A CDS approach to induce facilities-based competition over NGA networks

The current regulatory framework in the European NGA market provides the basic principles for the gradual migration from service-based competition over the legacy copper access networks to facilities-based competition over fiber-based Next Generation Access (NGA) networks. This paper initially reviews the related literature and shows that: (i) an unbundling policy that boosts entry by alternative operators promotes service-based competition but provides operators with disincentives to invest in network upgrade; (ii) there is no consensus about the optimal regulatory policy that promotes competition and encourages investments in NGA networks; and (iii) the reviewed research articles are not consistent with the current regulatory framework in the European NGA market in terms of both the evolution of the regulatory goals over time and the recommended regulatory settings. This paper aims to propose a novel approach in order to effectively meet the current regulatory goals using the recommended settings. It is shown that the proposed approach, which is based on the basic principles governing a Credit Default Swap (CDS), provides an effective migration path towards facilities-based competition over NGA networks.     

The long-run effects of copper-loop unbundling and the implications for fiber

Policies mandating unbundling of copper telecommunications networks have now been in place for more than 15 years, and it is thus becoming possible to study their long-run effects. This paper reviews the existing evidence on the effects of copper unbundling, and presents new empirical results based on regression analyses of broadband penetration in OECD countries from 2001 to 2010. The results show that the long-run effect of copper unbundling on household broadband penetration rates is negative, a finding which is consistent with previous research, including with research suggesting that copper unbundling has slowed the deployment of FTTP infrastructures, especially in Europe. Based on an analysis of the similarities and differences between the unbundling of copper networks and fiber networks, the paper concludes that mandated unbundling of fiber networks would likely deter deployment of Next Generation Access networks (NGAs).     

Long term risk sharing contracts as an approach to establish public–private partnerships for investment into next generation access networks

This paper develops an investment/pricing model for the deployment of basic broadband networks which, along with other applications, is applicable to public–private partnership projects. In particular, a new investment model is suggested to be used for finance deployment over a longer term by enabling both private and public investors to participate in the roll-out of next generation access (NGA) infrastructure. This so-called “long-term risk sharing concept” has several notable benefits compared with the traditional regulatory approach. Above all, the model enables both private operators and public authorities to share the risk of investing in NGA infrastructure. Thus the model offers a way for public authorities to achieve a timely and countrywide roll-out of NGA networks, including in areas where NGA investment would otherwise not occur.     

Strategic choice and broadband divergence in the transition to next generation networks: Evidence from Canada and the U.S.

This article investigates how infrastructure competition among broadband network infrastructure operators in Canada and the U.S. has influenced their incentives to increase fixed broadband connection speeds and invest in next generation fiber-to-the-premises (FTTP) technologies. The evolution of measured broadband speeds since the late 2000s documents growing differences in the incentives of dominant broadband operators to respond to demand for higher speed connectivity by increasing connectivity speeds they deliver to their customers. Dominant network operators in Canada have shown relatively stronger incentives than their counterparts in the U.S. to invest in and increase the capacity of legacy platforms. In the U.S. FTTP deployment incentives have been somewhat stronger, but network operators have been more reluctant to upgrade legacy technologies to deliver higher speeds. Diversity of strategic choices by large operators helps explain increasing regional and local broadband infrastructure gaps within the two countries. A high dividend payout financial strategy and increasing vertical integration appear to enhance the potential for overinvestment and inefficient duplication in legacy platforms by competing infrastructure providers.     

Next Generation Access (NGA) supply side interventions—An international comparison

Over the last years, technical and economic developments towards the deployment of Next Generation (Access) Networks have triggered discussions under which circumstances investments into physical infrastructure are economically viable. In many countries the discussion has arisen regarding conditions under which private investment will/will not be undertaken and whether or not in such cases public policy measures should support deployment. This could come in different ways—from incentivizing private investments to deploying new “state-owned” networks. Public policy can have an impact for example by intervening into a competitive market. The paper tries to provide answers as to “why” such interventions and supply side policies are undertaken (thereby referring to the central role that broadband infrastructures have for the economy) and “how” such interventions take place, for example an analysis of the public policy interventions to drive Next Generation Access Network deployment. The article thereby derives policy patterns that have occurred in different regions of the world.     

