• Pandemic re-calibrates investment thinking on fibre networks
• Fibre to the x projects now seen as potential money-spinners
• Long-term assets will provide long-term return on investments
• Virgin Media in the UK has biggest ever download day? Over 20GB per subscriber

Pre-Covid, demand for broadband connectivity across the world was already intense. Since the pandemic struck that demand has become insatiable. Overall, networks have held up very well and proved resilient to the enormous and increasing strain that has been placed upon them. Network operators responded quickly and responsibly to instantly changed circumstances that would have taken years to accommodate in the course of the usual development cycles had the virus had not struck the global population and changed the course of human history. 

Now, the provision and deployment of full fibre connectivity is top of the agenda for telcos and they are spending huge sums to provide it. Nevertheless, even the capacious pockets of the world's biggest network operators are not deep enough to provide all the hard cash necessary to meet all their fibre development goals. Despite the pandemic, and indeed as a direct result of it, control of capex is more of a paramount concern than ever. Fortunately investors who, in the past, were wary of ploughing money into telco infrastructure projects, now regard fibre build-out as an important and attractive proposition and look forward to the returns that should be achievable from such long-term and stable assets.

As millions upon millions of people have been working from home during the pandemic, it has become evident that robust, faster Fibre-to-the-Home, to-the-Premises, to-the-Kerb and to-the-Node (these, and more, are often collectively referred to as "Fibre to the x" or "FTT x") build-outs are the solution to a changed future. Furthermore, as increasing numbers of people leave big cities and move to small towns and villages where broadband fibre connectivity is often non-existent, telcos and investors alike now accept that the answer is to rollout better access in rural areas. FTTx access will require substantial long-term investment and we are now witnessing a growing global trend whereby telcos and investors are forming partnerships and joint ventures to fill the financing gap.

In Europe's competitive telecoms market part of the substantial profits made by operators have been ploughed-back into network upgrades and the deployment of new technologies, wireline or wireless. In general, since the 1990s (and earlier in some countries), state-aid to the sector has been limited. That said, capex concerns have tended to limit what have been perceived as "risky"capital intensive investments in long-term network upgrade and expansion programmes that take many years to generate any return on investment (ROI).

However, as broadband access is now universally known and agreed to be vital to the economic competitiveness and success of nation states, the attitudes of private sector investment companies has changed and more and more funds and investment capital organisations are entering partnership and joint ventures with network operators and funding FTTx projects. Currently, the majority of them are in heavily populated urban areas where ROI can be achieved with relative ease and speed but some investors are also beginning to show interest in underserved rural areas, especially if some form of government financing is also involved.

Examples from around the world

There is evidence of this growing trend all over the world. For example, Telefónica Group and the investment group Caisse de Dépôt et Placement du Québec (CDPQ) are partnering in the construction, development and operation of a neutral and independent optical fibre wholesale network in Brazil to be called "FiBrasil Infraestrutura e Fibra Ótica SA" or "FiBrasil".

Under the provisions of the deal, will each have a 50 per cent share in and FiBrasil will be equal controllers of the entity, which will operate as a neutral wholesale company and deploy and operate fibre-optic networks in selected mid-sized cities across Brazil outside the state of Sao Paulo, and to offer fibre-to-the-home (“FTTH”) wholesale access to any and all service providers. To kick off the scheme, Telefônica Brasil will contribute to the nascent network a portfolio of 1.6 million homes already passed by fibre optic cable while FiBrasil's immediate task will be to expand the network to 5.5 million homes passed by 2025.  CDPQ is investing $408 million Canadian in the scheme.

Elsewhere, Telefónica is to establish a wholesale fixed access network operator joint venture with the capital investment arm of the international financial services company Allianz, which is headquartered in Munich. The intent is to deploy a 50,000 kilometre-long Fibre-to-the-Home network connecting two million plus domestic premises across rural and semi-rural parts of Germany. The joint venture will see €5 billion invested between now and 2027. It will be funded by €500 million shareholder equity from Telefónica and up to €1 billion in shareholder equity from Allianz. The balance will be made up of loans and other external financing. The JV will operate as a neutral wholesale company and offer FTTH wholesale access to service providers that will, in turn, offer their services to their end customers. Allianz is also involved in fibre build-outs in France and Austria.

Commenting on the joint venture, Markus Haas, the CEO Telefónica Deutschland/O2, said, "German customers want fast and stable internet connections. We see huge potential for the fibre-optic market in Germany, as currently less than ten percent of all households are connected to fibre. Our stake in the new wholesale company provides us with an attractive long-term investment in a market with enormous future potential."

In the UK, Virgin Media just had its biggest ever download day - 20.77GB per subscriber

Providing examples of how patterns of usage have changed in the UK since the outbreak of Covid-19, Virgin Media, which for a couple of decades now has literally and metaphorically been ploughing its own furrow by deploying its own FTTH network, last week (Thursday, February 25) recorded its biggest ever download day  - to date. UK subscribers are chomping through data as they spend more and more time online for both work and recreation. Last Thursday the average Virgin broadband customer downloaded 20.77GB of data in a single 24-hour period. The previous record, set in late 2020 (also during the time of Covid), was 17.27GB.

Virgin Media analysed usage by five million of its subscribers across January and February 2021and the results indicate that things are changing fast. The statistics show that, for the first time, weekday afternoons are now the peak period for upstream traffic. The change is because people working from home send more emails, upload more documents and spend a lot of more time on business video calls in the core period between two o'clock and four o'clock each weekday afternoon as they intensively use bandwidth. This is also the time when remote learners also upload their daily school work assignments.

Upstream traffic during the new afternoon peak period is three times what it was pre-Covid-19. On February 25 usage was up by 35 per cent on the first lockdown, (defined as average data usage across the first six weeks of Lockdown One: 16 March 2020 - 26 April 2020) which suggests that after a year of social constraints households across the UK are now fully used to flexible working practice and home learning regimes than they were 12 months or so ago.

Jeanie York, Chief Technology and Information Officer at Virgin Media, said, "Our network is carrying more data than ever as consumers continue to adapt and embrace new technology that helps them work, learn, socialise and stay entertained from home." It's true. Brits have an ever-increasing appetite for data in just about every form and expect their broadband provider to do just that - at all times of the day and night. 

Interestingly, while upload traffic is growing rapidly, traditional voice calling, which recorded a big surge when Covid first hit and the first of the ongoing series of national lockdowns was imposed have fallen back to pre-pandemic levels while video calling continues to increase, both for work and social/family reasons.