Spain’s broadband market

The drastic shrinkage of the mobile telephony market seems to have turned the broadband market into the most treasured prize of Spain’s telecommunications operators.

Most of the sector breaking news lately is directly bound up with this market (mergers, regulation, changes in commercial offers …). The final outcome of this huddle seems destined to determine the future of communications in Spain.

The events of recent years

Back in 2008, in a completely different market and wildly different economic picture, Telefónica launched its first fiber to the home (FTTH) service, offering what where back then “astronomical” capacities of 50Mb.

Shortly afterwards ONO and regional cable operators began to offer similar services, harnessing the infrastructure they had rolled out for television services, using their hybrid fiber-coaxial (HFC) technology to do so.

Both Vodafone and Orange, confident that Telefónica would be made by law to share its fiber optic networks, decided not to make any outlay in infrastructure of this type. During these first years, moreover, traditional copper-based broadband (directly or indirectly) seemed enough for making a complete offer.

This whole picture changed on 1 October 2012, when Telefónica, decided to exploit the advantage of the almost entire exclusivity of its network to launch a convergent offer to better its position in landline, mobile and contents.

Ever since that moment Vodafone and Orange have tried to eat into this advantage. Both operators began their own urgent rollouts, reached a share agreement and then decided to buy a pre-installed infrastructure: Ono’s in the case of Vodafone and Jazztel’s in the case of Orange (a takeover still pending approval).

Current situation

The final picture seems to be becoming clearer now, albeit still with some hazy areas.

The first doubt is the number of competing operators. Nearly everything will depend on whether or not Orange’s Jazztel takeover is given the go-ahead and the negotiating terms agreed on. It would seem that the European authorities are not keen on a 3-operator market and would rather force Orange to sell part of its redundant network to another operator. The most logical move from Orange’s point of view would be to try to sell it to some small operator that does not seem to pose a threat, but there is the chance of this network ending up in the hands of Telia Sonera (Yoigo), painting a final picture of 4 competing operators.

The second doubt concerns the new ground rules. The communiqué from Spain’s monopoly watchdog CNMC forcing Telefónica to share its network access in some cities has caused this operator to pull in its horns, thereby reducing too the percentage coverage. This covert threat is likely to bring about tweaks in the initial regulation. It also remains to be seen how the regulation will affect the networks of the other operators.

Meanwhile, both Vodafone and above all Movistar have modified their marketing strategy, now offering greater capacities at a higher cost. This is probably their only realistic option as their mobile business falls by the wayside. Any possible commercial responses from Jazztel (still independent) and above all Orange are still up in the air.

Possible future scenarios

As in any market the future will depend on the real competition that is eventually forthcoming. Everything at the moment suggests that fiber will be a 3-operator market unless Yoigo finally manages to make with a chunk of the network at a fair price, an outcome I would personally regard as unlikely.

Apart from the number of global operators, the really important point for users will be the number of different offers available for any given dwelling. In a best-case scenario users would be able to receive a service from any provider through a single home connection.

From the operators’ point of view the crucial thing is to strike the right balance between initial outlay and likely revenue. In a scenario of fierce competition and tiny margins a very high proportion of the country and its population are in danger of remaining without coverage. The right laws need to be passed to prevent this from happening.

Another aspect I see as being closely bound up with all this is how the development of this market will affect future rollouts of mobile technologies 4G+, 5G, etc. They might be able to step in and fill the fiber coverage gap; they might also come into their own for particularly crowded sites (stadiums, beaches and the like). But I harbor my doubts about whether they can break even with coverage plans of overlapping rollouts. From my point of view this would be like running a tramline over a metro line.

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Author: Crescencio Lucas Herrera

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Las opiniones vertidas por el autor son enteramente suyas y no siempre representan la opinión de GMV
The author’s views are entirely his own and may not reflect the views of GMV

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