Ultrafast Broadband: how to tackle Europe's demand …...13 Setting the stage: Basic Broadband In the aggregate, basic BB coverage is on target and uptake is high 70% 75% 80% 85% 90%

Ultrafast Broadband: how to tackle

Europe's demand problem?

Prof. Marc Bourreau

Joint Academic Director, CERRE

Professor, Telecom ParisTech

Richard Feasey

Research Fellow, CERRE

Lecturer, University College London

Prof. Steffen Hoernig

Associate Professor,

Nova School of Business & Economics

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Outline

I. Objectives and main assumptions

II. Setting the stage

III.Demand for ultrafast broadband

IV.Demand-side policies for the transition to ultrafast

broadband: our recommendations

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I – Objectives and assumptions

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The transition to ultrafast broadband

• Broadband as an engine for growth � the deployment of next-

generation access networks is a top priority for Europe

• To foster the diffusion of ultrafast broadband: supply-side and

demand-side policies

• The transition from basic broadband to ultrafast broadband:

incentivising the switch from an “old” to a “new” technology

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Our question

Which demand-side policies can speed up the transition from basic to

ultrafast broadband (UFB) in Europe?

Two steps:

• Understand consumers’ incentives to switch to UFB and the potential

barriers to transition that they face.

• In a list of possible demand-side policies, which ones could influence

(speed up) the transition to UFB?

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Main assumptions

• Context of the study: European targets for the transition to UFB

• Technology-neutrality (but focus on fixed technologies)

• Ex-ante and ex-post perspective: achieving both uptake and

coverage

• A transition with possible intermediary steps

• The transition to UFB is assumed to be socially desirable

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II – Setting the stage

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Setting the stage

• Our study first describes the diffusion of basic, fast and ultrafast

fixed broadband in Europe by 2016, in terms of coverage and uptake

• We use the EC definitions for broadband (BB) bandwidth

classes:

- Basic: below 30 Mbps

- Fast: at least 30 Mbps

- Ultrafast (UFB): at least 100 Mbps

Ex post evaluationEx post evaluation

• Digital Agenda of 2010:

- 100% basic BB coverage by 2013

- 100% fast BB coverage by 2020

- 50% uptake (?!) of ultrafast BB by 2020

• Gigabit Connectivity Target of 2016 (at least 1Gbps, symmetric):

- 100% ultrafast BB coverage by 2025 (upgradable to Gigabit)

- By 2025, gigabit connectivity for all main socio-economic drivers such asschools, transport hubs and main providers of public services as well as digitallyintensive enterprises

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Setting the stage: Targets

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Setting the stage: Basic Broadband

In the aggregate, basic BB coverage is on target and uptake is high

70%

75%

80%

85%

90%

95%

100%

End 2011 End 2012 End 2013 End 2014 Mid 2015 Mid 2016

Total Rural

Fixed broadband coverage in the EU, 2011-2016

Source: IHS,VVA and Point Topic 0%

10%

20%

30%

40%

50%

60%

70%

80%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Households with a fixed broadband subscription at EU level (% of

households), 2007 - 2016*

Source: Eurostat (ICT usage in households and individuals)

Coverage Uptake

Source: EC Connectivity Report

Ex post evaluation

Coverage is uniformly high Uptake is heterogeneous

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Setting the stage: Basic Broadband

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AT

BE

BG

HR

CY

CZ

DK

EE FI

FR

DE

EL

HU IE IT LT

LV

LU

MT

NL

PL

PT

RO

SK SI

ES

SE

UK

EU

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Fixed Broadband coverage in the EU 28

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Setting the stage: Fast Broadband

Fast BB coverage is approaching the 2020 target, uptake is catching up

0%

20%

40%

60%

80%

100%

End 2010 End 2011 End 2012 End 2013 End 2014 Mid 2015 Mid 2016

Total Rural

Next Generation Access (NGA) broadband coverage in the EU,

2010-2016


5%

10%

15%

20%

25%

30%

2010 2011 2012 2013 2014 2015 2016

Households with a fast broadband (at least 30Mbps) subscription,

2010 - 2016

Source: Communications Committee and Eurostat

Coverage Uptake

Next Generation Access includes VDSL, Cable Docsis 3.0 and FTTP. Source: EC Connectivity Report

Ex post evaluation

Coverage varies between 40% -- 100% Uptake varies even more

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AT

BE

BG

HR

CY

CZ

DK

EE FI

FR

DE

EL

HU IE IT LT

LV

LU

MT

NL

PL

PT

RO

SK SI

ES

SE

UK

EU

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Perc

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Fast broadband coverage in the EU 28 (at least 30 Mbps)

Ex post evaluation

Fast BB: Take-up ratio (uptake / coverage) increases with coverage!

