based services such as VoIP and IPTV. And they doubt incumbents soon will offer similar levels of service, Penhune said.

The Amsterdam city council agreed in Jan. to launch phase one of Citynet, an FTTH project, Penhune said. Other than the city, investors include a development consortium and an investment bank. Citynet aims to cover all 420,000 homes in Amsterdam. Telecom Italia unit BBned will run Citynet, with capacity available to any service provider.

Amsterdam has sought an EC opinion that Citynet doesn’t involve “state aid” under EC rules on grounds that it has only a minority share in the passive fiber network, said Alderman Dirk van der Woude, a senior advisor to the mayor. In June, cable company UPC sued to halt the project pending an EC decision. But the court found no state aid; work on the fiber network began in Oct., he said.

President Jacques Chirac and Mayor Bertrand Delanoe have said they want all France and its capital to have FTTH and VDSL, van der Woude said. In July, Paris said it wants by 2010 to have connected at least 80% of buildings using fiber. It offered tax cuts to companies installing fiber in sewers and other city-owned rights-of-way, Penhune said.

The plan made FTTH a “practical alternative” for Free, France’s top broadband service provider. Parent Iliad will offer fiber-based broadband access in parts of Paris by mid- 2007, Penhune said. “Technically this project isn’t muni fiber,” said van der Woude. Iliad’s plan includes valuable city support -- access to its sewers, also available to other network providers.

NetCologne, a regional telco active around Cologne, Bonn and Aachen, launched Germany’s first FTTH network in July; it expects to connect customers in Cologne’s core this year or early next, a spokeswoman said. NetCologne doesn’t deem itself a “classic” municipal company, since the city of Cologne only is involved indirectly as a shareholder of its mother company, the local gas & electric supplier, she said.

NetCologne’s FTTH network aims to give Deutsche Telekom (DT) a run for its money since “we are able to reach the client directly and do not need to rent the last mile from DT anymore,” the spokeswoman said. The company doesn’t expect the incumbent to like the rollout of FTTH, but there haven’t been any problems, she said.

Another FTTH front is being explored by the Swedish Urban Network Assn. (SSNF), a trade group for network owners developing broadband infrastructure. Members include some 150 municipal and 10 or so private local and regional network owners, plus ISPs, telcos and other service providers, Secy. Gen. Lars Hedberg told us.

Many of those networks are fiber, but much of the last mile runs over Telia copper, which SSNF wants to change, Hedberg said. The group is trying to negotiate an agreement with the incumbent because in cities where member networks exist, Internet access costs 30%-40% less than in areas without muni fiber, he said.

In Nordic countries, it’s key for munis to control -- but not necessarily own -- the infrastructure, Hedberg said. It’s the only way to guarantee broadband at a fair price across large, sparsely populated regions, and to enable cities and govts. to offer e-services, he said.

Despite enthusiasm for today’s FTTH announcements and pilots, the impact on European broadband likely will be limited short term, Penhune said. Even where infrastructure is in place, it could take time to plan, contract and build out large FTTH networks, with politics or regulatory review getting in the way, he said.

With DSL and cable service uptake expanding quickly in western Europe, penetration could hit 60-70% in many larger nations in the 2-3 years needed to build muni FTTH networks in Paris and other major cities, Penhune said. Consumers who want broadband access will find it affordable, making it harder for cities to justify building and maintaining their own networks to provide free or low-cost services to a “relatively small number of low-income customers,” he said.

For incumbents, muni FTTH is more regulatory issue than competitive threat. Many cities say they want their own networks because incumbents don’t do a good job of upgrading their copper lines. Incumbents in turn blame regulators for forcing them to open their networks to rivals, making it tough to justify FTTH’s high costs, Penhune said.

“The noise about municipal FTTH has clearly reached the ears” of the EC, this year reviewing its telecom rules. The Commission likely will view the efforts of Paris, Amsterdam and the others as too limited, instead prodding incumbents by exempting next-gen networks from open access rules, said Penhune. That may or may not spur incumbents to invest in fiber upgrades when less pricey alternatives such as ADSL 2+ and VDSL provide enough bandwidth for all but the most demanding services, he said.

“FTTH will come, but only step by step,” Penhune said, predicting that the next 5 years, most operators will stick to using FTTH for connecting new homes. Municipalities are better positioned to invest in fiber because they don’t need immediate return on investment, Penhune said.

Despite that advantage, “obstacles to public investment in communications networks will remain significant enough to make them relevant to a small minority of the population,” the report said. Hedberg disagreed, saying analysts probably only spoke with major incumbents. Old telecom networks aren’t adequate for future needs, he said.