Fibre to the Home (FTTH) is slowly taking off in South Africa. There are however as many questions from the sceptics as from the “believers” – perhaps somewhere in the middle there are the realists?
We asked a number players in the industry to share their ideas on a number of questions with us.
As FTTH is more costly then ADSL, the first question we asked the panel to comment on was whether there is enough content to warrant an FTTH connection.
Prenesh Padayachee, MD, Telkom Wholesale says that he, firstly, does not think the current price points for FTTH are significantly more than ADSL and certainly not more expensive than 3G and LTE when you consider the entire package on an equitable basis rather than just the access costs of the service. “Secondly, there are two distinctive buckets of content, one being commercial content and the other being user created content. These can be further broken down into standard definition content and high definition content. Most high definition content is commercially produced rather than user generated. In fact, there is an abundance of commercial content in both standard and high definition, but we lack local content. In South Africa, the current target market for FTTH are higher LSMs who prefer global over local content. Given this situation, there is definitely sufficient content to drive demand for FTTH.”
Juanita Clark, CEO of the FTTH Council Africa said that consumers are eager for alternative content and the need for high speed broadband allows them the ability to watch ‘what they want, when they want’. “Current trends are for consumers to watch YouTube TVv as opposed to subscribing to Pay-TV. More and more consumers are choosing to rather spend that money on data.”
Pape Ndaw, director, sales and marketing BNS EMEA, TE Connectivity says that as of today, content is not necessarily where it should be to justify the need for high bandwidth supported by a fibre network. “We see a strong trend towards more local content development fuelled by a very dynamic ecosystems of entrepreneurs in Africa. On top of that, multinationals such as Netflix are making attempts to start their activities in Africa and some of them have been successful already. A liberalisation on video-on-demand will be a clear game changer. As a reference, in the US on peak hours, the Netflix platform alone consumes up to 35% of the available bandwidth. The development of content supported by the proliferation of smart phones in Africa is clearly improving the FTTH business case.”
André Hoffmann, executive planning and product development, Link Africa takes a much broader view of the question. “It is a bit of a ‘chicken and egg’ situation where the content providers (Google TV, Apple TV, Netflix, Hula etc.) will be reluctant to launch services in South Africa without reliable, cost effective broadband capacity. DSTV has expressed no interest in paying for distributing its content over broadband and IP infrastructure. Its current delivery technology (satellite) is a fixed cost solution and therefore it seems to be reluctant to increase its cost base.
“From the customers perspective the cost of FttH should be the same for a significantly better value product. From an operators perspective in a ‘green-field’ situation, depending on the customer density the predominance of the cost is in the civil work so why bother with copper and ADSL? In a legacy copper network it is only a matter of time before operational costs impacted by environmental (water and lightning) and societal (copper theft) and consumer demand will make the transition to fibre inevitable. Wireless will always have a ‘filler’ and ‘mobility’ role to play, but the spectrum is not infinite and unless services are offloaded to fibre nodes will reach saturation very quickly and wireless is also affected by environmental considerations at different times.
“Content is moving to ‘high definition’ and media rich. Anything that can be digitised, stored and re-transmitted will be; and things like education, entertainment and even professional services will be delivered more and more on-line. With innovations like 3D printing becoming more ubiquitous the digital distribution service delivery chain will be intense and pervasive in the not too distant future so I don’t anticipate that insufficient content will be a factor in FttH adoption, it will drive it.”
Niel Schoeman, CEO, Vumatel says it remains a Catch 22 situation. “High speed broadband access is still only available to a small segment of the market. Without the infrastructure to support delivery of content providers will remain reluctant to invest in the South African market. Breaking this impasse will require aggressive roll-out of FttH to stimulate the supply and consumption of content.”
Will the industry allow OTT players a place in the sun? After all it is content availability that will drive people to FTTH. Is a cost-sharing model desirable?
Shane Chorley, executive head of access and connectivity, Vox Telecom says that the cost-sharing model is very desirable one for ISPs. “I think the content will ultimately be delivered better if we have joint incentives to deliver to the end consumer.”
