In our previous posts, we discussed the crosstalk elimination capabilities of VDSL2 vectoring, as well as its many benefits. Now let’s look at the business case for vectoring deployments.
The economic justification for offering vectored VDSL2 services to subscribers can be established by examining the benefits to the carrier:
- Increased revenue per subscriber
- Reduced customer churn
- Postponed investment in new fiber access infrastructure
Increased revenue per subscriber
Vectored VDSL – and its associated 50 Mbps rate – enables wireline operators to offer new high-bandwidth services and applications to their subscribers. The take-up rate among new and current subscribers for these services remains highly dependent on the price of the service and the subscribers’ sensitivity to service prices.
Based on several case studies, a 20-35% rate hike for premium services appears attractive enough to encourage a take-up rate of 10-30%. Clearly, attractive content and applications have to be readily available in order to provide a compelling case for the premium service fee.
Reduced customer churn
Customer churn is a major concern of wireline carriers. Understanding that the cost of supporting an existing customer base is significantly lower than the cost of acquiring new customers, operators invest significant resources in order to analyze and prevent customer churn.
Wireline carriers’ customer churn, despite being typically less than that of wireless carriers, is still reported to exceed 5% per year in many markets. Although the churn rate differs in different geographical areas, the reasons for customer churn remain similar and are tightly coupled with competing offerings in the region.
We estimate that in most competitive markets (those with multiple competitive service providers), an offering that can meet the local cable operator’s package on a price/performance basis can reduce churn by up to 40%.
A wireline operator plans to leverage vectoring on its VDSL2 interfaces in order to provide a 50 Mbps premium service offering to its subscribers, thus reducing customer churn and increasing ARPU by $58 over a two-year period.
Given a two-year return-on-investment (ROI) period, let’s make the following assumptions:
- $30 per month basic service rate
- Additional $8 per month charge for premium services
- 15% premium service take-up rate
- 4% reduction in customer churn that would have occurred for lack of a
premium service offering. In other words, we retain customers who would otherwise have signed up for a competitor’s premium service.
Our ARPU is increased by $58 over a two-year period, as follows:
- Increased revenue due to premium service take-up:
$8 per month * 24 months * 15% take-up rate = $29 per user
- Increased revenue due to customer churn reduction:
$30 per month * 24 months * 4% customer base retained = $29 per user
Postponed investment in new fiber access infrastructure
For the purposes of long-term planning, fiber to the home (FTTH) is an ideal choice, offering future-proof capacity and low operating overhead. Yet, the massive capex outlays required can make such an investment prohibitive. The table below compares the investment costs of three different wireline access technologies in six European countries.
Source: Elixmann et al.(2008)
For example, a Germany-wide FTTH deployment would cost 120 billion Euros, while an FTTC+VDSL deployment would cost approximately 40 billion Euros.
High FTTH installation costs and long fiber deployment schedules delay ROI, while difficult terrain, right-of-way limitations and construction costs have additional capex implications. In many instances, the business case for a full FTTH deployment is difficult to justify, and its payback period may vary from 7 to 15 years.
Our next and final post on VDSL2 vectoring will focus on ECI’s unique vectoring implementation, and why its unrivalled efficiency makes it the clear choice for street cabinet deployment.
Product Marketing Manager