CZK 27 billion put in the ground

When Cetin (Česká telekomunikační infrastruktura) was founded - a spin-off from the operator O2 in 2015 - it acquired the extensive O2 mobile access network and at the same time slightly outdated network of the former Czech Telecom. Cetin has invested CZK 27 billion in network upgrade since its inception. But this is only the beginning. The company, which is a part of PPF Group, has launched a ten-year innovation plan worth CZK 55 billion.

What is the main objective of the investment?
Significant acceleration of internet connectivity for businesses and millions of households. From the originally planned CZK 22 billion, we have increased the investment project by CZK 5 billion, with the largest part of the money going into fiber optics. In 2015 the average connection speed was around 22 megabits per second, today the most common speed available is 250 megabits per second and the average speed on our connection lines is over 120 megabits. In particular, the number of people who can connect at speeds over one gigabit per second is increasing. We're currently at around 105,000 fiber connections and our aim is to get fiber at these speeds as close to as many people as possible. We have also upgraded more than 2,500 exchanges. Over the course of four years of technology replacement, we migrated over 420,000 voice services nationwide while fully operational.

At the same time, we are continuing to modernize our mobile network, deploying 5G technology. The project, which we are implementing with the Swedish company Ericsson, involves the planned generational replacement of the existing 2G and 4G technologies and the switching off of 3G technology. This will significantly improve the user experience when using mobile services, reduce the energy burden and contribute to the efficient construction of a nationwide 5G network. This will, among other things, create the right conditions for the emergence of new business models across industries.

Do you still build fixed metallic lines, or do you focus exclusively on fiber optics?
Virtually 100 per cent of all new installations are fiber optics. In total, we now operate 55,000 kilometers of fiber optic cables and 20 million kilometers of paired metallic cables. This is where we have carried out a comprehensive modernization and acceleration of the original metallic network over the last three years. This year we provided high-speed internet to our one millionth customer. As the pandemic has shown, a strong quality internet connection is now an essential part of everyday life.

Will the end customer recognize the amount of money invested in infrastructure?
I am convinced that they will. We bring fiber optic internet directly to clients' homes. This gives them virtually unlimited bandwidth for the internet, TV, multimedia, gaming or smart home within a single connection line. We have fully launched the system of construction of fiber-to-the-home (FTTH) connections, and where this is not possible we have deployed the bonding technology, which makes it possible to connect two telephone lines on the metallic network and thus double the connection speed. Since conventional modems cannot handle this, we developed our own terminal device called Terminator in cooperation with Zyxel. In combination with the construction of remote switches, so-called DSLAMs, of which there are currently 6222 in the network, we have accelerated 92 per cent of all metallic connections. Importantly, the wholesale model makes this infrastructure available to all internet service providers who are interested.

Will the aforementioned investments make services to end customers more expensive?
Cetin does not determine prices for end customers. It is determined by the providers. As for our wholesale prices, we have not increased them.

Why does fixed internet only work at speeds of around 20 megabits per second in some locations, including central parts of cities?
We have relatively few slower connections in our network. These are usually locations where there is a problem with construction, i.e., mostly in city centers or in areas with strong competition. Where customer needs are covered by competitors' services, it doesn't always make sense for us to invest there too.

Is it bureaucratically difficult to build fiber optics in city centers?
Of course, administration and legislation delay the construction process; it takes a whole year to obtain a permit under the Building Act, negotiate rights of user, secure easements and obtain all the documentation. Whether you are building a house or need to get a cable into the ground, it is pretty much the same in terms of red tape, we have to go through all the standard permits that are given for the area in question. In Prague, for example, it is necessary to obtain permits from up to 80 entities before construction. It normally takes a year before we can come in and start digging. In 25 to 30 per cent of the projects, it won't even make it through the authorities, they will ban the construction. That is also why this year's 75,000 new connections will be implemented mainly in residential buildings.

