By Tony Brown

Asia Pacific’s FTTH bigwigs met recently to discuss the state of their industry, and the consensus was that, as expected, FTTH will rise or fall on the back of video.

At the 2010 Asia Pacific FTTH Council conference – held May 25-26 in Seoul, perhaps the most heavily fibered city in the world – fixed-line executives from countries as far apart on the FTTH-usage spectrum as Japan and India gathered to discuss the future of FTTH in the region. The discussion focused not only on the progress made by the operators whose executives addressed delegates but also on what the key drivers of FTTH services are likely to be in Asia Pacific in terms of new services.

Given that executives from the likes of NTT, Chunghwa Telecom, Telekom Malaysia and KT addressed the conference, it was little surprise that most agreed that IPTV would provide a major stimulant to FTTH-subscription growth in the coming years – especially considering FTTH’s ability to deliver HDTV.

However, even in the IPTV sector, operators say there needs to be greater direct collaboration with content providers. Speakers from South Korean heavyweight KT told delegates that with the Open IPTV platform it is deploying, the company is aiming to offer a genuine alternative to the walled-garden content approach being taken by cable and DTH operators.

Intriguingly, several operator executives and industry analysts said that content was so expensive that providing VOD or IPTV services via FTTH was never likely to be hugely profitable but that operators had little choice but to supply IPTV as a “gateway service” to subscribers. But the assembled executives also agreed that operators would need more than IPTV services to generate significant FTTH-subscription growth.

The problem, of course, is that as operators such as KT and Taiwan’s Chunghwa Telecom (CHT) are already finding out that it is hard to compete in the pay TV market against established players from the cable and DTH sectors – especially when those operators have a lock on the best exclusive content.

Although KT’s Open IPTV system does show some promise in terms of making more content available for subscribers, that content is still likely to be attractive to particular segments of the market rather than the mass market.

More than a killer app

The broad consensus among the operator and equipment-vendor executives who spoke in Seoul was that it was unlikely that any individual “killer application” would emerge. Instead, they said, the emergence of a wide range of new services was likely to drive the market.

In particular, big improvements in videoconferencing capabilities made possible by the huge additional bandwidth available on FTTH networks are likely to be a key driver. They would not only create the possibility of allowing subscribers to use videoconferencing to interact with friends and family – as they already do on Skype and similar services, albeit with varying degrees of quality – but would also create significant commercial possibilities across a range of fields.

In particular, service providers in the Netherlands are already rolling out services that enable healthcare professionals to visually monitor senior citizens’ health via videoconferencing systems, removing the need for home visits or for the patients to have to report to the hospital for checkups.
Several speakers also said that improved videoconferencing capabilities available on FTTH networks would also spark interest in FTTH subscriptions from senior citizens, who could use videoconferencing to better stay in touch with their families.

Remaining in the video field, another potentially key service is for FTTH connectivity to help deliver home-security services by enabling users to remotely monitor their properties by video, noting that such services have already been deployed in several markets.

The use of videoconferencing as a potential flagship service for FTTH operators is intriguing in many ways. But it is concerning in other ways, because videoconferencing has been a huge failure in the 3G mobile market.
As a result, although FTTH-delivered videoconferencing services will be of far higher quality than their 3G counterparts, the commercial reality is that consumers have shown little interest in the service. Moreover, FTTH operators will also have to compete in the videoconferencing market with global operators, such as Skype, that offer free videoconferencing services.

The need for partners

However, several network-operator executives also said they had found that in deploying new services, such as e-healthcare and e-security monitoring, they needed to acquire new partners from industries in which they had previously had no collaboration. They said that the experience of going outside their comfort zones to team up with companies from outside of the telecommunications sector had been a challenge, but one that was unavoidable, because operators simply cannot provide every new service by themselves.

This collaboration approach is already being used by operators to deliver other key services that are emerging on the growing number of high-speed networks in developed markets across the world, such as cloud computing – the en vogue service among operators –digital signage, and e-government and e-education services.

The digital-signage industry has already taken off in Japan, with an NTT executive telling conference delegates that his company was making inroads in the sector – and not just by providing FTTH connections for advertisers to remotely upload and update their advertisements. NTT is also supplying video-monitoring equipment to the advertising companies. The equipment enables them to monitor who is viewing their digital signage and for how long.

There is little doubt that such joint ventures with security companies, education providers, healthcare companies and IT firms provide genuinely exciting possibilities for FTTH operators. But as the FTTH operators at the conference pointed out, these deals will require fixed-line operators to hand over a large degree of control to their partners – something they are not used to doing or are not comfortable with.

And such joint ventures pose problems for FTTH operators, not least because there are likely to be gray areas of responsibility in terms of service provision. For example, who should a subscriber call when his home-monitoring system goes down – the operator or the security firm?

Not a fast buck

Several conference speakers also reminded delegates that operators needed to consider FTTH networks a long-term investment and that they would not achieve a return on investment as quickly as mobile operators did with their networks. One speaker cited the example of Hong Kong operator City Telecom, which began its FTTH/B rollout nearly a decade ago but has only recently moved into the black, though it now looks set for a lengthy period of profitability.

However, although FTTH operators remain confident that their investments will eventually pay off – early evidence suggests that FTTH ARPU is about 30% higher than DSL ARPU – some big challenges still lie ahead for FTTH operators.

The first of these is the fact that – as noted by one industry analyst at the conference – global Internet giants such as Google and Skype are beginning to wake up to the growing opportunities created by worldwide FTTH take-up and are starting to explore those opportunities more aggressively. This presents a serious challenge to FTTH operators, because the likes of Google and Skype have the ability to connect directly with subscribers and offer them retail services, such as videoconferencing, and thereby take valuable revenues away from operators.

This means that operators – which readily concede that they can’t offer every value-added service (VAS) by themselves – will have to be smart and decide when to partner with other companies and when to go it alone in offering a new service. After all, the most profitable part of many FTTH operators’ business is actually providing broadband access as opposed to any VAS they offer, so the temptation to concentrate on their core access business will be a factor.

By the same token, though, FTTH operators cannot simply sit back and let the global Internet giants come and eat their lunch. They need to be active in either providing their own VAS or teaming up with relevant local and international partners to offer VAS and increase their ARPU.