Evaluating the Impact of Financing Structure Decisions on FTTH Deployment. A Comparison between New Zealand and Europe

Abstract

The increasing demand for higher bandwidth and more reliable networks is driving the worldwide deployment of Fiber-to-the-Home (FTTH) networks. The paths followed to achieve this goal markedly vary, however, across different countries. This paper focuses on FTTH deployments in New-Zealand and Europe. On one side, there is the nationwide Fiber-to-the-Home (FTTH) investment strategy as devised by the government of New Zealand, also known as the Ultra-Fast Broadband (UFB) initiative, alongside an open access obligation. This contrasts sharply with some local European initiatives for NGA deployments on the other side: the publicly-owned dark fiber infrastructure provider Stokab in Stockholm (Sweden), a Public-Private-Partnership (PPP) under the Market Economy Investors Principle in Amsterdam (the Netherlands), and a private initiative undertaken by the incumbent in Portugal. These initiatives differ in the spectrum of public and private modes of participation in infrastructure deployment, as well as in the scale and stage of development. The goal of this paper is to investigate, on a case-to-case basis, the links between the choice of investment model, considering the level of public and private involvement, and several factors that indicate the success of a FTTH deployment. The most straightforward way to evaluate the success of a project is to verify to what extent its goals and targets have been reached upon completion. However interpretations of success vary. Where government participation is present, expectations of social return and economic benefit in the medium-term are most relevant. Private stakeholders want to see construction deadlines met and targeted coverage reached. Meeting ambitious goals concerning turnaround time and homes passed is also considered, as observed for the national and local projects under study. For the purpose of analyzing the cases, a common framework was developed that builds on technology, policy and market aspects, as well as their interactions, allowing for a clear mapping of the incentives, goals and actions of the different players in the field. Based on this framework the paper studies the investment mechanisms used in different FTTH deployment cases, with a focus on Public-Private Partnerships, and evaluates the success of the deployment in terms of deployment speed and coverage. Following the analysis, some general observations can be made. The importance of the policy pillar is evident in all types of deployment, be it as full investment of a public actor, participation in a PPP or as indirect aid in the form of regulatory holidays. Furthermore, policy can set strict boundaries on technological options, e.g. in obliging open access on a dark fiber (P2P topology) or bitstream (P2MP topology – GPON architecture) layer. The coverage targets are higher in smaller-scale deployments because of lower range in cost per home passed as well as easier planning. Government-driven deployments typically target very high coverage, limited however by the cost-coverage trade-off. In terms of speed of deployment, publicly-backed initiatives tend to achieve on or above targets. PPP form a successful financing model, as they combine the strengths and goals of public and private players. Public players reduce the risk for private players while ensuring that the offers put on the market are fair and reasonable. Private players need a more reliable business case but are still driven to employ their technical knowledge strengths to the maximum in order to minimize their own risk and ensure sufficient return on investment.