Scenarios for fibre roll-out and market development
The technical superiority of fibre optics for the provision of internet services is undisputed. Its availability is even considered an essential future location factor in global competition. However, the expansion is currently very heterogeneous, and in many cases areas outside the conurbations are underserved. So the question is: How will the expansion of fibre optics develop in the next few years? The study examines four extreme but plausible scenarios of how the provision of high-speed broadband connections will unfold, who the main players in the market will be, and how consumer preferences might change in the face of technological progress.
Technological progress has enormously changed the way we communicate, work and spend our leisure time, both professionally and privately. In addition, home office working has skyrocketed in the pandemic, further increasing the need for permanently fast and powerful broadband connections. And in the future, the increasing proliferation of 4K and 8K TVs, streaming platforms, virtual reality applications and online games will require more and more bandwidth.
As a standard technology, fibre optics is preparing to more than meet these requirements and provide a high-performance infrastructure even in rural areas, which are mostly still supplied with copper lines and in some cases only with 16 MBit/s connections. The current Deloitte Fibre Optic Study 2021 showed that consumers would make greater use of home office and entertainment offerings such as VR/AR and video streaming if the necessary bandwidth were available.
In addition, fibre is a decisive factor for the economy to be able to compete globally, and fibre connectivity is also existential for the development of rural regions. In addition, this technology is significantly more environmentally friendly compared to copper lines, its operation is more energy-efficient, does not cause radiation, and it can provide almost unlimited capacity at low cost.
For this reason, the established telecommunications network operators are expanding their fibre-optic offerings, while other providers are in some cases concentrating entirely on underserved areas and only building fibre-optic networks there. Some of these providers, so-called "NetCos" forego their own retail business and lease their network to other providers. In this way, other providers ("ServCos") can concentrate entirely on services and enter the lucrative market of high-speed internet services without their own networks.
The fragmentation of this market is driving both consolidation and the development of aggregators that provide the interfaces between NetCos and ServCos. The various scenarios in this study show how far-reaching this development could change the market.
It is still unclear how much end customers are willing to pay for faster fibre connections and whether a critical mass will be reached to make new business models worthwhile.
The advantage of scenario analyses
In order to be able to make statements about the future of fibre optics - which is generally a difficult undertaking - the following three questions must be considered and answered:
How will the costs per fibre connection and the customers' willingness to pay develop? This has a direct impact on the profitability of the business models and can deter or attract potential market participants.
How will the major network operators react to developments in the fibre market and new players?
How effective will state subsidies be and how will state institutions react to a dynamic market?
The best way to present the answers is in scenarios. Scenarios do not directly predict the future, but they can be used to consider and weigh the risks and opportunities of important strategic options in detail. In a sense, a scenario is a possible world in the future that depends on today's decisions and makes clear how they will affect the future scenario. Planners can thus model their strategies to achieve the desired effects.
For our scenarios, we used expert interviews and natural language processing (NLP) to identify a total of 84 social, technological, economic, sustainability-related and political factors that significantly influence market events. These were then weighted in terms of their certainty and potential significance.
Relatively certain factors
Four factors that our experts consider "relatively certain" will have a significant influence in the future:
Demand for greater bandwidth for upload and download - especially for 4K/8K TV, AR, video, cloud apps and growing home office activities.
The digital divide between urban and rural areas - the social rifts between urban and rural areas deepen when rural regions are left behind by development.
Open Access - Open Access will help to better exploit and monetise the intensive use of basic infrastructure in the future.
Complexity of the roll-out - new laying techniques, digital networking of all partners and optimised processes will have a significant impact on the speed and cost of the fibre roll-out.
The future scenarios as a video
Scenario 1: Superconcentration
In the superconcentration scenario, the incumbent telcos use their profits from copper and cable lines to massively expand fibre and leave all other players behind.
Scenario 2: Mobile Dominance
Fibre is primarily used as backbone infrastructure and in underserved niches. Internet access is purely via existing DSL/cable networks and 5G/6G wireless connections. These are fast enough for all new requirements.
Scenario 3: Superfragmentation
In this scenario, the aggregators dominate, offering hybrid infrastructures in a complex technological landscape of a multitude of internet providers. The end customer can choose from a large number of infrastructures and service providers.
Scenario 4: Disaggregation
Here, fibre is the dominant technology, both in rural and urban areas. However, regional monopoly-like network provider structures emerge with a fierce price war among the ServCos.
Recommendations for action
The future development of fibre optic networks depends on certain trends, such as the future demand for bandwidth, the cost pressure during expansion and the growing need for cooperation.
Each of the quite extreme scenarios shown is possible and depends on how the market participants act or react to drive the market. Companies should therefore base their strategic decisions on the answers to the following questions:
Should I upgrade my network step by step, expand it, replace it with fibre or even leave it entirely to a new player?
Are cooperation agreements part of my strategy or should I increase the utilisation of my own infrastructure myself? Is my infrastructure already able to react flexibly to OA?
Am I using my customer base, brand and USP well enough to fend off the strategic moves of the competition?
Are the marketing and sales strategies and processes designed to allow multiple ISPs to do their customer acquisition on my (or my leased) infrastructure?
If companies evaluate, question and expand their strategy in relation to these questions, they can significantly improve the resilience of their business model. As active shapers, the scenarios can even serve as fixed stars of a desired market development. (deloitte)
Download the full study here with a detailed description of all drivers, boundary conditions as well as imponderables and learn more about the individual scenarios.