Google fiber : technicolour bunny no longer in the pink

Google Fiber has been an iconic presence in debates over superfast broadband and FTTH. Initially announced in 2010, the Google Fiber bunny lolloped into its first market, Kansas City, in 2012. It has since expanded to five other cities in the US, offering symmetric 1 Gbps service at low prices.

"No new internet product has generated as much excitement in the technology world as Google Fiber", said the FTTH Council in 2014. Indeed, for fiber enthusiasts, Google Fiber has been emblematic of what should be possible. Here was a preeminent technology company, backing fiber all the way to the home. The fusty old telcos and cablecos simply didn't get it.

What a difference a couple of years make.

The Wall Street Journal recently reported [$] that Google is "rethinking its high-speed internet business after initial rollouts proved more expensive and time consuming than anticipated". Today come reports that Google Fiber is laying off half its staff. The company is also changing its strategy, with a shift to using wireless technologies to connect homes, rather than fiber.

I suspect we'll hear rather less about Google Fiber from the likes of the FTTH Council. But actually there are some valuable lessons here:

• It's way too glib to say FTTH is 'future proof'. New technologies (such as the milimeter wireless Google are now moving to) are proving quicker and cheaper to deploy, while delivering similar performance to FTTH
• A further technology problem for FTTH is that cable can now deliver speeds of 1 Gbps and more. This means that there's less reason for consumers to switch to a new entrant (where cable's available), and also puts the new entrant at a significant cost disadvantge. Upgrading the cable plant is far cheaper than deploying new fiber. Cable operators in Google Fiber cities have done exactly this, almost certainly reducing Google's uptake
• It's easy to underestimate the 'friction' involved in doing any work that touches the last few meters to people's houses. Google has been accused of causing flooding in Austin, for example. Less dramatically, issues of home access, damage to gardens and so on all drive up costs

There's no reason to scorn the Google Fiber bunny. Google is a company that proceeds by experimentation, and not all experiments work. In the light of their experience, and of developing technology, they are revising their strategy. Utterly sensible - and a useful case study for those who continue to believe that it must be FTTH or nothing.

The killer app for FTTH? Piracy

Fibre enthusiasts like to point out that those with very high speed connections have higher usage of the internet. This is certainly true, though whether this is because heavier users trade up to superfast broadband, or because superfast actually changes behaviour is a vexed question.

However, a more intriguing issue is what makes up that extra usage. Markets like Hong Kong and Korea have very fast broadband, and high per-line traffic. When you ask insiders in those markets what all that traffic is, they often look a bit shifty and then whisper 'piracy'. Until today I hadn't seen any hard data to back up this assertion.

However, I've just come across a report from COMBO, an EU funded project looking at fixed-mobile convergence. (It has blue-chip participants - France Telecom, Deutsche Telekom, Telefonica, Alcatel Lucent, Ericsson and  several others). On page 104 of the report is the following data for traffic of FTTH and ADSL customers of France Telecom in October 2013 :

Upstream and downstream traffic combined.

As you can see, FTTH users have roughly double the usage of ADSL customers. However, 58% of the additional traffic is down to P2P. Peer-to-peer is a protocol with legitimate uses, but it's very largely used for piracy. It's what enables Bittorrent for example (and is beloved of the copyright-sceptics of The Pirate Bay).

FTTH customers have 4.2x the P2P traffic of ADSL customers, mostly because they upload 7.5x more than ADSL customers. Indeed, for every pirate-byte they download, FTTH users are uploading 2.6. In the words of the report, "this allows us to conclude that some FTTH customers are becoming P2P servers".

Superfast advocates claim significant externalities (societal and economic impacts) for faster broadband. But externalities can be negative as well as positive. See the rigging on the rather fine pirate ship above? Fibre-optic cable, every strand.

Tilting at Windmills - Latest scores

Sometimes setting yourself entirely arbitrary objectives can be useful. There's good evidence it helps marathon runners improve their times, for instance. However, sometimes it can be entirely quixotic.

The pursuit of best national broadband speed is in the latter category. While there's perhaps reasons to worry if you're at the bottom of the league tables for broadband (and here's Phil Dobbie doing exactly that for Australia this week), there's really no evidence at all that you benefit from being at the top.

