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FTTH Council Europe
Guiding Europe through the FTTH funding maze
like the emperor’s new clothes, their arguments do not stand up to closer scrutiny. TheEuropeanTelecommunications Network Operators’ Association (ETNO),whichrepresents incumbent operators across Europe, said its members invested € 29 billion annually, on average, over the last six years, of which approximately € 17 billion was for fixed networks. In addition, alternative operators invested nearly € 16 billion annually. If the level of investment remains stable, then up to € 210 billion would be available for investment between now and 2020. The telecoms industry’s capacity to invest is not the problem. However, incumbent operators typically build FTTH networks in the most profitable areas, such as major towns and cities, where the deployment cost is lower and they are under more pressure from competitors. As stock market- listed companies, their objective is to serve the relatively short-term interests of their shareholders, not to fulfil any Digital Agenda targets or to save the national economy. As a result, the incumbents account for less than one quarter of FTTH deployments to date, and it is unlikely that they will roll out FTTH everywhere. Investing in smaller towns and villages requires a long- term vision, and so it is mainly utility companies, community- based regional operators and municipal governments who have taken the lead in those areas. Regrettably, those small FTTH projects sometimes struggle to get off the ground. While the investment is too large and specialised to be handled by local banks, it is too small to be addressed by institutional investors. It is surprising therefore, that the European Commission’s broadband policy has concentrated on incumbents and other large operators. The telecomsector, in our view, will not be willing to self-finance
the copper-to-fibre transition, and there is no guarantee that a more benign regulatory framework will result in higher capital spending. Instead, we believe the Commission should focus on policies to attract external sources of finance. The European Commission had proposed a budget of € 7 billion to finance broadband infrastructure as part of the “Connecting Europe Facility” (CEF). Through a multiplier effect, this was expected to leverage investments of up to € 50 billion between 2014 and 2020, which would have made a significant impact. Unfortunately, European member states killed the initiative when they drastically cut the CEF budget. By rejecting this source of finance, Europe’s member states have effectively taken back responsibility to ensure they can deliver their national broadband plans. At a minimum, national governments needtoensurethatFTTHinvestment is identified as a priority. Member states also have their own sources of finance available to add some impetus to network build. In the 2006 – 2013 budget cycle member states committed € 2.4 billion to the construction of broadband networks, and a similar amount will be available in the period 2014 – 2020. We also believe that there is a strong case for increased use of European Structural and Cohesion Funds to fund FTTH infrastructure. Politicians need to recognise that many investors are desperate for sound long-term investment opportunities. Low interest rates have made government bonds unappealing to pension funds and insurance companies. Infrastructure as an asset class could provide an alternative investment opportunity with potentially greater returns. To make this possible, policy makers need to develop a coherent approach that takes the requirements of long-term investors into account, backed up by supportive financial regulation.
Investors have already expressed an interest in investing in FTTH networks, but they have told us that there need to be changes in the market structure. Long-term investors tend to prefer projects with low risk and strong contractual commitments that ensure a steady income. The vertically integrated business model that is favoured by incumbent operators pollutes the low-risk network investment with high-risk technology choices. The separation of network and technology – as has been done in New Zealand – would open up new sources of finance for the sector. There is one final challenge: investors need to be matched up with the appropriate investment opportunities. As we noted earlier, many projects are too small to target institutional investors directly. Smaller projects need to be aggregated into compatible groups, and they need to translate their business plans into terms that meet the requirements of these investors. The FTTHCouncil Europe is actively working on these issues. We started an “investor’s project” in 2012 to bring the stakeholders together and help them to find mutually acceptable solutions. This project is ongoing. In our view, the next steps to ensure FTTH financing in Europe are clear. Having voted against the CEF scheme, governments across Europe need to acknowledge that they have responsibility to develop national financing frameworks for FTTH as the only sensible long-term solution for broadband networks. Institutional investors need to be educated to understand that passive fibre networks are a long-term infrastructure investment. And project managers need to learn to speak the language of the investment community, and to be prepared to adapt their approach to fit the need of this specialist group. Hartwig Tauber Director General, FTTH Council Europe
By Hartwig Tauber Y ou will have heard the argument that there isn’t enough money to finance the roll-out of fibre to the home (FTTH) networks. Citing the seemingly insurmountable obstacles of shareholder demands, increasing competitive pressure and the economic downturn, operators and politicians claim that they simply cannot afford FTTH networks. But
Governments across Europe need to acknowledge that they have responsibility to develop national financing frameworks for FTTH as the only sensible long-term solution for broadband networks.
16 | Optical Connections 2013 | www.opticalconnectionsnews.com |
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