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