Another relevant (and timely) OCED report which has just been released is titled "Developments in Fibre Technologies and Investment".

The document is a balanced (although somewhat inaccurate in parts) view of the various last mile technologies that could be used in the building of a National Broadband Network. It includes evaluations of various technologies (FTTH, WiMAX, BPL, VDSL2, ADSL2+, HSDPA/HSUPA, DOCSIS) available to roll-out high speed first mile networks with speeds of up to 50 Mbit/s. It clearly indicates that though wireless technology will be important, it will not be the dominant technology to connect homes and businesses to broadband networks. Instead wired technologies have a distinct advantage in performance as well as economic investment.

As I have been discussing in a number of forums, the OECD paper supports my suggestion that both WiMAX and HSDPA/HSUPA will be a valuable technology to use in the regional/rural areas where FTTN or FTTH would be too expensive to deploy due to distance and housing density. It also suggests that FTTN (both VDSL2 and ADSL2) is a short term "step" technology to FTTH. However, the document does make one negative comment towards FTTH:

"When examining the market from the point of view of investors, it becomes clear that the dynamic situation and the economics of an investment make it likely that many long-term investors will remain wary of investing in fibre to the home. The costs are substantial and the risk posed by competing hybrid networks can be substantial."

This comment is actually not orginal and is quite dated. It comes from a statement made by one of the investment houses (Goldman Sacks from memory) on Verizon's annoucement of their FTTH rollout in early 2004. Three years later in 2007 they admitted they were wrong in their conclusion and recommendation on Verizon. FiOS had been a great success and the turning point for the company. Furthermore if the Australian Government is contributing to the investment in a National Broadband Network, does this not significantly lower the financial risk to investors.

I read with interest the pricing model of their pilot projects on page 45, where the report suggests the cost per home passed will be AUS$1384 and the cost per home to connect will be AUS$1230. Interestingly the numbers mentioned in the SIG recommendations to the Governement where AUS$500 and AUS$1200 respectively. While we were very close on the cost to connect, there was a substainial difference on the cost to pass.

Why is that? Well one needs to carefully read both reports and understand the differences in modelling and deployment methods. To summarise those differences:
  • Fibre to the home in Netherlands has been based on Point to Point (PtP) topology and not Passive Optical Network (PON) topology. The projects evaluated in the costing model where all PtP.

  • The cost differential between PON and PtP topologies in the Passive components of the network (the fibre and its installation) is SUBSTAINIAL. The supply and installation of PtP passive components can be three to four times more expensive than PON. This is mainly to do with the loop lengths, the size of conduits and the much higher cost in splicing.

  • A PtP topology also uses a seperate fibre for the MATV, thus adding twice the cost of fibre and installation on top of the already inflated passive cost.

  • The pilot projects and financial models were based on the cost of undergrounded fibre, rather than 70/30 mix of aerial/underground deployment as suggested in the SIG recommendations. Underground is $500 per home more expensive than aerial.

  • The financial model included Amortisation, Depreciation and Interest, which are operating costs not capital costs. The SIG recommendations where based on capital cost only

  • The average price of 872 Euros (A$1384) is excessively high even when compared to Verizon and NTT, or the TasColt and Bright Trials.
  • The average price of 872 Euros (A$1384) would be consistant with the use of PTP fibre optic infrastructure.

  • These projects used a new leadin to the home, whereas the SIG recommended to reuse the existing leadin thus saving about $200.
  • The projects where also rather small, and would not get the economies of scale such that NTT and Verizon currently enjoy

Lastly and most importantly read the exclusion, "To obtain a better understanding of these parameters and the costs, the Ministry of Economic Affairs in the Netherlands commissioned a study by Arcadis (see an engineering consultancy to build a cost-model of an all-fibre network. The cost-model has been validated by the costs of several Fibre to the Home projects in the Netherlands. The model is geared towards the Dutch situation and can therefore not be easily copied by other nations".

So in conclusion, the information presented by the SIG is consistant with that of the OECD report when one considers the savings of PON, Aerial, Amortisation, Interest, Depreciation, and staffing. This would equate to $850-900 ($500 aerial, $200 PON, $100 Amortisation/Int and Dep, $50 staff) in savings thus giving a price of about $485-$535 (the SIG estimated $500). So in all, the prices quoted in the SIG report are consistant to those quoted in the OECD report when considering the different parametres and application to the models.

One final point for those who have disagreed with my article "The Myth of FTTN". The OECD also draws the same conclusion in regards to VDSL2 technology; that it would require nodes placed less than 450 metres from the house to deliver the required symmetrical performance.


At 09 April, 2008 15:24 Anonymous said...

Link to$FILE/JT03243516.pdf
doesn't work. :(

At 09 April, 2008 17:02 Stephen Davies said...

Fixed. Thanks


Post a Comment