News this past week that growth in LTE is impacting FTTH demand in fiber-rich Japan has definitely raised some red flags as to the future of fixed broadband. During 3Q12, Japan experienced its lowest quarterly demand for FTTH services since they became widely available in 2004. Averaging between 500-600,000 net additions per quarter, Japanese operators added only 322,000 in 3Q12.
It should be noted that the bulk of the decline in FTTH net additions was associated with NTT – the one operator that is not allowed to bundle its fixed and mobile services together. Additionally, the decline was most notable in the same quarter that both KDDI and Softbank officially launched their LTE services.
NTT and others are offering LTE services with FTTH like speeds – currently at 75Mbps and expected to increase to 112.5Mbps in 2013. Granted, not everyone is going to consistently get these speeds; however, they are fast enough that many consumers believe it is sufficient to meet their broadband needs – particularly if it means saving money by not having two separate broadband services.
Is this the beginning of a trend?
The question is whether this “shift in subscriptions” constitutes the beginning of a trend or if it is simply an anomaly. If it is a trend, then a number of projects – such as Australia’s highly controversial NBN project – become questionable investments.
More importantly, it feeds into the argument of many operators, regarding whether it makes sense to make huge investments in FTTH – or simply make incremental investments into the existing infrastructure (VDSL2 Vectoring) and put the bulk of the spending into the mobile network.
For instance, in the EU, the most quoted reason for lack of NGA commitments was “there are not many applications which would require NGA bandwidths in the foreseeable future”. These same operators also point to low take-rates in areas where ultra-fast connections are already available – such as France where FTTH penetration is at 13.5 percent and KPN which has penetration of 12.5 percent.
No Denying the Appeal of Mobility
According to the Global Mobile Suppliers Association (GSA), 113 LTE operators have now launched commercial services in 51 countries as of November 2012. A further 195 commercial network deployments are in progress. In total 360 operators in 105 countries have committed to commercial LTE network. Based on the rate of deployment GSA affirms LTE as the fastest developing mobile system technology ever. And all of this is in addition to the 482 HSPA commercial networks.
Clearly, with the proliferation of smart phones and tablets, demand for mobile broadband has soared. According to latest industry figures, mobile broadband subscriptions have reached 1.4 billion and are expected to grow to 6.5 billion by the end of 2018 (source: Ericsson Mobility Report, November 2012) - representing approximately 70% of all mobile subscriptions. This is in contrast to fixed broadband, which is expected to reach 800 million by 2017 – representing 43% of total households (Source: Broadbandtrends).
Moreover, this rapid adoption has also indicated shifts in how consumers access the Internet. According to IBM, Cyber Monday statistics showed more than 18% of consumers used a mobile device to visit a retailer’s site, up 70% over 2011; while sales via a mobile device reached close to 13%, up 96% over 2011.
Additionally, according to reports coming out of Japan, consumers appear to be consuming more short form video rather than long-form video in order to remain within their monthly data caps.
In short, consumers appear to be changing their behavior to meet the boundaries of their service.
What strategy should an operator adopt?
That depends on the regulatory, economic and competitive environment, as well as they types of services being consumed in each market (streaming video, for instance) and they types of services the operator wants to offer.
Operators can provide free services so that consumers keep their fixed broadband – such as Swisscom, which is offering free IPTV services to its DSL subscribers.
Or it can combine its fixed and mobile offerings. Again, Swisscom provides a worthy example with its recently launched Quing Home building automation system, which combines building automation, security and energy management in one package. The only requirement is a DSL connection and a mobile subscription for remote application as well as a backup communications link.
In most cases, a fixed broadband operator needs to ensure its fixed broadband speeds match and/or exceed mobile broadband competition, and that applications and services (video, gaming, e-health, e-education, e-business, bandwidth guarantees, quality of service, etc.) remain unique to fixed broadband. And that is where technologies such as DSL vectoring, DOCSIS 3.0 and architectures such as FTTx come into play.
Finally, an operator needs to remember that it is typically serving a household – not an individual – so 100Mbps or higher is not an unreasonable speed offering.
Data Analytics Can Drive Decision Making
Finally, the use of data analytics can provide not only powerful insight into network utilization and customer behavior, but it can also be a key tool in the development of new service offerings that will drive new revenue streams.
Fixed operators can use analytics to better understand how consumers are using their network and for which applications and services – particularly with respect to over-the-top services. By anonymising and aggregating the data – customer privacy is maintained, but the ability to extrapolate trends remains.
This will allow operators to determine, where it makes sense to invest and potentially what services and applications are missing from their portfolio.
We have long held the belief that LTE (and really, mobile broadband in general) will make more sense in many emerging markets than fixed broadband and it can used as a suitable solution for some rural markets. Further, there is not a “broadband for all” mantra that does not take into consideration mobile broadband.
Does this mean the impending end for fixed broadband? Doubtful. Fixed broadband plays a key role in support of mobile – such as WiFi and backhaul. And it will always be capable of delivering faster speeds that mobile services. But in the end, it will be pricing, packaging (bundles), services and applications that will continue to make fixed broadband relevant.