Prenesh Padayachee: “This comes down to the capability of the industry and the willingness to create OTT services at the right price points. The market will dictate the services required and will procure these from whomever can provide at the right price. Unless there is a proper value proposition for both parties, it will be very difficult to go down the road of a cost-sharing model as the OTT player will use networks that don’t have this requirement. Demand will again be driven by the end customer rather than the provider of the service.”
Pape Ndaw says that FTTH will drive a change in the industry landscape as it has done in other parts of the world.”We will see new players coming to the market driven by the financial attractiveness of this sector. The other element that drives emergences of those new players is the involvement of local communities. Those new players may come with a lack of experience in deploying and running a network but they have for their advantage a high flexibility in the way they do business and limited or no dependency to a legacy network to run. With the multiplication of players especially focused on the last mile, a smart sharing of the core and metro fibre network will not be optional.”
Juanita Clark “I believe that we will see a considerably different looking industry over the next couple of years. With the decline of voice revenues operators will look at ways of diversifying their offering and providing content (data consuming applications) is a natural next step.”
Niel Schoeman: “The OTT players are vital for the adoption of FTTH by consumers. They play a critical role in creating demand for the high speed access. Attempting to share the costs with the OTT players will be detrimental to the industry. The market place needs to be efficient. FTTH economics are extremely sensitive to uptake rates. Trying to recover costs from the OTT players can only affect the consumer’s pocket, making FttH adoption less desirable and ultimately reduce the adoption rates. This idea of cost sharing with the OTT players is predominantly driven by the mobile operators who bemoan the fact that OTT players are chipping away at their voice revenues, but at the same time are very quiet about the fact that the main reason for the dramatic growth in data on their networks are from these very OTT players. I don’t see them offering to pay YouTube for all the free content it creates that lead to increases in their data revenues. Market forces should naturally drive the model to the point where it makes sense for both the infrastructure providers and OTT players alike.”
André Hoffmann: “I would say it is imperative that we restrict the vertically integrated operators from taking advantage of their dominant positions on us as consumers. Not only is cost sharing desirable but even revenue sharing is also desirable for competitors to break the geographical monopolies that strive to build competitive advantage based on customer ‘lock-in’. While OTT players may command a significant share of end-to-end retail revenue it will be critical for fairness and consumer protection that there is separation between content and switching/routing and packet or time-slot delivery.
As soon as we allow vertical integration to proliferate we run the risk of creating geographical monopolies that will serve only a narrow economic interests and will perpetuate the digital divide on a weak regulatory environment.”
Should FTTH networks be open access or exclusive access? This seems a particular problem in gated communities where in many stances the FTTH players are controlling the access.
This question proved to be somewhat controversial. Staying with André Hoffmann, he says there are pros and cons to both models. “I firmly believe that it is in the consumer’s (and the Regulator’s) best interest to have open access models that will afford consumers a good choice of service provider and therefore competitive pricing and service quality. While exclusive access may have the promise of hassle-free services and deep bundling of features and products it leaves the consumer exposed to price creep and sub-par service delivery over time with no option to change except to re-locate to another area.
“What is happening today is we are replacing the national monopoly (Telkom) with multiple smaller geographical monopolies in a ‘land grab’ of prime real estates. If you happen to live or work in a Red or Yellow or Blue area then you will be forced to choose the Red or Yellow or Blue products and of course you will be lumbered with their shareholder-friendly Ts & Cs. Open access, if implemented in a sustainable way allows for infrastructure sharing and gives the consumer best value for money.”
Niel Schoeman: “Open access is the only viable model in South Africa. Our density of homes is much lower than most of the developed world. For the business model to work the high speed services provided need to be at a reasonable price to the consumer. In order to achieve this you need the capital invested to be efficient. Open access effectively shares the infrastructure layer among all the service providers. This reduces both the cost and risk for service providers. It also encourages competition, levelling the playing field among big and small service providers, which lead to better services and lower prices, ultimately benefiting the consumer and driving the uptake required to pay back the capital invested. Consider two service providers each investing in FTTH in the same geography. By duplicating the infrastructure they are doubling the capital and halving the market, which drives the model for both parties to an unsustainable point. Gated communities need to seriously consider the implications of giving exclusive access to one provider as it creates a local monopoly for the provider and can result in residents not benefitting from true competition as well as other unintended consequences for example being excluded from other types of services or content that could be provided by other providers. Too often the body corporates or developers fall into the trap of revenue sharing with the service provider in return for exclusive access that will be detrimental for the residents in the long term.”