That hasn't stopped countries such as the UK and Korea setting what we might call 'league table targets'. The UK for example has a goal to 'have the best superfast broadband network in Europe by 2015'. This is perilously close to 'if you overinvest in broadband, we''ll overinvest more', though happily in practice the UK is being judicious in its superfast broadband.

Of course the people who most love league table targets are equipment vendors, who benefit greatly from that overinvestment. As I've noted before, the FTTH Council love them. They publish annual data on who has rolled out most FTTH (and FTTB- fibre to the building).

Worrying about FTTH league tables is even more perverse than worrying about general broadband league tables. FTTH is a long way removed from actual consumer or societal benefit, in a chain like this:

If any of the steps in this chain are weak, then the societal return on the investment in FTTH will be less. For example, Martin Geddes argues that increased speeds may not lead to improved technical performance (in the sense of reliable and predictable packet delivery), and may in fact sometimes degrade  it.

My focus in this post is narrowly on the second step in the chain - does increased FTTH adoption lead to increased speeds? Of course FTTH will deliver greater speeds in the last mile - but this isn't necessarily the weakest link in any particular flow of traffic. Problems can occur in many places - the users' device, their wifi network, congestion in the backhaul, congestion in peering and transit links, problems at the content server and so on. If one of these is the binding constraint, then more last-mile bandwidth helps very little. And of course even if the underlying connection is FTTH, the consumer might choose a slower (artificially constrained) product if they aren't willing to pay the premium for higher speed.

One way to test the extent of this issue is to compare levels of fibre adoption to measured broadband speeds from the content server to the end user - if FTTH adoption makes a big difference, we might expect to see a good correlation between these two metrics. Akamai, a content delivery network, publishes national data on just such speeds. While they're not perfect for our purposes (a certain amount of mobile network traffic is likely mixed in, for example), they are the best available. Here are the results for Europe:

Sources: FTTH Council (end 2013), Akamai (Q4 2013)

As you can see, not much of a correlation there (R²=0.01), suggesting that FTTH adoption isn't a magic bullet for experienced speed.

Some of the countries which have been least interested in FTTH to date, like the UK (firmly in the FTTH Council's sin bin), are actually doing just fine on measured broadband speed. Conversely, Portugal, which has spent billions to secure 67% coverage for FTTH and 13% penetration, isn't seeing great speeds as a result.

Of course I'm not saying that there's no linkage between FTTH and national broadband speeds (and South Korea with lots of FTTH/B tops Akamai's speed tables), but the linkage is rather weaker than might be assumed.

The fundamental point here is that to begin with infrastructure targets is to start at precisely the wrong end of the problem. The correct starting point is 'what user experiences do we want to enable?' and to work backwards from this to the required bandwidth, latency, mobility and so on. Then from that you can think sensibly about infrastructure needs.

Otherwise we're arguing about who's tilted at most windmills.



[PS: Apologies for the extended absence, I've been busy with clients, not least on figuring out bandwidth requirements - a post for another day]

Japan - FTTP with tumbleweeds

Japan is often cited as one of the world leaders for superfast broadband. It has been rolling out fibre-to-the-premises for more than a decade, and now has one of the fastest fixed broadband networks in the world, second only to South Korea in terms of measured speed, with average speeds clocking in at 10.8 Mbps. (The speed of the last mile will be appreciably higher than this).

Of course, we all know that by itself FTTP is just glass in the ground. What matters is what you do with it. How much traffic is travelling across this network? Happily, Japan is one of the countries that tracks and reports this, so we can take a look. [Health warning - what follows is in part based on Google Translate, so there is the possibility I've missed a critical footnote].

