Real Risks

Fitch Ratings believes cable operators in a number of European countries enjoy significant scale, in terms of their coverage footprints and well established broadband and telephony strategies. Crucially, Fitch notes that DOCSIS 3.0 – cable’s broadband upgrade path to speeds (capable of) exceeding 100 megabits (Mb) – can and have been achieved in a number of networks at relatively modest cost.

Consequently, a number of European incumbent telecom operators face a real risk of increasing disadvantage, given both their failure to respond sufficiently to the risk posed by cable operators’ broadband investments, and also their own resistance to spending on fibre. This resistance to invest in fibre has been further exacerbated by ongoing decisions on whether to invest in fibre to the curb (FTTC), fibre to the home (FTTH), or a hybrid of the two, and where and when to invest. Regulatory concerns over the permitted return and regulated access to the incumbents’ fibre networks also

remain an issue in a number of European markets. As a result, Fitch believes the UK, Belgium, Portugal and the Netherlands are the markets where incumbents face the most significant threat from cable operators, given the degree to which the cable network has been built out in these countries, the success of the cable companies broadband strategies so far, and the level of DOCSIS 3.0 deployment. Conversely, incumbents in France and Spain face a reduced threat reflecting lower levels of network build and the weaker financial profile of the cable operators in those countries. The structure of the German cable industry has meant that the take-up of cable broadband is only now beginning to gain meaningful scale there, while Italy stands apart among the major European economies as the only country without a developed cable operator and where the incumbent therefore remains that much more protected from cable competition.

US Incumbents Leading the Way on Fibre Upgrades

Verizon Communications embarked on a costly FTTH build out in a heavily cable networked US demographic three years ago – yet most of Europe’s incumbents are still trying to understand regulatory implications and only a few have so far taken meaningful fibre closer to the home. However, Fitch does recognise that in the current economic conditions, competitive risks might be expected to ease as consumers may seek to contain communications costs, rather than upgrade their packages to include services such as video on demand.

The Need for Speed

Unlike the incumbents – which remain tied to headline speeds for the most part in single-digits, cable operators in a number of European countries have already upgraded their networks and are offering 50 Mb speeds. With a far less developed TV product than their cable competitors, Fitch believes that the incumbents are more in need of the speeds that fibre can deliver given its ability to provide content streaming and video downloads. Furthermore, the ability to time-shift content and offer video on demand is already proven over the cable network. Viewing trends, will however in Fitch’s view, continue to fragment with the success of products like the BBC’s iPlayer, as well as the commercial broadcasters’ catch-up on-line offerings, in the UK for instance, catering for the TV audience’s increasing desire for content at any time over a range of delivery platforms.

Cable Networks More Efficient to Upgrade

While DOCSIS 3.0 is a similar technology to VDSL/FTTC – the path that most of Europe’s telecom operators appear to be following as their primary investment upgrade – the fact that most cable networks have been built within the last 15-20 years makes them far more efficient to upgrade. Cable already enjoys a deeper level of fibre throughout the network with upgrades therefore mainly replacing the active electronics at the cabinet level. It does not however require the significant civil works associated with the installation of new fibre that would otherwise drive up investment costs. Consequently, Fitch estimates that a DOCSIS 3.0 upgrade can be achieved at a fraction of the cost of fibre investment for the incumbents. In the UK for instance, Virgin Media has so far upgraded its network and is offering 50 Mb speeds at a cost which Fitch estimates at no more than GBP200m – GBP300m. BT Group is meanwhile planning to spend GBP1.5bn over the next four years on its hybrid FTTC/FTTH build covering 10 million homes.

Adrian von Hammerstein, CEO, Kabel Deutschland
Geoff Roman, Senior Vice President, Motorola, Inc.
Michael Garin, Vice-Chairman, Central European Enterprises

Making international headlines this year in Berlin, the cable industry gathered for what is undoubtedly Europe’s flagship event for cable companies, vendors, analysts, content producers and investors. This year’s Cable Congress held from March 18-20 in one of Europe’s capitals of creativity saw industry chiefs out in full force to provide a break down of the state of the industry, discuss market trends and look toward the future in what most would consider a challenging economic environment.

The cable industry stands out as one that has fared better than others during a downturn that has many viewers tuning in at home with newer and faster technological offerings. This year’s Cable Congress, “Power to Connect,” had an extensive programme welcoming more than 80 speakers representing the telecommunications industry, providing insight on the latest developments in the cable industry in the fields of strategy, investments, technology, content, marketing, and regulatory affairs.