Juanita Clark: “The arguments for and against open or exclusive access is as old as the industry itself. Open or exclusive access is typically a commercial model and operators have different reasons for choosing one or the other. Some operators will argue that monetisation of an open access network is more feasible than an exclusive network, however operators offering exclusive networks will argue the opposite.”
Prenesh Padayachee: “FTTH networks need to be open access so that the end user is able to choose the appropriate service they require for their particular application. There really isn’t a one-size-fits-all for broadband as we primarily deal with end consumers for these services. Since most of the content accessed from these networks is from outside South Africa, the provider’s quality of connection to the content’s point of origin is important. However, you can’t have multiple players in a community providing FTTH infrastructure as this would lead to numerous trenching exercises, service disruptions as other players try to roll out infrastructure, planning difficulties, and so on. However, multiple parties can act as service providers on top of the FTTH infrastructure.”
The trenching associated with FTTH is often a delaying factor and the most costly of creating the infrastructure. Should overhead fibre distribution be considered? What are the positives and negatives of aerial deployments?
Pape Ndaw: “On a typical FTTH network build, 60% to 70% of the cost is on installation with civil works being the most significant part. Aerial deployments offer interesting benefits as it limits trenching, but it also comes with challenges since the network is exposed and can be affected by natural disaster. Buried networks may cost more to install but they offer an interesting guarantee on the quality and they also maximise the longevity of the network. In most countries we also see players and local authorities pushing more for buried network for aesthetical reasons.
Shane Chorley: “Yes I think we should be deploying overhead purely from a speed to market point of view but it comes with its obvious issues. Underground fibre is much better but takes a lot longer to deploy”.
Juanita Clark: “Aerial deployment is a lot less expensive than deploying terrestrial fibre, especially where there are existing poles that can be utilised. Aerial fibre makes a lot of financial sense in an area where a consumer’s FTTH connection is not a mission critical service. However, aerial deployment has negative arguments in the sense that it is more subjected to damage or theft. It is also less aesthetically pleasing and many suburbs do not want aerial fibre for this reason.”
Niel Schoeman: “The market place should continually assess different deployment methodologies and aerial is a potential alternative to trenching. Aerial fibre has obvious advantages of increased speed of deployment, reduced disruption and lower initial capital outlay, but has some serious drawbacks too e.g.
• It can be an eyesore if not properly managed
• It is difficult to add capacity if required in the long term
• Maintenance is more challenging as it is dependent on specialised equipment and third parties
• It is not as secure as trenched fibre and theoretically more prone to breaks
• Depending on the architecture requires access to properties to add poles for the final drops to the homes which can delay deployment
FTTH is a long term investment. Aerial might reduce capex in the short term, but these drawbacks can easily cause the total cost of ownership over the lifetime of the investment to be equal or higher. That said, no one solution or deployment method will fit all. It has to be “a horses for courses” approach.”
André Hoffmann: “Absolutely yes. Horses for courses, if poles exist and if the business case is constrained on the revenue side then aerial infrastructure should be considered, particularly for last mile drops and home access. We have street lighting, we have power distribution infrastructure and we have telco copper aerial infrastructure – so why not fibre?
“On the positive side it is quick and relatively cheap to deploy as well as easy to locate faults and to repair quickly. It will not be affected by lightning or copper theft. On the negative side it has operational vulnerabilities that expose it to vehicular impact, vandalism and road-side fires in certain areas as well as possibly wind, branch or heavy snow damage at times. These risks are easily mitigated by the high visibility of the aerial infrastructure.
“Of course, there are other alternatives to trenching, like the FOCUSTM system that deploys fibre in sewer and storm water conduits, to improve cost and speed of deployment and improve overall network reliability.”