Here's Japan's traffic per fixed broadband line since 2004:

Source: Japan Ministry of Internal Affairs and Communications 

A few observations:

• Bandwidth usage is growing, but not exponentially. The growth rate in the last year was 17%
• This is despite the fact that there was major adoption of FTTP in this period - as a share of fixed broadband it rose from 36% at the start of 2007 to 67% today (data here)
• Usage is low relative to the line capacity - 54 Kbps vs the average speed of 10.8 Mbps measured by Akamai, representing a utilisation of 0.5% (though certainly it will periodically spike far higher than this for any given line)
• It's also not the case that fibre delivered massive growth in per-line upload traffic - this peaked in late 2009, and has fallen almost 30% since then

It seems fair to call this a little underwhelming.  One factor may be that consumers are choosing to use the LTE mobile network rather than fixed connections. Indeed, it seems some consumers are seeing LTE as a complete substitute. According to Informa:

"NTT East and NTT West have been forced to slash their FTTH prices for new subscribers by an eye-watering 34% from ¥5,460 (US$66.70) to ¥3,600 per month to try and re-ignite their subscriber growth and stop the outflow of subscribers to cheaper LTE mobile broadband services."

Be that as it may, given that other countries are spending billions to replicate Japan's superfast fibre-optic infrastructure, presumably Japan is streets ahead of what's typical usage on copper networks? Another country that publishes usage stats is Australia, where the current government is investing massively to build FTTP (though 96% of households are still on cable or DSL).

Here's how Japan and Australia's per line traffic compares:

Source: Australia fixed lines and traffic from ABS. Japan as above

Note: Japan units converted from average kbps to monthly total GB

As of the end of last year, Australia's per-line fixed broadband traffic was roughly 70% higher than that in Japan. Despite a network that is undoubtedly technically inferior to Japan's, Australia is seeing robust growth. Of course all traffic is not created equal, but it seems fair to guess that Australia is getting more value out of the fixed internet than Japan is. By contrast, Japan's very expensive investment in FTTP doesn't seem to have delivered that much.

Network infrastructure is only as valuable as the usage it enables. Is it time for Japan to start envying Australia?

'Compelling applications' for fibre - are we there yet?

Every year at about this time, the FTTH Council of Europe have their conference. They are the most enthusiastic proponents of fibre-to-the-home - they're the folks who claimed that it would be useful for remote surgery (see 0:50 of this). That's fibre to the home we're talking about ...

Anyway each year they present various assessments of the state of the European market. Part of the purpose of this (and it's a skilful bit of lobbying) is to create a sense of competition to see which country can rank highest in FTTH roll-out. The presentations have all sorts of rankings by different metrics, so almost every country can get some kind of recognition. It's like a school fête where almost every kid gets a prize. (The UK and Germany are the sulky kids who sit in the corner and won't even participate in the egg-and-spoon race).

The presentations also talk about some of the challenges that FTTH faces. Here's some disarmingly honest quotes from the Council (or their consultants) about FTTH from the last three years:

  2011: "No really compelling application that requires a fiber connection"
  2012: "No really compelling application that requires a fiber connection"
  2013: "No really compelling application yet"

Are you spotting the pattern here?

Now sometimes we're told this is a chicken-and-egg problem, that of course there aren't applications that need FTTH, because there isn't critical mass of FTTH to sustain them yet. However, according to the FTTH Council there are 107m FTTH connections around the world. Give or take, that's roughly the same as the number of basic broadband connections there were in 2003 (103m, according to the ITU).

By 2003 we had the iTunes store, Skype, streaming video, movie downloads, numerous IPTV services and many other broadband-dependent services that are critical features of the market to this day.

If 100m broadband households were more than enough to support the development of a plethora of compelling applications for basic broadband, why is it that 100m FTTH housholds don't seem to have driven any compelling applications at all?

Not only are we not there yet, it may just be the case that there's no 'there' there.

NBN Co's bold assumptions on Australians' willingness to pay

Broadband has been a great deal for consumers. In most markets they have received ever more bandwidth for roughly the same amount of money, or even less. Many countries show a pattern of declining 'ARPU' (average revenue per user), and increasing average Mbps. Consumers may actively choose a plan that offers more bandwidth for a similar price, or they may be automatically upgraded to higher bandwidth by their ISP. (This latter is a surprisingly common phenomenon - the UK's Broadband Stakeholder Group has just published an excellent report looking at the numbers.)

Here's the pattern of price and bandwidth in the UK:

Source: Ofcom CMR 2012, p340

As you can see, the average spend for broadband has dropped by a third, even as average speeds have increased significantly. (Note that the speeds in this chart are 'headline' speeds - those actually achieved will be different, but the trendline will undoubtedly be upwards).

