Fiber to the where? Hybrid broadband networks set to dominate

March 13, 2013   |   Oliver Johnson

Over the last few years we have seen significant adoption by home users of superfast broadband tariffs around the world. There are now more operators in more countries offering higher bandwidths than ever before, and consumers have started to see the point of superfast speeds – but only up to a point.

“Today that ‘point’ is in the sixty to seventy megabit a second range. Enough to stream a high definition video or three with perhaps some light browsing on the side and if the kids are old enough  an online game and a music stream,” says Oliver Johnson, CEO at Point Topic.

Operators around the world have been offering fiber tariffs for a number of years now, long enough for demand and supply to have come to an equilibrium in theory. The evidence, from Point Topic’s global tariff and operator surveys, suggests that there is a ceiling to the bandwidths that residential consumers are prepared to pay for.

standalone residential fiber

Figure 1: Residential fiber bandwidth since 2010 – global average – demand has yet to drive it through the roof

While a customer will almost always say ‘yes’ to more bandwidth in theory time and again experience has shown that price and services are at least as influential when it comes to selecting a tariff.

“Consumers are making a decision when they sign up to an operators service that will usually be with them for at least a year and often two. If you are offered more bandwidth then fine but if it comes at a higher cost then a more complex value judgement takes place,”  continues Johnson.

It becomes more about ‘what can I do that I couldn’t before’ not just about the calculated value of a bit or a byte.  This induces a non-linear price versus demand relationship. In fact you need at least one more dimension, you could label it ‘utility’, before you can get back to a straightforward calculation. A difficult thing to quantify at the best of times.

Video is still the primary driver for more bandwidth

There is considerable debate over what will be the next ‘killer app’ for bandwidth, the single or combined services that provide enough additional utility for consumers to demand more bits more quickly. There are a number of proposals for what might fill up the broadband pipe in the coming years but as yet none of them are reality.

“Telehealth is often rolled out next following by the gradual accretion of bandwidth usage by stacking applications and the much vaunted ‘wave’ of machine to machine data,” says Johnson.

To date however there is nothing that threatens to add up to much more than 40 to 50Mbps particularly over any significant time period.  There are still relatively few households that will use even 20 megabits of bandwidth for more than a few seconds or at most minutes at a time. The industry and consumers have spent so long focused on more downstream speed it has become canon that ‘more is better’. But past a certain point the marginal utility of a faster byte declines rapidly.

That’s not to say that higher bandwidths aren’t necessary or beneficial. Or that in ten years time there won’t be vital applications that are inaccessible except over end to end fiber. Today however the deployment decisions that most mass market operators are making, often fiber to the node and VDSL using existing copper in the local loop, seem grounded in reality.

“Suppliers can satisfy most of their customers and still keep their capital expenditure under control. Fiber to the node is a more realistic option at the moment since it provides enough of an bandwidth upgrade to satisfy demand as well as being a stepping stone for future deployments. It’s a half way house that both suppliers and customers can accept and afford,” says Johnson.

There is some demand for end to end consumer fiber but at this stage it is usually to a block of flats rather than the individual household. There are suppliers making a success of this but Point Topic believe the demand for bandwidths of a gigabit and above is relatively low.

Perhaps the most persuasive argument for fiber to the home today is future proofing.

Operators will have to come back for another deployment round in five to seven years given current projections. They’ll lose some market share to niche deployments in the meantime, like Google Fiber,  but not enough to make them change their strategies.

“When the bandwidth crunch arrives again in the residential market, in five years or so, we will see consolidation as those smaller players with gigabit deployments who have managed to stick around are swept up by the market leaders. As so often Google could be a significantly disruptive presence. Sometimes they fail to follow through but if they do get it right in Kansas and beyond the rest of the operators may come to regret the decisions they are making today,” concludes Johnson.

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