Optimism

Opening this year’s congress, Cable Europe President Manuel Kohnstamm told reporters in Berlin “We’re seeing a healthy appetite at our customer base. This gives us reason to be optimistic for the year ahead.” Cable Europe released figures that show industry revenues at €18 billion last year. An International Herald Tribune headline read ‘Cable Mounts a Drive for Broadband in Europe’ and focused on cable’s big catch up thanks to its super fast networks that are “siphoning customers from some of the continent’s largest phone operators.”

Mayor of Berlin, Klaus Wowereit, addresses cable industry chiefs in Berlin, Europe’s first city appointed by UNESCO to the Creative Cities Network.

While industry events can run the familiar risk of being self congratulatory, there was candid discussion among industry captains about a “fight for the living room” and what cable needs to do to keep its upper hand. Many observers pinpointed cable’s high speed offering as a trump card. “Only our industry has the technology network and the drive to deliver the speeds that governments want,” said Tony Ball, chairman of the supervisory board at Kabel Deutschland as quoted by Reuters. The discussion of network speed focused on DOCSIS 3.0 and the rollouts happening in Europe with this high speed technology. Others placed an emphasis on content. Screen Digest’s Guy Bisson said, “There’s a number of reasons why the telcos are not as good as the cable companies at television. They lack the content deals, the channel deals, that the cable companies have.”

Leaders meet

Representatives of the EU’s and Germany’s telecommunications regulators also met with leaders of the cable industry during the congress to debate on how to improve European and national regulation to encourage continued investment in innovative superfast broadband networks and to improve competition in Europe’s internal market.

Next stop Brussels

A bustling crossroads of business and industry will no doubt be found next year where the cable industry is already gearing up for a special annual Cable Congress due to be held in Europe’s political capital, Brussels, on March 3-5. The usual suspects from the cable industry will no doubt be wrestling with the high level issues, debating the likely direction of the industry and checking out the latest high tech offerings on the market. But next year’s event will be a unique opportunity for European decision makers to get a taste of what has been bringing back hundreds of attendees from all over the world to “the place to be” for the industry that is Europe’s home of triple play.

In the cable industry, talking about innovation and further investment is nearly the same as talking about EuroDOCSIS 3.0 (European version of Data Over Cable Service Interface Specifications). You may not see it, but you will definitely know when it is present in your home or business given its incredible speed. Europe is seeing the beginning of the rollout of super fast broadband using EuroDOCSIS 3.0 which can offer today downstream speeds of up to 160 Mbps with upstream speeds of up to 120 Mbps. And DOCSIS 3.0’s dizzying speed is not the only attribute of this transmission technology. The technology that enables greater innovation expands video content production and consumption capacities is already rolling out across Europe – here and now.

“By the end of this year, almost all consumers in The Netherlands will be able to use ultra- high speed cable internet. International broadband rankings consistently place our country at the top, and the wide availability of DOCSIS 3.0 will reinforce that position. Cable is taking the lead in a country that is already characterised by intense competition between telcos and cable companies. The Netherlands is a leading example of the greater European trend towards investing in cable networks for higher performance and constantly providing increasingly sophisticated offerings for the customer,” says NLKabel Managing Director, Rob Van Esch.

With DOCSIS 3.0, cable operators are well placed to compete with other fibre-optic providers. Consumers are already gravitating to higher speed needs as consumption and production of high definition video material increases. Many expect video-rich experiences to further dominate user activities online. As a result, cable is building out its networks to accommodate next generation service needs.

With 95% of hybrid fibre-coaxial cable networks already in place, there is an “infrastructure in waiting” for the transition to EuroDOCSIS 3.0. What EuroDOCSIS 3.0 technology does is to deliver a much higher transmission speed over the existing cable networks through a ‘channel bonding’ technology that optimizes the use and capability of high speed networks. This higher speed, five times faster than ADSL, is achieved by a smarter and more efficient transmission of the data and techniques including ‘channel bonding’ which allows more information and content to be distributed and shared. The new technology requires adjustments to the network equipment and a new higher speed modem for customers. One of the advantages of upgrading existing networks with such a technological means is not having to break ground and engage in civil works that are both time intensive and costly.