Ex ante regulation and co-investment in the transition to next generation access

Investments in next generation access networks (NGANs) ask for a new set of regulatory remedies. This paper contributes to this debate by focusing on three issues: the migration from the legacy copper network to the NGA infrastructure, and how wholesale pricing regulation might affect this process; the introduction of differentiated wholesale remedies according to geographical differences in NGAN deployment; the impact of co-investment decisions on market outcomes and their interplay with access regulation. Using the recent economic literature, arguments and possible guidelines are proposed, which might be useful to regulators and policy makers.     

Deployment of high-speed broadband infrastructures during the economic crisis. The case of Xarxa Oberta

The deployment of fibre based Next Generation Access Networks (NGANs) entails a crisis dilemma. During crisis, public administrations are eager to actively impulse investment in NGANs since the deployment of these networks may increase productivity in the long run and promote economic recovery in the short run. However, the crisis has reduced the access to the credit market and has increased the fiscal deficit. Consequently, the resources of the public sector to invest have been severely limited. Thus, it is crucial to analyse how the public investment plans in NGANs should be designed and implemented during bad times, under scarcity of public resources. The article proposes some guidelines for the design and implementation of effective and affordable public projects for the deployment of NGANs. These guidelines are illustrated by discussing the Xarxa Oberta case, a project for the deployment of a NGAN in Catalonia (Spain).     

Unbundling and infrastructure competition for broadband adoption: Implications for NGA regulation

The common idea of open access policy is that it refers to the sharing of particular elements, such as wholesale access networks, backhaul, under-sea cable and internet exchange points in fixed and mobile networks. In broadband networks, the use of open access policy usually refers to the infrastructure parts, which are considered a bottleneck. Many regulators have generally focused open access policy on fixed broadband networks, especially digital subscriber line (DSL) technology, in the last decade. Local loop unbundling (LLU) regulation is one of the main strategies for the regulator to open access to an incumbent’s bottleneck network in order to soften its monopoly power and encourage competition in the DSL broadband market. The OECD countries have different strategies regarding unbundling local loop and infrastructure competition, as the characteristics and infrastructure networks of countries vary. There are currently more choices of next generation network (NGN) technologies to develop. While local loop unbundling may not be applied fully to NGN development (the cost is not sunk, more technologies are available to implement, incentive of investment by operator), it can indicate benefits and drawbacks of open access policy in the past decade that can be adapted to NGN.The empirical results of this study show that during 2002–2008, LLU regulation was one of the strategies used to increase broadband adoption in countries that had difficulty encouraging infrastructure competition. Unbundling regulation can therefore be implemented carefully and differently in each country that has inefficiency that is harmful to consumers in its market from a monopoly incumbent. Infrastructure competition, on the other hand, is introduced as another strategy to increase broadband adoption. The empirical results of this study indicate that infrastructure competition can be used as a strategy when there are already enough infrastructures in the area or country. These results support the idea of using open access and infrastructure competition policy depending on the existing competition of broadband infrastructure in each country.     

Public and private intervention for next-generation access deployment: Possibilities for three European countries

How next-generation access (NGA) deployment can be encouraged is a challenge that many countries are facing, and one that has been widely and actively discussed around the globe. This discussion has highlighted a dilemma that ultimately shapes investment—how to encourage the widespread deployment of NGA while enabling operators to achieve reasonable returns. This paper focuses on the tensions that arise as a consequence of this investment challenge in three countries – the Netherlands, Sweden and the United Kingdom (UK) – and uses the analysis of extensive data collection with k7ey actors to argue the case for the injection of public or private incentives. The paper finds that markets with competitive infrastructure will not benefit from public investment while markets with geographical constraints are in need of public support. The paper also explains that regulatory intervention is necessary in the early stage of NGA roll-out, even in currently competitive markets. In all the discussions it becomes evident that, among the three cases, the UK is most in need of public intervention.     

Ultra-fast broadband investment and adoption: A survey

In recent years, and in line with EC plans, telecom operators have been facing the need to deploy high-speed, fiber-based infrastructure. What is the socio-economic impact of these new investments on growth and local development? What are their effects on the labor market outcomes, in terms of firm productivity and entrepreneurship? What is the role of regulation and competition in spurring the deployment and the adoption of ultra-fast broadband networks? In this survey, we review the existing literature on ultra-fast, fiber-based broadband network, devoting special attention to the results and to the methodology used in the most recent studies.     

