Ever since I presented the results of Yankee Group’s NGA Service study for the FTTH Council Conference in Copenhagen and we issued the associated press release, people have been quizzing me on the 30% ARPU increase between FTTx and xDSL that was one of our key findings. There seems to be a lot of doubt in the market that this could be true, and I thought it was time to write a little note about why this should not come as a surprise and how this price differential could be explained.

To be honest, I’ve been a little taken aback by the fact that people doubt that figure. It’s not that huge a figure when you look at the investments needed to deploy FTTx. If you consider that the average ARPU for a triple play offer in Europe is around 50 EUR/month, a 30% differential represents an extra 15 EUR/month. Not all that revolutionary…

I know where the doubt comes from though. Many incumbents have run pre-launch market studies that have tended to suggest that customers were only willing to pay 10-15% more for a triple-play subscription over fiber. Effectively, our study suggests that the uplift could be double that. There’s a number of factors that we think explain this differential:

• for the most part, FTTx offers launched by incumbents are still in the early phases of adoption. Both NTT and Verizon, for example, are around 20% take-up. The ARPUs we are considering are therefore still relatively early adopter ARPUs. There’s a good chance that as penetration continues to increase, ARPU will decrease a little.

• there’s a higher proportion of multi-play customers among FTTx customers, either because that’s how FTTx bundles are built or because customers are reassured about the quality of the services.

• the ARPU increase is not just from increased subscriptions. FTTx customers tend to purchase more premium TV, more VoD and more accessories like additional STBs. This more spontaneous form of spending is something that could not have been measured by a pre-launch market study.

• evidence in more advanced countries like Sweden suggests that as the market gains a certain visibility, the technology itself becomes a factor of attractiveness, hence offering the possibility of higher base prices. In other words, “fiber sells”.

The thing, I guess, that strikes me is that as promising as an extra 30% ARPU sounds, it is nowhere near the revenue uplift that would be needed to make the investment in fiber paypack in less than say 10 years on average (unless you’re focused on ultra-dense urban areas). As I pointed out back when we released the study results, there isn’t a killer app that will double your revenue.

In other words, it’s excellent news that there is a revenue hike, but it doesn’t change the fact that the FTTx business model is a long-term payback model.