Discussion Papers

Stephan Jay, Karl-Heinz Neumann, Thomas Plückebaum
with contributions of Konrad Zoz

Implications of a nationwide fibre roll-out and its subsidy requirements

No. 359 / October 2011

(full version only available in German)

Summary

The roll-out of a fibre access network to 43 million customers in Germany and operation at 70 % penetration requires investments of 70 to 80 bn € in a greenfield environment. The differences in investment between the considered fibre access architectures are relatively small. GPON is the cheapest technology but GPON over P2P requires only a few per cent more and P2P itself only about 5 % higher investments. The reason is that of the dominant investment block most items are identical for all architectures in a greenfield deployment. Inhouse cabling, building access and the drop segment between the building's street and the distribution point are identical for all FTTH networks. Sensitivities show that the use of existing ducts of the German copper network – even if access is free – only allows minor savings in those rural areas that are most loss-making because the degree of ducted cabling is low. This savings effect could be increased by (free) access to other infrastructures.

Profitability of fibre access network critically depends on the penetration. Investors must realize high penetration rates that usually exceed 40 % and often even 60 % under the full coverage assumption in this study. Even at high penetration rates of 70 % cost in less dense areas is still too high to enable allow profitability at current price levels. The reach of potential profitable fibre roll-out therefore ends at about 20 % to 45 % of German customers.

In order to increase the profitable coverage of Germany with fibre access networks end users can pay a higher monthly price that reflects their higher cost. In least dense areas such a price would have to be in the region of up to 70 €. Alternatively, end users could bear a part of the investment which would be between a few hundred € and over 2,000 € in the least dense cluster. The total volume of subsidies of this kind would be in the range of about 14 billion €.

Alternatively, all fibre customers could pay a broadband premium that allows equalizing the losses endured in non-profitable cluster. Such an increased homogenous end user price depends on the base ARPU and the penetration chosen. In the optimistic base case end users would have to pay 6 € in addition to their 38 € ARPU in order to enable a nationwide FTTH/P2P network running at 70 % penetration.

Discussion Paper is available for download.

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