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February 19, 2010
The FTTH Council Europe hosts its seventh FTTH Conference February 24 and 25 in Lisbon, where I will be presenting highlights of a Pyramid Research study commissioned by the Council to assess pricing strategies of FTTH operators. We selected 12 service providers operating FTTH- or FTTB-based networks, compared their pricing schemes for fiber, xDSL and mobile broadband services, compared these with their broadband competitors, and analyzed the implications of their pricing strategies on service adoption, average revenue per household and profitability.
We found that price continues to be the single most important determinant in the selection of a service provider for the majority of the world’s broadband customers. We also concluded that pricing for FTTH/B services has been dictated largely by the level of market competition: the stronger the competitive pressures, the lower the prices. Indeed, at the end of Q2 2009, prices for broadband fiber access were lowest in Japan and South Korea — two of the world’s most competitive broadband markets.
FTTB networks have also enabled operators to offer lower prices. For example, VimpelCom Beeline in Russia has been able to bring down the prices of their services thanks to lower capex per household. Beeline has become EBITDA-positive with a 10% take-up rate.
Exhibit: Monthly fees for FTTH/B-based broadband access, Q2 2009
Source: Pyramid Research, operators
While the majority of the service providers we analyzed have set the prices of their fiber-based services at a premium to services offered on their alternative broadband networks (i.e., xDSL), FTTH/B-based broadband access prices are competitive with the prices of comparable or high-end offerings over xDSL, HFC/DOCSIS 3.0 and mobile broadband networks from other carriers in their markets In terms of bandwidth, broadband fiber access offerings boast significantly superior data rates on the uplink, while DOCSIS 3.0 has to date enabled broadband cable operators to match fiber downlink speeds.
Against a backdrop of maturing broadband markets with limited room for organic growth, FTTH/B networks have largely strengthened the market position of the service providers we studied, enabling them to enjoy improved broadband uptake rates, customer satisfaction levels and loyalty as well as ARPU. Broadband fiber access ARPU has been 1.1-1.5 times higher than market averages across the countries where these service providers operate — a nice revenue boost driven by premium prices for fiber service.
Going forward, however, we don’t believe that premium pricing for broadband access is sustainable, given the rate of service commoditization taking place in today’s competitive communications and media markets. To make their FTTH investment a financial success, service providers need to focus on growing revenue by adding more customers, enhancing product attractiveness and increasing the number of revenue-generating services — as well as by reducing costs through improved operational efficiency and customer satisfaction leading to lower churn. Our analysis concludes that the selected service providers have only scratched the surface and that their competitive advantage will become more apparent as they accommodate new services and meet customer needs without rewiring homes or retrenching cables.
If you are attending the show next week, please join me on the afternoon of the 25th, when I share more details on our findings. I would love to hear your thoughts!
— Ozgur Aytar, Senior Manager, Broadband Research
Related resources:
Global Fixed Communications Forecast
Forecast published quarterly
Our Fixed Communications Forecast products provide a complete picture of wireline voice and data communications globally, for each of six regions and for 60 individual countries. The Excel output includes five years of historical data and five years of market projections for metrics such as demographics and economic trends, penetration of broadband and narrowband lines, Internet users, business users, voice telephony lines, VoIP, PCs, IPTV and revenue. We believe our Fixed Communications Forecast is superior because it captures granular data gathered through extensive field research and use a thorough methodology consistently applied to all markets. Data from these Forecasts is available online for subscribers to our DataTracker service.
Fiber Buildouts in Europe: A Competitive Necessity for Telcos
Europe Telecom Insider published August 2009
As European economies start to show positive growth, operators’ position on fiber coverage will become decisive for competitiveness and post-recession growth, as DSL is increasingly lagging in terms of coverage, capacity and price compared with cable and especially fiber. Fiber could shield telcos from mounting competition and fixed-mobile substitution and provide opportunity for further growth. This report examines the potential of fiber developments in Europe and contains a detailed analysis of the competitive technology and fiber developments in selected countries: the Netherlands, Romania, Russia and Spain. The report also provides Pyramid Research’s five-year forecast on FTTH and FTTB in the four selected markets and in Europe overall.
Global Multiplay Forecasts
Forecasts updated twice yearly
Our Multiplay Services Forecasts provide service demand and revenue trends for bundled and blended telecom and media products in 23 countries around the world. They track operator-level performance and include historical and projected data on household adoption of and service revenue from double, triple and quadruple plays as well as fixed-mobile convergence (FMC) offerings, such as femtocell- and UMA-based applications. Data from these Forecasts is available online for subscribers to our DataTracker service.
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