Bbc jan13 ftth_households

30 | BROADBAND COMMUNITIES | www.broadbandcommunities.com | January/February 2013

INDUSTRY ANALYSIS

Best Year for FTTH Since 2008Fiber-to-the-home vendors and providers enjoyed a great year in 2012, according to new research by RVA LLC. RVA forecasts a stable market over the next few years, followed by a new upturn in 2016.

exhausted. To move forward, deploy-ers and prospective deployers of FTTH need either free cash flow or something to mortgage. In fact, they have an incen-tive to do so: Money in the bank earns no interest, and carrying charges are low if they borrow.

Among the entities that have access to financing in this environment are municipalities that can mortgage their water or electrical plant and multiple-dwelling-unit (MDU) communities. Owners and sometimes operators of large brownfield MDUs and multi tenant commercial buildings can often secure bank financing for fiber networks, as these systems are generally considered liquid (easily sold by a mortgagor that has to take over from a failed operator).

Greenfield FTTH projects can typi-cally be financed by developers as part of construction mortgages. (See the Band-width Hawk column from the May-June 2012 issue of this magazine, bbcmag.epubxp.com/i/71834/12.)

Render notes that in 2013 and 2014, Verizon is committed to building out FiOS within its existing footprint to meet its franchise obligations, which will help keep the FTTH market on an

even keel for the next two years. In ad-dition, greenfield projects – both MDU and single-family – are finally growing. According to Render, “The huge inven-tory of old copper-fed lots [is] finally be-ing worked down, new developments are starting again (fiber-fed this time) and housing starts appear to finally be on an upward trend.” In addition, he says, FTTH growth in Canada and Mexico should help carry the North American market.

Thus, from a low in 2011, Render forecasts a slow continued increase in FTTH homes marketed in 2013 and 2014, followed by a slight dip in 2015 and then by more rapid growth in 2016 and 2017, assuming that greenfield de-velopments continue to grow. He esti-mates that direct investment in North American FTTH deployment will total $18 billion during the next five years and grow to $4.7 billion annually by 2017.

The revenue potential is there: Ren-der predicts that annual revenues de-rived by FTTH providers from ultra- high-bandwidth applications and ser-vices beyond the triple play will reach $4 billion by 2017, or $9 billion cumu-latively over the next five years.

By Steven S. Ross ■ Broadband Communities

About the AuthorCorporate editor Steve Ross can be reached at [email protected].

RVA LLC’s Michael Render will report on his next survey about MDU residents and FTTH

at the BroadBand Communities Summit in Dallas, April 16 –18.

North American fiber-to-the-home deployers forged ahead in 2012, passing 2.7 million homes

with fiber between September 2011 and September 2012, marketing fiber services to 3 million more homes and connecting 1.5 million new FTTH customers.

This growth – the industry’s best showing since 2008 – occurred as stim-ulus projects advanced in the United States and as the leading Canadian telcos ramped up their FTTH construction.

Revenue kept pace as well, with FTTH customers paying, on average, more than $57 a month for data – by far the most profitable offering a network provider can sell. Customer satisfaction soared, and average take rates continued an unbroken, decade-long rise.

The good news about 2012 comes from market researcher Michael Render of RVA LLC. To gather the informa-tion, he conducted interviews with 350 service providers and multiple vendors and industry experts. In June, his firm surveyed 2,000 broadband users. Mexi-can deployer data came from IDATE, the international market research firm.

Render also noted that three of five current FTTH deployers say they are likely to continue building FTTH. Of the remainder, many have built out their entire footprints already, and others, es-pecially in rural areas, are worried about changes to Universal Service Fund disbursements.

FiNANciNg chAlleNgesFinancing FTTH builds in today’s fi-nancial environment is challenging. The ability of deployers to sell stock to finance FTTH is zero. The bond market is uncertain. Stimulus funds have been

January/February 2013 | www.broadbandcommunities.com | BROADBAND COMMUNITIES | 31

INDUSTRY ANALYSISecONOMic iMPAcTsFTTH adds value to homes. Owners of fiber-connected homes say fiber in-creases home value by 2.1 percent, and non-FTTH users in Render’s 2,000- person sample estimated 1.7 percent. These figures were derived by asking respondents how low a price they’d re-quire for a non-fiber-connected home.Non-FTTH users believe that a home that doesn’t already have a very high-speed Internet connection from a di-rect fiber optic line and advanced inside wiring would have to be discounted an average of $5,337 to be considered for purchase. Those already using FTTH believe an average discount of $6,451 would be required.

