Ever since the emergence of fibre-to-the-home (FTTH) in the early 2000s, the world has looked towards Asia for leadership. To be perfectly fair, it hasn’t exactly found the encouragement it was looking for and ultimately the early Asian examples haven’t inspired copycat deployment elsewhere. But there is a new wave of Asian fibre deployments – both in developed and in emerging markets – that may well inspire other nations as we move forward.
Unfollowed leaders
Japan and South Korea were the front runners of FTTH deployment (or more appropriately fibre-to-the-building in most instances) and to a large extent they still are the world leaders in terms of both deployment and adoption (the latter at least applies to Korea, the Japanese story is a little less rosy).
Part of the appeal for fibre in these countries – certainly in South Korea – is that the technology choice made at the time let service providers leapfrog DSL altogether. In other words, the development of broadband and the appeal of the Internet as a resource occurred more or less simultaneously, and broadband was indistinguishable from the fact that it was delivered with fibre.
The benefits have been many in both countries, but not always where one might expect them. NTT in Japan benefited by reconquering a large part of the access market with fibre: whereas it was facing heavy competition via unbundled copper, it refocused most of its wholesale offerings on active fibre resale, therefore recapturing part of the lost value in the broadband market.
In South Korea, due in large part to restrictive policies that prevented services from being bundled with access (that were overturned quite late in the market’s development), most of the service value was not captured by the fibre-deploying service providers, although they are now catching up.
Sceptics in the west like to point at the fact that service providers in both countries don’t seem to have been made massively rich from the deployment of fibre, but this misses the broader point: both countries’ superior broadband platforms have fostered the emergence of online giants in gaming, social networking and various other service fields. Examples include Korean mobile messaging company Kakao and e-commerce giant Rakuten from Japan. The next wave is likely to be in healthcare, education and more serious endeavours than what has been seen so far.
With close to ubiquitous coverage, thanks to state encouragement in various forms (policy, loans, political will), you would expect both countries to have leveraged their advance and success internationally, but that isn’t really the case. Sure, some equipment vendors, especially around passive components, have market presence in Asia, but by and large the proprietary nature of the technologies (and insular culture of the players) used for fibre-to-the-premises (FTTP) deployment in Japan and South Korea has hampered the ability of the pioneer vendors to make a dent in the worldwide market.
In other words, while Japan and South Korea are still world leaders when it comes to FTTP deployment and adoption, they are largely unfollowed.
Emerging markets
Instead, the models that seem to be emerging in the Asia-Pacific region are those that offer developmental opportunities in markets where for a long time it was considered that mobile broadband would be the only form of widely deployed Internet access.
China leads the way, and is not only the world leader in deployments today, but it is expected to stay that way more or less forever. The Chinese deployment model is largely a combination of its urban development policy and its political structure. Incumbent operators are state owned and, while they compete in mobile, they don’t (yet) do so in fixed access. As a consequence, fixed broadband has always been a local monopoly. When the government decides that deploying fibre would be good for the country’s development, the operators obey and deploy. That’s not to say that financial and return-on-investment considerations don’t exist, but they are secondary to the political goal.
In addition, the vertical development of Chinese cities with massive numbers of small dwellings in a single building block makes copper-based infrastructure impractical: one copper line per subscriber leads to massive, heavy copper bundles that are costly to deploy and maintain. As a consequence, point-to-multipoint fibre is the technology of choice for broadband deployment, which largely explains the massive deployments seen over the last few years. China currently has more than 40 million FTTB subscribers and coverage is estimated to reach 200 million homes by the end of 2015 with subscriptions targeted at 70 million (but likely to fall a little short of that).
Unlike Japan and South Korea, the Chinese FTTH equipment vendors by embracing international standards, have managed to exploit their in-country experience elsewhere in the region, and have expanded into Europe, Africa and Latin America. Huawei and ZTE are the most notable examples. And while deployments in Asia-Pacific’s other emerging markets are not necessarily copycat approaches to the Chinese model, they are undoubtedly influenced by the Chinese vendors.
The most advanced of these are Malaysia and Indonesia, both with very interesting models that (again) might very well constitute examples for other operators in the region, albeit very different ones.