A certain advantage is the existing infrastructure: in layman's terms, where we have free space in the already laid conduits, it is possible to “blow in” the fiber optics into the existing lines without the need for digging. At the same time, we are introducing a new technology, a special machine that means we won't have to make wide trenches because it cuts a groove for the cable to be laid below the surface. Apart from a tiny groove in the asphalt, no one notices anything. A two-hundred-meter stretch, which takes several weeks to be completed conventionally, can be done before noon. It is used in Germany or Austria, where the construction principles are stricter, and thanks to a change in Czech legislation, we can start using it here as well. It is a special machine that cuts into the asphalt, lays the cable and pours the asphalt surface in quick, successive steps. Provided, of course, that we don't intersect with other infrastructure.

How much did traffic on the Cetin network increase during the coronavirus pandemic?
After the schools closed, the volume of traffic on the network increased, literally overnight, by 20 per cent. Mobile connections jumped out most significantly in the beginning, and in fact volumes have been growing ever since. On the other hand, in the fixed network, after a dramatic increase at the beginning of the pandemic, traffic started to decline slightly. We believe this is because at the beginning of the first wave, everyone actually stayed at home, but by the end of the spring of 2020, more people started going out. They often went somewhere where they didn't have a fixed connection, so the traffic on the mobile network grew  massively. In the second wave of Covid, the traffic curve was much more jagged, both on mobile and on fix. In the third wave of Covid, when the measures were at their strictest, it was far from that in the mobile network, with people clearly moving more freely and returning to their everyday lives in the summer.

During the pandemic, it became clear how extremely important the availability of the internet is. It was absolutely essential that the internet be up and running virtually all the time, at all hours, for online classes or work conferences. And in quality for all one million households connected to our network. Previously we were used to people consuming data, i.e., downloading it, whereas during the pandemic they started playing their cameras more, sharing documents more... This partly compensated for the disproportion between data traffic to and from users.

So traffic in mobile network has grown more than in fixed network?
In both, and the trends were changing during the pandemic. Last autumn, when the lockdown had not yet been announced, we noticed from the nature of the traffic in the network and the interest of people in connections that Czechs were preparing for the next lockdown. This is commonly seen at the end of the holidays, when people return from their vacations. Last year however, it came later, at the time of the regional elections. People started ordering internet subscriptions or increasing the capacity on existing lines. Which later turned out, unfortunately, to be a correct assumption.

The second interesting moment is related to this year's hockey championship. There was no lockdown, people moved freely and watched the Czech team's games on their mobile phones, which more than doubled the volume of traffic on the mobile network. At the same time, the parameter of the time of the match was crucial. When an important match is played in the afternoon, the mobile network has high traffic. When an popular match is played in the evening, everyone watches over a fixed connection. We must be prepared for all this.

Has the rise of online video rental sites such as Netflix had an impact on Cetin's network?
In the past, data usage on the mobile network and the fixed network have always somehow complemented each other, alternating in peak traffic periods. But during the pandemic, all the rules were no longer valid, suddenly everyone started consuming content on mobile and on fixed line at the same time. We had to significantly increase capacity. This is not a problem when you need to add units of percent, or even fifty percent. When you need to get hundreds of percent extra capacity into the network, it's no easy task.

Do you expect Internet TV to continue to grow in the Czech Republic?
VOD (video on demand) is an increasingly fast-growing market. In neighboring countries, the share of various forms of pay-TV is more than 90 per cent of all television entertainment; in the Czech Republic it is about 50 per cent. We are preparing a new platform for internet TV, which we will provide to our operators within the PPF Group, and we would like to provide this service to other operators who do not have the capacity to develop it independently.

You take care of the mobile networks of O2, T-Mobile and Nordic Telecom. Will fewer masts and transmitters be enough for 4G and future 5G?
In general, an increasing number of transmitters are needed. But in Prague, for example, the network is so dense at the moment that there is no need to make it even more dense; there are locations where there are transmitters every 100 or 200 meters. However, in the long term, the process of densifying the network is never ending, so to be able to keep up with the increasing traffic on the network, it will simply be necessary. To keep up with the times, we are replacing the mobile access network with a completely new, so-called single RAN, which is a combination of 2G, 4G/LTE and 5G technologies in one universal solution.