Prenesh Padayachee: ”Ultimately there will be a mix of overhead and underground deployment strategies. In cases where trenching is not possible, overhead is the only option. We need to discuss these techniques for each portion of the access network – distribution or drop. Overhead deployment has limitations as it can be exposed to external elements and possible damage. This is mitigated to some extent as the cable is specified to accommodate stresses.
“Overhead distribution can be considered using existing infrastructure along roads and for distribution within suburbs. It is quick to deploy and less expensive compared to underground deployment. Aerial infrastructure (poles and cables) can obstruct views, and customers or residents may deny access to network builders as a result.”
Obtaining wayleaves is one of the biggest obstacles facing the FttH providers. How should restrictive town planning legislation be changed? And who should drive this?
André Hoffmann: “National government, in promulgating the Electronic Communication Act of 2005, made it clear that the task of deploying broadband is one for national government. It then granted licenses to several hundred private sector firms to execute on this mandate. Despite what I see as a straightforward mandate given to licensees by national government, there seems to be a lot of interference by local government and other organs of state such as SANRAL and PRASA. These organs of state should enable licensees to fulfil their mandates through speedy processing of applications to enter their land (rights that the Act grants licensees), but these parties do not process applications and in many cases, obstruct access to their land.
“A case in point is the city of Tshwane’s attempts to frustrate LinkAfrica’s (a fibre infrastructure owner) deployment of infrastructure in that city. Both the High and Supreme Courts stated that all licensees (including LinkAfrica) have rights to deploy their infrastructure and it is the City’s duty to enable deployment. We shall wait to hear what the Constitutional Court decides on the matter, a much awaited judgment in the industry.
“Local government and these organs of state must decide if they are players, referees or custodians of public assets? Some have somehow assumed their mandate is to go beyond a natural monopoly and become an enterprise on the back of state funded assets and resources to generate funds which do not necessary find their way back into state coffers.
“The state fiscus is under tremendous pressure and with taxes and rates collection at all-time highs one would expect a commensurate level of services delivery. This is however not the case as bureaucracy and inefficiency seem to perpetuate our news feeds and fraud, corruption and nepotistic feeding schemes manage to siphon off not insignificant tranches of tax payer’s contributions while potholes, traffic signalling systems and municipal service infrastructure breaks down in multiple areas.
“There are no rapid deployment processes in place, as yet, that are constant across all municipalities and boroughs. This is further complicated by often complex and variable local arrangements that are often complicated by local councillors as gatekeepers of community access and labour resources. Something as simple as crossing a national highway using an existing SANRAL bridge can be made impossible by convoluted legal instruments so as to force operators to drill at great additional cost and risk alternative pipes to reach the broadband market. This counter-productive to the national interests.
“Town planning should consider laying telecoms sleeves in every single new township development or existing public space upgrade. These should be leased out on reasonable rates to licence operators as required. This should include all bridge crossings or tunnel infrastructure.”
Niel Schoeman: “There are various initiatives afoot to assist in lowering this obstacle e.g. the Rapid Deployment Policy being developed. It should be incumbent on the various industry and regulatory bodies with an interest or mandate to achieve broadband adoption to drive this on behalf of the private sector and public sector alike.”
Juanita Clark: “Facilitating the deployment of tlecomms infrastructure is a function that must be mandated at national government level. We are comfortable that the DTPS is currently in the process of engaging on the Rapid Deployment Policy – a document that will go a long way towards ensuring that many of the barriers are removed. This will save a lot of time and money. Having said that, at a local government level there is a great need for closer engagement between town planners – especially in greenfields areas – and telecoms providers. In addition, telecomms infrastructure must be declared a utility in order for it to be accommodated in greenfield deployments.”
Pape Ndaw: “Way leaves are indeed a serious inhibitor for fibre deployments in Africa. Governments, via their telecommunication regulators, need to take the lead in easing the process and reducing the associated cost for the industry players. Communities and end consumers also need to organise themselves better to ‘lobby’ for that. Last but not least, industry associations such as the FTTH Council Africa need to stand strong on their efforts to convince and influence the governments in Africa.”
