EU Proposes $13 Billion Investment in FTTH

Possibly more important are new proposed rules that would provide revenue incentives for major tier-one telcos to build new fiber-to-home networks by further extending wholesale discounts for competitors buying capacity on copper access networks.

Under plans put forward by EU telecoms commissioner Neelie Kroes, tier-one operators would be able to charge unregulated rates for access on all new optical access infrastructure, while facing diminishing revenue from wholesale services sold over copper access plant. New wholesale rules

The EU Commission wants broadband connections of 30 megabits a second to be available to all 500 million EU residents by 2020. However, many major operators have been reluctant to shoulder the risk and cost of building such a huge network without a guaranteed return on investment. Telco execs asked for less regulation

It is doubtful the new EU wholesale access rules would provide a guaranteed rate of return on investment. But the rules would allow access wholesalers to charge a market-defined rate, while the rates for copper access would be further lowered.

The proposed $12.6 billion of new investment will help in a modest way, but does not address the fundamental assessment of risk and reward for new fiber-to-home facilities. Tier one providers just are not sanguine about the financial return from investing $375 billion to $421 billion in new FTTH facilities, compared to spending that amount of money on alternative investments.

The EU itself estimates the cost to add optical access facilities across the EU at about €270 billion ($375 billion). McKinsey, the consulting firm, has estimated could cost €300 billion ($421 billion) across the EU.

So the proposed spending, even if the cost of rural infrastructure were identical to urban infrastructure, would affect no more than two percent to three percent of the region. In fact, because the cost of building rural instructure is significantly higher than urban facilities, the likely impact will be felt at one percent to 1.5 percent of locations across the EU.

The plan is “partly” aimed at stimulating further investment in rural broadband, and also then put pressure on service providers to match those speeds in urban areas. In some ways, the effort can be compared to the “broadband stimulus” funding in the U.S. market, in other ways possibly similar in some ways to the GigU initiative. GigU will attempt to build 1-Gbps networks around universities, and then hopefully stimulate new applications that can create consumer demand and revenue for new applications.

What the proposed program won’t do is actually change the amount of FTTH facilities actually in operation across the EU.

The proposed broadband spending would occur between 2014 and 2020.

The hope is that giving infrastructure projects credibility in this way would encourage the private sector, as well as local and national governments, to invest at least a further €50 billion more. New EU Broadband Push?