FTTH+FTTO retail demand aggregation
In this collection of articles, we explore the business models of optical fiber technology and the experiences of operators worldwide in this field. The following introduces and reviews the first business model.
Model 1: Aggregation of Retail Demand FTTH+FTTO
This business model involves aggregating demand from residential customers [1] and business customers [2] to achieve economies of scale and justify investment in fiber infrastructure. This model leverages the demand from various sectors to make the deployment of high-speed broadband networks financially viable.
The retail demand aggregation model FTTH + FTTO relies on securing initial customers. The network operator carefully identifies a group of urban and rural areas with an appropriate number of households per square kilometer. The operator then launches a campaign to convince residents and businesses to commit to a 24-month contract. If 30 to 40 percent of the population agrees, the operator will invest in building the FTTH network. Typically, this investment is financed by the private sector, usually through bank loans; with a secure customer base, the project becomes significantly less risky.
A successful example of this model is Deutsche Glasfaser, which currently serves 920,000 homes and 20,000 businesses in Germany. Following a successful merger with Inexio, this operator has created over 6 million FTTH connections in Germany with 8 billion euros of private and public investment. Deutsche Glasfaser selects areas that are generally rural, with the largest settlement having only 12,500 residents. Before starting work, they require at least 40 percent of residents to sign pre-commitments to use the services.
This operator has achieved an 85 percent success rate in its construction projects. Their marketing strategy is simple: they attract new customers by offering access speeds of up to 1 gigabit per second downstream for 25 euros per month for the first year. After that, the monthly price varies based on the chosen speed specifications, ranging from 45 to 90 euros. Interestingly, 90 percent of their primarily retail customers do not choose the cheapest offer but instead opt for higher speeds.
Additionally, Deutsche Glasfaser has expanded its wholesale services from local ISPs to contracts with Telekom Deutschland and Vodafone. Their prices are very competitive, competing with Telekom Deutschland’s copper VDSL offering
Sources:
[1] Fiber to the Home (FTTH)
[2] Fiber to the Office (FTTO)