The historic picture in Australia is not quite as good as the UK, but nonetheless very positive for consumers, who have seen increasing speed for broadly flat spend:

Source: Telstra financial results, Akamai

[Some caveats: I haven't been able to find national average figures for ARPU, so I've used Telstra's number as a proxy. Given its significant share in the market and its role as a price setter, it is likely an accurate representation of the trendline, even if the overall average is somewhat lower. Figures for speed are in this chart actual speeds, rather than headline, so are not directly comparable to the UK figures above.]

What about the future? In Australia the broadband market is undergoing dramatic change. The government is rolling out the NBN, a (near) nationwide fibre-to-the-home network, which will wholesale services to retail ISPs. The business plan shows NBN Co making a slim return for its citizen shareholders, but of course a business plan is only as good as the assumptions that go into it.

What does NBN Co have to say about ARPU? They are forecasting a sustained and substantial increase over the life of the plan - the yellow line on this chart:

Source: Wholesale ARPU from NBN Co Corporate Plan 2012-15 p69,

Telstra retail ARPU as above, estimated retail ARPU author's estimate

Also on the chart is the Telstra retail ARPU, as before (in red), and my own rough estimate of what retail ARPU is implied by NBN Co's wholesale ARPU (in yellow - based on an estimate of $25 for the ISP to cover its costs and margin).

Note that NBN Co aren't saying that they will be charging more over time for any given product, or that those products will be more expensive than today's equivalent. What they are saying is that they expect consumers to be willing to pay substantially more to get higher speeds, with a result that the typical user increases their spend by about 70% over the next decade. While it is intuitive that consumers might pay more for higher speeds, as we have seen historically they haven't had to.

This is a very different point from saying that at any given point in time, higher bandwidth products are more expensive than lower speeds - of course that is true, but over time the price of all speed tiers have moved down. Consequently consumers can upgrade their speed without spending more money, and broadband's "share of wallet" has been roughly flat. The NBN Co plan critically depends on this long standing pattern changing dramatically, with a substantial rise in broadband share of wallet.

Fiber scepticism = climate change denial?

Paul Budde, the Australian telecoms analyst and FTTH enthusiast, has a feisty blog post up. In it he draws parallels between fibre-sceptics and climate change deniers, saying they're both mud-slingers who get far more attention than they deserve.

Paul complains: "So far we have not come across any NBN sceptics who have dared to move into the area of what the extent of the NBN’s potential – the digital economy, intelligent infrastructure, big data, clouds computing, e-health, e-government, smart grids and so on".

This is a surprising allegation, since there are plenty of people out there expressing doubts about these beneficial externalities, and I know Paul has read at least one such paper - the one I wrote (together with my brother). This addressed exactly the issue of superfast's potential, and spent some pages on why its contribution to e-health and smart grids has been much overstated. I certainly don't expect everyone to have read this paper, but I happen to know Paul did read it - he wrote quite a long response to it. Still, perhaps it wasn't interesting enough to stay in his memory.

Never mind, let's move on to some of Paul's other points. I'll set aside his unsupported assertion that less than 5% of commentators feel the NBN is a waste of money. His key points (paraphrased) seem to be:

• 'We need to embrace the digital economy'
• 'The NBN could create of millions of new jobs'
• 'It will reduce healthcare costs by $30 billion and energy costs by $2 billion'
• '119 countries around the world have national broadband plans, and everywhere but in Australia there is bipartisan support'

The Digital Economy
Certainly we need to embrace the digital economy - it's a bit of a motherhood statement. The critical question is whether we need superfast broadband to do so. The US, the economic heart of the internet and home of most of the major internet application companies, doesn't actually have particularly good broadband infrastructure. Akamai ranks it 9th worldwide for average connection speed. The UK has the largest internet contribution to GDP of any G-20 country, but is only just above the middle of the G20 pack in terms of average connection speed (among the countries tracked by Akamai). Thus there seems to be very little connection between broadband speed and strength of the digital economy. Rolling out fibre is simply not a magic economic wand.

