INDUSTRY ANALYSIS
Best Year for FTTH Since 2008
Fiber-to-the-home vendors and providers enjoyed a great year in 2012,
according to new research by RVA LLC. RVA forecasts a stable market over
the next few years, followed by a new upturn in 2016.
By Steven S. Ross ■ Broadband Communities
N
orth American fiber-to-thehome deployers forged ahead in
2012, passing 2.7 million homes
with fiber between September 2011 and
September 2012, marketing fiber services
to 3 million more homes and connecting
1.5 million new FTTH customers.
This growth – the industry’s best
showing since 2008 – occurred as stimulus projects advanced in the United
States and as the leading Canadian telcos
ramped up their FTTH construction.
Revenue kept pace as well, with
FTTH customers paying, on average,
more than $57 a month for data – by far
the most profitable offering a network
provider can sell. Customer satisfaction
soared, and average take rates continued
an unbroken, decade-long rise.
The good news about 2012 comes
from market researcher Michael Render
of RVA LLC. To gather the information, he conducted interviews with 350
service providers and multiple vendors
and industry experts. In June, his firm
surveyed 2,000 broadband users. Mexican deployer data came from IDATE,
the international market research firm.
Render also noted that three of five
current FTTH deployers say they are
likely to continue building FTTH. Of
the remainder, many have built out their
entire footprints already, and others, especially in rural areas, are worried about
changes to Universal Service Fund
disbursements.
Financing Challenges
Financing FTTH builds in today’s financial environment is challenging.
The ability of deployers to sell stock to
finance FTTH is zero. The bond market
is uncertain. Stimulus funds have been
30
RVA LLC’s Michael Render will report on his
next survey about MDU residents and FTTH
at the Broadband Communities Summit
in Dallas, April 16 –18.
exhausted. To move forward, deployers and prospective deployers of FTTH
need either free cash flow or something
to mortgage. In fact, they have an incentive to do so: Money in the bank earns
no interest, and carrying charges are low
if they borrow.
Among the entities that have access
to financing in this environment are
municipalities that can mortgage their
water or electrical plant and multipledwelling-unit (MDU) communities.
Owners and sometimes operators of
large brownfield MDUs and multi­tenant
commercial buildings can often secure
bank financing for fiber networks, as
these systems are generally considered
liquid (easily sold by a mortgagor that
has to take over from a failed operator).
Greenfield FTTH projects can typically be financed by developers as part of
construction mortgages. (See the Bandwidth Hawk column from the May-June
2012 issue of this magazine, bbcmag.
epubxp.com/i/71834/12.)
Render notes that in 2013 and 2014,
Verizon is committed to building out
FiOS within its existing footprint to
meet its franchise obligations, which
will help keep the FTTH market on an
even keel for the next two years. In addition, greenfield projects – both MDU
and single-family – are finally growing.
According to Render, “The huge inventory of old copper-fed lots [is] finally being worked down, new developments are
starting again (fiber-fed this time) and
housing starts appear to finally be on
an upward trend.” In addition, he says,
FTTH growth in Canada and Mexico
should help carry the North American
market.
Thus, from a low in 2011, Render
forecasts a slow continued increase in
FTTH homes marketed in 2013 and
2014, followed by a slight dip in 2015
and then by more rapid growth in 2016
and 2017, assuming that greenfield developments continue to grow. He estimates that direct investment in North
American FTTH deployment will total
$18 billion during the next five years and
grow to $4.7 billion annually by 2017.
The revenue potential is there: Render predicts that annual revenues derived by FTTH providers from ultrahigh-bandwidth applications and services beyond the triple play will reach
$4 billion by 2017, or $9 billion cumulatively over the next five years.
About the Author
Corporate editor Steve Ross can be reached at [email protected].
| BROADBAND COMMUNITIES | www.broadbandcommunities.com | January/February 2013
INDUSTRY ANALYSIS
ECONOMIC IMPACTS
FTTH adds value to homes. Owners
of fiber-connected homes say fiber increases home value by 2.1 percent, and
non-FTTH users in Render’s 2,000person sample estimated 1.7 percent.
These figures were derived by asking
respondents how low a price they’d require for a non-fiber-connected home.
Non-FTTH users believe that a home
that doesn’t already have a very highspeed Internet connection from a direct fiber optic line and advanced inside
wiring would have to be discounted an
average of $5,337 to be considered for
purchase. Those already using FTTH
believe an average discount of $6,451
would be required.
