Virgin launches 50Mb/s service – first real test of NGA demand

Virgin Media has launched the first 50Mb broadband service in the UK, bringing the much-heralded world of Next Generation Access nearer. At around nine times the average headline broadband speed in the UK and over twice the previous highest 24Mb/s service, the launch of the 50Mb service offers the first chance to assess whether there really is demand for such ultra-high speed services. Clearly wedded to a “build it and they will come” strategy, Virgin Media are trusting that the early demand for their 10Mb/s and 20Mb/s services will translate into profitable demand for the even faster service.

But even Virgin seem to be struggling to imagine what customers will use such high speed services for. They suggest that shared accommodation of students would find it useful, that video-rich entertainment and social networking websites will require it or homes needing multiple HDTV channels. But surely that’s not enough to support such an expensive solution. And in a recession is £51/month (over £600 a year) really going to sell (when there are already early signs of people downgrading service), especially when you still have to pay for movie and sport content on top ?

The 50Mb is based on an upgraded network with current 10Mb and 20Mb users being moved onto the new "DOCSIS3" network, freeing up capacity for increased traffic on the existing DOCSIS 1.0 network. Quite what that means for the cost equation is debatable, but with luck it may be possible to regard this as an incremental spend and justify a business case on that basis.

Roll-out to the 12.6 million homes covered by Virgin Media's fibre optic network is expected to be complete during the Summer of 2009. So at the very least Virgin Media have put down a marker which may spur others to respond.

KPN moves closer towards FTTH

Back in May, KPN announced that, subject to regulatgory approval, it would take a 41% shareholding in Reggefiber, the open-access fibre network provider in Holland. This signalled that KPN was considering a move to an FTTH strategy - an investment that it is suggested could reach €6-7 billion over 5-7 years.

That regulatory approval is now likely to be granted, according to local newspaper Trouw, paving the way for investment in an FTTH network that covers the vast majority of the Netherlands.

Reggefiber, founded in 2005, is a stakeholder in several local initiatives (such as OnsNet and AlmeerNet) and also operates its own network, Glashart, which is currently present in 15 different Dutch communities. In Q3 2008, the company claimed to have connected about 150,000 homes.

So what lessons does this give us about the UK position ?

Firstly, it is essential to recognise that the competitive dynamics in the Netherlands are very different from the UK - cable TV is a near ubiquitous player, community-based services are well advanced, and Reggefiber itself was building a position. KPN are faced with a challenge way beyond anything that BT is likely to be looking at for some time.

Also the population densities are such that the cost equation will look more promising than in the UK, apart from green field sites like Ebbsfleet.

So the main learning will be around the demand side. Will extensive deployment of FTTH actually stimulate the wide range of novel services proponents often claim, and thereby provide more confidence to the business case ? Or will we be looking at something more like the 3G debacle - lots of money spent on providing the same thing cheaper ?

Huw Williams

Next Generation Access - a perfect storm

There are a huge number of things going on in the area of NGA currently:

- Ofcom’s consultation on “Delivering Super-fast Broadband”
- The related Ofcom statement on “Next Generation New Build”, with its extension to Ethernet Active Line Access (EALA)
- The Broadband Stakeholder study into NGA costs

- The Caio report and its recommendations on NGA, especially what government and Ofcom should (and should not) do.
- Lord Carter’s forthcoming report on Digital Britain
- EU policy consultation on regulated access to NGA

Go to NetStrategics website to see our assessment of these issues - http://www.netstrategics.co.uk/

Huw Williams