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AT

BE

BG

HR

CY

CZ

DK

EE FI

FR

DE

EL

HU IE IT LT

LV

LU

MT

NL

PL

PT

RO

SK SI

ES

SE

UK

EU

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co

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Fast Broadband Take-up Ratio

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Setting the stage: Ultrafast Broadband

Ultrafast broadband: Coverage and Uptake still far behind 2020 targets

0%

5%

10%

15%

20%

25%

End 2011 End 2012 End 2013 End 2014 Mid 2015 Mid 2016

Total Rural

Fibre to the Premises (FTTP) coverage in the EU, 2011-2016


2%

4%

6%

8%

10%

12%

2010 2011 2012 2013 2014 2015 2016

Households with an ultrafast broadband (at least 100Mbps)

subscription, 2010 - 2016


Coverage Uptake

Source: EC Connectivity Report

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Ultrafast BB: Coverage and Uptake still far behind targets. Attention: UFB is more than just FTTP!

0%

2%

4%

6%

8%

10%

12%

2010 2011 2012 2013 2014 2015 2016

Households with an ultrafast broadband (at least 100Mbps)

subscription, 2010 - 2016


UptakeSource: EC Connectivity Report

0%

20%

40%

60%

80%

100%

AT

BE

BG

HR

CY

CZ

DK

EE FI

FR

DE

EL

HU IE IT LT

LV

LU

MT

NL

PL

PT

RO

SK SI

ES

SE

UK

EU

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% o

fH

ou

seh

old

s

FTTP coverage in the EU 28

0%

20%

40%

60%

80%

100%

AT

BE

BG

HR

CY

CZ

DK

EE FI

FR

DE

EL

HU IE IT LT

LV

LU

MT

NL

PL

PT

RO

SK SI

ES

SE

UK

EU

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% o

fH

ou

seh

old

s

Ultrafast broadband coverage in the EU 28 (at least 100 Mbps)

Ex post evaluation

Coverage varies between 0% - 100% Uptake remains low in most countries

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AT

BE

BG

HR

CY

CZ

DK

EE FI

FR

DE

EL

HU IE IT LT

LV

LU

MT

NL

PL

PT

RO

SK SI

ES

SE

UK

EU

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Perc

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tag

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Ultrafast broadband coverage in the EU 28 (at least 100 Mbps)

Ex post evaluation

Ultrafast BB: Take-up ratio not (yet?) related with coverage

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

AT

BE

BG

HR

CY

CZ

DK

EE FI

FR

DE

EL

HU IE IT LT

LV

LU

MT

NL

PL

PT

RO

SK SI

ES

SE

UK

EU

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Perc

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tag

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f h

ou

seh

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ith

ult

rafa

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BB

co

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Ultrafast Takeup Ratio (Takeup/Coverage)


We can conclude the following:

• Full coverage and uptake for (at least) basic broadband has been achieved

• Fast (at least) broadband coverage is growing, and uptake follows coverage

- That is, as the coverage expands, the share of covered households taking up fast (or better) broadband increases as well

• Ultrafast broadband coverage is still low, and uptake is little related to coverage

- The heterogeneity between countries is very large

- Drivers of demand cannot be exclusively on the supply side

- Focus needs to shift towards considering uptake22

Setting the stage: Main Message

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III – Demand for ultrafast broadband

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Demand for UFB

• Question: what is the demand for UFB from those consumers who already use a

basic broadband connection?

• Consumer decision: consumers switch if additional perceived benefits from UFB

compared to basic broadband > additional perceived costs

• Understanding consumer migration to UFB:

a) Why do some consumers switch � drivers (benefits) of migration?

b) Why others don’t � barriers (costs) to migration?

• Conclusions drawn from a review of academic empirical studies

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Drivers of migration: A demand for speed

• Engineering approach: is there a need for speed?

• Example of Kenny and Broughton (2013)’s study for the UK: by 2023, the top 1%

high-usage households will need a bandwidth of 35-39 Mbps � no need for speed

• Economic approach: is there a willingness-to-pay (WTP) for speed?

