“Over the next decade, we believe FTTH will play an increasingly important role in determining returns for investors in the Canadian telecom sector…”
Royal Bank of Canada (RBC) Capital Markets has released research on the investment outlook of Fibre-To-The-Home (FTTH) service that provides perspective for investors in the telecom sector. Essentially it is examining the ROI for deploying FTTH and what that all entails.
Some interesting results have surfaced in this research that shows the importance of bringing this modern service to all Canadians. Fibre is reservedly being referred to as the last leap-frog technology for Canadian telecoms since Fibre is a scalable technology that makes non-incremental step-function gains possible. This is important because the payback for investing in FTTH is anywhere from 8-18 years according to RBC. A long term payback on a technology that will be around for at least as long and can be scaled up is attractive to investors.
RBC doesn’t hide the fact the FTTH is a costly investment that only few companies can afford. The big telcos/cablecos have the capital to be able to rapidly deploy Fibre and survive until they start making a return. Some recommendations to mitigate over-expenditures are to use route through existing fibre rather than overlap services and consider the much cheaper aerial installation rather than buried lines.
The demand for Fibre speeds have been rising over the years with users depending on it as a alternative to traditional television and communication services. This increased demand is responsible for revisiting the feasibility of large scale FTTH roll-out.
However, FTTH remains a less feasible option for rural applications. The report acknowledges as much by repeating the long held argument that rural fibre is unlikely to payout to telecom providers. The report suggests telcos focus on new wireless tech to bring fibre-like service to unserviceable rural areas. Rural areas are in no less need of fibre service than urban areas, the only difference is household density.
The report goes on to forecast that local incumbents aiming to provide FTTH could face potential competition with Google. Google has begun deploying fibre services in select US cities at a fraction of a cost of competitors. If local providers don’t step up deployment and service, they could see their efforts and investments marginalized. With new mandates coming from the government stipulating minimum service standards for all Canadians, ISPs need to invest now and look forward at the big picture.
Click here to view the complete RBC Capital Investments report.