The idea that Telefonica, Vodafone and Orange will share fiber lines in Spain, sounds like something of a breakthrough for the two invaders who have been angling for such a deal for some time. Technically the announcement talks about an agreement to share vertical fiber optic infrastructures in buildings.
We think the idea is that initial installation at an apartment building is up the side of the outer wall, and the signal is then splayed out at each floor to provide service. So presumably once one of them puts a fiber line up the side of a building, any one of them can use it to reach customers. The agreement sounds like a complicated one, that outlines all the necessary steps and technical procedures for sharing fiber.
Later the three will specify the regions, cities, particular areas and actual buildings which will have additional fiber plant. The agreement also includes the option to transfer existing undertakings.
Both Orange and Vodafone have been slowly invading the fixed line market in Spain, starting with the sale in 2007 of the local ISP Ya.com, which was sold by Deutsche Telekom to Orange. Vodafone also bid in that deal, and missed out with Orange picking it up for around $426 million. The ISP had just 400,000 broadband Internet customers back then. Orange beat out Vodafone at the time, because it was a partial swap, with Orange Netherlands moving to Deutsche Telecom as part of the deal.
In October of the same year Vodafone landed itself some fixed line capacity there with the Spanish arm of Tele2 (along with its Italian business), paying around $1,093 million.
But it was only in March 2013 that the two combatants decided to work together on fiber in Spain, and announced a plan to push fiber past 6 million homes in 50 cities by September 2017, each spending around $1.3 billion. They planned to work separately, but using the same technical spec and offer the fiber to third parties wholesale, and certainly to each other. It looks like they always had it in mind to pressurize Telefonica into joining this relationship.
Previously the Vodafone Orange target was to pass 800,000 homes by March 2014 and 2 million by September 2015, and 6 million by the end of 2017, planning to have residential penetration of 40%, so some 2.4 million customers, by then. Telefonica is ahead of Orange and Vodafone right now and says that its fiber network reaches 2 million homes already. We said at the time that they would rely on Telefonica allowing access to its ducts at a price based on cost, which is something that Telefonica has pushed back on in the past and we thought the European Commission may have needed to bring pressure to bear to make that happen.
But it appears not, and Telefonica may be hoping to keep down costs, by sharing fiber build out with its two broadband rivals, but also hoping to limit the companies that it is forced to work with to these two, preventing others from entering the market. We are told that the Orange and Vodafone fiber will be open to other broadband providers, but there is nothing in this statement which says that anyone else can directly contract with Telefonica for wholesale connections.
The European commission has been trying to present a wholesale strategy that includes fiber and put out a consultation of its position in October 2011. Here the minister responsible, Neelie Kroes, made it clear that fiber would be treated the same way that copper had been and that unbundled fiber or unbundled streams should be shared in much the same way. Telcos around Europe had tried to convince her that they should have five or more years without competition for each piece of fiber they put down, so that they could get back their investment.
Her approach is that if you partner, the networks will be full, sooner, and you’ll get more money that way, although consumers will probably pay less, due to the competitive environment. In Europe entrenched Telcos still feel like they have a right to have sole access to customer homes, approach ducts and exchanges, ahead of the new generation of rival suppliers who are making broadband so competitive in the modern era.
Either the new Spanish deal is in line with Kroes’ expectation or is at least lip service to make it look like there is no problem in Spain and plenty of competition. We shall have to wait to see how this plays out before deciding which.
The three Spanish players say that the agreement is based on a principle of reciprocity, so that all three operators can use its rivals’ vertical roll-outs wherever they may need them. After signing the agreement, the infrastructure that Telef’nica has already rolled out will gradually be used by Vodafone and Orange. In return, as they roll-out new infrastructures where Telef’nica does not have coverage, Telef’nica can also ask to share their infrastructure.
But the real test is in what happens when someone who does not have the type of money to build fiber out, wants to offer broadband in Spain. Maybe they are hoping that just won’t emerge.
Vodafone is slowing putting together a fixed line strategy across its four main European markets ‘ Germany, Spain, Italy and the UK – but remains weakest in its native UK, where it is entirely reliant on British Telecom for backhaul and WiFi hotspots. Why it would not simply buy BT is beyond us.
Vodafone and Orange asked the local regulator in Spain in April if it could intervene in talks with Telefonica over fiber optic connections and so it is likely that this deal meets at least the local regulators’ requirements.