Privately owned Telekom Malaysia has been actively deploying and selling a partly state-subsidised FTTP network to serve both residential and business customers. Although it seemed at the onset that Telekom Malaysia would need to provide open access in exchange for the subsidy, and although the operator does have wholesale service provider customers using its fibre access platform, it can’t quite be considered open since there is no price transparency and no equivalence in pricing between wholesale customers. Still, the program is a significant success with more than
700 000 customers on fibre in just a few short years. The main challenge for Malaysia is now for businesses to embrace the broadband platform and for customers to perceive the value of better broadband (most speeds purchased are rather low).
Telekom Indonesia has been following a rather more radical path of copper to fibre substitution that is – as far as I can tell – a world first, at least on that scale. As of last year, more than two million copper lines had been switched to fibre, with customers migrated at the same price on the services they currently have, but with much greater upsell opportunities of course. Furthermore, Telekom Indonesia has been profitably pulling out the copper and selling it on the hungry raw materials markets. Their ambition is to expand to at least 11 million lines in this fashion. By then the question of further expanding into areas where copper was not deployed in the first place will be raised. It’s a very interesting model though, and one that could be a good example for other emerging markets.
In a number of developed economies in Asia-Pacific, the approach to fibre development could not follow these state-driven models as privatisation and some amount of competition had been the norm for some years before fibre came onto the scene. Neither did these countries follow the Japanese or South Korean models of subsidising the incumbents to boost deployment. Rather, in three of these countries the core issue was understood to be that fibre infrastructure would be a natural monopoly in most of the territory and the market should therefore be structurally separated to avoid abuse.
New structures for more fibre
Singapore led the way, shifting the market structure for FTTH to three layers: a passive (dark fibre) layer now owned by the incumbent Singtel, an active (wholesale) layer owned by the cable operator Starhub, and numerous retail providers on top. This has allowed Singapore to deploy FTTH in its territory very fast. Coverage is now close to 100 per cent and Singapore focuses on making fibre available for resale in street cabinets to enable smart city applications. The market structure is still being discussed, particularly the rationale of maintaining two layers at the bottom of the stack, but so far the model has worked reasonably well (although the small scale and high density of Singapore avoid some of the challenges faced elsewhere).
New Zealand went for a more formal sort of structural separation as part of the government’s Ultra Fast Broadband (UFB) fibre plan. By offering subsidies for fibre deployment only to companies that had no capitalistic ties with retail providers in the market, the government strongly encouraged the separation of the incumbent. Now two companies, Chorus (infrastructure) and Spark (services), this has allowed Chorus (and three smaller regional infrastructure players) to invest massively in FTTH deployment. As of today, 570 000 homes in New Zealand are open for UFB service, around 43 per cent of the 2019 target. Only 69 000 homes have subscribed so far but the growth in subscriptions is extremely fast.
Australia also set off down the path of structural separation to get fibre deployed, but its methods were rather more complex and convoluted, partly due to the entrenched power of incumbent Telstra and partly due to politics. As a consequence the creation and early years of government-owned broadband infrastructure provider NBN Co were rather tumultuous: it took a long-time for NBN Co to negotiate a deal for access to its infrastructure that Telstra would accept, then NBN Co struggled with sub-contractor management and delays. Finally, the government change in 2013 led to a radical redesign of the scheme. The new plan in place since the latest government change in Australia has significantly altered the approach and downplayed the importance of FTTH in the country’s broadband development. Considering the project’s history, it would be prudent to wait and see if it bears fruit.
Conclusion
The common thread to be found in these diverse examples is that some form of government intervention has spurred fibre development wherever it has occurred. But the similarities end there.
By and large, the opportunity for emerging markets seems to lie in their general lack of telecom infrastructure, copper or fibre. Huge parts of the territory in these countries currently don’t have broadband and existing copper infrastructure is rarely of a high-enough quality for short-term DSL-based options to be viable. As a consequence, if these countries want the economic development that comes with decent broadband, fibre is the only route open to them.
Existing market structures in emerging economies make government intervention comparatively easier than in developed economies, hence the interest of governments in the area of FTTH. In developed economies the paths to fibre are different because government intervention is a more sensitive topic and requires certain forms to be respected. It seems to go either through subsidies for infrastructure replacement for the earlier players or, more recently, through structural changes in the market.
However, if the story of fibre in Asia-Pacific tells us anything, it’s that there is no one way to achieve next-generation access deployment.