Certification Update

One of the core activities of Cable Europe Labs is to play a hands-on role in the process of innovation across Europe, particularly with the certification testing of new products for vendors. Lab-based analysis forms an essential part of ensuring that new technologies are examined carefully before going to market. Operators can be confident that new products interoperate when introduced to the market while the benefit of uniformly tested products for consumers is self evident. Cable Europe Labs – certified equipment goes through a rigorous certification regime including testing of both interoperability and standards compliance. Equipment such as cable modems, set top boxes and telephone adaptors can easily be integrated into cable networks that operate according to European cable technologies such as EuroDOCSIS, EuroPacketCable and EuroPacketCableMultimedia.

How do you think the cable industry is contributing to the NGA competitive race, and what more can it do to bring the benefit of fibre rich cable networks to more customers?

Cable is among the technologies that are today already providing forms of enhanced broadband connectivity. In terms of NGAs and looking at the current state-of the-art of technology, DOCSIS 3.0 is one of the two leading technologies in terms of quality and throughput – the other being optical fibre – that are necessary to develop high-speed broadband infrastructures.

Photo courtesy of the Czech Presidency, www.eu2009.cz

European Commission Director General for “Information Society and Media” since July 2002, Fabio Colasanti, an Italian national born in 1946, was previously Director General of the European Commission’s “Enterprise” Directorate General from January 2000 to June 2002.
Mr. Colasanti took time out of his busy policy making schedule to speak about the cable industry and related policy with Cable Europe’s Caroline van Weede and these responses are taken from that interview.

A representative of KPN, the main Dutch operator recently said that investment by cable operators in the Netherlands in next-generation broadband is strengthening the decision by other operators to invest in fibre-optic networks. If we take a closer look at this Dutch case, the most recent data on the pervasiveness of fixed retail broadband lines in the EU clearly show that the Netherlands is already a top performer in terms of broadband penetration per household (80%), of which 31% depends on broadband delivered over cable networks.

Since a massive presence of cable has contributed to a very rapid take-up of broadband in the Netherlands, we could conclude from this that infrastructure competition from cable could also similarly lead to a more rapid take-up also of NGA in the next few years – supporting the view expressed in KPN’s recent statement.

However, cable networks are not evenly developed across the EU and uncertainties in global equity and capital markets can negatively affect investment decisions in high-speed networks. The current review of the EU’s Regulatory Framework for electronic communications and the ongoing work on the Recommendation on Next Generation Access Networks are designed to set the broad framework in which investment and innovation can flourish. In addition to these, the Commission will soon publish a communication setting out a comprehensive European broadband strategy.

Given mobile broadband offerings currently being rolled out by European cable operators, when do you think mobile broadband will become a truly competitive service to fixed broadband offerings?

We are following the developments in mobile broadband with a lot of interest as this alternative infrastructure could become very important and a credible infrastructure-based competitor to fixed broadband in the near future. For the time being, in a large number of Member States, mobile broadband is still not considered a true substitute for fixed broadband for a number of reasons like transmission speed, potential capacity constraints, and quality of service.

We have seen that in many cases, people use mobile broadband as a complement to their fixed broadband connection, particularly since many people want to use these new communication tools whenever they want and wherever they are.

What should be expected of the cable industry to help the European Commission meet its objectives to boost digital confidence among its consumers?

Giving consumers clear information about their rights will increase trust and confidence in the digital environment. This is why the Commission launched on 5 May the “eYouGuide to your rights online” (www.ec.europa.eu/eyouguide), the first online guide to consumers’ rights under EU law when surfing the web for business or leisure. This initiative aims at improving confidence in online transactions and helping to unlock the potential of the EU’s digital internal market, which is still largely unexploited.

What technologies do you personally rely upon the most?

Like everybody else, I rely on a computer connected to the internet. In the office, or at home over the weekend, I switch the computer on first thing in the morning and it stays on until the moment I leave the office to go home or or last thing at night i, if I am at home. I use my computer for all the usual purposes: working on documents, accounts or to go on line. I rely on my mobile phone much less than many other people. When I am in the office I keep it locked up in a drawer and only check for possible messages at lunch or break or in the evening before I head home. I assume that anyone who needs to contact me urgently can reach me on my office number. At home or holiday, I’m equally relaxed. I’ll check for message every now and then, but I do not feel the need to have my mobile phone next to me all the time.

Looking back over your public policy career, what have been some of the events that stand out from the daily grind of working on an ever closer union?

The cheerfulness and joy of the Schuman Parade in Warsaw on the 9th of May of this year. It was a beautiful reminder of what the European integration process has achieved.