With all of the recent developments and announcements within the South African Fibre to the Home (FTTH) space, I sat back and thought about where we are today, and where we will be in the near future with FTTH.
- Telkom’s copper strategy is completely exposed by upcoming FTTH providers.
- Telkom FTTH strategy is slow to adapt to market needs.
- Uncapped offerings will slowly fall away.
- FTTH competition is increasing to our benefit.
- FTTH pricing will converge with copper, and will be virtually the same in the future.
We all know that there’s plenty of copper in the ground, so why are people so fixated on FTTH? Well let’s understand FTTH a bit better.
So what is FTTH?
It is important in understanding where we are in South Africa today by FTTH, and understanding Telkom and what they offer and how the gaps in their strategies are leading to new FTTH business models:
- FTTN(fibre-to-the-node): Fibre is terminated in a street cabinet, possibly miles away from the customer premises, with the final connections being copper. This is where Telkom are, at a minimum, today.
- FTTC(fibre-to-the-curb): This is very similar to FTTN, but the street cabinet or pole is closer to the user’s premises, typically within 300 m. This is where Telkom are having huge issues with copper theft.
- FTTH(fibre-to-the-home): Fibre reaches the boundary of the living space, such as a box on the outside wall of a home. FTTB is identical, except FTTB reaches the basement in a multi-dwelling unit or workspace.
Where we are today in South Africa
So if Telkom has a minimum of FTTN, why are their copper products so bad? Well, we know copper is inferior, but how?
There is an adverse relationship between the distance from the exchange and the available bandwidth when you are using copper. The latest version of DSL is called VDSL2. It can carry a signal of more than 200 Mbps, but only for about 350 meters. At a distance of 750 meters, it can carry a signal of only 100 Mbps. Over a distance of a Kilometre, it can deliver only about 30 Mbps, and that’s the theoretical limit. In practice the real bandwidth is less.
Optical fibre is unique, in that it can carry a high-bandwidth signal over enormous distances. Fibre uses laser light to carry the signal. Under most circumstances, the signal can travel more than 25 Kilometres without degrading enough to keep it from being received. And despite all of this, it is far cheaper to rollout than copper, due to the raw cost of copper, and of course, unlike copper, it has no second-hand commercial value.
The equipment necessary to send the light signals keeps getting better and cheaper. So equipping an existing fibre network with newer electronics and with lasers that pulse light faster, or lasers using different wavelengths of light, can vastly increase the available bandwidth without changing the fibre itself. That’s why fibre networks are said to be “future proof”.
So what does this mean in today’s terms for Telkom?
The above definitions lead to the understanding that Telkom only really has FTTN in place, and the majority of Telkom’s copper network is well over 300m from the end-user to the exchanges. This means that Telkom’s copper network, in real terms, is ineffective. And Telkom are dragging their heals in rolling out FTTH, and only doing so to replace their aging copper network in order to sweat their copper asset.
Telkom versus other FTTH providers
Layman definition of symmetric vs asymmetric Internet:
- If you have a symmetrical connection, you will be able to upload data to the Internet, whilst also being able to download large files, without loss of bandwidth.
- If you do a speedtest on your line, and your download speed is far greater than your upload speed, this is asymmetric.
Telkom’s FTTH offering is asymmetric, a seemingly unique strategy, and seen across both their copper (DSL only) and FTTH products. Telkom do this so that they can oversell their Internet capacity to the Consumer market. Had Telkom not done this, they would have lost a huge chunk of revenue. Only recently, due to market competition and market needs, has Telkom started to offer symmetric FTTH products. This falls in line with market trends moving towards symmetric services. Try do a video conference call on an asymmetric connection, it simply won’t work.
The Future of FTTH
Coverage areas and what to expect
We are already seeing a definitive coverage of fibre with players rolling out aggressively over the last 5 years, and Telkom slowly replacing their copper. This will, however, take a significant amount of time and money to roll out to non-metro’s as costs are prohibitive.
AUP vs PPU (Acceptable Usage Policy vs Pay Per Use)
Uncapped will fall away over time. This is very clear from the latest lawsuit that took place in the USA (AT&T issued $100 million fine by FCC, http://www.cnbc.com/id/102766754 over AUP). SA market will conform to the now emerging US model (remember we’re 10 years behind the US). It’s expensive for providers to manage a few individuals on an AUP, resulting in Providers moving to a Pay Per Use model, now seen internationally as a trend.
SME/Enterprise and Consumer Price Convergence
3 reasons why FTTH and copper pricing will converge:
- Installation costs of fibre for an SME and an Enterprise are nearly identical as both installations have the same ‘pipe’ into their building.
- The scalability of fibre, ease of provisioning services are leading to lower operational costs of fibre, paving the way for pricing convergence between copper and FTTH, with fibre pricing heading down toward copper.
- The cost to bring FTTH coverage up to the level (or near to) of copper will be enormous. Who will pay? The Consumer of course. But unlike Telkom, private entities will recoup their cost and drop pricing as quickly as possible due to competition.
The result? FTTH pricing will head down toward copper pricing. The only difference is the service on top, or breakout as it’s known. We will start seeing different business models for Internet breakout emerge for Consumer, SME and Enterprise. The more fibre that gets implemented, the less contention ratios will play a role in differentiating pricing in the market, and fibre connectivity will become a flat rate as seen currently in Europe.