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Market Insight

Vodafone unveils Gigabit investment plan in Germany

September 11, 2017  | Subscribers Only

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On 9 September 2017, Vodafone Germany announced a major investment in Gigabit broadband technology. The operator will invest EUR 2 billion over the next four years, which will be split between three areas.

  • Giga-Business: FTTP services will be rolled out to 100,000 companies in around 2,000 business parks (EUR 1.4bn - EUR 1.6bn investment).
  • Giga-Municipality: Vodafone will pass one million rural homes in Germany with FTTP networks (EUR 0.2bn - EUR 0.4bn investment).
  • Giga-Cable: Throughout 2018 and 2019, Vodafone’s existing cable infrastructure will be upgraded to DOCSIS 3.1 technology, allowing speeds of upto 1Gbps to be reached (EUR 0.2bn investment).

Our Analysis

Cable infrastructure remains central to Vodafone’s Gigabit Strategy

The Broadband Coverage in Europe 2016 study conducted by IHS Markit on behalf of the European Commission showed that DOCSIS 3.0 was the key NGA technology in Germany, reaching 63.5% of German households compared to the 7.1% of German homes passed by FTTP networks. As Vodafone Germany looks to achieve Gigabit speeds, the majority of its Gigabit connections will come from the infrastructure inherited through the Kabel Deutschland acquisition. This is unsurprising given the sizeable cost of deploying FTTP networks. Vodafone estimates that it will cost between EUR 1.4 billion and EUR 1.6 billion to pass one million rural homes with FTTP technology. In comparison, it will cost less than one-fifth of this amount to upgrade its existing cable footprint of 12.6 million households to Gigabit speeds via an upgrade to DOCSIS 3.1 technology.

Partnerships are crucial to enable Vodafone to economically build FTTP networks at scale

Vodafone will partner with Deutsche Glasfaser to deploy broadband to German businesses. This further strengthens the ties between the two companies, following the announcement of a cooperation agreement to deploy fibre networks to business parks in Dusseldorf in July 2017. Deutsche Glasfaser is the largest wholesale provider of FTTP networks in Germany and will use its experience to deploy the passive fibre network as part of the co-investment, while Vodafone will market the service and own the customer.

Vodafone’s investment in rural Gigabit broadband will be on co-investment basis with local governments. The municipality will build and own the passive local access fibre network, and Vodafone will build the link to its fibre backbone and install active equipment. Similar to the agreement with Deutsche Glasfaser, this partnership reduces the level of investment required by Vodafone, accelerating the payback period. 

Network Leadership is central to Vodafone’s strategy in Germany

Vodafone’s announcement of its Gigabit investment plan is part of the telco’s wider Gigabit strategy in Germany, which it launched in Q2 2016. This strategy has already seen the operator rebrand its converged packages under the GigaKombi name, as well as launch a series of speed-focussed marketing campaigns such as Giga-Speed, Giga-Daten and Giga-Travel.  Network leadership is crucial to Vodafone’s strategy across all of its territories, with the operator seeking to differentiate itself through the quality of its fixed and mobile networks.

Vodafone’s investment underlines the operator’s confidence in its convergence strategy

Vodafone’s intention to bring FTTP services to one million rural homes reiterates the operator’s commitment to convergence, as it looks to build the strongest fixed as well as mobile network in the country.  Like in the UK, IHS Markit believes there is a considerable opportunity in Germany for operators to push converged solutions. As of Q2 2017, Vodafone Germany had 500,000 fully converged customers, which is equivalent to 8% of the operator’s consumer broadband base. This is notably lower than Vodafone’s European average for the penetration of converged services, which stands at 30%. 

Vodafone’s announcement increases pressure on Deutsche Telekom to increase its FTTP investment

To date, Deutsche Telekom has predominantly relied upon vectoring technology to increase fixed broadband speeds in Germany. Vectoring provides a quicker and cheaper way to increase fixed broadband speeds, in comparison with investment in FTTP networks.  However, as new technologies and use cases develop, consumers and businesses may require broadband speeds above those that can be achieved via vectoring. Consequently, there is significant pressure on Deutsche Telekom to increase its investment in FTTP networks, which can typically reach download speeds of upto 1Gbps.

It was not until September 2017 that Deutsche Telekom announced its first Gigabit broadband product (MagentaZuhause GIGA), which was made available in areas where FTTP networks have been deployed.  Deutsche Telekom’s decision to increase investment in Gigabit networks will be influenced by the demand for MagentaZuhause GIGA. However, at EUR 119.95, the price of MagentaZuhause may limit the uptake of the service.

Research by Market
Mobile & Telecom
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