Availability of a fiber connection is
among the most important amenities to
buyers shopping for new homes. Among
current FTTH users, it is the most important amenity.
FTTH also lowers community costs.
FTTH users work an average of 1.2 additional days per month from home
compared with non-FTTH users. Assuming 50 percent FTTH take rates,
FTTH drives a 3 percent communitywide increase in work from home and
A fiber connection adds between $5,300 and
$6,450 to the value of a home, according to
respondents in RVA LLC’s most recent survey.
thus a 1.8 percent reduction in total vehicle traffic and related public costs.
Carriers, especially municipal network providers, notice a substantial economic impact from fiber to the home.
FTTH users are more likely to participate in every online activity than users
of other broadband technologies; 67 percent of FTTH users who are employed
sometimes work at home, and 11 percent
of FTTH users have home-based businesses, which average $55,000 in annual
revenue ($14,500 in additional income,
after expenses).
Again assuming 50 percent take
rates, community revenue increases by
an average $500,000 and 25 new traditional jobs per 1,000 homes passed with
fiber. The secondary job impact could
mean as much as $1.1 million in new annual salaries to the community per 1,000
FTTH passings.
Although people often assure me
that fiber to the home is unnecessary
because “everyone” accesses the Internet through handheld devices, Render’s
study does not bear out this theory. His
research finds that users spend 88 percent of their online time on laptop or
desktop computers. Even the most avid
mobile users – people under 35 – use
computers 82 percent of the time. Users
of all ages spend 5 percent of their online time on tablets, and other handheld
devices, typically cellphones, account
for 14 percent of online time among
those 35 and under and 7 percent of
time among those older than 35.
CANADA AND MEXICO
Of the 9 million FTTH customers in
North America, about 8.3 million are in
the United States. In the last few years,
however, FTTH growth in Canada and
Percentage of FTTH customers in each state. Due mainly to Verizon FiOS deployments, the Northeast has the highest FTTH penetration. Not shown:
Hawaii, 1% and Alaska, 0.3%. Data from RVA LLC, September 2012.
January/February 2013 | www.broadbandcommunities.com | BROADBAND COMMUNITIES |
31
INDUSTRY ANALYSIS
FTTH Homes Passed, September 2012
(Cumulative, North America)
25
24.30
20
19.90
17.22
Millions
20.80
22.60
21.60
18.25
15.50
15
13.82
10
11.76
9.55
8.00
5
0
4.09
Mar-06
6.10
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Source: RVA LLC
Between March and September 2012, an additional 1.7 million North American homes were passed with fiber as stimulus projects advanced in the
United States and Canadian FTTH construction ramped up. That’s well above the previous six months and the fastest growth since 2008.
Mexico occurred faster than some are
aware of. Canada, with more than 1
million homes marketed and close to 2
million homes passed by fiber, is catching up to the United States in percentage of homes passed – about 20 percent
(the United States has about 22 percent).
Providers in Mexico include Telmex,
Axtel and TotalPlay. In Canada, Bell
Aliant leads the way. There are 700,000
homes passed by fiber in the Caribbean,
more than 10 percent of all homes outside Cuba.
Mexico’s low 17 percent take rate
(FTTH is just getting started there despite almost 1.5 million homes passed
and marketed) depressed the North
American average, however. For the
United States only, take rate was 44.2
percent, but when the 2.5 million homes
being marketed in Canada and Mexico
are added in, the combined North American take rate (homes connected divided
by homes marketed) is 42.2 percent.
THE BANDWIDTH IMPERATIVE
Although gigabit networks have received widespread news coverage and
about two dozen providers offer 1 Gbps
service, the number of gigabit customers is still quite low. The real action is in
32
the 50 Mbps to 100 Mbps range. There,
growth in the past four years has been
startling. Render’s surveys show that in
just four years, the number of 100 Mbps
users in the United States grew from
7,200 to well over 500,000.
100 Mbps Subscribers
20097,200
201069,700
2011170,300
2012516,500
50 Mbps Subscribers
200939,800
2010162,500
2011347,650
2012803,461
U.S. broadband users are moving
from slower technologies such as DSL
and fixed wireless to FTTH and cable.
FTTH has increased its market share
to about 8 percent of all U.S. households, up from almost zero in 2006.
Cable service increased from 40 to 50
percent market share in that same period. The growth of FTTH and cable
came primarily at the expense of DSL
(which dropped from about 40 percent
to 32 percent despite widespread deployment of U-verse by AT&T) and of fixed
wireless, which dropped slightly to 10
percent.