When will the entire Prague Metro finally be covered?
We've been reminded about Metro for a long time, but I don't think it's entirely fair to blame it primarily on the operators. Anyway: by the end of this year we will have most of the stations covered. Because of Covid, we still have 13 sections to go, so the final completion will not take place until early 2022.

Last year you completed the move from the Central Telecommunications Building in Žižkov to the new premises in Harfa. How much area does this allow you to save?
We're down from 72,000 square meters to 13,000. The old building had its charm, but it was outdated and very wasteful. In the 1980s, there were two and a half thousand people working there, including over a thousand switchboard operators, which is completely unnecessary from the point of view of today's technology and there was no point in keeping the facility artificially alive. By moving to a more modern complex, we have achieved significant energy savings and our operations are now more environment-friendly.

More than six years on, how do you assess the separation of Cetin from O2?
Developments in the global telecoms market confirm that the separation of the technology and infrastructure part from the rest of the operator was an extremely important decision. This model was then followed by other companies such as Vantage (Vodafone) and TOTEM (Orange). After the split, both companies were able to concentrate on what they were doing and were not held back by the “other part”. Cetin was better positioned to start providing fixed connectivity not just to O2 customers, but to attract more than 20 major ISP partners. This has effectively led to much more competition, which is of course appreciated by customers in the form of a broader choice according to a wide range of parameters.

Last year, Cetin became part of a multinational group with presence in other countries. What does this mean for Czech customers?
Cetin Group is one of the largest infrastructure telecommunications operators in Central Europe, grouping together Czech Cetin and the infrastructure companies created as a result of the separation from local mobile operators – Telenor Group – in Bulgaria, Hungary and Serbia. We have become part of a larger company, and this regional model presents interesting opportunities for technological, operational and investment synergies that will also benefit customers in the Czech Republic.

Can you get better technology purchase prices due to greater scale?
This is one of the areas where the synergy effect of a larger grouping is positively manifested.

A month ago, your shareholder, the PPF Group, sold a third of the shares of Cetin Group to Singapore's sovereign wealth fund GIC. Are you planning to enter the Asian markets?
New opportunities have opened up for CETIN Group to benefit from the experience of a leading global infrastructure fund. In the telecoms infrastructure market, the Group may thus have opportunities for further growth, but it is looking mainly at markets that are a natural extension of the areas in which it already operates, rather than Asia.

Does this transaction mean the cancellation or at least postponement of the plans for IPO that has been speculated about in connection with Cetin?
Yes, given the agreement between PPF and GIC, an IPO has become irrelevant.

Are you considering acquisitions of data networks, for example from independent operators? We monitor the market, analyze several options each year and negotiations are ongoing. But our position in this respect is quite complicated. Alternative operators usually own the entire infrastructure, not only the end-customer connection itself, but also the other network elements required for interconnection. And logically they sell it as a whole, it doesn't pay to split it up. And we already own most of these elements, so any acquisitions are not completely economically viable for us. Moreover, as a wholesale operator, we don't want to buy a customer base, our focus is strictly on infrastructure, not the retail market.

I understand, infrastructure is crucial in today's world.
We live in a time when internet connectivity is the key to everything, a necessary part of life, just like electricity, water or gas. Many people have come to understand that you can't do several things without the internet, and it will be an even more sensitive parameter in the future. When I was working in Germany, ATMs and payment terminals in a quarter of the country stopped working due to a combination of two failures. Even though it was on a Saturday morning, the impact was substantial: people were not able to shop, withdraw money, anything. When we explained this to the big clients afterwards, their answer was simple: we will pay anything, just don't let it happen again.

Many households experienced a similar epiphany during the coronavirus pandemic.  Many people have realized that WiFi shared with neighbors is not optimal for children’s remote learning. And even this little detail illustrates how dependent our lives are on internet connectivity. The digitalization of our lives is unstoppable and connectivity is a prerequisite. Everyone has to answer the following question for themselves: Is it possible to imagine life without the internet? Even for everyday tasks, work, cars and public transport, connectivity is necessary. Whether we like it or not, the internet is at the heart of everything that happens in our lives. Data is life.

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Author: Ondřej Hergesell