Prenesh Padayachee: “Wayleaves become essential to avoid damaging other utility infrastructure, and should be driven by national government with guidelines for provinces and cities to follow. At present, different municipalities have their own rules. Sometimes, even within the same municipality, we have to source wayleaves from 10 or 13 different departments, such as water, electricity, roads, and others. Finally, it can take a long time for permission to be granted.”
Could FttH be integrated with the smart city concept?
Juanita Clark: “Fibre optic infrastructure will lay the foundation of a smart city. Whilst all telecoms mediums will play a crucial role and wireless technologies is critical, it relies heavily on fibre optic infrastructure for backhaul. Consumers will never live without their mobile phone, but mobile telecommunications facilitate an ‘always on, always available’ world. The function of mobile technology is not to facilitate smart cities. The discussion on smart cities is not an ‘either/or’ discussion. Many technologies must be combined to deliver true smart city status.”
André Hoffmann: “Absolutely yes. You can have FttH without smart cites but not the other way around. All mediums wireless and fixed will need to be harnessed to achieve a smart city. Of course one will also need smart people to plan, build and operate the infrastructure as well as set the policy and regulatory framework in a fair and consistent manner.”
Neil Schoeman: “Yes, FTTH is a great enabler for the smart city concept and we are in various discussions with communities on how to make this a reality.”
Pape NdawL: “FTTH is a prominent part of the smart city offer. We believe in a strong combination of wireless, FTTH, adapted local content and accessible devices such as smart phones and tablets to be key for any smart city concept one can think of. In the era of the “internet of things”, fibre is central. Deep fibre penetration in the streets of the cities will definitively be a key enabler of tomorrow’s smart cities as it will allow the proper amount of information to flow seamlessly. Hybrid networks where low-power DC is distributed together with data over fibre networks will potentially be a game-changer in the emergence of the smart cities of tomorrow. Those networks will indeed allow to power-up smart devices any place any time in the city relying on the FTTH networks. This will allow to install smart sensors, smart cameras and other connected devices and objects virtually anywhere in the city at a very economical cost; potential applications relying on those devices are endless.”
Prenesh Padayachee: “Fibre allows you to upgrade bandwidth in a cost effective way. As internet-enabled devices (internet of things) become more common within smart cities, bandwidth availability becomes critical, leading to further demand for fibre. In addition, fibre isn’t as prone to rain and storm conditions and thereby provides a more robust dependable network to allow the smart city to function seamlessly.”
André Hoffmann: “There are new entrants to the broadband access network and last-mile ‘blockade’ and these are the ‘fiefdoms’ as I like to refer to them, the gated community, complex and business or residential estate developers who seem to think that this is a new revenue stream opportunity for them. They effectively ‘lock-out’ all service providers and force them (at a cost) to use their last mile networks within their properties to get access to any tenants within ‘their’ development. This of course presents problem for the tenant or erf owner who wants choice in service provider and now has a non-value adding cost component in between them and the services and content they desire to reach. To my mind any additional cost to the broadband service delivery chain is potentially taking South Africa backwards. Is it simply greed that drives the developer to seek other revenue streams that they are ill equipped and capacitated to build or operate over time? The risk for the tenant or owner in such a development is that they get left ‘holding the baby’, when the network falls over (which it inevitably will) and the cost will not be trivial.”
Pape Ndaw: “Africa has got a unique opportunity with fibre: We do not have a good copper network and we technologically do not need it anymore. Combining wireless with a good quality fibre network to homes and businesses will be mission critical for Africa’s emergence and development. Smart usage of emerging technologies will allow Africa to develop itself using new economic paradigms. A good example of how such new paradigms can influence the development of a country is the emergence of mobile banking in Kenya. The deep penetration of mobile connectivity with the proper mobile banking technology has allowed to provide banking services to the previously under-banked population of the country. This new paradigm has allowed citizens to gain access to banking while skipping the high investment usually required to deploy a classical brick and mortar banking network throughout the country. Smart usage of emerging technologies will allow the region to accelerate its development in a less capital-intensive fashion than classical approaches would require.”