New jobs
Paul's suggestion that the NBN could create "millions of new jobs" is certainly a bold claim to make without supporting evidence - total employment in Australia is a little over 11 million, so to add 'millions' by improving broadband speeds would be quite something. Paul's claim is all the bolder when you realise that of the 11 million, 3 million work in sectors such as agriculture, mining, public admin & safety, and health care & social assistance, all areas where the NBN is unlikely to create many new jobs.

Cost savings - healthcare
Indeed, if Paul is to be believed, there may in fact be job losses, since he tells us there will be huge cost savings in healthcare and electricity. Paul hasn't provided us with sources, so we'll need to do some guesswork in looking at these. He's been using the $30bn healthcare saving number since at least 2009, and I suspect it's from a 2007 KPMG report on the cost-benefit of electronic health records. This is not itself available online, but it underpins a key November 2008 Booz report on the potential of eHealth (see p35), for National Health & Hospitals Reform Commission.

The vital point here is that the number is not the benefit of NBN, but rather the benefit of eHealth. The vast majority of the benefits of eHealth do not depend on superfast to the home. They can be achieved via good broadband to medical premises (which generally already have it), and basic broadband to homes. Indeed, while the Booz report highlights the importance broadband, it absolutely does not highlight fast universal broadband as a requirement for the eHealth benefits. Indeed, it discusses Germany's substantial eHealth plan based on DSL. To say the $30bn eHealth benefit depends on NBN is simply wrong.

Cost savings - energy
Let's have a look at the $2bn energy cost saving. Again, Paul hasn't provided a source for it, but it is a number he's been using since 2010, when he said it stemmed from "savings from a duplicated comms network and double installation". Even then he didn't provide a source, so we can't directly review its basis.

However, there are plenty of figures out there for the cost of installing smart grids. Enel, the Italian electricity company, has installed 33m smart meters, at a unit install cost of €13 (derived from this). Scaling this to Australia's 8.7m households, we get a total cost of A$136m. While it's plausible that some joint roll-out of the NBN and smart meters might save some of this, clearly a percentage of $136m is not going to make much of a dent in the purported $2bn saving.

So perhaps most of it comes from avoiding a 'duplicated comms network'? The trouble is that smart grids absolutely do not require the bandwidth of NBN. They can work perfectly well on existing telecoms networks, and indeed the successful Enel network (completed in 2006, long before superfast broadband) does exactly that.

International bipartisan support
This leaves Paul's comment that there are "119 countries around the world [that] have national broadband plans, and everywhere but in Australia there is bipartisan support". Deliberately or otherwise, this statement gives the impression that Australia is in good company with its broadband plan - nothing could be further from the truth.

Firstly, in renationalising a substantial part of the telecoms indusrty, Australia has taken a highly unusual step. The great majority of countries (including all other OECD countries) that have chosen to support superfast have done so via commercial players. Even those that have taken parts of the network into government hands have done so on a far more limited scale.

Secondly the NBN is an extreme outlier in terms of the level of government investment:

Government spend from OECD

Given that the Australian government is spending so much more than other governments, surely it's not unreasonable to focus on costs, and to ask if the benefits will really outweigh them?

Oh, and for the record, I am a believer in climate change!

US losing interest in FTTH

Verizon, once the standard-bearers for FTTH in the US, seems rather to have gone off the idea. They've said that once they complete their current deployments, they will stop. To some extent the slack has been taken up by smaller, more local players. However, a graph of the pace of roll-out (measured in homes passed per day in North America) tells an interesting story:

Note: Figures are average daily homes passed over preceding year

These figures are based on numbers for total homes passed over time from RVA (the research firm of choice for the North American FTTH Council). As you can see, the pace of roll-out peaked in September 2008, and has been falling ever since, bar a slight up-tick in the year to March 2012, which RVA attributes to the combination of stimulus funds and a mild winter. The rate of deployment is now roughly 40% that at the peak.

Is this because FTTH coverage is already widespread? Not exactly - the 22.6m homes passed represent just 18% of total households in the US and Canada. At the current rate of deployment, it will take another nine years to get to 30% coverage (and even this is 'artificially' accelerated by government subsidy, which is unlikely to last).

