Vectoring Helps Telekom Counter Broadband Competition

German incumbent Deutsche Telekom has revealed plans to extend the commercial life of its ageing copper last-mile infrastructure by employing new vectoring technology. The move is a short - to - medium term initiative to counter the growing threat from cable and mobile broadband players in a market that is increasingly gravitating towards bandwidth - intensive content and applications requiring high-speed accesses. While BMI welcomes Telekom's efforts to derive greater value from its legacy networks, which should boost customer numbers and revenues from broadband and pay-TV services, we believe the company must continue looking to more advanced technologies to counter the competitive threat.

The initiative - which requires regulatory approval - would see Telekom use new equipment to smooth out interference on the copper elements of its nationwide xDSL network caused by electricity flows. This interference can disrupt or slow the movement of data packets over copper cables and, by removing it, the operator could double download speeds and quadruple upstream data transfer rates. The full cost of employing vectoring technology has yet to be determined, although Japanese investment bank Nomura has reportedly put a EUR4bn (US$5.1bn) price tag on the project.

It is unclear whether this costing relates to upgrading the entire xDSL network - which would include Telekom's vaunted ultra-fast VDSL platform - or whether it relates to addressing those parts of the network that require most attention. Telekom would prefer to focus its efforts on upgrading those parts of its network that compete directly with the country's larger cable TV operators, Kabel Deutschland and Unitymedia KabelBW. This is not surprising given that those companies have deployed DOCSIS3.0 technology, which greatly expands the capacity of their hybrid fibre/coaxial (HFC) networks to offer double the speeds promised by Telekom.

Meanwhile, alternative telecoms operators such as Vodafone and O2 Deutschland continue to rely heavily on capacity leased from the Telekom network. The operator could ask them to contribute to the cost of the upgrade or, more likely, raise the wholesale access rates it charges them.

Western Europe: Selected Markets - Retail FTTH Connections ('000)
Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12
Source: BMI, operators, national regulatory authorities
Belgium 20 20 19 18 17 18 19 20
Denmark 101 120 138 149 171 187 219 245
Denmark o/w FTTH 87 104 122 131 152 167 196 220
Denmark o/w FTTB 13 16 16 18 20 20 23 25
Finland na na 13 15 20 39 26 22
France na na 69 89 118 155 198 245
Germany na na 29 60 100 138 149 165
Italy na na 265 274 279 287 279 282
Netherlands 375 508 640 726 842 983 1,190 1,420
Netherlands o/w Homes Connected 305 404 506 569 658 768 918 1,118
Netherlands o/w Retail Accesses 70 104 134 157 184 215 272 302
Norway 143 166 199 232 256 282 318 359
Portugal 3 7 31 78 130 174 237 307
Spain 0 8 16 33 56 101 171 241
Sweden 590 631 687 725 787 852 906 977
Switzerland 0 0 0 0 12 45 79 95

Incumbent telecoms operators worldwide are looking at a wide range of alternative technologies that will allow them to offer data transfer rates comparable to DOCSIS3.0-enabled cable networks and the increasingly pervasive mobile broadband proposition . Telekom's copper fixed-line network serv ed 22.62mn subscribers at the end of Q312, down by 4.5% y-o-y as customers migrated to alternativ e providers. Its retail fixed b roadband business served 12.4mn customers, up by 1.8% y-o-y but was also compromised by the competitive threat.

R eplacing the entire copper netw ork with fibre, through a combinat ion of approa ches that would include fibre-to-the-home/building (FTTH/B), fibre-to-the-cabinet (FTTC) or fibre-to-the-node (FTTN) would be an ex pensive proposition - Nomura suggests the entire project could cost EUR80bn and take around 10 years to complete - and it is far from certain that consumers could be convinced the higher cost would be worth the benefits gained through upgrading.

Operators have been looking to FTTx as a means of overcoming competition for traditional voice and broadband services as well as giving them a route into the pay-TV business. However, the economic viability of switching to fibre varies significantly from one market to another, depending on a wide range of constantly changing factors beyond the operators' ability to influence.

The accompanying table shows that FTTH - the approach most favoured by operators - has yet to gain traction in many Western European markets. Data from leading operators, trade associations and regulatory bodies show a wide range of contrasting results, with affluent, cable-friendly markets such as the Netherlands, Sweden, Norway and Denmark showing good adoption rate s , while others that are challenged by diverse geographic and cultural barriers (eg , Finland and Belgium) are poorly served.

FTTH adoption in Germany is comparatively modest at the moment and is limited to a few isolated deployments by regional operators. Telekom, for its part, harbours a laudable desire to build itself a nationwide FTTx network, but , with mobile operators already deploying 4G LTE mobile broadband networks capable of matching cable in terms of data throughput rates, the appeal of fibre could soon lose its lustre and see the operator fall back on having to convince consumers that a combination of diverse technologies (small cells, xDSL, fibre, wireless broadband) is a more cost-effective route to affordable broadband than fibre and that investing now in vectoring technology is its best option .


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