Interview with Fransisco Joya
BROADBAND PRIME Francisco, thank you for being today with me. Before we begin, please tell me a few things about Citynet.
Citynet is basically established as a fiber deployment company with a strong differentiation point. We do not use trenching rather use the public sewages in the cities to deploy fiber.
We essentially introduce small robots that are operated by people outside the sewages.
These robots can fit in a 200mm to 800mm sewage that covers approx 80% of the cases. Above 800mm we deploy manually with people. This technology is a leap forward for fiber deployment.
By not using trenches our solution is cheaper in many cases and certainly more efficient. Citynet is a 7 years old company already. We have deployed fiber in the top 15 cities of Spain covering a population of 9-10 million inhabitants.
So you started as a constructor/fiber deplorer. How are your plans for the future? Since the beginning we decided that we would like to do something with the fiber eventually.
So we suggested to our customers to allow us to deploy some fiber for our own use. In exchange we offered lower prices or a future revenue sharing scheme based on which if we sold fiber from our part we would share the revenues with them.
At the end of the day the customers/operators saved almost 35% in cost and we got fibers through the cities. We now have approximately 500Km of fiber network in these cities.
Our access rings in some cases average from 40 to 100Km. We are moving to the next step of the value chain.
We are ready to light the fiber to increase the extent of the infrastructure and go closer to the premises especially the offices/enterprises.
We are ready to implement the electronics to sell capacity and establish an open access business model; with all the consequences this model has e.g. emphasizing the creation of local ISPs. We are also visiting neutral operators in a number of countries like Sweden, France and Ireland.
Do you have a hard business case internationally at the moment? I just can tell you that we are actively working in a project that will see the light before the summer in the Caribbean area. But this is for the future.
Does that mean that you may end up competing directly with the large Telcos like Telefonica if we take Spain for example? Telefonica was our competitors from the beginning because our dark fiber business competed with their wholesale in that operators would prefer in many cases dark fiber over Telefonica’s capacity offerings.
That’s changing now. We are moving to the wholesale market and we think that with wholesale price being regulated, we have a good window of opportunity and a good margin to work with.
To deploy your network you have to work with the municipalities. Right? Well, the way it works in Spain is that we have the central government, the regional government and the municipal government.
The national government enforces the municipalities to allow the operators to use infrastructures of the public domain.
Municipalities cannot say no, of course they can say yes in 10 years… …which in practical terms is like saying no? Yes, that is why we work intensively with municipalities to get the permits to introduce our technology, to follow their requirements of how things have to be done.
For example we have inspectors on our tail making sure that everything is done the way they want it to be.
In exchange, what they typically ask is money. So you rent the public infrastructure from them? I don’t know if you’d call it rent, but we give them money to build or maintain the sewage. There is a kind of transaction not necessarily financial in nature. We pay or do some of the utilities maintenance ourselves on their account.
And that is the way you get the municipalities on board? If municipalities are not in the business is not necessarily a bad thing. But if they are on board they can really facilitate the business e.g. by enabling permits and promoting the service – in some cases giving some extra motive to companies to relocate in the area. Municipalities can really accelerate things up.
If they put money it is fine for us, and will get them a larger share of the company. So you see municipalities interested in promoting fiber access services? In Spain we have a pre agreement with a municipality of 500k kpeople who’s willing to embark with us in this project.
They are very active, they like the business, they are getting to the photovoltaic industry and they want to create new businesses, fiber being one of them. So, they are very interested not only to participate but to incorporate the fiber access to the city administration.
We have two local partners in the Canaries and Majorca who are very close to the municipalities and they also want to do a PPP. So I see a good possibility. What have been your impressions from working with the public sector? What you think is the most efficient way to collaborate with public sector.
It is difficult to talk about efficiency when you include the public sector (laughing)! Ok.
Let me put it differently then. What do you think you would change to make your ventures from now on more efficient? From my experience working with the public sector does not give you learning curves. Every municipality has a different way of operation.
You can’t say you’ve seen them all until you see them all (laughing)! Politics plays an important role in decision taking. Working with municipalities is cumbersome and difficult.
In some case you see someone with knowledge and close relations with the mayor. In that case you can work very well, and start a PPP in a one year’s time, and in another instance you see a guy who is close to retirement and things get difficult. So it is clearly a mentality issue. Yes, at the end, it is all about mentality. No learning curve.
You will learn the administrative process but will not find a key to open all doors. What you think is the best type of partnership with the public sector? Is it PPP, joint venture, contract management, outsourcing, leaseback agreements? You see, we own the infrastructure.
For the time being we are working in PPP because we don’t wish to have municipalities with a big stake at the company, unless they want to put the money on the table. So you create a new company that owns the infrastructure? In Spain to create a PPP the city has to go public with a tender.
The cities can’t have more than 10-15% because they don’t put any assets in the company, but they want to be in the business.
So with this slice we make all parties happy. And what does the company actually owns? The company owns part of the infrastructure because Citynet does not put all the fibers to the venture.
We put some fiber and own its use for our future plans. Who operates the network? What we are thinking is to start a nationwide operator that will operate all the local networks.
And each local network will have a company that will own the network and lease it to Citynet Spain to operate it, with a revenue sharing scheme.
Two last questions about the costs. What do you think mostly affects the CAPEX in your business? Is it delays, labor, incumbents, building entry? It is difficult to have something go wrong… That sounds a bit strange in the fiber world.
I tell you that! (laughing) Well, you see, before we start deploying we check the entire public infrastructure with a GIS system for quality conditions. We jointly decide which sewages to use, those that are in best condition. And then we deploy.
In our offers we guarantee a maximum of 10% cost increase in case of something goes wrong. Above that we cover any expenses and the customer pays nothing. What about the OPEX? We do maintenance for the infrastructure. We charge customer with a maintenance fee. The sewage system is very secure.
It’s well below the surface, sometimes as deep as 20 meters, so it is relatively secure. No civil works affect the project. So OPEX is very controlled. There are no surprises. Francisco, it was a pleasure. Thank you. Thank you too, Costas.
