FTTH deployment in Latin America has suddenly accelerated and offers massive potential for growth. Robert Roe examines the unique circumstances in this interesting market
The year 2014 marked a milestone for fibre-to-the-home (FTTH) in Latin America. As a result of significant expansion to their fibre networks, several countries in the region, notably Brazil and Uruguay, can now claim to be among the world leaders in terms of FTTH deployment.
Over the 12-month period ending December 2014, FTTH coverage in Latin America improved by 45.6 per cent and subscribers increased by 57 per cent, according to data from telecom analysts at Idate. The total number of homes passed in the region is expected to rise from 15 million at year-end 2014 to exceed 50 million in the next five years.
‘We now have 2.66 million FTTH/B subscribers,’ said Nelson Saito, president of the LATAM Chapter, FTTH Council Americas. ‘Brazil is the main country in the region, it has almost one million subscribers… Uruguay today has one of the biggest deployments in the world if you consider the size of the country.’
Of course, not all countries in Latin America have seen the same degree of progress, but there is a growing appetite for high-speed broadband among service providers and consumers alike. ‘The potential is absolutely huge,’ Saito said. ‘If you talk to people they want to have those services based on FTTH but often they don’t have anybody that can supply these kind of services in the region that they live.’
Optical access equipment vendors are already profiting from FTTH expansion in the region. Market research firm IHS Infonetics reported a 258 per cent increase in gigabit passive optical network (GPON) spending in Latin America in 2014, the largest increase in GPON spending of any region in the world. This made a significant contribution to what was a record year for spending on GPON equipment worldwide.
However, to get a better understanding of the challenges in this diverse region, with a population of more than 600 million people spread across 26 countries and 19 million square kilometres, it is necessary to look more closely at the individual countries.
Brazilian broadband blossoms
Let’s start with Brazil, which is the leading FTTH market in the region, with nearly five million homes passed and around 950,000 subscribers at year-end 2014, according to the latest information collected by Idate. The investment has come mainly from private companies, but the Brazilian government has played its part.
Back in 2010 the authorities recognised that they faced the huge task of delivering high-speed broadband to the entire country. They created a national broadband plan, ‘Plano Nacional de Banda Larga’, which aimed to bring Internet access to 40 million households by 2014, or more than 70 per cent of all the country’s households.
The plan had several different aspects, but chief among them was to improve the backhaul or so-called ‘middle mile’ portion of the network infrastructure. The national broadband plan allocated BRL 15 billion (approximately $8.5 billion) to guarantee deployment of fibre-optic cables to every single municipality in Brazil.
The aim was to make it more affordable for Internet service providers (ISPs) to do business, by making it easier for them to move their traffic across other networks. In more remote communities, these costs can become such that they drive the prices of Internet access beyond the point where most people can afford it, notes Benoît Felten, chief research officer at Diffraction Analysis.
Another incentive that Brazil put in place was to offer tax breaks for building data centres in locations where they don’t currently exist. Internet exchange points (IXPs) give service providers and content providers the opportunity to exchange traffic directly and locally, saving on both backbone capacity and international transit. They also help to reduce network traffic by caching the most popular content locally thus dramatically lowering the cost of accessing that content.
‘In large cities where Internet exchange points exist and thrive and where international capacity is close by, the costs of transit are low. But in smaller cities and towns the cost of the backbone connectivity needs to be added, and IXPs might not exist,’ Felten explained.
The infrastructure scheme had its critics, partly because the construction and operation of the backbone network was awarded to the revived state-owned company Telebrás, but nevertheless it appears to have been effective. There has been an ‘explosion’ in the number of ISPs in Brazil over the last few years, says the FTTH Council’s Saito, who lives in the São Paulo area.
‘In Brazil we have more than 5,000 Internet service providers that are offering a number of strategies for connection,’ he explained. ‘Today I would say that we have around 1,000 ISPs in the Brazilian markets that are deploying FTTH networks, mostly very small deployments. In most cases we are talking about a few thousand subscribers for each ISP connected by FTTH.’