A more likely reason for this decline in FTTH investment is that carriers are realising that is it very hard to make a return on such capex. A particular challenge for US carriers is the competition they face from cable operators, who have roughly 55% share of the broadband market and rising - something to keep in mind the next time you're told cable operators' HFC platforms are yesterday's technology which can never compete with FTTH.

Chancellor offers you £17 to upgrade your broadband

In today's UK budget the Chancellor announced ten cities that will "share £100m to introduce ultra-fast broadband". The cities are Belfast, Birmingham, Bradford, Bristol, Cardiff, Edinburgh, Leeds, London, Manchester and Newcastle. You will have spotted that there are some big cities in this list - their combined population is 14.6m.

At 2.5 people per household (the rough UK average) this is equivalent to 5.9m households. So, the £100m works out to £17 per household in the relevant cities. Given average civils (construction) costs of £50-60 per metre, this would get the duct carrying your fibre roughly 30cm down your front path / driveway.

My point is not of course that the government should be throwing more money at superfast - they certainly shouldn't, particularly in cities where existing broadband is likely to be of a reasonable standard. Rather the fact that £100m gets you 30cm of duct per household just shows how expensive fibre-to-the-home is.

Is FTTH material to the EU's broadband target?

The European Commission has set a target that "By 2020 ... 50% or more of European households have subscriptions above 100Mbps". A bold target - how is fibre roll-out and adoption tracking against this?

The FTTH council - arch enthusiasts for superfast - publish annual statistics of fibre-to-the-home roll-out and uptake. The story so far looks like this:

Note: These figures include some countries outside the EU27, most notably Turkey

As we can see, both roll-out and adoption have been quite steady over the last four years, adding roughly 5.8m and 1.0m homes per year respectively over that period (with a slight acceleration in the rate of adoption).

As a percentage of homes passed, uptake has been in the range of 15-20% since 2007. This doesn't prove uptake has stalled - each year, adoption is diluted by the new homes passed in that year, which inevitably start with zero penetration. However, with each passing year this dilution effect gets smaller, since each year the portion of passed homes that are new gets smaller and smaller. (For instance, in 2008 57% of homes were new - in 2011 20% were). This suggests that adoption is making only very slow progress even in locations where fibre has been available for some time.

Purely from a financial perspective, this has to be concerning. The costs of fibre include a very substantial fixed element simply to pass homes. Thus the rate of uptake is critical. You lose a lot of money on the homes you pass that don't take fibre, which you have to make up from the homes that do take fibre. Other than in highly urban environments (where costs are lower), I would be surprised if many FTTH business plans show a profit with adoption rates anywhere near as low as 15-20% uptake.

Setting aside the financial challenges for individual operators, what does this rate of progress tell us about FTTH's likely contribution to the EC's target? Using a straight line projection of FTTH adoption based on the slightly higher growth of the last two years, we get a 2020 figure of 6.9% of European households taking FTTH service:

In other words, if FTTH is going to a significant contributor to the EC target, then either roll-out or adoption  will have to improve dramatically. This would be more believable if either of these metrics were on an upward trajectory. However, additional homes passed has been steady over the last four years in the range of 5.3-6.3m (and 2011 was in the lower half of this range).  For adoption, the graph above uses the slightly higher rate for 2010 and 2011, an average of 1.3m homes per year. However, the rate for 2011 was actually lower than than for 2010 (1.2m vs 1.4m), suggesting that FTTH is certainly not enjoying exponential growth.

While it is conceivable there will be a surge of adoption, perhaps driven by some currently unknown, compelling superfast application, it is worth noting that at the current rate of roll-out, FTTH will only pass 24% of European households by 2020. Even if they all took FTTH broadband (and that at 100 Mbps), FTTH would still only be contributing less than half of the EU target.

Does this mean the EU target is doomed? Not necessarily. FTTH is not the only way to deliver 100 Mbps. Cable broadband already can, and by 2020 FTTC (fibre to the cabinet) may very well be offering such speeds. (BT is launching 80 Mbps FTTC in April 2012).

However, this analysis does suggest that unless there is some radical change, FTTH is something of a sideshow for the EU's superfast target. If policy makers have serious ambition to meet that target, they will need to focus on cable or FTTC solutions.