Availability of a fiber connection is among the most important amenities to buyers shopping for new homes. Among current FTTH users, it is the most im-portant amenity.

FTTH also lowers community costs. FTTH users work an average of 1.2 ad-ditional days per month from home compared with non-FTTH users. As-suming 50 percent FTTH take rates, FTTH drives a 3 percent community-wide increase in work from home and

thus a 1.8 percent reduction in total ve-hicle traffic and related public costs.

Carriers, especially municipal net-work providers, notice a substantial eco-nomic impact from fiber to the home. FTTH users are more likely to partici-pate in every online activity than users of other broadband technologies; 67 per-cent of FTTH users who are employed sometimes work at home, and 11 percent of FTTH users have home-based busi-nesses, which average $55,000 in annual revenue ($14,500 in additional income, after expenses).

Again assuming 50 percent take rates, community revenue increases by an average $500,000 and 25 new tradi-tional jobs per 1,000 homes passed with fiber. The secondary job impact could mean as much as $1.1 million in new an-nual salaries to the community per 1,000 FTTH passings.

Although people often assure me that fiber to the home is unnecessary because “everyone” accesses the Inter-net through handheld devices, Render’s study does not bear out this theory. His research finds that users spend 88 per-cent of their online time on laptop or desktop computers. Even the most avid mobile users – people under 35 – use computers 82 percent of the time. Users of all ages spend 5 percent of their on-line time on tablets, and other handheld devices, typically cellphones, account for 14 percent of online time among those 35 and under and 7 percent of time among those older than 35.

cANADA AND MeXicOOf the 9 million FTTH customers in North America, about 8.3 million are in the United States. In the last few years, however, FTTH growth in Canada and

A fiber connection adds between $5,300 and $6,450 to the value of a home, according to

respondents in RVA LLC’s most recent survey.

Percentage of FTTH customers in each state. Due mainly to Verizon FiOS deployments, the Northeast has the highest FTTH penetration. Not shown: Hawaii, 1% and Alaska, 0.3%. Data from RVA LLC, September 2012.


INDUSTRY ANALYSIS

Mexico occurred faster than some are aware of. Canada, with more than 1 million homes marketed and close to 2 million homes passed by fiber, is catch-ing up to the United States in percent-age of homes passed – about 20 percent (the United States has about 22 percent).

Providers in Mexico include Telmex, Axtel and TotalPlay. In Canada, Bell Aliant leads the way. There are 700,000 homes passed by fiber in the Caribbean, more than 10 percent of all homes out-side Cuba.

Mexico’s low 17 percent take rate (FTTH is just getting started there de-spite almost 1.5 million homes passed and marketed) depressed the North American average, however. For the United States only, take rate was 44.2 percent, but when the 2.5 million homes being marketed in Canada and Mexico are added in, the combined North Amer-ican take rate (homes connected divided by homes marketed) is 42.2 percent.

The BANDWiDTh iMPeRATiVeAlthough gigabit networks have re-ceived widespread news coverage and about two dozen providers offer 1 Gbps service, the number of gigabit custom-ers is still quite low. The real action is in

the 50 Mbps to 100 Mbps range. There, growth in the past four years has been startling. Render’s surveys show that in just four years, the number of 100 Mbps users in the United States grew from 7,200 to well over 500,000.

100 Mbps subscribers2009 7,2002010 69,7002011 170,3002012 516,500

50 Mbps subscribers2009 39,8002010 162,5002011 347,6502012 803,461

U.S. broadband users are moving from slower technologies such as DSL and fixed wireless to FTTH and cable.

FTTH has increased its market share to about 8 percent of all U.S. house-holds, up from almost zero in 2006. Cable service increased from 40 to 50 percent market share in that same pe-riod. The growth of FTTH and cable came primarily at the expense of DSL (which dropped from about 40 percent to 32 percent despite widespread deploy-ment of U-verse by AT&T) and of fixed wireless, which dropped slightly to 10 percent.