Infrastructure investment on the margins of the market: The role of niche infrastructure providers in the UK

Across Europe, policymakers and market forces are striving to deploy next generation access (NGA) networks and ensure ubiquitous access to superfast broadband services. Due to scale economies and sunk costs, the roll-out of NGA is expected to be profitable only for large-scale providers and in densely populated areas. Nonetheless, alternative providers, such as utilities and local communities, have significantly contributed to NGA diffusion in many countries. Over the past five years, several small-scale initiatives have emerged in the UK, bringing fibre networks to urban and rural areas previously overlooked by either commercial or subsidised deployments. A multiple case study approach is employed here to explore the nature and the drivers of niche providers in the UK NGA market. All these initiatives are demand-driven and to follow a modular approach. Despite adopting different business models, they all rely on the resources inherited from past broadband initiatives and relationships with local partners. By investigating the strategies of niche providers in NGA market, this analysis sheds light on their contribution to bridging the digital divide in the UK and is presented as a preliminary assessment of their sustainability and potential growth.     

Network modeling approaches for calculating wholesale NGA prices: A full comparison based on the Greek fixed broadband market

According to the European Commission Recommendation for setting copper and fiber wholesale prices where cost orientation is imposed as a remedy, National Regulatory Authorities (NRAs) should adopt a Bottom-UP Long-Run Incremental Cost Plus (BU LRIC+) costing methodology that estimates the current cost that a hypothetical efficient operator would incur to build a modern efficient Next Generation Access (NGA) network. The starting point of modeling an efficient operator investing in NGA networks is the network modeling approach. In this paper, we compare the most widely adopted network modeling approaches in terms of wholesale fiber-to-the-home (FTTH) prices. In particular, the modified scorched node approach is compared to the extreme cases of the scorched node and the scorched earth approaches. The comparison between the aforementioned scenarios sheds light on the impact of each approach on the wholesale FTTH prices. The main finding of this paper is that the scorched earth approach leads to a maximum of 10% reduction in the short-term access prices compared to the most inefficient scorched node approach, whereas further extending its optimizations by optimizing the number of central offices, both the short-term and long-term wholesale price reductions are quite significant (more than 20%) regardless of service speeds. Consequently, NRAs should consider a geographically differentiated modeling approach when regulating the wholesale market by adjusting the level of scorching in each area and network segment according to the investment plans of telecom operators. An appropriate variation of the modeled network operator's efficiency is expected to more accurately represent the costs of a reasonably efficient operator based on the real market conditions and a forward-looking perspective. These findings provide valuable information to both network operators and telecom regulators.     

Critical factors for the expansion of broadband in developing countries: The case of Peru

Many studies have been made on the diffusion and development of broadband, however there are few published studies on the critical factors for advancing broadband services in developing countries. Thus, the purpose of this paper is to understand and identify the critical success factors for the development of broadband services in a developing country context, using the case of Peru. In this regard, this study uses data collected from interviews with Peruvian telecommunications professionals, policy makers and regional telecommunication experts, which is supplemented by official reports and statistical data to determine the critical success factors for broadband in this country. The four factors derived are; (i) expand the availability of infrastructure, (ii) define a national broadband policy that aligns the interests of stakeholders, (iii) develop effective competition in the broadband market, and (iv) stimulate the demand for broadband services. Through a MACTOR analysis the authors found that the objectives of sharing infrastructure, the further deployment of infrastructure and the development of competition in the market for broadband services are those that generate the most divergence between actors. Additionally, the MACTOR analysis determined that no disagreement existed for the objectives related to demand stimulation. Thus, four proposals are offered for the development of Peruvian broadband. The results are relevant for academics and policy makers interested broadband development in developing countries and for rural areas of developed countries.     

Fiber vs. vectoring: Limiting technology choices in broadband expansion

The upgrade of legacy infrastructure is a challenging undertaking in general. The underlying issues are especially prominent for telecommunications networks outside of urban areas. Using German micro-level data, we identify the structural determinants for fiber optics deployment and its extent. We also measure the role of technology competition from the existing infrastructures, VDSL-Vectoring and TV-Cable. In this setting and exploiting a natural experiment, a technologically restrictive policy as proposed by the European Commission is found to be ineffective in promoting fiber deployment. Policy interventions in the form of subsidies targeted at specific local infrastructure projects, however, raise the likelihood of fiber deployment by a substantial margin. A targeted, proactive policy approach is therefore needed to overcome structural and geographical disadvantages.     

