In two minds about the viability of FTTB: As Cisco banks on fiber-to-the-building, one provider in Italy flourishes and one falls in Sweden. How do their models differ? - News Analysis: FTTB Service Providers

Cisco Systems claims it has 300 companies in Europe ready to copy the fiber-to-the-building (FETE) model pioneered by broadband service provider FastWeb in Milan, Italy.

Analysts say that incumbent telecoms operators, including Telecom Italia and France Telecom, are also prepared to invest in FTTB. But FastWeb's Swedish counterpart, B2 Bred-band AB, is struggling with its business plan, which leaves analysts in two minds about the widespread rollout of FTTB.

"In terms of technology, what B2 and FastWeb have put in place is the best," said Eric Paulak, Stockholm-based vice president of ISP and Internet infrastructure markets at consultancy Gartner Inc. "But it may not be the most cost-effective."

B2 is restructuring its model to include business customers and more services than Internet access, just months after getting [euro]261 million ($227 million) from a private placement share issue, Gisco also invested [euro]490 million in vendor financing in September last year and is expected to make a major announcement about B2 at the upcoming CeBIT trade fair in Hanover, Germany.

The vendor helped FastWeb develop its business model and infrastructure and hopes to replicate it throughout Europe."

There isn't anything in [FastWeb's] model that isn't replicable," said Mark de Simone, vice president, EMEA for technology solutions and corporate marketing at Cisco Systems.

Must address the corporate market

B2 is restructuring after shutting down businesses in Belgium, Denmark and Norway. It also recently raised its access prices to SEK295 ([euro]32) from SEK200 ([euro]22), marking a shift from the its original model of offering low access fees for 10 Megabit-per-second connections and charging more for additional voice and video services.

"The market isn't ready to support service providers who are only addressing the consumer market," said Paulak. "B2 also has very effective competition in Telia, Utfors and Telenordia." Telia offers a 10-Mbps FTTB service just like B2's.

As of 31 August last year, B2 claimed 46,000 subscribers to its 10-Mbps Internet access service out of 144,000 connected households in 32 Swedish cities. In Italy, FastWeb, which is 64% owned by e.Biscom and 30% owned by public utility AEM, is the darling of financial analysts covering European alternative operators. "e.Biscom is the only 'buy' left in our sector among the [alternative network operators]," said Eric Lakin, vice president of European telecoms research at Banc of America Securities Ltd., based in London. Where FastWeb has rolled out its network, it has had a 15-20% take up rate, which is "extraordinary and unprecedented," said Lakin. "Ask any taxi driver in Milan [about FastWeb] and they love it. They can't wait to get it."

FastWeb provides different bundles of voice, video and Internet access services via 10-Mbps fiber connections in apartment buildings. At the end of last year, FastWeb received a [euro]955-million loan from two Italian banks to grow its business in Italy.

"Our main objective is to connect all our customers to fiber," said Emanuele Angelidis, chief operating officer of FastWeb, which estimates it had 48,000 residential and business customers at the end of last year in Milan, Genoa, Turin and Rome.

But FastWeb is using DSL where it has not built fiber to gain a foothold in new cities, which some say could indicate the prohibitive costs of bringing fiber to all buildings. "FastWeb is an extremely capital intensive project," said Lorenzo Micheletti, marketing manager at Zhone Technologies Inc., a DSL equipment provider based in Milan. "They've put in place a cable plan that's very hard to replicate."

FastWeb's Angelidis said the company will be able to save on digging costs through a recent duct sharing agreement with Telecom Italia's Socrate cable network, which has access to most buildings in Italian cities. FastWeb also benefits from not having much competition from Telecom Italia's broadband access and minimal cable TV penetration.

Analysts say the keys to e.Biscom's model is the early partnership with AEM, which has access to buildings, as well as its two media subsidiaries, which have good access to content-not to mention a joint venture with the state broadcaster Rai and other partnerships with Universal Studios and Dreamworks.

Unlike B2, e.Biscom targets businesses as well as consumers and provides some wholesale services. The company also owns HanseNet in Hamburg, Germany, which operates on a model similar to FastWeb's.

Cisco's commitment to fiber Ethernet LANs in buildings isn't really adding momentum to the FTTB market, but it is keeping it going. "[Cisco] has to compel and develop a broadband consumer market if they want to grow their business," said Gartner's Paulak.

Not all financiers are eager to invest in FTTB. "There is definitely long-term potential but it seems difficult...to make these business models work," said Matthew Bloxham, an analyst at Goldman Sachs.

FastWeb claims its average revenue per user is [euro]60 per month. While 70% of its customers are residential, 95% of its revenues comes from business customers. "Once they start using the service, then they tend to migrate to the highest service offering," said FastWeb's Angelidis.

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