Vertically Integrated Model
In this series of articles on fiber optic business models, we examine various business models for this technology and the experiences of operators worldwide. The first four models – Aggregation of Retail Demand FTTH + FTTO, Bulk Purchase Guarantee by Key Customers, Wholesale-Only, and Focus on High-Quality / High-Reliability Demand – were discussed in previous articles. Here, we explore the fifth business model.
Model 5: Vertically Integrated Model
In the “Vertically Integrated” business model, a telecommunications company rapidly transitions its network infrastructure to fiber optic technology. This telecom operator, acting as a vertically integrated entity, controls multiple aspects of the supply chain, from infrastructure deployment to service provision. This model leverages the company’s existing customer base, brand reputation, and current infrastructure to swiftly upgrade to fiber, maintaining and enhancing its market position. The focus of this model is to sustain market leadership by quickly deploying fiber across all market segments (B2C, B2B, and wholesale).
In other words, if a market player fulfills all three roles of a Physical Infrastructure Provider (PIP)[1], Network Provider (NP)[2], and Service Provider (SP)[3], it is considered vertically integrated, and the resulting business model is termed a vertically integrated model. Existing telecom operators and, to a significant extent, large alternative operators typically own the infrastructure and provide services to end-users under a vertically integrated model.
In some cases, particularly if the vertically integrated player holds significant market power (SMP)[4], regulations may require this operator to open network access to competitors, either at the passive layer or the active layer. In this scenario, the network owner designs the network to provide its services while also granting access to competitors in forms compatible with the network design. Although current incumbents sometimes refer to this model as “open access,” it is, in fact, a vertically integrated model with separation (either at the physical layer, known as Local Loop Unbundling (LLU)[5], or at the active layer, known as Bitstream Access[6]). Network access models in the vertically integrated framework are depicted in Figure 1.
Similarly, if the network is publicly funded, wholesale access for competitors is mandatory to comply with state aid rules. In this case, the network owner designs the network to provide its services while offering wholesale access to competitors.
Notes
[1] Physical Infrastructure Provider (PIP)
[2] Network Provider (NP)
[3] Service Provider (SP)
[4] Significant Market Power (SMP)
[5] Local Loop Unbundling (LLU)
[6] Bitstream Access
References:
– “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).
– “The business models that are attracting FTTH investment now,” Outvise, 2022. [Online]. Available: [Outvise](https://blog.outvise.com/business-models-attracting-ftth-investment/).