Agenda

• Broadband policy around the world

• Introducing an analytical framework

• Implications for policy making

Investment in high speed broadband is a political issue in wealthier economies

“Policy makers quite understandably and quite rightly see the benefits

arising from a speedy deployment of optical fibre and next-generation

access networks”

Viviane Reding, European Commissioner for Information Society and Media, June 2009

“We are currently one of the slowest countries in the developed world for broadband. With the Conservatives

we'll become one of the fastest”

Jeremy Hunt, Conservative Shadow Secretary of State for Culture, Media and Sport,

Nov 2009

Kevin Rudd, Australian Prime Minister, April 2009

“Years of failed policy have left Australia as a broadband

backwater…this new super fast national broadband network is the

single largest nation building project in Australia's history”

Higher speeds(FTTH, FTTC, 4G?)

More take-up(demand side stimuli?)

More coverage(100%? 90%?)

Investment covers a number of dimensions, and even the most affluent of nations need to make trade-offs between them

Also: leave to the market? Or use regulation to stimulate? Or direct government intervention?

Our approach addresses coverage and speed

Countries’ broadband deployment policies are very different

100%

100%

Standard (ADSL)

Fast (FTTC)

100%

Super-fast (FTTH)

Governments’ national coverage targets

Population density

Existing infrastructure

GDP

Geography and topography

Customer demand

IT literacy and adoption

Regulatory framework

Broadband prices

Driven by local differences?

"We don't need any more studies, any more cost-benefit analysis to know this is an infrastructure

investment Australia is calling out for"

Stephen Conroy, Australian Communications

Minister, May 2009

…or by a lack of analysis?

Agenda

• Broadband policy around the world

• Introducing an analytical framework

• Implications for policy making

There are undoubtedly challenges to developing a rigorous analytical framework

Cost issues• Array of platform choices drive materially different costs

• Regulatory choices interlinked with costs (CSO, duct sharing)

Consumer value issues

• Consumer demand exists but its level is relatively untested

• Growth of higher speed applications will drive new levels of demand

Externalities

• There is little convincing research into the externalities of high speed broadband

•Many benefits (e.g. telemedicine) require substantial investment elsewhere

In each case, the calculation is further complicated by the need to consider only the incremental impact of high speed broadband

Core to our work is a flexible model allowing for assessment of the incremental benefits of broadband investment

• The model allows us to assess broadband value by technology, country and region

• We quantitatively estimate producer value, consumer surplus and costs

Quantitatively modelled point prediction

Fully loaded producer costs including:

• Depreciation

• Cost of capital

• Operating costs

Consumer Surplus

Producer Value

Net value exc externalities

Externalities

€

€0

Quantitatively tested

Agenda

• Broadband policy around the world

• Introducing an analytical framework

• Implications for policy making

Our modelling has a number of clear messages for policy makers

We will consider these in turn

The market is unlikely to deliver widespread super-fast broadband without intervention

The direct commercial incentive is often limited to less than 20% of households

1

Making standard broadband universally available generally yields a higher return than investment in fast or superfast

2

A given sum spent on superfast rather than fast delivers lower overall benefits to a narrower slice of the population

3

Many government plans for superfast broadband require a belief in very high incremental externalities

4

The market is unlikely to deliver widespread superfast broadband without intervention

Producer surplus by region for a new superfast infrastructure provider with duct access, Australia 2020

-800

-600

-400

-200

0

200

Positive producer surplus, creating incentives for infrastructure rollout

without intervention

Negative producer surplus which is unlikely to stimulate investment based solely on expected commercial returns

€m/year

Increasingly rural region

The incentives are even weaker for an incumbent, given cannibalisation of existing ADSL revenues

1

In many countries, a direct commercial incentive for superfast roll-out exists for a minority of households

19%

64%

21% 22% 21%14% 9% 12%

77%

29%

66%53%

29%34%

12% 7%

4% 7%13%

26%

50% 52%

80% 81%

Belgium UK

Germany

Australia

Portuga

l

Sweden

PolandIta

ly

Need externalities

Net value positive

Producer surplus positive

Case for superfast broadband, selection of countries, 2020

Note: “Greenfield” case, excluding negative impact of ADSL cannibalisation

1

For many regions, policy makers will need to believe in the incremental externalities created by high speed in order to justify subsidies

Multiple HD video streams per household, multiplayer HD gaming,

HD telemedicine, immersion gaming, live event digital cinema

screenings, telemedicine

Superfast FTTH / FTTB

HD video streaming, telemedicine, remote working, HD video conferencing, HD

surveillance, gaming (complex), remote diagnosis (basic), remote education, building

and control management

Fast FTTC / Cable

Streaming audio, short form video, web browsing (complex sites), file sharing (small /medium), social networking, IPTV, e-mail (larger size attachments)

Standard ADSL

Basic e-mail, instant messaging, eCommerce, web browsing (simple sites)

Dial-up / narrowband

Technology Possible services

2

In the UK, making standard broadband universally available yields a higher return than investment in fast or superfast

Incremental consumer surplus per € of subsidy, 2015

Standard

To 100% of hhs

0

0.50

1.00

1.50

2.00

2.50€ 2.25

Fast

To 64%

1.55

This difference in subsidy “bang for buck” could be bridged, if you believe externalities for fast broadband are €23 per connected household per month more than for standard*

€23

* Based on assumed externalities for basic broadband of €10 per

household per month

2

The case for fast is considerably stronger than for superfast broadband

* We have assumed externalities for fast broadband to be €5 per household per month

Incremental externalities of €21/hh/m required to bridge this gap*

• Investing in fast broadband gives more consumer benefit than superfast broadband

• Fast broadband benefits are also more evenly distributed

Superfast broadband to 50%

€227m

0.6m

Infrastructure

Required subsidy per year (illustrative)

Estimated take-up

Fast broadband to 96%

€230m

2m

Consumer surplus generated by government subsidies for fast and superfast broadband in Portugal, outside urban areas, 2020

0

50

100

150

200€m

3

Some governments’ plans require a belief in very high incremental externalities

National broadband plans – required incremental externalities per month per connected household to “break even”

100

0

20

40

60

80

€ per month

Australia superfast

France superfast

Sweden superfast

Portugal superfast

Germanyfast

Italy standard

UK standard

Germany standard

Possible over-investment Possible under-investment

4

Overall, we believe there is a strong case for ubiquitous standard speed broadband but weak for superfast

• There is a strong case for subsidising roll-out of basic broadband to all households, and generally this should be an early priority for governments

• If funds are still available or you have strong belief about the incremental externalities, there is also a case for subsidising fast broadband

• However, the case for subsidising superfast FTTH broadband requires heroic assumptions about externalities

• Policy makers need to incorporate into their thinking: Explicit hypotheses around externalities Consideration of the counterfactual The time dimension The incremental benefits and costs Alternative uses of government funds and potential returns

However, we recognise that our modelling approach is only a small first step towards a more rigorous framework

Model refinement

Further demand curve research

Refinement of geotype data

Shifting demand curves over time

Non-rational switching behaviour

Wholesale effects

Business usage

Deployment costs and depreciation over time

The effect of differential pricing

Costs of intervention

Model expansion

Incorporate demand-side stimuli into the trade-offs framework

Alternative cost options for delivering standard broadband in the

remotest regions

Consider mobile broadband, both as a substitute for fixed and as an

additional service

Full report at :

http://bit.ly/bfoZbS