[The underlying data for the above charts is available from here: 2008, 2009, 2010 and 2011]

'Future proof' - A flawed justification for fibre

Fiber-to-the-home (FTTH) enthusiasts often say that it is the essential choice because it is 'future proof' (see, for example, this). While this sounds good, there are a number of problems with this argument.

We perfectly sensibly invest in things that aren't future proof all the time. Newly weds do not immediately buy houses to accommodate a brood of children, we don't build all airports with three runways on day one, we don't build all roads as six lane highways and so on.

There are two fundamental reasons for this - we don't know if the anticipated demand will materialise, and even if it does, there is value in delaying the investment to accommodate it. The newly weds might never have children, and even if they knew for cast iron certain they were going to, why spend the money on empty bedrooms today? The cash could be put to better use in the meantime (particularly if, say, the newlyweds were facing a global financial crisis at the time of their wedding).

In the world of superfast we can take a look at the choice between FTTH and fibre-to-the-cabinet (FTTC) in these terms. The latter is considerably cheaper, since it doesn't involve digging up the roads all the way to individual houses, but on the other hand its theoretical capacity is lower. It's possible that at some future point demand for speeds even greater than FTTC can provide (currently in the region of 80 Mbps and rising) will mean that we'll feel obliged to overbuild with FTTH.

At that point, will those crying 'future proof' in 2012 be proven right? Well, it all depends on the numbers - the costs of the two technologies, how much of the FTTC build cost would be wasted, how long before any overbuild is required, the probability of overbuild being required and the discount rate (a measure of value of delaying spend).

Below is an illustrative analysis of this. One critical assumption is the relative costs. I've assumed FTTH is three times the cost of FTTC (this may be conservative - Ofcom says 3-4x, and WIK says 5x in urban and suburban areas). Don't worry to much about the absolute dollar figures - $400 per household for FTTC and $1200 for FTTH - it's the ratio that matters for our purposes.

I've somewhat arbitrarily assumed that there's an 80% chance that overbuild will be necessary, and that it will be required in year 4. These sound generous to me, but there's room for reasonable people to disagree, certainly. However, keep in mind that the 80% is not the chance that there will be any demand for FTTH speeds, but rather the chance that there will be enough demand for incremental speeds beyond those of FTTC to justify the cost of the overbuild. Given that FTTC can provide 80 Mbps and rising, 80% feels like a high number to me.

I've assumed that 50% of the investment in FTTC is a write-off if it's overbuilt with FTTH (based on Value Partners' view). Finally, I've assumed a 10% discount rate, fairly typical for commercial investments. So how do the numbers play out? See below:



As we can see, going for FTTC now saves us $198 per household, even allowing for the fact that overbuild with FTTH later may be necessary. The fundamental reason is that there is huge value in delaying the substantial spend on FTTH. Note that even if we were 100% certain that FTTH would be required in a few years, it would still make sense to start with FTTC now, though the saving drops to $49.

All the above analysis assumes (generously) that FTTH itself won't be replaced by something better. Certainly it is today the way to deliver the highest bandwidth to the home, but the future has a way of surprising us. Want to know what was being called 'future proof' in 1995? ISDN, now a product in its twilight years - BT killed of consumer ISDN in 2007, for example.

So, the next time someone tells you we have to spend money on FTTH because it's 'future proof', keep in mind that they may be wrong, and even if they're right, it may still make sense to build FTTC now and see if we need FTTH later.

What does Onlive tell us?

Onlive has recently caught my eye. They provide cloud based gaming, and I think tell us something very interesting about broadband requirements for cloud based services in general.

All the processing for Onlive is done on their servers in the cloud - the pictures are streamed down to your PC or tablet in real time. Your computer is essentially a dumb terminal, displaying the video and sending up mouse clicks (frantic ones, perhaps, if you're desperate to blast the aliens). A technical description is here.

Onlive is a great test case for cloud based services, for a couple of reasons. Firstly, it is a demanding application from the perspective of latency. If there is material lag between the buttons you're pressing and what is happening on screen, action games (such as the first-person-shooters and racing games) will simply not work. This is the reason serious online gamers obsess about ping, even for games where the processing happens locally.

