Our recent survey of broadband homes (1) for Berenberg Bank Telecom team, in the UK, Germany and Italy, reveals huge lack of customer awareness of current broadband speeds and that demand for super-fast broadband is presently limited. This calls into question the presently mooted EC initiative (2) to invest in fibre to bring superfast speeds to 50% of European households by 2020 and suggests marketing challenges to Governments and broadband suppliers alike.
Vast majority are unaware of their current broadband speed
In context, most broadband owners (over 60%) do not know what broadband speed they receive. Of those that do know their speed, the current average in Germany is twice that in the UK and Italy (32 megabytes per second (MB/s) vs 14/15 MB/s).
Majority are satisfied with their current speed
Customer satisfaction rates are also high and very similar in all three countries surveyed. Only 15% of respondents said they were dissatisfied with their current broadband speed. This tends to undermine the idea of a latent demand for super-fast speeds.
One third of broadband homes have a need for speed (which means two-thirds don’t)
Only about 35% of broadband owners currently see a need for faster broadband speeds, and only 20% are prepared to pay more for it. Of the 35% who do want faster speeds, about half would like to see their broadband speed double within two years.
Modest willingness to pay for a faster speed
Among the 35% who want a higher broadband speed, there was only a modest willingness to pay more. Around 42% of those who want a faster speed would not be prepared to pay more for it. Another 25% would be prepared to pay up to €5pcm for their desired faster speed. About 15% would be prepared to pay over €15pcm for their desired faster speed.
Demand for super-fast broadband is unconvincing
Only c.14% of these currently see a need for speeds of 50MB/s or higher (that equates to only 5% of the total 3,000 customer sample, and would imply a total 9% penetration of super-fast broadband when added to the c.4% who already have speeds over 50MB/s).
Is a mass market for broadband speeds over 100MB/s fantasy?
If broadband owners do not currently think they need super-fast broadband speeds, then could technological developments and new broadband applications create demand for such speeds?
Experience leads us to conclude that one can never have enough processor speeds, storage space or memory. There is also evidence from the survey that speed begets speed. For example, German broadband homes already receive twice the speed of UK and Italian homes yet also seek double their current speed as do their UK and Italian counterparts.
Current thinking converges around the typical household being capable of generating demand (through simultaneous web browsing, multi-room HD TV streaming, uploading to cloud storage) of between 15Mb/s and 30Mb/s. The arrival of ultra-high definition TV (UHD TV; probably 10 years away from being mass-market) could raise this to 40-80MB/s, depending on developments in video compression technologies.
As Paul Marsch at Berenberg says, “Down through history, technology pundits have consistently underestimated the level of demand for successful technologies, but to believe that the mass market needs broadband speeds over 100MB/s, one does need to believe in technologies and applications that might presently be categorised as fantasy, such as 3D holographic video social networking (maybe it will be called HoloTwitter).”
There are, of course, other potential high-bandwidth applications and services such as HD distance-learning, remote medical diagnosis, e-health and e-government applications, but these are more likely to be B2B or G2B/G2G (government-to-business, government-to-government) services rather than B2C (business-to- consumer- or household-orientated, services).
Learnings from other international markets
Comparing international markets that are relatively advanced in rolling-out fibre to the home provides a possible glimpse of the future. For example:
- Portugal has among the most advanced fibre rollout in Europe. It has so far seen take-up rates of about 9% (in line with the 9% potential take-up indicated by our survey), resulting in only 5% of total primary households subscribing to fibre
- Netherlands fibre take-up is higher at c. one-third of households passed but this still only suggests under 4% of total Dutch households would subscribe to a fibre service
- Sweden has the most advanced European market on fibre to the building/home (FTTB/H) rollout and take-up, with 27% of households having access to fibre services, and 71% of those opting to subscribe i.e. c. one fifth of Swedish households currently subscribe to fibre
- South Korean and Japanese take-up is even higher at 37% and 56% of households respectively. These markets are a reference point for the EC when discussing its fibre ambitions. However, in both markets, the Government took steps to encourage fibre as the technology of choice at a time when alternative advanced copper technologies were in their infancy. Japanese and South Korean broadband subscribers take fibre because that is what is available, and because it is cheap, and not, because their broadband usage demands fibre-like speeds.
1. Super-fast broadband is presently a supply-push and not a demand-pull initiative
The present lack of customer awareness and low demand for super-fast services presents a significant challenge for the EC, national Governments and broadband suppliers seeking to invest and generate a return on investment. Similar to most technology marketing challenges, detailed understanding of the demand triggers and barriers will be required to communicate and drive awareness, interest and willingness to pay.
2. Increased domestic fibre capital investment and risk is likely in the medium term
Whilst it is uncertain whether the EC will revise or meet its fibre ambitions, the capital expenditure requirements and regulatory and investment risks remain high. As explained by Stuart Gordon at Berenberg: “Fibre is a pipe dream, not a dream pipe, but wireline regulatory risk still remains high, and there is upside pressure on capital expenditure whether the EC gets its fibre wish or not”.
3. Returns on fibre investment are likely to be poor, particularly beyond dense urban city centres
On present predictions, EC proposals to reduce copper network prices to stimulate investment in fibre technology is unlikely to result in a formal “recommendation” to the industry. In part because the EC has limited powers to enforce technology choice and set industry targets, and also because former EC allies such as the Body of European Regulators for Electronic Communications (BEREC) have expressed serious concerns about the EC’s ideas.
4. A compromise “hybrid” approach is more likely to be adopted
A compromise that incorporates the latest advances in copper broadband technology, combined with Long Term Evolution (LTE) (new radio platform technology) for rural areas, is more likely to be adopted.
(1) The Marketing Directors/Berenberg Bank, February 2012. Sample size: 3,000 broadband households (1,000 main bill payers in each of the UK, Germany and Italy)
(2) EC Commissioner Kroes’ consultations on incentivising fibre investment are due to conclude in 2012. If Commissioner Kroes‘ plans are approved, the telecoms sector will embark on a €73bn-221bn fibre investment cycle to bring super-fast broadband connections to 50% of European households by 2020.