Modern technology has significantly changed the way we communicate, both professionally and privately, as well as how we work and spend our free time. During the ongoing pandemic, working from home has skyrocketed, bringing with it sustained demand for high-speed, high-capacity broadband connections. And the increasing proliferation of 4K and 8K TVs, streaming platforms, Virtual Reality applications, and online gaming will require more and more bandwidth in the future as well.

Fiber optic cables are poised to become the default technology that can more than meet these requirements and provide high-performance infrastructure everywhere, including those rural areas that still rely on copper cables, some of which only provide 16 Mbit/s connections or even less. The current Deloitte Fiber Survey has shown that consumers would make greater use of work-from-home and entertainment options such as VR/AR and video streaming if the necessary bandwidth were available to them.

Furthermore, fiber optic infrastructure is a key factor for the economy to survive in the face of global competition, with fiber optic connectivity essential in terms of developing rural regions. In addition, fiber optic technology is much more environmentally friendly compared to copper cable, since its operation is more energy-efficient, does not cause radiation, and can provide almost unlimited capacity at low cost.

For these reasons, the established telecommunications network operators are expanding their fiber optic networks. Some providers focus entirely on underserved areas for building their fiber optic networks. A subset of these companies, which are known as ‘NetCos’, forego the end-customer business entirely and lease their network to other providers. In turn, these companies (‘ServCos’) can focus wholly on providing services and enter the lucrative market for high-speed internet services without needing to own any network infrastructure.

The fragmentation of this market will drive both consolidation and the emergence of aggregators that provide interfaces between NetCos and ServCos. The different scenarios in this study show the extent to which this development could alter the market.

It is as yet unclear how much end customers are willing to pay for faster fiber optic connections and whether a critical mass will be reached to make new business models worthwhile. A good starting point for considering these issues is the current Deloitte Fiber Survey.

The advantage of scenario analysis

While it is a difficult undertaking in general, making any statements about the future of fiber optic networks requires that we consider and answer the following three questions:

1. How will the costs per fiber optic connection and customers’ willingness to pay develop? This directly impacts the profitability of business models and could attract or scare off potential market participants.
2. How will the large network operators react to new players and to developments in the fiber optic market?
3. How effective will government subsidies be and how will government institutions respond to dynamic market activity?
   

The answers to these questions are best presented in scenario form. Although they cannot directly predict the future, scenarios can be used for a detailed examination and evaluation of the risks and opportunities of important strategic options. In a sense, each scenario is a potential future world that is shaped by the decisions we make today and that demonstrates how these decisions impact the future. This enables planners to model their strategies and achieve the effects they are looking for.

For our scenarios, we used expert interviews and natural language processing (NLP) to identify a total of 84 social, technological, economic, sustainability, and political factors that have a significant impact on market activity. These factors were then weighted with regard to their certainty and potential significance

Relatively certain factors

Our experts found four factors they consider “relatively certain” that will exert significant influence in the future:

1. Demand for greater upload and download bandwidth – especially for 4K/8K TV, AR, video, cloud apps, and increasing work-from-home activities.
2. Digital divide between town and country – social gaps between urban and rural areas deepen when rural regions are left behind by developments.
3. Open Access – Open Access will help better exploit and monetize the intensive utilization of basic infrastructure in the future.
4. Complexity with regard to rollout – new laying techniques, digital networking of all partners, and optimized processes will have a significant impact on the speed and cost of fiber network roll-out.
   

Recommendations for action

The future development of fiber optic networks depends on certain trends, such as future bandwidth requirements, cost pressure during rollout, and the growing need for cooperation.

Although quite extreme, each of the scenarios shown is possible and depends on how market participants act or react to drive the market. Companies should therefore align their strategic decisions with the answers to the following questions:

• Should I upgrade my network step by step, expand it, replace it with fiber optic or simply lease it to an entirely new player?
• Are cooperation agreements part of my strategy or should I increase the utilization of my infrastructure on my own? Is my infrastructure already capable of responding flexibly to Open Access?
• Am I leveraging my customer base, my brand, and my USP well enough to fend off competitors’ strategic moves?
• Are the strategies and processes in Marketing and Sales designed to allow multiple ISPs to do their customer acquisition on my own (or my leased) infrastructure?

If companies evaluate, question, and expand their strategy in relation to these issues, they can significantly improve the resilience of their business model. If they engage actively, the scenarios could even serve as fixed points towards their desired market development.

Download the complete study here with detailed description of all drivers, boundary conditions, and uncertainties, and learn more about the individual scenarios.