The global depression that enveloped so many economies in late 2008 was an especial blow to the three tiny Baltic states of Estonia, Latvia and Lithuania. Since emerging from the shadow of the Soviet Union at the beginning of the 1990s, the three had revelled in their independence and enjoyed a near miraculous expansion of GDP. Economies that had been growing at around 12% a year suddenly were driven into an equally precipitous reverse by the financial recession.
As the three Baltic countries look to recoup lost ground, their well-invested communications sectors have been, and look set to continue being, the foundation of increasingly knowledge-based economies. Faith was never lost, even in the darkest days, in the principle that any investment in next-generation network infrastructure would not be money wasted.
Embodying this spirit of progress is Lithuania’s former incumbent telco TEO. Arnoldas Žukauskas, director of carrier business for TEO, explains that when the company was founded as a state-owned monopoly back in 1992, it was building on an already strong tradition of investment in the leading edge of technology, established under Soviet control.
“Historically Lithuania has a very well-developed infrastructure for telecommunications,” he says. “It was a testing-ground for Soviet technologies in the last century, resulting in a high level of technological education and experience. Nowadays, Lithuania is leading in Europe in terms of development of fibre-to-the-home (FTTH) technologies, with optical networks in most of our residential buildings and business centres.”
Modern mentality
The modern privately-owned TEO, he says, provides all the major telecoms services one might expect of any major carrier – a full range of residential and enterprise services on the retail side, and a wholesale portfolio based on a mix of voice termination and transit, data services like transit capacity and access, as well as co-location and IT services.
Žukauskas describes TEO’s strategy for wholesale business as thus: “We are focussed on providing intellectual services together with infrastructure, while providing all traditional telecoms services. Geographically, we are doing business with most operators in central and eastern Europe, including Russia and the CIS countries, focussing strongly on the Baltic states. Due to our relatively small size, the company can provide quick decision-making and realisation of projects. We have specialists located in most of the large and mid-size cities we cover, thus making problem-solving very fast.”
As well as exerting a growing influence in the wider Baltic telecoms market, and providing services into the region for a variety of outside service providers, TEO also enjoys a central position in its own domestic scene.
It’s a scene described as ‘mature and dynamic’ by Henry Lancaster, senior analyst for Europe with the analyst firm BuddeComm. “Lithuania is one of eastern Europe’s more exciting markets, although its developing telecoms market has been affected by the country’s recent economic troubles,” he says.
The market, according to BuddeComm, contracted by 10.8% in 2010, with falls in revenue from fixed and mobile telephony offset by increases from the cable TV sector. Although the country’s GDP fell 14.8% in 2009, it recovered in 2010 with an anticipated growth of 1.3%, while growth is expected to improve in 2011, reaching about 3.1%. This recovery will have knock-on repercussions for consumer confidence, says Lancaster, leading to anticipated growth in spend on telecoms services and consequently on further investment in infrastructure.
The market for internet services, in retail terms at least, certainly benefits from a high level of competition, with over 100 ISPs serving 1.2 million households and 3.5 million people. This creates a useful wholesale customer base that TEO exploits with vigour. “Most of Lithuania’s ISPs rely on the TEO backbone network and infrastructure within cities, and also our international connections,” claims Žukauskas. “As an incumbent operator, TEO operates under the supervision of the national regulator in this sphere.”
Fibre diet
TEO’s crowning glory, domestically at least, is its FTTH network. When the FTTH Council Europe, an independent non-profit lobby group, released its latest ranking of countries leading the way in deployment of fibre access in early 2011, Lithuania retained the top European spot, ahead of other pace setters like Sweden, Norway, Slovenia and Slovakia.
This pre-eminence dates to 2006 when TEO decided to move its broadband investment up a gear, embarking on a project to build fibre connections directly into as many apartment buildings and households as possible. Initially depending on the cheaper point-to-point FTTH model, it has since transitioned to the more future-proof gigabit passive optical network (GPON) configuration.
What followed TEO’s initial move was little short of a phenomenon. Within two years, Lithuania was enjoying the highest penetration of fibre in Europe, with 23% of households connected. The UK, by comparison, has yet to connect the 1% of households needed for a place on the FTTH Council listing, a national humiliation it endures along with other major economies like Germany.
It’s not just the reach and density of its fibre that distinguishes TEO, but its speed too. Its network provides theoretical download rates of up to 200Mbps, a performance level which is not restricted to a campus or a small selection of show homes, but is available to around 570,000 households, representing around half of the country’s population. Almost all Lithuanian fibre subscribers enjoy 100Mbps upload as well as download speeds at the bare minimum. Lithuania is the second highest country in the world for speed of fibre access network after South Korea.
The result of such investment, says Lancaster, is that fibre is now lording it over other broadband options in a way hardly seen anywhere else in the world: “Almost uniquely within Europe, fibre-based services have become the most popular fixed broadband access platform,” he says. “Fibre-to-the-home or building has overtaken ADSL to become the most popular fixed-broadband access platform, a testament to the country’s investment in telecoms infrastructure in recent years. A range of ICT services is available on that network, aimed at improving social and economic development, and with various e-commerce, e-government, e-education and e-health services increasingly available and used.”
A burgeoning digital TV market, he says, is another knock-on of these developments, a consequence of an early transition to digital-only broadcasting which has been made possible by an abundance of good fibre: “TEO is well positioned to develop the sector due to its involvement in both IPTV and digital terrestrial TV,” says Lancaster.
Finding a future edge
TEO prides itself on the competitive edge it enjoys, and which it can sell on to other service providers: “With our highly developed fibre network, TEO can offer high-speed connectivity in nearly every part of the country,” says Žukauskas. “With most business centres or industrial parks already connected to our fibre, TEO can provide unlimited throughput for both local and international connections. We also provide connectivity services for retail companies with branches in other Baltic states and Germany.”
TEO’s next plan is to roll fibre out to more single houses, and not just the apartment buildings that have formed the core of its FTTH strategy. It is also planning to enrich its service offering in the areas of internet, TV, VoIP and IT.
The quality of the country’s broadband infrastructure is influencing many aspects of Lithuanian life. With so many residents receiving 100Mbps at home – the same speed they would get at their desktop in the office – a culture of working from home is starting to prevail in the country. The availability of cloud services is further propelling this decentralisation of productivity.
Consumption of data, with lots of high-quality multimedia running over the networks, is not just a domestic affair. Fibre has proven to be a good enabler for enterprises, allowing them to attract new business, and has also been encouraging outside investment into the country from private interests who now see Lithuania as made of the right stuff for a northern European headquarters.
Ambitious investment in the face of adverse conditions appears to be a gamble that has paid off for TEO and Lithuania. With so many European economies on the backfoot, there must be many wishing they had embarked on the next-generation network journey all the sooner.
