German Government on Broadband: Disconnected or Visionary?

: Image by Getty Images via Daylife

[This falls into the category “Old News”, btw.]

Mid February German chancelor Angela Merkel’s government unveiled measures to encourage the universal rollout of broadband internet, echoing Lord Carter’s recent Digital Britain report and Numérique 2012 in France. The German chancellor wants to eradicate all broadband “blind spots” by the end of 2010 and ensure that, by 2014, 75 per cent of all German households receive broadband speeds of at least 50 Mbit/sec.

Among the 15 measures outlined by the federal government is an intention to allocate some “digital-dividend” spectrum to broadband technologies, much to the chagrin of the broadcasters which have long argued that they need the frequencies to develop DTT (digital terrestrial television). But RTL, Europe’s largest TV, radio and production company majority-owned by German media conglomerate Bertelsmann, threw its weight behind the country’s under-performing DTT platform – announcing both the introduction of pay channels and a move to MPEG-4. Other TV channels said they would not follow in RTL’s foot steps, saying that it saw MPEG-4 over DVB-T as an unnecessary intermediate step before DVB-T2. Whether DVB-T 2.0 will succeed will also depend on MPEG-4 devices becoming available quickly, and at attractive prices.

I was curious about how Germany would get 50Mbps (up- or downstream, btw?) Internet – what would be the business model behind it, when the boost of video would be delivered over DTT? Are we all having advertisement-based models? Is the DTT television becoming the next version of current public TV stations, a relict of former times? Is everything going to interactive? Is 3D TV coming to every home by 2014 – are 3D TV screen devices going to be that affordable within 5 years?

I talked to Giles Cottle, who is an Analyst, Broadband and Internet IC, at Informa Telecoms & Media. Informa has a great Informa Intelligence Centre that we regularly ping for a first glance at telecom market numbers.

Thorsten: Giles, Thank you for taking the time talking to me.

Giles: My pleasure, thank you for having me here.

What kind of services is the German government envisioning in five years over that network and Germany’s digital infrastructure by 2014?

Giles: Members of the German chamber of commerce have said that they would like e-learning, e-health and e-government services to take place over the network. But it has not qualified whether it wants these services to take place over the high speed network or not. As part of Germany’s national broadband strategy the government is also aiming for universal coverage by 2010. These types of services are likely to occur in rural areas, because it is here that they are needed the most. But these areas will also likely be the last in Germany to receive speeds of 50 Mbps, because of the cost of rolling out high speed networks in these areas. Many similar initiatives in rural areas across broadband take place on conventional DSL networks and do not make use of large amounts of bandwidth.

In the long run, high bandwidth will improve e-learning/health/government services will be improved by high bandwidth. This will be part of the German government’s thinking at a local/rural level. But nationally and more generally, the desire for universal 50 Mbps is being driven not by services, but as a means to fuel economic recovery, attract investment, make sure their network is “future proof” and stay ahead of other countries.

As you hinted, there are few viable services that make full use of the bandwidth of FTTH, and even fewer that would benefit a government/country as a whole. Professor Leonard Waverman, fellow of the London Business School, when presenting his annual Connectivity Scorecard report (sponsored by Nokia Siemens Networks) concluded that the main beneficiaries of FTTH in the country, which has been available for several years, was the country’s thriving online gaming industry. Similarly in Japan, one of the main benefits of fiber for consumers has been cheap VoIP rather than anything that uses greater bandwidth.

Currently the most tangible legitimate users of bandwidth are more channels, in higher definition, greater on-demand viewing, PVR usage (which requires three separate streams and 3DTV). There are applications beyond this that operators are starting to look at. High definition tele-conferencing and more complex home security systems are two. Surewest already offers a home security service that, it says, does not work as well over its ADSL network as it does over FTTH, because it uses video. More services like this will emerge and develop around FTTH, but for now they are not there and are not a big driver for uptake.

What was the growth rate of traffic within the last five years, is that consistent?

Giles: This is a controversial area. There have been some fairly wild claims made that an “exaflood” of data is going to make the internet grind to a halt and adversely affect the performance of everyday web applications. But those measuring growth say that the exaflood has been overstated. The University of Minnesota, a foremost authority in this area, estimates that, in the US, traffic was doubling every year in around 1998, but that this has now declined to around 50/60% growth per year. This is backed up by Cisco, which has forecast a global annual growth rate of 47% compounded between 2007 and 2012.

Are we just going to see more P2P services eating up bandwidth, and who is paying for that?

Giles: Yes and no. There is a lot of anecdotal evidence that, in the absence of legitimate high bandwidth services, illegal peer to peer usage remains one of the biggest activities on high bandwidth access networks. This is particularly true of upstream traffic, which has even fewer legitimate applications. This mirrors the situation seen when the first wave of broadband was launched and Napster was one of the greatest uses of DSL. Some providers in Central and Eastern Europe are even explicitly advocating the usage of peer to peer sites such as eMule and Limewire as a reason to upgrade to higher bandwidth services.

However, in terms of downstream usage, peer to peer’s share is also being reduced by an increase in rich media usage seen first by the use of services like YouTube, and latterly Hulu and iPlayer. As more users watch more, longer form and higher quality online video, this will increase. Drivers of this increase are already starting to occur-YouTube will start to offer HD soon, for example.

However, operators will limit the effect of peer to peer usage by managing their networks with the help of vendors such as Sandvine. We believe that even FTTH operators will do this. As you probably know, peer to peer by its nature is a “greedy” protocol that aggressively maximizes as much bandwidth usage as possible, so it can adversely affect a FTTH operator, even though bandwidth will be at less of a premium.

In terms of who pays for it, it’s likely to continue to be the operator. There is a debate surrounding whether legitimate content providers should be charged for the strain they placed on an operator’s network. Last year several ISPs, such as Tiscali, revealed that the BBC’s iPlayer service was placing a disproportionate strain on their networks and that the BBC should foot the cost. A few operators are also looking at working with third parties to offer a quality, managed version of the service. But operators are unlikely to be able to extract revenue from peer to peer providers for the excess traffic they foster on a network.

What is the end device that will consume that bandwidth in home?

Giles: For the foreseeable future, it will continue to be the PC and TV. Bandwidth continues to be dominated by peer to peer usage and online video, and the PC is still the device on which this takes place the most. TV will consume more bandwidth as IPTV penetration increases and operators start to offer greater DVR functionalities, dual TV screening and so on. This will also be the case with devices that stream 3rd party services to the TV – web-enabled TVs, games systems (Xbox Live), set-top boxes providing Netflix and so on.

Fridges and other devices in the home will be increasingly IP-connected, and operators are starting to roll out femtocells. But these developments are at an early stage. They are also likely to consume less high-bandwidth data – such as video – than the TV and PC, although video may be integrated into devices such as fridges in the future. And mobile backhaul for femtocells is a also a much-touted additional service for standard access (xDSL or FTTH).

Playout Intelligence