As demand for faster service increases, FTTH looks better and better. Median tested download speeds for
FTTH connections now top 20 Mbps,
up from 5 Mbps in 2007. Cable upload
speeds increased more slowly, from 7
Mbps in 2009 (FTTH was at 12 Mbps
that year) to 14 Mbps.
Fiber’s advantage for upload speeds
is, of course, even better. Median tested
U.S. broadband households are migrating from
DSL and wireless service to fiber and cable
service, which offer higher speeds.
| BROADBAND COMMUNITIES | www.broadbandcommunities.com | January/February 2013
INDUSTRY ANALYSIS
FTTH Homes Marketed, September 2012
(Cumulative, North America)
22
21.30
19.20
20
18.30
18
14
12.36
10
8.00
3.
22
4
10.08
5.
08
8
6
14.40
13.30
12
17.60
16.50
15.40
6.
64
Millions
16
2
0
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Source: RVA LLC
The increase in homes marketed for FTTH rose by a healthy 2.1 million for the March-September period, the largest increase since 2008.
upload speeds are now about 10 Mbps,
compared with 1 Mbps in 2007. Cable upload speeds went from less than
1 Mbps in 2009 (at which point FTTH
speeds were above 2 Mbps) to a median
of 3 Mbps in 2012. In addition, FTTH
carriers have bandwidth to spare; few of
them set limits on the volume of customer uploads and downloads.
Gigabit speeds are the next plateau. Incumbent local exchange carriers (ILECs)
that deploy fiber tend to be rural and
have lower demand for speed, less
competition and higher costs for connections to the national telecommunications grid. However, middle-mile networks funded by the stimulus program
put them into the gigabit game.
More than three-quarters of all
FTTH connections are by RBOCs –
mainly Verizon. Small ILECs and their
competitive (CLEC) subsidiaries ac-
count for more than half the remainder.
CLECs and municipal providers are
best at taking advantage of fiber’s ability
to provide symmetrical or near-symmetrical bandwidth.
Then there is Google.
Render reports that Google had more
than 30,000 registrants in Kansas City
in September and had approved fiber
construction in 180 of the 202 “fiberhoods” it had identified there. Rumors
FTTH Homes Connected, September 2012
(Cumulative, North America)
9.00
9
8.00
8
7.50
5.
8
28
4.
42
5.
6.45
3.
76
5
91
4
2.
Millions
6
-
1.
0.
67
01
2
1.
4
8
2.
14
3
1
7.09
0
7
Mar-06
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Source: RVA LLC
FTTH connections rose at a record pace – 1 million in the six months ending last September. That’s double the previous six months and a record for any
six-month period.
January/February 2013 | www.broadbandcommunities.com | BROADBAND COMMUNITIES |
33
INDUSTRY ANALYSIS
FTTH Take Rates, US vs. North America
50%
US Only
45%
41.0%
North America
40%
37.0%
33.4%
35%
30%
26.8%
25%
20%
Mar-06
30.4%
28.8%
36.7%
37.8%
37.4%
42.3%
43.3%
38.8%
37.7%
39.5% 39.9%
41.7%
44.2%
42.2%
33.3%
22.3%
Sep-06
Mar-07
Sep-07
Mar-08
Sep-08
Mar-09
Sep-09
Mar-10
Sep-10
Mar-11
Sep-11
Mar-12
Sep-12
Source: RVA LLC
The U.S. take rate for fiber has now reached 44.2 percent. Mexico’s low 17 percent take rate (FTTH is just getting started there) depressed the North
American average, however.
are strong that Google will eventually
expand into at least a few other municipalities and perhaps be a source of capital for others’ gigabit builds.
Do users need the bandwidth? Apparently, yes. Median peak download
demand for users who have unconstrained access now tops 40 Mbps –
about half from data downloads and
about half from HD video. Growth in
the number of of HD screens in typical
households could push this to 100 Mbps
in just the next two years. The 30 Mbps
mark was passed in 2009.
FTTH TAKE RATES ARE HIGH
Most new builds are in rural areas,
which historically have high take rates –
typically because customers have few or
no alternatives. Render tallied 880 existing or planned FTTH providers. Of
those, all but 25 have fewer than 10,000
subscribers.
One carrier in seven enjoys take rates
above 90 percent. One in four has a take
rate higher than 80 percent. In general,
real estate developers who install FTTH
enjoy the highest take rates.