Comparing FTTH access networks based on P2P and PMP fibre topologies

There is an ongoing discussion in the market which Next Generation Access (NGA) architecture best suits future needs and which investment and cost differences exist. The discussion can be subsumed as P2P vs. GPON, which is somewhat misleading as this article reveals. The discussion is driven by the fact that the high capital cost and the long asset life time of fibre mean that the technology choices made today will dominate the opportunities for telecommunication business of all market players, incumbents, competitors, content providers and business and residential users for many years in the future.The paper analyzes the cost and other differences between Fibre-to-the-Home (FTTH) access network architectures and their related different wholesale approaches by using the well-known and understood steady state approach applied in other NGA analyses in the past. In addition to the steady state analysis a dynamic cost evaluation is included taking into account the different investment behaviour of the FTTH architectures over time. The results describe investment and cost differences between architectures, incumbents and wholesale based competitive operators. The analysis has been performed for different geotypes (clusters) of decreasing population density in a representative European settlement structure.     

Regulation and investment behaviour in the telecommunications sector: policies and patterns in US and Europe

This paper reports the results of the quantitative analysis of international experience of the relationship between infrastructure investment in the deployment of capacity that can carry large volumes of voice and data traffic and regulatory policy changes in the telecommunications sectors. It looks at the relationship between infrastructure investment for these infrastructure assets and the access pricing régimes for local exchange carriers in the United States and Europe. It then looks at the relationship between various aspects of regulatory and institutional policy changes in Europe and how they affect access prices.The paper finds that a lower access price promotes greater deployment of digital technology among US incumbent local exchange carriers (ILECs). Based on this finding, it suggests that it is in the ILECs interest to have access to their networks encouraged.The European data for interconnection are recent and far reaching conclusions are not feasible, but the findings, however, suggest that competition has worked by facilitating new entry through decreasing interconnection prices, although path dependencies, of existing and traditional concepts, in the mindsets of operators as well as regulators, may account for these findings.     

Untangling the paradox of Licensed Shared Access: Need for regulatory refocus

This paper looks at the evolution of the Licensed Shared Access (LSA) – a pioneering European scheme for tapping into radio spectrum that remains assigned to incumbent users. Using the theoretical framework of Co-evolutionary Development, we build analytical case study to understand why this crucial innovation did not take hold in the European wireless market, despite a decade of regulatory and standardisation efforts. Drawing on literature analysis and expert knowledge, we identify barriers that contributed to the stalling of LSA deployment and co-evolutionary forces that could help alleviating them. We expose the need for more proactive engagement of European regional policymakers and suggest directions for refocusing future LSA regulatory activities to target an expanded set of frequency bands, as well as broadening their scope to include local non-public networks and industry verticals.     

Triple play: How do we secure future benefits?

Recent technological developments make it possible to provide all telecommunications services (TV, telephony and internet) via the TV cable and fixed telephony network. Moreover, a new infrastructure based on optical fibre (to the home) is emerging in some places, which may in the future replace both existing networks. Making use of the available economic literature, the paper analyzes some of the consequences of the emergence of one electronic communications market. It focuses on two policy issues: the consequences of convergence of technologies and competition between networks for regulation in the short and medium runs, and the role of public investment in the rollout of optical fibre. It concludes that the present state of regulation may have some undesirable effects in the face of convergence and that public investment in a new general purpose infrastructure may have important advantages.     

Race to the top: Does competition in the DSL market matter for fibre penetration?

High speed broadband creates potential productivity gains and has a positive impact on economic growth. Achieving Europe's broadband access objectives will require large scale investment in next generation broadband networks, and it is imperative that an appropriate investment climate is created to encourage fibre network rollout. This study considers whether and how competition in the DSL market affects the incentives of operators to invest in the deployment of high-end fibre optic networks. Most earlier research on the drivers of investment in broadband technology has focused on the effect of mandatory access policies, such as local loop unbundling, or competing infrastructures. We posit that competition in the DSL sector may also influence fibre penetration, possibly to a considerable extent. We find that the relationship between service-based competition and fibre penetration is non-linear: a lack of or severe DSL competition is correlated with a negative effect on fibre penetration, but if a moderate degree of competition is already present in the market, more service-based competition may positively influence fibre penetration. The scale of these effects however varies with the openness of the DSL market: operators' incentives to invest in fibre appear to be more sensitive to changes in DSL competition if there is extensive local loop unbundling.