Much is being made of rival broadband access technologies and their prospects for making radical impacts on the telecoms market place. Phil Irvine and James Bennett explain that their analysis suggests that in a market where broadband to the home is currently dominated by fixed access, wireless can play a role - but only in limited areas. In more mature markets they see the dominance of incumbents' DSL offerings continue and believe these operators will be best placed to meet emerging demand for higher speeds by fibre services. In developing markets, however, the absence or poor state of fixed infrastructure and regulatory policy can make the relative deployment cost of wireless broadband very favourable. They urge prospective investors, suppliers and operators to proceed carefully. Many crucial choices need to be made - such as which territories, services and customers should be targeted?
The introduction of broadband access has been a huge driver of the growth of the telecoms sector. The services enabled by broadband have had a profoundly beneficial impact on people and businesses by changing the way they interact with each other, access information and entertainment, and conduct business. Around the world, demand continues to grow for higher access speeds and wider availability.
The telecoms industry faces significant uncertainty on how best to meet this demand. Key questions for operators and investors are whether fixed broadband access can be displaced by wireless access or emerging technologies, maybe including non-mainstream options such as Broadband over Powerlines (BPL).
These technology choices are characterised by the disruptive potential each could have on the industry structure. Investment in the wrong technology could be catastrophic for investors, operators and economies. On the other hand, getting it right could shake-up the industry.
Which technology will dominate the broadband access market will differ from country to country and where it will be deployed in-country. It will be determined by the state of user demand, technology maturity and economics, geographic coverage and regulatory policies towards infrastructure investment. Our view of which technologies will win out and where is summarised in the table below.
In developing markets, wireless broadband access technologies can play a major role so long as the regulatory environment is designed to encourage their development. In particular, wireless broadband can be seen as a viable solution for serving currently underserved areas. There is also the potential for new access technologies such as BPL to play a role, depending on whether technical limitations can be overcome.
By contrast in more mature markets, given the emerging regulatory focus on ‘access bottlenecks', broadband technologies will be dominated by fixed rather than wireless systems. In this respect there will be limited scope for new infrastructure-based operators to compete effectively and the success of wireless broadband will depend on the utility arising from mobility, not fixed access.
However, many questions remain for suppliers, operators and investors. Which territories and customers you should target? What services will succeed? How should you deploy your network? What partners do you need?
The rise and rise of broadband continues - but will it reach a point where the highest access speeds can only be met by fixed fibre?
Broadband access has been a key growth service for fixed telecoms operators around the world, whose importance is made even more significant by the decline of traditional telephony. Demand in mature markets is characterised by the continuing growth of data rates to access more and faster services. Ten years ago the typical access rate was a dial-up line at 56KB/s; today's typical service in mature markets is 2MB/s to 10MB/s.
These speeds are enabled either through DSL technology or by cable modems from incumbent telecoms and cable TV operators respectively. The technologies have limitations that restrict the type and speed of services that can be delivered across them, for example high definition video. Only fibre can support the high data rates of say 50MB/s and upwards that support these service portfolios. Deployments are already starting to take place, most notably in Taiwan, Japan and Hong Kong. In Europe a number of operators have launched Next Generation Networks (NGN), which involves fibre deployments, often to a distribution cabinet rather than the home. There is currently no foreseen role in this for wireless technology.
undamental economics favour DSL over wireless broadband - but only where fixed infrastructure exists.
For lower data rates, where wireless broadband speeds can compete with DSL, the underlying economics strongly favour DSL, as shown below. The cost of broadband deployment is dominated by access costs, and accounts for nearly two thirds of all operating costs over the first five years. The economics of deployment also strongly favour existing operators, where the scale efficiencies from widespread assets ownership means the incremental costs are far lower than for a Greenfield new entrant. As such, wireless broadband as an access service is a viable solution only where fixed infrastructure is not deployed.
This lack of opportunity for new technologies and hence new operators to enhance fixed access competition puts a clear focus on the role of regulation. Unfortunately there seems to be no consistency in policy among regulators around the world. Some regulators, such as Ofcom in the UK, have been active in suggesting a series of principles for regulating the ‘access bottleneck'. Others, such as the FCC have applied a policy of ‘forbearance', effectively relieving operators of the obligation for interconnection. The risk is that by setting a favourable investment climate, regulators are allowing operators to develop and possibly abuse a position of dominance.
The absence of DSL in developing markets presents an opportunity for wireless broadband operators especially in rural or underserved areas.
In less mature markets, the market development route might be quite different. The deployment of fixed physical infrastructure is often far less widespread than in more mature markets. Further, the success of mobile services in recent years has attracted traffic from fixed services, further reducing the means for upgrade and further deployment of fixed infrastructure. So, for example in Saudi Arabia, where only 70 per cent of households have fixed access, demand in currently underserved areas is for any form of access. Typical access speeds are accordingly lower and so the demand for higher speeds is quite different from mature markets.
A consistent feature of emerging markets is a regulatory policy aimed at encouraging the development of infrastructure through preventing resale and encouraging access in under-served areas. Unbundled local loop - DSL is therefore often unavailable and market prices for wholesale broadband are held up higher than they might be where a resale market was available. This presents an opportunity for wireless broadband to play a more significant role in urban and suburban areas, particularly where incumbents are slow to respond to the threat of a new entrant. This creates a paradox in regulatory regimes - a perception that infrastructure competition is an essential feature of a competitive market works against regulatory aims of reducing prices and increasing broadband penetration.
Our analysis of the costs of deployment in developing markets, suggests that regulatory impediments to unbundling and the high wholesale DSL cost create an opportunity for wireless broadband. In the long run wireless broadband could dominate, as its presence should inhibit further deployment of fixed infrastructure.
Broadband access is a fundamental service in the telecoms portfolio of all operators. Fixed access will continue to be dominated by incumbents' DSL and fibre services in developed markets; new opportunities will mainly exist for wireless as a nomadic and mobile service. In developing markets, wireless broadband can play a dominant role as an access service - but only in certain areas, subject to there being sufficient demand in those areas - and its prospects are strongly influenced by the role the regulator plays in encouraging the development of infrastructure competition.
Phil Irvine and James Bennett, PA Consulting Group