Wednesday, August 09, 2006

Haarlem shuffle

I may have spent the last few days in a tent with two small children, my only connection to the outside world an AM radio, but over in the Netherlands Vincent Dekker at Trouw has been continuing to dig into the FTTH story. As usual, he has come up with some very interesting information.

Firstly, a commercial (as opposed to muni) FTTH project in the small town of Hillegom, halfway between Amsterdam and The Hague, has reported some pretty astonishing progress in its rollout. Of the 7,431 homes in the town, 5,400 are passed by the network, and of that number, 4,600 homes are connected and taking at least one service - a penetration rate of 85%. Of this base, 90% take telephony and/or TV. In other words, within its footprint, the Hillegom fiber network has a 73% share of the markets which have traditionally belonged to cable (Casema) and KPN, leaving these two companies to fight for the remaining 27%. What's more, the total cost of construction and lighting the network has worked out to EUR1200 per home, which should give one pause for thought when we consider that the enterprise value (EV) per sub in the recent Casema transaction was north of EUR1700.

So encouraged is the company behind the project, Lijbrandt Telecom, that it now plans to expand to the nearby town of Lisse (10,000 homes) in October, and to 120,000 homes within the Dutch Bollenstreek heartland within three years. Perhaps most interesting is the revelation that the company behind the Hillegom network, Lijbrant, is owned by entrepreneur Dik Wessels, who also owns construction conglomerate VolkerWessels, which is already involved in a number of muni fiber projects, and whose Reggeborgh company recently acquired a very high quality national backbone. It looks to me as though Mr. Wessels is gradually amassing assets which could pose a real challenge to both KPN and cable.

Next, Trouw trains its sites on Haarlem (yes, American readers, this is the original), a city of 145,000 bordering the Bollenstreek region, where it transpires that apparently KPN wants to do FTTH and share the cost of digging with Lijbrandt, the very same company behind the Hillegom project. Lijbrandt reportedly isn't hot on the idea, principally because the city charges EUR22 per meter for restoring the streets to their original state. The article goes on to report that KPN is in negotiations with Lijbrandt about offering services on the Hillegom network, which presumably means IP TV.

All this points to a new way of working for the incumbent: partnering with those who have the expertise in infrastructure projects to share costs in new build (even if doing so enables another strong competitor in the process, it's better than missing the boat completely), and being a wholesale customer on networks where it has already been trumped (as in Hillegom). It also points to a future market with much wider regional/local variations in terms of level of dominance and market share, and presumably, once again, a new set of challenges for regulators. Does 13% market share (my estimate) in a town like Hillegom really equate to significant market power? Should the incumbent which finds itself in such a situation be held to the same price controls in this particular town, or should regulation be restructured to suit a more varied regional or local situation?

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