Articles and whitepapers

Whitepaper: Europe - Home Network Update (2/11/2008)

By Kurt Scherf, Parks Associates

1.0 Home Networking Growth on a Global Scale

1.1 Service Providers Spurring Growth

The competitive environment that characterizes today's broadband and value-added services landscape should provide fertile ground for a variety of digital lifestyle products and services, including home networking. Consumers are also primary beneficiaries of increased competition among carriers. Case studies reveal that when at least two service providers on relatively equal footing in terms of offerings are actively battling to acquire and retain customers, the end results tend to be 1) lower prices; 2) additional value-added offerings; and 3) improved customer support.

As broadband and television operators in particular seek to differentiate their basic packages and offer new connectivity-related services to their product mix, the demarcation point for their services will move farther inside the home. In the old days, a service provider's demarcation point was clearly defined as the side of the house where the network interface device (NID) was located. If customers wanted any assurance that problems inside the home would be addressed, they purchased an additional service (if one was even offered) an inside wiring insurance plan. Now, however, the lines between the termination of the service provider's access network and the customer premises equipment are blurring thanks to the customer's desire for home networking and the service provider's desire to offer more compelling services. This action is being taken for several reasons. First, history suggests that an investment in more advanced customer premises equipment such as a DVR-enabled set-top box increases average revenue per user and heightens the chance that customers will connect to more services initiated from the service provider's head-end (video-on-demand and other interactive programming exemplify this concept).

The second reason that service providers are taking a much more active role in deploying home networking equipment is their desire to be more involved in provisioning, installation, configuration, monitoring, and troubleshooting the in-home network and its attached devices. Broadband service providers are responsible for supporting the home network and the services that run on it, regardless of whether they were actually involved in deploying it to the home! So, while in-home connectivity remains a very viable revenue-generating application (enabling multi-room entertainment or voice service, for example), the short-term requirements from service providers will revolve around ensuring that their customer support costs do not balloon out of control, while still keeping their customers satisfied.

1.2 Projected Growth of Home Network Households

Worldwide, households with data networking solutions will grow from 114 million at the end of 2006 to exceed 160 million by year-end 2012, with Europe's share growing faster than both North America and Asia-Pacific. Europe will lead both the North American and the Asia-Pacific markets in terms of home networks provided and deployed by broadband and triple-play service providers. Our projections indicate that more than 40 million European households will have residential gateway solutions by year end 2012.

Figure 1 - Home network growth in Europe.

2.0 Europe's Home Networking Boom

Europe is in the midst of a home networking boom thanks to an increasingly competitive market for broadband services. France and the U.K. have been at the forefront so far, and Germany, Spain, and Italy have been bringing up the rear. The latter three markets could keep the boom going, however, provided that regulators foster greater competition.

Figure 2 - Penetration of home networks in Europe.

Competition among incumbent and upstart telephone operators in Europe has been fostered by regulators' aggressive stance on local loop unbundling. Since the late 1990s, regulators in Europe have allowed alternative carriers to have access to last-mile connections that were initially built by the incumbents. Regulators established rules regarding the fees that could be charged to the competitive players, ensuring that these upstarts would only pay for the facilities and equipment that they actually used. This move has put the competitive players on equal footing with the entrenched players, resulting in a dramatic shift in the availability of operators from whom customers can choose. Where there was just one PTT (Postal, Telegraph, and Telephone provider) per country, now there are many.

Figure 3 - Notable European residential gateway deployments.

In the case of Italy, the entry of FASTWEB has spurred broadband adoption, but the country lacks the variety of players seen in the U.K. and France. Similarly in Spain, Telefónica's dominance is only now seeing a significant challenge thanks to the consolidation of the country's main cable TV providers (ONO & Auna) and the growing presence of Orange. Germany presents another interesting case. Regulatory provisions there have been less friendly toward new entrants than in France and the U.K. Deutsche Telekom, the incumbent telco, controlled the country's main cable provider until recently, and the German government is resisting pressure from the European Union to enact additional unbundling measures.

All of these data point to the fact that home networking still has room to grow in Europe. Spain, Italy, and Germany remain laggards by international standards, but they will not be so indefinitely. Once competition heats up, adoption levels should quickly rise as they have in the U.K. and France. Home network providers would benefit from keeping an eye on the changing competitive dynamics in these countries and positioning themselves to exploit demand once competition unlocks it.

Figure 4 - BT Home Hub and France Telecom Livebox.

Residential gateway deployment via the France Telecom Group's Livebox solution (a Thomson product) has already matched - if not exceeded - deployment of the service provider-deployed home networks in the U.S. market. More than six million Livebox residential gateways have now been sold throughout Europe through 2007, exhibiting 20% growth in one year. In a European environment characterized by regulators' goal to allow customers to choose individual service providers for a variety of their communications and entertainment services (as described to us by a telecom executive who works closely with the Home Gateway Initiative), the residential gateway establishes a critical foothold for the service providers. This fact is true in the U.S., as both AT&T and Verizon place a high emphasis on residential gateways as centrepieces of their deep fibre, television, and bundled services rollouts.

Livebox facilitates broadband sharing and serves as the hub for a host of services, including voice, converged communications (videophone), video, in-home multimedia streaming, and remote home monitoring. In the U.K., BT (British Telecom) has launched a Total Broadband service that comes with the Home Hub, a residential gateway that supports data-sharing, voice, and video applications (BT's Vision service).

Figure 5 - FT Group Livebox units installed in Europe.

The home networking efforts by telcos in Europe are now expanding beyond data to incorporate multimedia and voice applications. We are seeing some interesting experimentation with home network devices and applications, including fixed-to-mobile communications handoffs (and even some femtocell work). Further, the rollout of telco/IPTV services has raised the stakes for carriers on a worldwide basis to deploy 'no-new-wires' bridges, adapters, and embedded solutions in order to significantly reduce the installation time. Finally, European telcos are taking the lead in deploying media adapters to allow users to stream Web video and applications to their television sets.

3.0 Future Roles for Home Networking Solutions

In addition to supporting the value-added services, the home networking and customer premises equipment will also evolve as the carrier's requirements for more proactive provisioning, installation, monitoring, and troubleshooting grow. We fully expect that this equipment - as deployed and managed by the service providers - will need to account for the following requirements: 1) It will need to be deployed more quickly and with enhancements for so-called 'zero-touch configuration'; 2) It will enable the service provider to easily upgrade customers to additional value-added services - matching the customer's budget and desires; 3) It will proactively monitor the devices on the home network and perform basic upgrades in firmware; 4) It will troubleshoot and automatically fix common problems with network equipment; and 5) It will offer a much more proactive view for customer service agents in the event that a subscriber calls the help desk.

To account for the new services that the broadband carriers will deploy, home networking and customer premises equipment will evolve beyond basic broadband and data sharing to include new voice applications (voice-over-Wi-Fi and/or mobile-to-fixed-line-handoff services) and distributed entertainment. We see opportunities for more advanced set-top boxes and other third-party storage devices (such as media server networked attached storage, or NAS, devices) to fulfil a dual role of providing secure backup and distributing entertainment content in and outside of the home.

Kurt Scherf studies developments in home networks, residential gateways, digital entertainment, technology development in the housing market, and residential and building management and controls for Parks Associates. Parks Associates is a market research and consulting company specialising in emerging consumer technology products and services.

www.parksassociates.com