The Dutch Fiber Market: Too Competitive? has been saved
The Dutch Fiber Market: Too Competitive?
Despite the strong demand for fiber, industry players are worried about over-supply
In the Netherlands, the crowded broadband market will need to consolidate. That was the consensus among the 10 industry leaders and stakeholders interviewed by Deloitte during the second and third quarters of 2022.
With a mix of national telcos and local players pursuing ambitious deployment plans, some areas of the country will end up with more than one fiber network (as explained in the first blog in this series). Undesirable from an environmental and spatial planning perspective, these parallel networks are only likely to be financially viable within densely populated areas. Some market participants, such as Delta, are trying to create a long-term defensible position by getting first mover advantage in rural areas.
But intense competition could ultimately force consolidation. Whereas KPN, the market leader, is sure to remain in the market for the foreseeable future, Delta, Open Dutch Fiber and even VodafoneZiggo may look for mergers. However, a concentration of fiber assets in a small number of hands could prompt the Dutch regulator to abandon its largely laissez-faire approach and intervene. One telecom provider noted that “the Dutch fixed broadband market is not broken and therefore currently does not require much regulatory interference”, implying that this may change in case of consolidation.
The pace of the fiber roll-out in the Netherlands has picked up thanks to “pull” factors, such as strong business demand for high speed and low latency connectivity, and the growth in working from home in the wake of the pandemic. Multiple interviewees noted that during the Covid-19 crisis the need for digital infrastructure (in particular broadband) became abundantly clear. But “push” factors, such as the low cost of capital and the fact that KPN is phasing out its original copper fixed-line network, are also playing a part.
Will fiber marginalize other technologies?
The majority of the industry leaders and stakeholders interviewed by Deloitte expect fiber will dominate the Dutch broadband market within five years. Some interviewees argued that fiber already dominates. If this view proves correct, the Netherlands is heading towards either a “super-concentration” or “disaggregation” scenario – two of four scenarios outlined in the third blog in this series. In the case of the former, broadband services are deeply integrated into widespread fiber-to-the-home (FttH) networks. In the case of the latter, fiber is the dominant access technology, but is controlled by netcos1 that supply servcos2.
These scenarios are predicated on the view that only fiber can meet future consumer and business demand for high throughput, low latency connectivity and that continuously upgrading coaxial cable (coax) networks won’t be viable from a cost/benefit perspective, particularly if coax lacks momentum internationally (see our second blog). Hence, scalability is “a potential risk of coax, especially as it seems that upgrades are increasingly required to keep up with fiber”, as one of the interviewees put it. While 5G and (to a lesser extent) satellite connectivity are seen as playing a complementary role for specific use-cases, such as connectivity for events or campuses, they are not regarded as viable alternatives to fiber. That is unsurprising, as the Netherlands is considered “a country of ‘superconnectivity’, with the majority [of the country] being covered by premium quality broadband”, in the words of one interviewee.
The key uncertainties for the future
A minority of the interviewees argued that HFC (hybrid fiber coax) networks will remain competitive. These players contend that few customers really need more than the 10 Gbps throughput that can be delivered via HFC. Indeed, they feel that pure fiber won’t be a necessity in the consumer market, even if it comes to dominate the business market.
This minority view could still prove to be correct. Deloitte’s research suggests there are too many uncertainties to accurately model consumer demand for pure fiber broadband until 2030, hence the development of four potential scenarios.
Moreover, the executives that were interviewed did not mention the possibility of Fixed Wireless Access to take of in The Netherlands, although there is reason to believe this could be a viable and easy solution for households that do not demand much capacity and look for an easy installation process. It could take off in the case where one of the existing operators, or a 4th entrant, would actively push this.
On the question of the optimum structure of telecoms players, the interviewees identified pros and cons to the separation of telcos into netcos and servcos. Whereas netcos may be able to attract financing at more attractive terms, there could be strategic benefits for servcos that possess their own networks. Moreover, although separated netcos and servcos could focus solely on their core offering, they would have to deal with the operational burden of separation, such as having to set up and maintain service level agreements (SLAs) or the added complexity of meeting the demands of multiple servcos. “Is it really a more efficient set-up if you continuously have to consider SLAs?” one of the interviewees asked.
Again, these competing factors make it difficult to anticipate which of our four scenarios for the future of fiber in the Netherlands will actually play out. Given these uncertainties, we recommend stakeholders prepare for all four scenarios, while closely monitoring market developments to see which one will actually become reality.
1. Telcos that focus on building and managing infrastructure, which they then provide on a wholesale basis to retail service providers (servcos).
2. Telcos that focus on providing services, rather than building and managing infrastructure