Diffraction Analysis partnered with the Broadband Asia event held in Bangkok on April 24-25th. In the run up to the event, I will be sharing some thoughts about market trends in Asia.
Asia Pacific is a paradox when it comes to next generation wireline access. The region leads every international ranking in terms of deployment and penetration of FTTP, and yet there is no region where the disparity between the haves and the have-nots is so stark. In other words, while some countries are very advanced in FTTP deployment and adoptions, most countries have yet to see any initiative in this space. That means there is still plenty of opportunity, but they lay in challenging environments. In order to assess where these opportunities might lay, we first need to recognize a few key regional aspects:
1. In most APAC markets (and certainly in all markets that have not yet deployed FTTP) there is no alternative to full-fibre: copper extension technologies (VDSL, FTTC) require an existing copper network, and good quality copper at that. In most APAC developing markets, this copper network doesn’t exist and never existed. Fixed Wireless isn’t currently a viable alternative from an economic standpoint, in large part because the fiber aggregation network would need to be built anyway, thus making the economics worse than FTTP in urban areas. So really, it’s FTTP or nothing.
2. Virtually every APAC market where FTTP has seen significant deployment, the state was involved one way or another. In Japan and South Korea, government directives on infrastructure are followed by market players (especially incumbents) even if business cases are uncertain. In New Zealand, the government invests in FTTP deployment. In Australia, the government directly funds NGA deployment (including, but not limited to FTTP). Singapore initiated its NBN through direct intervention. In China and Vietnam, the government told the state operators to deploy and they complied. In Malaysia the state subsidised the first tranche of FTTP deployment (despite the fact that there was a viable business model without subsidies…) Hong-Kong is probably the only market that happened organically through private initiative, thanks to trailblazer HKBN.
So really, there are two core questions here when looking at where FTTP might happen next:
1. How can other governments intervene most effectively ?
2. Can private initiatives provide further FTTP deployment and how ?
A few years ago, my company Diffraction Analysis produced a white paper in collaboration with Nokia exploring the successes of government driven broadband initiatives. In this paper we designed a set of tools that might be used by policy makers to facilitate and accelerate the deployment and adoption of fixed broadband in developing economies. I will not list these tools here, but you can find the white paper by following this link.
The key point is that very often policy makers assume that nothing can happen without massive public subsidies. That could not be further from the truth. Here are some examples:
- One of the largest (missed) opportunity is the fibering up greenfield multi-tenant buildings as they are being built. Many emerging markets in Asia Pacific (and elsewhere) experience a real estate boom as an emerging middle class aspires more stable and better quality accomodation. These new buildings are often connected to whatever copper network exists, or not connected at all. Fibering them up would cost no more (in fact quite often less) than connecting them with copper, and utilisation on that infrastructure would be massive because these are people who can afford and want connectivity.
- In some countries in the region (particularly India) rights of ways are prohibitive and preclude most private initiatives. Companies like Jio are in the process of deploying FTTP, but are struggling in part because of these excessive legal costs.
- In most emerging markets infrastructure (electricity, water) is being deployed yet there is no plan to combine infrastructure networks on a single underlying network (ducts or poles). Leveraging planned work is one of the easiest way to lower the cost of fiber deployment.
The three examples above require some form of state intervention, but no significant funds.
There is no doubt that deploying FTTP in developing markets is challenging. But there are aspects of these markets that make the business case a little less challenging: a key one is the low cost of labour; and labour costs represent the biggest part of FTTP deployment. Another is habitat density in urban areas, which again lowers deployment costs. Of course, offsetting that is the relatively low amount of potential revenue per geographical subdivision. In order to compensate for the latter, one key remedy has long been identified, but rarely put in practice: infrastructure sharing.
A key example here (out of the region) is the Columbian national fiber network. This is not an access network, but a price regulated (but privately owned and operated) fiber aggregation network that connects thousands of towns and villages where previously no broadband was available. In a matter of years, this network has had a massive impact on connectivity of individuals and businesses and continues to expand. The key here is that all market players have access to that network at regulated prices.
Of course New Zealand is a shining example of the same philosophy being applied in the access. I mentioned Columbia to avoid immediate dismissal of the New Zealand example because New Zealand is a developed country. Columbia isn’t, and yet the model worked there too.
There are essentially two ways that such infrastructure sharing models can emerge. The first one is to have the government invest in (as in New Zealand) or partly subsidize (as in Columbia) a neutral market player (with key deployment targets) and regulate access prices on that network. A key element here is that the network be structurally separate from market player to ensure neutrality and transparency.
Another approach is for market players to co-invest in a network that they can then all share. This model has been put in practice in Switzerland, among other places, and can be structured in different ways. It even allows the government to participate as a dormant investor if it so wishes. As long as none of the retail players have control over the structure, neutrality and transparency can be insured.
As I hinted at in my previous article on transasian strategies, I suspect that this is not only crucial to getting fixed services deployed in Asia Pacific, but to getting 5G deployed as well. The amount of fiber needed for 5G services to deliver their expected benefits is an order of magnitude higher than what 4G required, and simply doesn’t exist in most of the emerging markets of Asia-Pacific. A state led approach to ensure that not only a fixed network emerges but that mobile networks don’t fall far behind what will be the norm in developed markets is probably the easiest way to get there, but again, private players all have a vested interest in this happening anyway. That should be incentive enough to talk and collaborate.