As demand for faster service in-creases, FTTH looks better and bet-ter. Median tested download speeds for FTTH connections now top 20 Mbps, up from 5 Mbps in 2007. Cable upload speeds increased more slowly, from 7 Mbps in 2009 (FTTH was at 12 Mbps that year) to 14 Mbps.

Fiber’s advantage for upload speeds is, of course, even better. Median tested

4.09 6.10

8.00

9.55 11.76

13.82

15.50

17.22 18.25

19.90 20.80

21.60 22.60

24.30

0

5

10

15

20

25

Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12

Mill

ions

Source: RVA LLC

FTTH Homes Passed, September 2012 (Cumulative, North America)

Between March and September 2012, an additional 1.7 million North American homes were passed with fiber as stimulus projects advanced in the United States and Canadian FTTH construction ramped up. That’s well above the previous six months and the fastest growth since 2008.

U.S. broadband households are migrating from DSL and wireless service to fiber and cable

service, which offer higher speeds.


INDUSTRY ANALYSIS

upload speeds are now about 10 Mbps, compared with 1 Mbps in 2007. Ca-ble upload speeds went from less than 1 Mbps in 2009 (at which point FTTH speeds were above 2 Mbps) to a median of 3 Mbps in 2012. In addition, FTTH carriers have bandwidth to spare; few of them set limits on the volume of cus-tomer uploads and downloads.

Gigabit speeds are the next plateau. In-cumbent local exchange carriers (ILECs)

that deploy fiber tend to be rural and have lower demand for speed, less competition and higher costs for con-nections to the national telecommuni-cations grid. However, middle-mile net-works funded by the stimulus program put them into the gigabit game.

More than three-quarters of all FTTH connections are by RBOCs – mainly Verizon. Small ILECs and their competitive (CLEC) subsidiaries ac-

count for more than half the remainder. CLECs and municipal providers are best at taking advantage of fiber’s ability to provide symmetrical or near-symmet-rical bandwidth.

Then there is Google.Render reports that Google had more

than 30,000 registrants in Kansas City in September and had approved fiber construction in 180 of the 202 “fiber-hoods” it had identified there. Rumors

3.22 5.08 6.64

8.00

10.08

12.36

13.30 14.40

15.40 16.50 17.60

18.30 19.20

21.30

0

2

4

6

8

10

12

14

16

18

20

22


Mill

ions

Source: RVA LLC

FTTH Homes Marketed, September 2012 (Cumulative, North America)

The increase in homes marketed for FTTH rose by a healthy 2.1 million for the March-September period, the largest increase since 2008.

0.67 1.01 1.48 2.14 2.91 3.76 4.42 5.28 5.80

6.45

7.09 7.50

8.00

9.00

-

1

2

3

4

5

6

7

8

9


Mill

ions

Source: RVA LLC

FTTH Homes Connected, September 2012 (Cumulative, North America)

FTTH connections rose at a record pace – 1 million in the six months ending last September. That’s double the previous six months and a record for any six-month period.


INDUSTRY ANALYSIS

are strong that Google will eventually expand into at least a few other munici-palities and perhaps be a source of capi-tal for others’ gigabit builds.

Do users need the bandwidth? Ap-parently, yes. Median peak download demand for users who have uncon-strained access now tops 40 Mbps – about half from data downloads and about half from HD video. Growth in the number of of HD screens in typical households could push this to 100 Mbps in just the next two years. The 30 Mbps mark was passed in 2009.

FTTh TAKe RATes ARe highMost new builds are in rural areas, which historically have high take rates – typically because customers have few or no alternatives. Render tallied 880 ex-isting or planned FTTH providers. Of those, all but 25 have fewer than 10,000 subscribers.

One carrier in seven enjoys take rates above 90 percent. One in four has a take rate higher than 80 percent. In general, real estate developers who install FTTH enjoy the highest take rates.

