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Point Topic Warns BT - Fibre is a Necessity Not a Choice

Posted: 30th Jul, 2008 By: MarkJ
Point Topic's Chief Analyst, Tim Johnson, has offered his reaction to BT's recent £1.5bn fibre broadband (FTTP, FTTC) rollout plans (original news). Johnson warns that the upgrade to faster fibre optic infrastructure isn't a choice because without it BT's "existing copper network will be worth only scrap value within 10 years.".

However, Johnson said that the focus on consumer broadband as the driver for NGA is understandable but misleading. The new network would be able to provide much wider benefits and revenues than just faster Internet access:

“I believe investment in NGA is essential for BT, and it should generate a good return for decades to come. On the other hand, if BT doesn’t renew its local loop infrastructure its existing copper network will be worth only scrap value within 10 years,” says Tim Johnson, Chief Analyst at Point Topic.

“Fibre in the local loop combined with BT’s 21CN [twenty-first century network] project allows BT to provide a complete IP [internet protocol]-based telecoms environment to the end user. Customers should get more flexibility for less cost and dreams like seamless fixed-mobile convergence will become reality,” says Johnson

Point Topic estimates that BT's proposal to cover 40% of the homes in the UK for £1.5bn works out at £150 per household. Past estimates have ranged up to £20bn to provide fibre coverage for all the 25 million households in the UK, or around £800 per household. A much lower cost to cover the whole country now looks likely:

“By offering new and better services, saving on operating costs and having a relatively low capital cost to recover, BT stands to make good margins on this first phase of its next-generation investment. We estimate they would need to earn only about £3 per month per household for a good return,” says Johnson.

“Of course, even £3 a month would be a heavy extra burden to put on the price of broadband services,” Johnson points out. “But the £3 is for the partial replacement of what broadband customers are already buying, not for something additional.”

“BT will also get lots of benefits from cost savings and other new services, besides basic broadband,” he adds. “So I don’t think the NGA investment should increase the cost of broadband overall – although people will get a lot more for their money.”

Information from BT's existing trials of fibre optic (FTTP) broadband services in Ebbsfleet would appear to suggest that consumers should expect to pay more for their broadband connections, at least initially. Naturally these are expected to include higher speeds ('up to' 100Mbps) and more flexible usage allowances though too, somewhat mitigating any cost differences.

Point Topic also hints that a degree of special subsidy might be required to help bring these services to remote regions of the UK; much as there has been with existing ADSL broadband. We would agree, although it could take longer and be more costly than ADSL to deploy. Overall the analysts predict that BT’s shareholders should be able to finance the investment, carry the risk and reap a good profit in return.
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