• Source of WTP for speed: higher speeds allow to save time

• Empirical evidence of WTP for speed: WTP of ≈ €1-2 for +1 Mbps

• Indirect evidence from operators’ pricing strategies: operators do charge for higher

speed

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The role of bandwidth-intensive applications

• Bandwidth-demanding applications may play a role in the transition to UFB

• Television and VoD played a role in the transition to UFB in Japan in the 2000s

• TV and OTT TV services (like Netflix) may play the same role in Europe for the

transition to UFB

• Interplay between speed improvements of broadband networks and quality of

online services

• Higher number of UFB users � more bandwidth-demanding apps � more users…

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Barriers to migration: Switching costs

• Switching costs represent a significant barrier to migration to UFB, and in

particular technical switching costs

• Even if they perceive a higher utility from UFB, consumers can stick to the

legacy network if switching costs are too high

• Consumers may overestimate (technical) switching costs if they lack

appropriate information about the switching process

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Too low perceived benefits

• UFB has experience good characteristics: consumers may not anticipate

well the benefits of UFB before experiencing it

• May lead to excess inertia

• Experiencing UFB outside of home (at the office, at school) may help

alleviate this problem

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Summing-up

1) Drivers of migration to UFB

o Utility from higher speed

o Utility from bandwidth-intensive applications

2) Barriers to migration to UFB

o Perceived technical switching costs

o Too low perceived benefits (UFB as an experience good)

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IV – Demand-side policies for the

transition to UFB: our recommendations


• Wider socio-economic factors (education, income, children) play avery important role in broadband adoption

• Wider socio-economic change in Europe beyond the scope of this study

• Policies to promote basic broadband adoption involve:

• Indirect/derived demand programmes (devices, e-Government)

• ‘Onboarding’ at home via children/schools or workplace

• Digital skills for targeted groups

Policies to promote basic broadband


• Policymakers have been reluctant to

address barriers to adoption directly:

- Low WTP but no budget constraint HHs

- Recurring subsidy for HH with budget

constraints

Policies to promote basic broadband

Can’t pay and

won’t pay

Lowering costs is unlikely to

affect adoption rates amongst

this group

Can pay but

won’t pay

Likely represent the majority of

households in EU today

Can’t pay but

will pay

Require ongoing subsidy or

‘social tariff’

Can pay and

will pay

No basis for public

intervention


• ‘Demand aggregation’ policies work – but how much is supply side?

• Direct subsidies to lower connection costs work – no UFB device to

subsidise

• Digital literacy and e-Government less effective – and increasingly so

Lessons from past policies


• Set EU adoption as well as availability targets for 2025 (and

2020) at EU and national level

• Promote ‘onboarding’ via schools and workplace

Recommendations: getting connected


• Promote collective switching to UFB by households (as demand side policy):

- Subsidise one-off inter-technology switching costs

- Align with provision of UFB to public institutions in area

- Consider:

• Impact on retail competition

• Cost minimisation/differentials

• Non-participating households

• Service delivery

Recommendations: getting connected


• Reform regulation

- UFB adoption targets alongside roll out targets in State Aid arrangements, with

incentives to outperform

- Deemed consent from landlords

- Long term contracts for UFB connections (Art 98 EECC)

Recommendations


• Improve information

- Regulate advertising of broadband performance claims

- Promote broadband performance disclosure for key household purchases

• Reduce uncertainty

- Consider timetable for copper switch off (and measures to facilitate)

Recommendations


• Anticipate role for ‘social tariffs’ for UFB/broadband in long term, funded

by general taxation

• More research on drivers of UFB adoption including:

- UFB WTP by geography and socio-economic group

- Impact of switch over uncertainty on adoption

Recommendations – longer term

All households

EC-wide UFB adoption targets

Lower costs of broadband deployment (duct sharing, business rates, etc.)

Advertising standards for broadband performance

Improve broadband performance information at key trigger points: house purchase, consumer electronics purchases

Landlords presumed to consent to UFB installations in properties unless they object on specified grounds

Revisit State Aid broadband guidelines and include adoption targets

Can’t pay and won’t pay

Experience UFB outside the home (schools, libraries) to improve willingness to

pay

Require UFB ‘social tariffs’ in the longer term

Can pay but won’t pay

Experience UFB outside the home (schools, libraries)

Collective switching programmes with financial incentives

Long term financing of new UFB connections

Consider timetable for copper switch over

Publish data to build confidence around switching

Can’t pay but will pay

Require UFB ‘social tariffs’ in the longer term

Can pay and will pay

No basis for public intervention

Documents

Ultrafast Broadband: how to tackle Europe's demand …...13 Setting the stage: Basic Broadband In the aggregate, basic BB coverage is on target and uptake is high 70% 75% 80% 85% 90%