Comment on the NGA investment case studies: Reggefiber
In the DAA workshop and the related online group, we discuss exemplary cases to thrash out the pros and cons of different NGA investment models, which could be replicated on a larger scale. Please share your views, devoting particular attention to the following points:
- What are the right commercial, financial and regulatory arrangements which make long-term NGA investment feasible?
- What elements of the case studies can serve as a role model for replication and what needs to be adapted?
- How can EC policy improve the feasibility of such models (under the current regulatory framework)? Are certain models better than others?
Below we present the first case for your comments, Reggefiber from the Netherlands. The most voted comments (through the "interesting" button) will be fed into the discussion at the Assembly.
Reggefiber (submitted by Wouter Burger)
Facts and commercial model
• Reggefiber implements a wholesale-based business model to deploy FTTH connections to households in the Netherlands. Currently, total connections amount to c. 1 million (Q1 2012) with a target of around 1.5 million by 2013 (c. 20% of households). The company started as a venture of a family of entrepreneurs with a background in construction; in 2008, the Dutch incumbent KPN acquired a stake (currently 41%, to increase to 60% in 2014).
• The model is based on a high degree of vertical separation: Reggefiber builds and operates the passive access network (layer 1), active operators deploy and operate active network elements (layer 2, Reggefiber plus currently 3 others) and downstream service providers (> 10) deliver end user services (layer 3). Reggefiber invests up to €1,000/home passed which are to be recovered over a payback period of 20 years and through a target long-term take-up rate of 60%.
• Reggefiber has developed intelligent techniques of generating high take-up rates. These comprise (1) a rigorous selection of areas based on socio-economic characteristics (2) the proactive use of demand aggregation to create enthusiasm among local residents, e. g. by opening local points of contact, proactively involving key local stakeholders such as mayors, clubs, churches, etc. and (3) a focus on smaller towns and villages where such enthusiasm spreads more easily.
• Reggefiber has innovated new ways of saving construction costs, e. g. by pre-manufacturing street cabinets which can be deployed on site with little additional works or by experimenting with laying cables in protective gutters close to the surface.
Regulation
• Due to KPN's participation, Reggefiber is subject to access regulation. Reggefiber and the NRA agreed on a rulebook governing the involvement of the different parties, the access products as well as wholesale prices (publicly available). The actual investment for each new project is submitted to the NRA. The provisions set a maximum for the monthly rental rate which Reggefiber so far undercuts with an average monthly rate of €15. The rate is adjusted for inflation and varies with investment costs in a given local project.
• Access products and prices are subject to the formal standard procedures required by the regulatory framework and can be revised in each bi- or triennial regulatory review. However, the NRA seeks to sustain stable conditions for long-term investment provided Reggefiber complies with the provisions set out in the rulebook.
Financial aspects
• A proven track record of successful projects and commercial viability that had been demonstrated in practice constituted the "proof-of-concept" which eventually secured access to first-time external (debt) financing. Key factor in long term external refinancing is a certain minimum degree of reliability and stability of project revenues and cash flows.
• Reggefiber creates a separate legal entity for each area with separate financing. In addition to this geographically ring-fenced approach, several other elements mitigate risk: (1) a sufficiently high threshold for the number of contracts concluded upfront before construction (2) harnessing the openness of the network and the presence of multiple downstream providers to achieve long term take-up accretion (3) a reduced risk of (fibre-based) duplication due to the participation of the incumbent and the attractive open wholesale model, and, as further consequence hereof, (4) minimised churn by virtue of the network's unique and superior performance features.
Comments
Sounds awesome!
Really looking forward to finding out more about this at the digital assembly. I especially like the "focus on smaller towns and villages where such enthusiasm spreads more easily" bit. In my opinion this is a key factor in providing connectivity for all, and take up is greater where deprivation is apparent. Also looking forward to the other case studies, we have such a lot to learn, share and discuss.
Is this the key message from Reggefiber or not?
"(3) a focus on smaller towns and villages where such enthusiasm spreads more easily."
this to me is key, because they are the places where take up will be greater because the need is there. Many people in towns and cities feel they already have good enough internet access and resist change. The rural people know they are missing something and are more likely to have open minds and are prepared to help themselves to a brighter future through a fit for purpose connection.
Notes
Reggefiber certainly has a very interesting business case, but in real life things are a bit different. The 'smaller villages' mentioned above have about 10k inhabitants.
For the more rural areas they have the following proposition, based on a recent enquiry from a town in the north of the Netherlands with about 1000 homes.
Total costs per house passed: € 2716,30
Contribution from Reggefiber: € 850
At 100% take-up rate contribution from community per household: € 1866,33
At 50% take-up rate contribution from community per household exceeds € 4000
The network will be in posession of Reggefiber, there is no ownership by this village. This information was published by Jan Hut, a rural broadband 'activist' from the north of the Netherlands (find his weblog on rural matters on www.janhut.nl but it is in Dutch). His conclusion: 'At this point Reggefiber is not interested in smaller villages. They will be if the bigger cherries are picked. Rural communities have no chance at all, the shareholders won't allow it'. I second his conclusion.
Also the majority of the providers on the network are labels of KPN, shareholder (41% and more to come) of Reggefiber. The strategy of KPN has been to stimulate smaller ISP's to grow by giving access to the 'open' Reggefiber networks and buying them after that. If the networks are really 100% open is questionable... You can also question the 'vertical separation'. Yes, the operator is a different party, the ISP's are different parties and the networkowner is a different party. But if al these parties are connected to eachother, there is no transparancy.
I'm not saying they have a bad businesscase, but things I mentioned above should be taken into consideration.
Focus on small towns
Reggefiber focuses on smaal towns, with 3.000 - 10.000 dwellings, for the reasons discussed. Rural areas are too expensive to develop. Contributions from residents are needed to roll-out.
Open network
The passive network is really 100% open. The Dutch NRA (OPTA) has mandated this and ensures this will remain so.
Other parties besides KPN are using the infrastructure and compete with KPN.
Rurals miss out again then.
Have we any information about when the bigger cherries are picked that the price would come down? We should fully support any community wanting to own its own infrastructure but I would imagine in the real world some would rather not, so maybe there isn't a problem with reggefiber owning it, but I was hoping it would be a solution to smaller villages too. Is KPN spoiling the dream? What questions do we need to bring to the table at the workshops?
price coming down
For smaller villages and rural areas, owning and operating an FttH network is very expensive. These type of projects will be very few.
I guess...
Just ask them clearly how this model provides affordable broadband to rural areas, i guess. The figures I gave are exemplaric to other rural areas, so I would like to hear the vision and timeschedule of deployments in remote villages.
Rural areas
This model does not provide a solution for rural areas. In rural areas Reggefiber works with residents and local governments to bring together enough funds to finance the deployment of an FttH network.
Nothing different
And keepin thought that this is nothing else than traditional ways of networking. KPN remains a dominant telco in the Netherlands and is not likely to give up a businessmodel that did very well for the shareholders.
The problem is targetted messages - not advertisement
The fundamental problem is dis-empowerment of citizens and companies through commercial infrastrcuture behavioural profiling.
Eliminate this through technical isolation - i.e. so infrastructure cannot recognise devices or users to correlate and abuse data from non-related sessions.
And then there is little problem in advertisements that citizens know are related to the context and not to some obscurely detected affinity or behavoural characterisic in your psycological profile.
There are less facilities in
There are less facilities in the rural areas but still people in these areas live very happily : http://www.zippd.com.au