Verizon, which has about 78 percent
of all FTTH homes passed in the United
States, has a take rate close to 40 percent.
Most of its footprint puts it into direct
competition with cable carriers. v
34
US FTTH Connections by Provider Type
Electric Co-op
0.1%
Cable TV Provider
1.0%
RBOC
78.2%
CLEC Division of
ILEC
1.1%
Real Estate
Developer
1.5%
Competitive
Provider
2.6%
Municipal Utility
4.2%
ILEC
11.3%
Source: RVA LLC
More than three-quarters of U.S. FTTH connections are provided by RBOCs – mainly Verizon. Small
ILECs and their CLEC subsidiaries account for more than half the remainder.
FTTH Has the Fewest Usage Limitations:
Percent of Respondents Aware of Volume Caps
FTTH
DSL
3%
6%
Cable Modem
Wireless
12%
17%
Source: RVA LLC
FTTH carriers have bandwidth to spare; few set limits on the volume of customer uploads and
downloads.
| BROADBAND COMMUNITIES | www.broadbandcommunities.com | January/February 2013
INDUSTRY ANALYSIS
The North American Fiber to the Home and Advanced Broadband Review and Forecast to 2017 report is a detailed review
and forecast of both FTTH deployment and consumer desires for advanced broadband applications and services.
Information is available at www.rvallc.com.
FTTH Has the Lowest Cost per Mbps
And the Highest Monthly Data ARPU
$57.35
Households connected to FTTH enjoy
the lowest prices per Mbps (great for
customers) and yield the highest
revenue (great for carriers).
$44.30
Monthly Revenue per
User for Data Services
$17.60
$15.30
$6.40
Wireless
DSL
$2.64
Cable
FTTH
Other Broadband
Service Uptime
65%
44%
Download Speed
61%
35%
Upload Speed
60%
34%
Consistency of Speed
Streaming Quality
FTTN
$3.68
Source: RVA LLC
Percent Saying They Are “Very Satisfied”
With Aspects of Service
FTTH
$50.80
$49.60
$49.38
Cost per Mbps
FTTH customers are significantly
happier with their service than
are customers who use other
broadband technologies.
55%
32%
47%
24%
Source: RVA LLC
Percent of Time Spent Online by Device
Type (Average for All Ages)
Laptop
40%
Handheld device
7%
Tablet device
Broadband users still spend
most of their online time in front
of computers, not with tablets.
5%
Desktop
48%
Source: RVA LLC
January/February 2013 | www.broadbandcommunities.com | BROADBAND COMMUNITIES |
35
INDUSTRY ANALYSIS
Real estate developers who
install FTTH enjoy the highest
take rates.
FTTH Take Rates by Provider Type
Real Estate Developer
81%
Cable TV
66%
ILEC
63%
CLEC Division of ILEC
55%
Electric Co-op
53%
Competitive Provider
49%
Municipal Retail
46%
RBOC
Non FTTH Users: Importance of Area
Amenities if Shopping for New Home
40%
Municipal Wholesale
29%
Green Space for Walking, Jogging
83%
FTTH
78%
24-Hour Neighborhood Patrol
61%
Fitness Center/Clubhouse
Current FTTH Users: Importance of Area
Amenities if Shopping for New Home
55%
Community Pool/Park
FTTH
Availability of a fiber connection is among
the most important amenities for buyers
shopping for new homes. Among current
FTTH users, it is the most important amenity.
89%
Green Space for Walking, Jogging
81%
Community Pool/Park
54%
24-Hour Neighborhood Patrol
54%
Fitness Center/Clubhouse
53%
53%
Source: RVA LLC
FTTH Providers Noticing Economic Impact
(all providers)
Home-Based Business Expansion
51%
Employer Attraction
FTTH Providers Noticing Economic Impact
(municipal providers only)
26%
Employer Expansion
21%
Employer Retention
21%
66%
Employer Attraction
51%
Home-Based Business Expansion
Any Economic Development
Employer Expansion
21%
Employer Retention
21%
Any Economic Development
Carriers, especially municipal network
providers, notice substantial economic
impact from FTTH.
87%
Source: RVA LLC
See the digital edition of Broadband Communities online at www.bbcmag.com
for another 14 charts showing additional findings from the RVA report.
36
| BROADBAND COMMUNITIES | www.broadbandcommunities.com | January/February 2013
58%