Verizon, which has about 78 percent of all FTTH homes passed in the United States, has a take rate close to 40 percent. Most of its footprint puts it into direct competition with cable carriers. v

22.3%

26.8%28.8%

30.4%

33.4%

37.0% 37.8%38.8%

41.0%42.3% 43.3% 44.2%

33.3%

36.7% 37.4% 37.7%39.5% 39.9%

41.7% 42.2%

20%

25%

30%

35%

40%

45%

50%


FTTH Take Rates, US vs. North America

US Only

North America

Source: RVA LLC

The U.S. take rate for fiber has now reached 44.2 percent. Mexico’s low 17 percent take rate (FTTH is just getting started there) depressed the North American average, however.

Electric Co-op0.1%

Cable TV Provider1.0%

CLEC Division of ILEC1.1%

Real Estate Developer

1.5%Competitive

Provider2.6%

Municipal Utility4.2%ILEC

11.3%

RBOC78.2%

US FTTH Connections by Provider Type

Source: RVA LLC

More than three-quarters of U.S. FTTH connections are provided by RBOCs – mainly Verizon. Small ILECs and their CLEC subsidiaries account for more than half the remainder.

17%

12%

6%

3%

Wireless

Cable Modem

DSL

FTTH

FTTH Has the Fewest Usage Limitations: Percent of Respondents Aware of Volume Caps

Source: RVA LLC

FTTH carriers have bandwidth to spare; few set limits on the volume of customer uploads and downloads.


INDUSTRY ANALYSISThe North American Fiber to the Home and Advanced Broadband Review and Forecast to 2017 report is a detailed review and forecast of both FTTH deployment and consumer desires for advanced broadband applications and services. Information is available at www.rvallc.com.

$17.60 $15.30

$6.40 $3.68

$2.64

$49.38

$44.30

$49.60 $50.80

$57.35

Wireless DSL FTTN Cable FTTH

FTTH Has the Lowest Cost per Mbps And the Highest Monthly Data ARPU

Cost per Mbps

Monthly Revenue perUser for Data Services

Source: RVA LLC

Households connected to FTTH enjoy the lowest prices per Mbps (great for

customers) and yield the highest revenue (great for carriers).

24%

32%

34%

35%

44%

47%

55%

60%

61%

65%

Streaming Quality

Consistency of Speed

Upload Speed

Download Speed

Service Uptime

Percent Saying They Are “Very Satis ed” With Aspects of Service

FTTH Other Broadband

Source: RVA LLC

FTTH customers are significantly happier with their service than are customers who use other broadband technologies.

Desktop

48%

Laptop

40% Handheld device

7% Tablet device

5%

Percent of Time Spent Online by Device Type (Average for All Ages)

Source: RVA LLC

Broadband users still spend most of their online time in front

of computers, not with tablets.


INDUSTRY ANALYSIS

See the digital edition of BroadBand Communities online at www.bbcmag.com for another 14 charts showing additional findings from the RVA report.

29%

40%

46%

49%

53%

55%

63%

66%

81%

Municipal Wholesale

RBOC

Municipal Retail

Competitive Provider

Electric Co-op

CLEC Division of ILEC

ILEC

Cable TV

Real Estate Developer

FTTH Take Rates by Provider Type Real estate developers who install FTTH enjoy the highest take rates.

53%

54%

54%

81%

89%

Fitness Center/Clubhouse

24-Hour Neighborhood Patrol

Community Pool/Park

Green Space for Walking, Jogging

FTTH

Current FTTH Users: Importance of Area Amenities if Shopping for New Home

Source: RVA LLC

Availability of a fiber connection is among the most important amenities for buyers shopping for new homes. Among current FTTH users, it is the most important amenity.

87%

21%

21%

51%

66%

Any Economic Development

Employer Retention

Employer Expansion

Home-Based Business Expansion

Employer Attraction

FTTH Providers Noticing Economic Impact (municipal providers only)

Source: RVA LLC

Carriers, especially municipal network providers, notice substantial economic impact from FTTH.

53%

55%

61%

78%

83%

Community Pool/Park

Fitness Center/Clubhouse

24-Hour Neighborhood Patrol

FTTH

Green Space for Walking, Jogging

Non FTTH Users: Importance of Area Amenities if Shopping for New Home

58%

21%

21%

26%

51%

Any Economic Development

Employer Retention

Employer Expansion

Employer Attraction

Home-Based Business Expansion

FTTH Providers Noticing Economic Impact (all providers)

Documents

Bbc jan13 ftth_households