The rise of the open access network
COVID has sent demand for broadband higher than ever before. The need to bring fiber broadband to unserved and underserved communities, as a way of protecting societies and economies, and the need to increase bandwidth in general, to support new digital living, are imperatives for operators and governments around the world.
The industry is struggling to keep up. The investments needed to deploy or upgrade fiber-to-the-home (FTTH) networks, on top of ongoing investments for 5G, are substantial. And despite higher demand, more network traffic does not necessarily translate into higher profitability for operators to adequately reap the rewards of their investments.
While this makes investment decisions a challenge for the traditional owner-operator, it makes a compelling argument for outsourcing or sharing network infrastructure investment. There is increasing interest in open access networks: networks owned by a “neutral” host and leased to one or more tenants who operate services over the network. Fiber is a perfect medium for sharing with its future-proof capacity and flexibility. Using software-defined open access, a single fiber network can be split into multiple virtual network slices, each run by a different service provider with independent management and quality of service.
Open access networks can be spin-offs or carve-outs from incumbents, or brand-new players, and they represent a growing group of network builders, often backed with private equity, that can accelerate the fiber market. Private investors get an attractive business case for their stakeholders while service providers can release CAPEX to pay off debt and reinvest. The resulting business models range from fully wholesale, through multi-tenancy agreements or simply network sharing.
In his report “The Whole Truth - how to become a successful wholesaler”, Rupert Wood, Research Director with Analysys Mason outlines various benefits of an open access network sharing approach:
- A way for traditional owner-operators to break away from costly and time-consuming investment models and move to an OPEX-oriented approach.
- An opportunity to maximize return on investment by sharing infrastructure at an active layer, reducing the risk of being reduced to a provider of dark fiber.
- An opportunity to foster new retail market structures, with varying infrastructure requirements across fixed, mobile and enterprise customers.
A multitude of co-investment and wholesale agreements have surfaced in the last few months, demonstrating the accelerated interest in shared and open access networks.
Just last week, investment firm KKR made a $12 billion takeover bid for Telecom Italia (TIM). KKR’s plan would see TIM carve out its fixed network to be run as a government-regulated asset in the open access utility model.
Last month, Deutsche Telekom has signed a long-term cooperation agreement for the use of its fiber-optic network with their competitor Telefonica. Deutsche Telekom has also created a new joint venture GlasfaserPlus with a private equity partner to build an open access FTTH network connecting more than four million homes across Germany from 2022 to 2028. This joint venture will build a neutral host network under an open access model, actively pursuing competing retail service provider customers.
Earlier in the year, Telefónica has partnered with insurance giant Allianz to roll out fiber to 2.2 million households in rural and semi-rural areas of Germany. The 50:50 joint venture shares the CAPEX burden, enabling a faster time to market. Telefónica aims to replicate this model in both Canada and Brazil, where competitor TIM Brasil is also seeking co-investors in FiberCo, a wholesale fiber network operator, with TIM as its anchor customer and additional third-party tenants actively sought.
In the United States, the privately owned SiFi Networks plans to launch 30 open access networks in 2022 using over $2 billion in private capital. Also AT&T inked a multi-year fiber connectivity deal with Frontier Telecommunications to serve enterprise customers in markets where it does not own a fiber network or currently plans to build one.
Open access networks are also very successful in attracting public funding. In Ireland, the joint-venture Siro has recently secured additional funding from both private and public investors to expand its open access fiber network to more than two million people.
These recent examples show the wealth of financing opportunities for fiber rollouts. At the end of them all are eager customers who get faster fiber broadband, sooner, and often with a choice of provider.
Learn more in the Analysys Mason report: The Whole Truth - how to become a successful wholesaler.