Wholesale-Only
In this series of articles on fiber optic business models, we explore the various business models of this technology and the experiences of global operators in this field. The first two models – Aggregation of Retail Demand FTTH + FTTO and Bulk Purchase Guarantee by Key Customers – were discussed in previous articles. Here, we will examine the third business model.
Model 3: Wholesale-Only
In a network where roles are separated (Physical Infrastructure Provider (PIP)[1], Network Provider (NP)[2], and Service Provider (SP)[3]), and the entity managing the infrastructure does not provide services to the end-user, we have a wholesale-only model.
Network owners who implement a wholesale-only business model are typically government entities, cooperatives, or private companies managing a publicly-owned network. However, this model can also be adopted by private network owners.
A wholesale-only model can take various forms depending on whether the network owner operates solely at the PIP level or also at the NP level and whether a third-party network provider is involved at the NP level. Thus, we can have three types of wholesale-only models:
– Passive-layer wholesale-only
– Active-layer wholesale-only
– Mediated wholesale-only
Figure 1 illustrates the three different types of wholesale-only business models.
**Note:** Since the highest cost of deploying fiber optic infrastructure is not the fiber cable itself but the civil works for its installation, usually tens or hundreds of fibers are deployed in parallel. Therefore, the fiber in the main network is often leased to third parties (such as mobile operators, cable operators, service providers, as well as non-telecom companies including power companies, banks, TV program production companies, and large enterprises).
Figure 2 shows the general value chain for the wholesale-only business model. The main PIP receives revenue from the NP for leasing the fiber. Additionally, to access end-users, the NP leases passive connections (fiber, copper, or simple wireless frequency bands) from the PIP to provide services to the end-users. To ensure fair and non-discriminatory conditions for all SPs (operator neutrality), the NP is usually prohibited from offering its own services.
Next, we will provide explanations about the three different types of wholesale-only business models.
Passive-layer Wholesale-Only
In the passive-layer wholesale-only model, an entity creates and operates passive infrastructure to be available to all market players under fair and equitable conditions. This entity can be a government authority, a local cooperative, or a private investor and can deploy the passive infrastructure directly or through civil engineering and network deployment companies.
In this model, the PIP deploys the passive infrastructure and is responsible for its maintenance. Independent operators access their customers directly by leasing physical connections from the network owner (PIP). In this way, the roles of NP and SP are usually integrated in this model.
In the passive-layer wholesale-only model, the PIP receives revenue from operators who lease the fiber to provide their services (or their customers) in local areas. They lease passive connections (fiber, copper, or simply antenna sites and wireless frequency bands) from the regional access PIP to provide services to end-users. The PIP may also receive income from end-users as a one-time connection fee or a monthly network charge.
The advantage of the passive-layer wholesale-only model is that it gives operators maximum freedom and control in designing their access network. The disadvantage is that each competing operator must deploy active equipment at the access node of every area they want to serve. If the population density is too low, each access node covers only a few users, and it becomes economically unfeasible to have more than one operator in each area. This reduces competition and keeps OPEX and CAPEX high. Therefore, the passive-layer wholesale-only model is suitable for relatively large and densely populated areas. This model is typically used by metropolitan networks in large cities, where government authorities act as the PIP. A prominent example of this model is the Stockholm fiber network.
Active-layer Wholesale-Only
A solution many wholesale-only network owners choose for less densely populated areas is the active-layer wholesale-only model. In this model, competition among service providers is achieved by opening the network at the active layer, so the network cost (design, active equipment, deployment, operation, and maintenance) is sufficiently low, making it easier for multiple players to enter the market.
In this model, an entity deploys and operates both passive and active layers – acting as an integrated PIP+NP. This entity places active equipment at all access nodes and creates a neutral operator network through which independent service providers, usually by placing their equipment at a central location, access the active layer to provide their services to all end-users.
The main difference in this model, compared to the passive-layer wholesale-only model, is that an entity oversees the installation of active equipment at all access nodes. Although this reduces the operators’ freedom in designing their access network, it makes providing services to all end-users in the network easier and more economically feasible.
Mediated Wholesale-Only
In the mediated wholesale-only model, the roles of PIP, NP, and SP are completely separated. In this case, the government entity has the same role it had in the passive-layer model. In this model, at the active layer, the NP role is assigned to an external entity.
This third-party NP acts as an intermediary by placing active equipment at all access nodes, creating a neutral network. Independent service providers, usually by placing their equipment at a central location to provide services to all end-users, access the active layer.
Service providers view the mediated model as very similar to the active-layer model. From the network owners’ (PIP) perspective, the mediated model requires a similar level of involvement and technical expertise as the passive-layer model; therefore, the mediated wholesale-only model can be a good option for smaller networks in less densely populated areas.
References:
– “Broadband Investment Handbook,” European Commission, 2024.
– “FIBRE-TO-THE-HOME BROADBAND: BUSINESS MODELS AND FUTURE CONNECTIVITY,” FTTH Council Europe, [Online]. Available: [FTTH Council Europe](https://www.ftthcouncil.eu/resources/blog/guide-to-successful-ftth-business-models).
[1] Physical Infrastructure Provider (PIP)
[2] Network Provider (NP)
[3] Service Provider (SP)
[4] Passive-layer wholesale-only
[5] Active-layer wholesale-only
[6] Mediated wholesale-only