Broadband Escapes Europe’s Spending Ax

LONDON, May 27, 2010 – A new era of austerity may be dawning in Europe in the wake of the Greek debt crisis and its cascading effect on other countries in the region, but broadband is set to escape the swinging spending cuts afflicting other sectors.

The European Union recently announced plans for increased broadband investment to close a perceived gap with the United States and parts of the Far East, a move echoed by individual countries, with varying investment and deployment strategies.

The European Union itself has announced a raft of measures to stimulate broadband. It has called for member governments to double their collective annual research and development spending in the field to about $13 billion by 2020.

It is not clear exactly how much extra the European Union itself is committing in funding but the measures, announced May 19 by its newly appointed Digital Affairs Commissioner Neelie Kroes, include plans to attract capital for broadband investment through credit enhancement, an ambitious European Spectrum Policy Program to boost wireless, and a recommendation to encourage investment in superfast next generation access networks.

Kroes also announced plans to coordinate technology standards across the continent, eliminate regulatory barriers, encourage electronic payments and simplify digital copyright management and licensing.

In the United Kingdom, dominant telecommunications carrier British Telecom announced a return to profitability to the tune of $1.43 billion and immediately committed all of this to its broadband kitty to accelerate deployment of its 40 Mbps VDSL service called BT Infinity.

This increases BT’s broadband pot from the approximately $1 billion announced in 2008 to $3.6 billion, which means that now 4 million Britons – about 7 percent of the population – will be enjoying 40 megabits per second service by the end of 2010, enough to deliver a full triple service including high definition television. The move was kindled partly by intensifying competition with archrival Virgin Media, which has a near monopoly on cable TV in the United Kingdom and has become a major telecommunications and broadband provider as well. The extra investment is slated to extend BT Infinity to two thirds of the population by 2015. Virgin’s cable network currently covers half.

Competition also is stimulating broadband in Germany, but rather differently on an intercity basis, reflecting that country’s municipal rivalry. Deutsche Telekom, the dominant carrier, is focusing on the largest 50 cities for its VDSL roll out as part of its three year $8 billion network modernization program, leaving smaller towns and cities fearing they will lose out, and so trying to leapfrog their bigger rivals – and each other – by investing in fiber. They fear that unless they do so, they will miss out on inward investment and employment, as well as quality of life.

In France, investment is more centrally driven, with President Nicolas Sarkozy confirming earlier this year that his government would loan $5.5 billion to local authorities for spending on the country’s digital economy, which was $404 million more than originally expected. Of this $2.4 billion is going towards network deployment to help local authorities that want to invest in fiber networks, while the other $3.1 billion is earmarked for digital content and new applications.

Even some of the weaker more debt ridden economies have been spending heavily on broadband, with Portugal Telecom pledging around $1.5 billion over the next year for developing its infrastructure and services, according to a Reuters interview with the company’s chief technology officer.

Spain is at risk of losing out because of its debt problems, being already well behind its two neighbors, Portugal and France, over broadband penetration. The two main cities, Madrid and Barcelona, with relatively vibrant economies and high population densities, should fare well enough and are in fact attracting rival fiber deployments, but more remote areas could have to wait longer for super broadband than in other countries.

In the emerging economies of Eastern Europe, the situation is different again, with a pioneering spirit of enterprise against a backdrop of often-poor legacy infrastructure leading to a wide range of deployments methods. In some cases, citizens are installing their own fiber within their neighborhoods as in Romania. In the Czech Republic there is also a strong DIY broadband sector but there based on unlicensed radio spectrum.

More generally low labor costs have contributed to rapid expansion in many East European countries, with Lithuania for example having replaced ageing cable infrastructure with a brand new FTTx network. This labor cost factor has also helped attract investment into the region by the major players of Western Europe, especially Deutsche Telekom.

The one common theme linking Europe is a firm belief in the need to maintain or step up broadband investment even during an economic downturn, while encouraging different solutions to suit varying local needs or circumstances.