Daiwa EuroTelcoblog No. 60: Friday 23rd July, 2004 - Amsterdam, are you getting enough fiber in your diet?

Anyone who actually made it through our EuroTelcorama No. 5 back in January will recall that we spent a long time exploring the issue of municipal or regional government-funded network initiatives to bring cheaper, better services to consumers, frequently as part of a socioeconomic policy initiative. Our main interest was in the emerging tension between the agendas of telcos and governments, potentially leading to competition in some cases. Among the various examples we discussed were some proposals in the Netherlands, notably in Amsterdam, where substantially all households and businesses in the area (450,000 in all) would be supplied with a fiber connection on a city network funded entirely by local government. Yesterday in Amsterdam a meeting was held with prospective infrastructure vendors and service providers in the project. The background document was issued at the end of June, and gives a good orientation to what the project is trying to achieve (http://www.citynet.nl/upload/Selection%20Guidelines%20Operator%20Citynet%20Amsterdam%20V1-22.pdf). The presentation and Q&A slides from yesterday's meetings can be downloaded here (http://www.citynet.nl/upload/Q&A-22-07-2004.pdf) and provide some additional insight to the process and the expectations of the project organizers. Much of it is technical and legalistic, but the clear points of interest are:

• Phase one will involve at least 40,000 homes and 3,000 businesses, to be followed by another phase five to ten times larger.
• The drafters of the proposal envisage that "at least" three services (TV, telephony and internet) will be offered, and specific reference is made to "low-cost/flat fee services" such as "two-way high quality video communication."
• The organizers have avoided setting any specific benchmarks to define their use of the term "affordable," but the Q&A response states that, "Affordable means that a very large part of the citizens/households/small businesses can purchase services they require or desire, given the limitations of the 'share-of-wallet' they have available for this type of service." Judging from some of the current pricing in the Dutch market, "affordable," particularly in a government-funded network, may be quite attractive.

For example, KPN ISP Het Net is currently offering a 416/160kbps DSL product for EUR14.95, and 1Mbps products from both KPN and UPC's chello cable modem service cost EUR32.95. UPC's basic digital cable package costs EUR14.95 per month, and the UPC basic telephony package also costs EUR14.95. So, excluding any sort of bundling discounts, the typical Dutch consumer may be expecting to see an entry-level triple play product priced well below EUR60, and probably more towards the EUR45 level (as our contacts in the Dutch market have previously asserted). A Dutch reader subsequently emailed me to point out that UPC's digital cable package is only available on top of an analogue subscription, which costs the same amount. This would increase my triple play ARPU assumption to EUR75 at the top of the range, and EUR60 at the bottom. Certainly the value proposition underlying other similar projects, such as UTOPIA in the US, is for vastly higher access speeds and a triple play suite of services priced at a level comparable to existing services. The interesting thing to watch from the perspective of the incumbent analyst is how KPN deals with the situation, wherein it stands to be one of many service providers battling it out on someone else's network while potentially losing a substantial portion of its footprint. We are also very interested to see who turns up on the list of prospective service providers expected to be disclosed on 13th September. 

The Citynet website itself (www.citynet.nl) is worthy of some inspection, particularly if the reader has any knowledge of Dutch at all (though http://www.freetranslation.com/ can also be a great help). If my own barbaric Dutch skills are close to accurate, there is a news item in the site which seems to say that the 7,500 home fiber project in the community of Nuenen (part of the Kenniswijk project) has so far pre-registered 90% of the households in its area. This level of uptake in Amsterdam would imply something like 400,000 homes and businesses moving to fiber, presumably with a far wider choice of service providers than they enjoy currently.