Arthur D. Little, in a report released last week at the 2013 Fiber-to-the-Home (FTTH) Council Asia Pacific Conference in Auckland, New Zealand, suggests that governments looking to roll out fiber-optic broadband networks on a nationwide scale likely would do best to get out of the way of industry in markets that would naturally attract investment and focus their efforts on areas that the free market will likely ignore.
The consultancy says that the link between high-speed broadband access and economic development has become clear. While the definition of “high speed” remains a moving target, the report’s authors say that, in most cases, it is now time for countries to move to fiber-optic networks to keep pace with accelerating broadband demand. (The exceptions to this admonition are countries that have extensively invested in good-quality copper and coax networks that can take full advantage of the present and near-future advances in VDSL2, vectoring, and G.fast. The report cites the UK as a potential example.) Yet fiber to the home (FTTH) and building (FTTB) deployments, particularly on a national scale, are extremely expensive. Governments and regulators therefore face the conundrum of how to fund and execute such new infrastructure efforts.
The report, “National Fibre Strategies: National economic imperative or just another private industry task?” describes five national fiber-optic network roll-out models derived from a study of the strategies of almost 50 countries. The models vary in terms of government and private industry involvement and include:
- A fully free-market, unregulated approach. In this model, service providers build broadband access networks where they want and charge what they want for their services, with the government staying on the sidelines. The report suggests that this model likely ramps up broadband access quickly in major population centers where the return on investment (ROI) for service providers is the highest – but likely leads to little or no broadband access in less attractive markets. A digital divide results. The report cites the U.S., the UAE, Hong Kong, and Saudi Arabia as examples of this model.
- Graded government support, led by a national incumbent. This model is most prevalent in markets where a government-backed national incumbent dominates. The government instructs the incumbent to deploy a national network, usually with at least some public funding and a charge to provide some level of open access to promote competition. The report suggests that this approach generally provides more uniform deployment of fiber-optic broadband than the first model, but care must be taken that what the authors describe as “artificially created competition” via open access doesn’t discourage service innovation or create uncompetitive service pricing. Japan, Latvia, Lithuania, Qatar, and South Korea are examples of this practice. These countries are five of the top eight countries in terms of FTTH/FTTB homes passed, the report points out.
- Graded government support, led by private industry. This model is like the previous one, except the edict to deploy fiber applies to multiple operators. The government still provides some level of funding, usually concentrated where free market forces are sufficient to drive fiber deployments. This model also results in balanced fiber access, the report suggest. France, Portugal, and Singapore are examples of this model.
- Government-controlled fiber deployments. In this model, the government decides to tackle fiber deployment itself; they may promise to hand over the resulting network to private industry after completion. The benefits of such an approach include the likelihood of high penetration and uniform network quality, as well as the economics of rolling out a network on a national scale. The drawbacks include the slow speed and potentially inefficient construction approach. (The report doesn’t cite the potential for a change in government policy during the roll out.) Australia’s National Broadband Network effort is an obvious example of this model.
- Private investment, heavily regulated. In this model, private industry does the work, and regulators tell them how to do it. The approach assumes that communications service providers already have enough incentive and financial resources to build broadband networks, but need someone looking over their shoulder to ensure competition; prices are regulated. The goal is to create a highly competitive environment and, in turn, service innovation. The report cites the policies behind the European Union’s Digital Agenda as an example of this model. However, it notes that countries within the EU have decided to implement the Digital Agenda in different ways. In fact, three countries that have follow this model most closely – Germany, the Netherlands, and the UK – are relying on fiber-to-the-cabinet (FTTC) in many, if not most areas within their borders.
The report authors are careful to state that no approach best suits all applications. But, as the above implies, Arthur D. Little is generally in favor of the second and third models, in which service providers are given enough leeway to make profitable investments in attractive areas, and public funding is used to support deployments where market forces aren’t sufficient on their own. There are four factors that are essential to the successful execution of such strategies, according to the report:
- Creation of a more investment-friendly environment through the reduction of regulations.
- In return for this reduction, maintain competition among competitors in economically attractive market areas.
- Publicly initiated, fair and open orchestration of these service providers in second- and third-tier market areas where a free market can be extended with what the report authors termed “modest conditions,” such as reciprocal open access among operators.
- A similarly publicly initiated, fair, and open approach, combined with public and private funds, to inspire fiber construction in the country’s least economically appealing markets. Again, rules would have to be in place to ensure competition.
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