Secondly, the video needs to be high quality and bandwidth intense. When you're using a word processor, not much changes on the screen at any one time. Even if the entire screen was being streamed from a remote server, compression could keep the bandwidth requirement relatively low. It's a very different case for action games, where the whole screen can change rapidly, as the player turns around or an explosion erupts.

In other words, given Onlive's need for low latency and rich video, if your internet connection can handle Onlive, its going to be able to handle the great majority of cloud services.

So what does Onlive require? "5 Mbps for TVs 40 inches and larger" - and no mention of any minimum upstream requirement.  This compares to an H1 2011 average broadband speed of 7.5 Mbps in the UK for example (a figure which excludes the relatively small number of superfast connections in that country). In other words, even with someone else gaming in the house, you'd still have enough bandwidth to be watching a typical 2 Mbps streamed TV programme from the BBC's iPlayer (standard definition - 3 Mbps for HD).

The moral of the story is that today's infrastructure will already deliver us even quite demanding cloud-based services with bandwidth to spare, for the majority of users. The cloud is exciting, and has huge potential (though some risks), but whatever it is it isn't a ready justification for throwing money at fibre broadband.

The story so far

My interest in superfast started with a project for a client who asked the question whether government funds were better put to work in extending broadband coverage or speed. When I accepted the project, I thought it would be relatively easy - primarily a modelling exercise based on existing research into the benefits of each. However, when we started looking at the research into superfast, it turned out to be relatively thin. Moreover, given the costs involved, we found we had to make heroic assumptions about the benefits of superfast - and in particular FTTH - to believe that it was a better return on societal investment than FTTC or extended coverage of basic broadband. This got me wondering if the emperor was in fact fully dressed. (The results of this project are here).

As it happens, my brother Charles, a development economist, has done work in the same area. After some discussion, we decided we should write a joint paper taking a hard look at the case for superfast, and in particular its purported societal benefits. He focussed on the economics (since he understands them) and I focussed on the applications and technical side. Working on this paper made me think that even if the emperor did in fact have some clothes, he certainly didn't wear them very often. Time and again, advocates for subsidising superfast to the home made one of three errors, basing their case on applications that:

• Could run on superfast, but equally could run on more basic broadband
• Had little societal benefit, and therefore did not seem to justify government intervention
• Did not require connectivity to home, but rather to businesses

Moreover, evidence seemed to be being used very casually and frequently misleadingly (see The hall of shame for some of the more shocking examples).

Charles' and my paper was published in November 2010 (with an academic version in the journal info in 2011). It attracted a fair bit of attention, not least in Australia where feelings run high on broadband policy. Some people thought the paper was full of good sense, others thought we were idiots. (Our reply to the latter is here, on p6).

Since then I've continued write and present on the topic. Fibre-caution remains a minority view (at least in public - it's interesting what people in pro-fibre organisations sometimes say behind closed doors), but I'm sticking to it for the time being, until the evidence suggests otherwise.

What's this blog for then?

This blog is primarily a place to present a somewhat sceptical perspective on the merits of superfast broadband.

There's no shortage of enthusiasts for superfast. Governments around the world are throwing money at it, equipment manufacturers are singing its praises, incumbents see the opportunity for weakened regulation in exchange for rolling it out and conversely new entrants hope that a replacement of legacy infrastructure will create opportunities for them.

However, there are few people making the contrary case: that there might be diminishing returns from ever greater bandwidth to the home, that the applications enabled by superfast broadband are likely to be primarily entertainment-related, and that therefore there is little reason for the government to be intervening to suppport superfast broadband. This blog will seek to set out that case.

Those seeking government support for superfast propose spending large sums of tax payers' money and making major interventions in the market. In markets such as Australia this includes a renationalisation of a large part of the telecoms market. It seems to me that this puts a significant burden of proof on those who would support such steps. However, I recognise that my own position is a minority one, and that suggests a higher burden of proof for me too. I will therefore strive to be evidence-driven wherever possible.

Superfast will be the focus of this blog, but I have other interests in telecoms more generally and also in media. I may post on these topics as the mood takes me.