Local communities are making these deployments, according to Saito. ‘I would say that a lot of these small ISPs are deploying FTTH because they realise that FTTH is much more cost-effective in terms of the future,’ he commented.
Major operators have also started to roll out FTTH in Brazil in the last five years. The largest is Telefônica Brasil, the former Telecomunicações de São Paulo (Telesp), which trades under the consumer brand Vivo. The operator currently offers service in one state, São Paulo state, but as Saito points out, São Paulo represents 40 per cent of gross national product for Brazil.
Telefônica Brasil carried out trial fibre deployments in 2010 before it decided to invest BRL 200 million in FTTH networks the following year. By mid-2011 the Spanish-owned operator had covered around 400,000 households in the municipalities of Campinas, Santos and São Paulo.
Build-out stopped in 2012, but resumed again the following year with enthusiasm. During 2013, the operator nearly doubled its coverage, and in 2014 coverage was doubled again, from two million to four million households across 36 cities in São Paulo state.
Perhaps coincidentally, in 2012 Brazilian authorities chose to incentivise private investment in fibre broadband. The General Competition Plan (Plano Geral de Metas de Competição or PGMC), announced in November 2012, introduced a ‘regulatory holiday’ for next-generation networks based on fibre. The Brazilian regulator Anatel decided that no access obligations would be imposed – including fibre unbundling or access to dark fibre on these networks – for a period of nine years, until November 2021.
Telefônica Brasil will strengthen its hold on the Brazilian FTTH market when it completes the purchase of fixed broadband provider Global Village Telecom (GVT), which has just been approved by the competition authorities. GVT is the nation’s most successful alternative operator, serving 149 cities in 20 out of the 26 states (and federal district) in Brazil.
GVT has some FTTH customers, and plans to invest BRL 2 billion in its access networks in 2015, of which half will be used to roll out fibre. From 2016, the operator has said it will switch all investments to FTTH. Araraquara in the state of São Paulo will be the first city to be completely covered by GPON technology, according to reports.
Another aspect that is fairly unique to Brazil is the high taxation of imports, which has encouraged overseas companies to set up manufacturing operations in the country. ‘It is quite difficult as many companies want to bring their equipment from abroad,’ explained Saito. ‘But, usually, if you want to succeed in this region then you should manufacture or assemble the product locally to have tax incentive and reduce the price.’
One advantage of setting up manufacturing plants in Brazil is that it gives manufacturers a foothold in Latin America, which can then be expanded into other parts of the region, positioning manufacturers closer to this rapidly emerging market. Vendors that have a strong presence in Brazil include Chinese equipment manufacturers Huawei and ZTE.
While Brazil has focused on incentivising private investment, Uruguay has taken a different approach. The FTTH roll-out in Uruguay is in the hands of Antel (Administración Nacional de Telecomunicacions), the country’s state-owned monopoly wireline incumbent operator.
‘The government decided to make the investment to make 100 per cent coverage by FTTH deployment. This is the reason why Uruguay today is one of the biggest FTTH deployments in the world if you take into account the size of the country,’ said Saito.
He added: ‘The country is not so big, we are talking about 3.4 million inhabitants and one million households. They in 2014 achieved almost 100 per cent of households and they have a penetration rate of 43 per cent. It is really amazing they are included in the top five penetration rate countries in the world already.’
This progress was recognised at the FTTH Latin America Conference in March 2015. Antel was awarded Carrier of the Year for the third straight year by the executive committee of the FTTH Council America’s LATAM Sector. In addition the council presented Antel’s president, Carolina Cosse, with the honourable award as FTTH Latin America Professional of the Year.
