Creating a Competitive Fiber Market

Last week I posted an article about how Swisscom will support competitors in its FTTH deployment. Swisscom will deploy four fibers to each home and reserve one for itself and make the other three available to competitors. It pointed out that the cost of providing four fibers is only slightly higher than providing a single fiber.

This significantly helps Swisscom's business case because it will generate revenue from every FTTH home that it deploys. This will provide it with a return on the investment that it is making on deploying these fibers. Swisscom will also accept investment or trade fiber connections with its competitors that deploy their own fiber networks.

A similar facility sharing approach has been adopted in France and is likely to be adopted broadly in Europe.

Japan is taking another approach. NTT is deploying all of the fiber; however NTT East and West (the two incumbents in Japan) can offer only the fiber connection. The subscriber gets the Internet service from an ISP. NTT operates two of these ISPs itself (OCN and Plala), but has to treat other ISPs on an equal basis. KDI and Softbank are major ISPs that use NTT fibers along with a number of smaller ISPs.

The U.S. FCC has given up on creating a competitive environment with FCC. It traded exclusive use of the fiber for the commitment to deploy fiber services. I think this was a bad bargain. Both Europe and Japan have shown that better approaches are available.

Swisscom to Deploy FTTH

Swisscom is building a fiber network for residential customers and SMEs. Work has already started in Zurich, Basel and Geneva, with the aim of connecting 100,000 households with fiber optic by the end of 2009. The plan is then to further extend the network to include residential premises in the cities of St. Gallen, Berne, Fribourg and Lausanne.

The first offerings for residential customers and SMEs will be launched in the first half of 2009. Over the next six years Swisscom is planning to invest $US2.3 billion in its fiber expansion.

To enable other companies to expand their own fiber infrastructure after the construction work has started, Swisscom will be laying several fibers per household in all areas. One fiber will be used by Swisscom, while the others will be made available to other companies. The multi-fibre model will prevent the creation of a new network monopoly in Switzerland and also meet competitors' requirements for full access to the local loop (copper pairs) as stipulated by the Telecommunications Act.

Swisscom offers other companies interested in collaborating on the construction and operation of the fiber network four different cooperation models:

• Construction partnership for other companies with their own ducts, such as electrical utilities or cable network providers. One of the partners takes on responsibility for building the fiber network in a region. Several fibres are laid, and when the network is completed each of the other partners is assigned one fibre. If all the partners network regions which are the same size and are to be shared, no compensatory payment is required.
• Investment partnership for companies without their own cable ducts. Network expansion is jointly financed by all the partners. One partner builds the entire network and grants the investor usage rights to the fibers laid.
• Rental of individual fibers for companies who do not wish to invest in network expansion but want to decide themselves on the preferred technical level for controlling the fiber network.
• Leasing of transmission services similar to established practices.
  

Swisscom presented its reseller offerings to all Internet service providers at the beginning of November. In the initial phase these offerings will cover bandwidths of 30 to 50 Mbps for download and up to 10 Mbps for upload.

During the pilot phase, which starts at the beginning of March and will become a commercial service in autumn 2009, the offerings will focus on the areas in Zurich, Basel and Geneva which are already equipped with fiber cables. Internet service providers, including VTX, green, netstream and init7, are free to design their own end customer and reseller offerings.

This is an interesting model for handling competition over fiber. It will produce a lot more competition than the U.S. approach that gives the carriers exclusive use of their fiber plants.