FRANKFURT -- Ultra-Broadband Forum 2016 -- Despite dreams of a gigabit society, much of Europe will probably have to make do with somewhat lower-speed broadband offerings for the foreseeable future. European authorities are aiming for just 100 Mbit/s as a universal target by 2025. In Germany, Europe's biggest market, some cable operators are marketing 400Mbit/s services, but Deutsche Telekom, the incumbent telco, cannot squeeze more than 100 Mbit/s out of its vectoring-enabled VDSL network -- even in the most ideal circumstances.
France's Orange (NYSE: FTE), however, appears to have its sights set much higher. During a presentation at Huawei Technologies Co. Ltd. 's Ultra-Broadband Forum in Frankfurt last week, Yves Bellego, the operator's director of technical strategy, told attendees that 1Gbit/s downlink services would be "common" for Orange residential customers in the fixed-line markets of France, Poland and Spain in 2018.
Speed Is Key
Yves Bellego, Orange's director of technical strategy, says users are demanding ever-higher broadband connections.
"Common" is a fairly nebulous term but implies services will at least be readily available, if not in widespread use. While it obviously has a long way to go, Orange is moving quickly. In France, it currently markets a premium broadband service of 500 Mbit/s on the downlink and 200 Mbit/s on the uplink. High-speed offerings are also becoming increasingly available in Poland and Spain.
Data bears out the transition that is under way. According to Bellego, in the year to March 2016, the number of homes "connectable" to fiber-to-the-home networks rose by 39% in France to 5.5 million, 85% in Spain to 7.4 million, and 800% in Poland to 800,000. The appetite for ultra-fast broadband is growing fast (see chart below).
Note: "Connectable" figures are for March; all other figures are for June. (Source: Orange)
Orange has made a sharp increase in connectivity speeds a central plank of its Essentials2020 transformation strategy. At around €6.5 billion ($7.3 billion), capital expenditure last year was about 9.3% more than in 2014, largely because of heavier spending on the rollout of fiber networks. "We see huge traffic growth and we want to multiply by three the throughput for customers on mobile and fixed," says Bellego. "That is one of the big projects we have."
Competitive pressure is partly responsible for the upgrade. Home to four national infrastructure players investing in fiber networks, France has gained a reputation as one of the most fiercely contested broadband markets in Europe. Yet Bellego has a very needs-must attitude to Orange's investment plans across the region. "Customers still ask for more," he says, noting that existing applications do not require connections of several hundred megabits per second. "That is why we need to continue investing and developing capabilities, even though we don't know exactly what for."
Making all of this pay will be challenging. So far, revenues from fixed broadband services have risen on the back of high-speed broadband investments. But growth will inevitably slow as take-up rises and networks are extended into less affluent communities. Experience has shown that consumers are unwilling to pay substantially more for a broadband speed boost. And competition continues to force down prices.
The gigabit vision, however, places Orange in the vanguard of Europe's big broadband investors, and it should keep the operator in a strong position in future. Much of Europe's current broadband infrastructure would not be able to cope with the arrival of technologies such as virtual reality and 8K TV, an even higher-definition video standard. Operators that remain focused on copper-fortifying technologies like super-vectoring and G.fast could also fall foul of regulatory authorities under new European rules. (See EC Rules to Narrow Tech Options for Telcos.)
Unfavorable comparisons are often made between Europe's broadband laggards and the high-speed innovators of Asia. That has done little to convince the likes of BT Group plc (NYSE: BT; London: BTA) and Deutsche Telekom AG (NYSE: DT) that costlier upgrades are needed. But an unfavorable comparison between different countries in Western Europe could be far more persuasive.
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