Planning began in 2009 when Antel launched a series of FTTH trials to assess the technology. ‘Antel was considering a massive upgrade of its infrastructure with the goal of putting Uruguay on the world map in terms of IT infrastructure and Internet usage. Furthermore Antel wanted the new technology to fully support triple-play so it could deliver not only broadband and voice but TV services as well,’ explained Felten.
In early 2011, vendor ZTE won the nationwide tender and deployment started in earnest. Antel’s deployment was facilitated by its existing rights of way, and government ownership streamlines the construction process especially when civil works must be carried out to lay the fibre-optic cable.
So far Antel has managed to pass more than a million homes (1,197,000) and connected around 502,000 subscribers, generating the highest penetration rate in Latin America (see figure). By offering prices that are competitive to the prices for copper services and allowing subscribers to trial the new service, Antel has encouraged much higher take-up rates in the country than have been seen elsewhere in the region.
Felten said: ‘Antel’s commercial model has been designed to facilitate the transition from copper to fibre: entry level prices for the FTTH products (branded Vera Internet) are equivalent or below the ADSL prices most connected users currently pay. Furthermore, Antel offers customers the possibility of switching back to copper after one month on fibre if they are unhappy with the service, thus facilitating the initial decision.’
Blueprint for success?
Although Uruguay has seen very strong success, Valerie Chaillou, research director at Idate, cautions that this success may not be reproducible in other countries in the region.
Chaillou said: ‘[Antel’s approach] is difficult to replicate because, if you propose a free trial, that means that you enter the house, you install the equipment, and incur the majority of the costs [without being sure you can win a customer]. This is the main drawback when trying to extend FTTH coverage.’
However, Antel is willing to take this risk because it faces no competition – as a state-owned monopoly, it is the only game in town for fixed broadband in Uruguay (private companies in Uruguay are only permitted to provide wireless Internet services). In other countries such as Argentina, Brazil, or Mexico, where incumbents have been privatised and markets liberalised, FTTH providers do not have the same luxury. ‘There are very few places where the provider wants to roll out FTTH and provide a free trial for a month just to see what will happen,’ said Chaillou.
Uruguay also benefits from the fact that it is a small country with highly concentrated population: 80 per cent of the inhabitants live in the top four cities and the capital Montevideo alone houses 1.4 million out of the 3.4 million inhabitants. The deployment only needed to reach the top 14 cities in order to cover 95 per cent of the population. Other countries in Latin America encompass huge geographical areas, with low population density outside of major cities.
Lack of knowledge about the benefits of the Internet in general – and FTTH in particular – can also be an issue, according to Chaillou. Uruguay had a head start in that respect, as it had the highest broadband penetration of any country in Latin America. Uruguay also has the least income inequality in the region, which results in broadband being affordable for a greater number of people.
Progress is inevitable
Outside of Uruguay FTTH take-up rates are modest, especially compared to the more mature markets of Europe and North America. Overall, just 17.7 per cent of households in the region as a whole take a fibre subscription where one is available. But current trends suggest that won’t remain the case for long.
Like Brazil and Uruguay, many national governments in Latin America are focusing on broadband as a tool for economic and social development, and are taking positive steps to encourage take-up of broadband subscriptions as well as the deployment of new fixed networks. Several countries, including Colombia and Mexico, are taking a similar approach to Brazil, by investing in backhaul networks to encourage service provider competition.
However, it’s worth pointing out that governments are not usually in a position to encourage one type of broadband technology above any other.
‘In those Latin countries one of the main focus for the national public authority is to enlarge broadband coverage and to ensure that all citizens can benefit from a broadband solution, it could be wireless or it could be a wired connection,’ Chaillou said. ‘Broadband is the focus. They cannot say FTTH is the focus because there are a lot of other issues.’
Each country must make its own decisions about how to accelerate broadband adoption. Yet, one thing is clear from the examples presented here: operators in Latin America have started to embrace FTTH. This is the start of a journey that will see the whole region move towards fibre access networks over the next decade.