I will be speaking at the WORLD CLASS DIGITAL INFRASTRUCTURE FINANCING EVENT – 13 MAY 2013; 3-5pm in Edinburgh. The political dynamic in the run up to the independence referendum is generating debate on many topics including the fibre switchover and how Scotland might promote such investment in its infrastructure. It will be an interesting discussion.

$84 million for 149K homes is $560 per home passed.
Depending on the architecture I suppose they might make $1000 per sub if they had full take-up (which is extremely unlikely I assume).

http://www.linkedin.com/e/94u4vi-hfi1cpeb-3r/ava/232004210/4880376/eml-anet_dig-b_nd-pst_ttle-cn/?hs=false&tok=1_vRXl94bNnRI1

USA FTTH Council study result

Euro telcos indicated 15%-30% expected opex savings to me, consistent with this new US research result from actual deployments. Say the average bill is 30 per month and opex is around 10 (using ne third as a typical rule of thumb ratio), then 2 saved per month is 24 per year which is worth 300 PV at 8% WACC. Thats not enough alone to justify FTTH CAPEX but its a substantial part of urban costs. If the typical bill is 80 per month however then the PV would be 800 – pretty much in line with or higher in some cases than efficient urban deployment costs.

Click here for linkedin discussion
Click here to download the white paper

White Paper: Resolving the European Rural Fibre Investment Gridlock
Don’t miss the latest White Paper from Aphaia and Ventura Team featuring an optimal strategy for developing high speed-broadband in the rural areas of Slovenia, an example of a country with early mass market FTTH investment and competition that, however, remained limited to urban areas.

http://www.telegeography.com/products/commsupdate/articles/2013/03/14/turk-telekom-seeks-to-sell-off-unwanted-copper-cables

The cost of FTTC varies with how close you get to the customer but seems to be one third or more of the cost of fibre. Given there will be a treadmill of upgrades to electronics etc and few if any opex savings the question was asked (by a client last week) if its really worth it?

If you are cash constrained I am sure FTTC makes sense but my feeling is that its not an economically efficient way to upgrade – or at least if it is then its not as good as many think. It does depend on prices etc and also how much labour you need to put into re-jigging the local loop of course.

Overall I think FTTC is lower cost of course but probably over a 20 yr period costs at least the same and probably a fair bit more than FTTH. Its a cost you pay for deferring the full switchover. But of course if the regulator enforced timely replacement then I doubt FTTC would make sense any longer. My view is that it is a creature of a regulatory distortion! Controversial perhaps but there you are.

The table below shows average daily trading volumes of free float over the last 30 days compared to total shares on the market. KPN’s shareholders hang round on average less than two months! FT and DT less than 6 months and BT’s are comparatively loyal at 17 months.  I have updated this post to include two US operators also.

In my view, this type of fleeting capital – much of it driven by algorithmic trades – is simply not appropriate for funding long term infrastructure. Of course these telcos all have longer term debt as well, but the equity component in incredibly volatile even allowing for an uneven distribution of trading patterns.  The reaction of policy makers seems to be to court shareholders, perhaps hoping they will stay around a a few more days. Much more effective would be a change in the regulatory framework persuading telcos to look at different forms of finance more appropriate for long term infrastructure. Or otherwise to encourage new companies able to better match their capital structure to the needs of the business.

And what of State Aid? I wonder to what extent decisions are implicitly benchmarked on the requirements of fleeting traders rather than a more appropriate “ideal” capital structure.

Stefan Stanislawski, 4th and 5th March 2013

Last week I explained the replacement anomaly and lack of policy drive in a 3 minute interview at the excellent FTTH Council annual event which this year was in London.  Sadly the event – the leading forum in Europe – was boycotted by BT and the UK Government except for a lone and reluctant Ofcom rep.  This seemed rather churlish I have to say but I wonder if it signals some embarrassment re the UK situation.

http://youtu.be/HEti1GYLK18.

There is a new book re the low level of investment in fibre broadband in the USA: http://business.time.com/2013/01/09/is-broadband-internet-access-a-public-utility/

The premise re oligopoly / monopoly power leading to under-investment is familiar though there is no explanation why.  Its not clear what her remedy is but what is completely missing from the description is the replacement anomaly.  This coming from a highly regarded policy analyst shows how deeply embedded – even in the USA where regulatory rate setting procedures are fought out in Court – is the illusion that telcos actually replace assets when they are paid to do so.

Susan – if you read this ask yourself how often telcos actually replace the loop compared to the asset lives assumed in the rate setting proceedings?   <<1% per year i suspect compared to 3%-5% assumed in tariff regulation.  The issue is not necessarily one of competition because that is not going to arise everywhere – the question for regulators and consumers is why are the telcos not doing what they are paid to do and how can that behaviour be changed?

If ~4% of homes are upgraded each year – using only about half of the telcos existing fixed capex budget – then after half a dozen years you will see critical mass in consumer and political demand. My guess is that the process will accelerate itself creating opportunities for more appropriate infrastructure finance and maybe even a little more competition or at least shared ownership in infrastructure in some areas.