The involvement of utilities in the development of broadband infrastructure: A comparison of EU case studies

Energy companies and other utility providers have been often involved in the provision of telecommunications services. Nevertheless, their contribution to broadband development has varied significantly over time. In the late 1990s, both local and national utilities in the European Union (EU) engaged in the provision of broadband networks, but only few of them managed to establish themselves as major broadband providers. More recently, new projects involving national utilities have been announced in several EU countries, opening new scenarios for utilities’ contribution to Next Generation Access (NGA) development. This paper identifies and explores the factors affecting the entry and the success of utilities in the EU broadband market, through the comparison of four case studies from four EU countries (Germany, Italy, Sweden and the UK). The evolution of utility involvement in the EU broadband markets is assessed against the interaction of market, technology and policy factors, focusing on the impact of policy and regulatory measures. As a result, this paper provides fruitful insights into the relevance and effectiveness of public interventions in broadband markets. Across the four case studies, public support and public ownership emerged as the main drivers for the involvement of utilities in EU broadband markets, with regulatory measures and economies of scope exerting a limited and decreasing influence. However, the contribution of utilities has varied significantly across the cases studied, reflecting the different approaches taken at national and local level to support broadband development, in spite of the common regulatory framework.     

Private participation in government-led backbone network projects: Lessons from three Latin American experiments

This study presents an ex post comparative assessment of the relative performance of three Latin American broadband network emblematic projects implemented through public-private projects (PPP). Results show that the relative performance of these projects is extremely sensitive to differences in contractual design and regulatory approaches applied in each case. The detailed examination and comparative analysis of these experiences allowed us to extract important lessons in terms of design and implementation of PPP in telecommunications sector. In particular, our analysis finds that imperfect financing and demand risk allocations in projects can jeopardize their operational and financial sustainability. As well, the examination of these experiences allows us to conclude that in markets characterized by continuous economic and technological transformations, vertical separation restrictions imposed for reducing the risk of increasing market power and concentration may not be justified. As well, analysis shows that in such evolving contexts, a more flexible and adaptable regulatory approach is recommendable. Finally, our analysis reveals the role of complementary policies in the context of the implementation of countries’ digital strategies, as a means that contribute to ensure the accomplishment of broadband accessibility national targets.     

Cable television and competition : Theory, evidence and policy

There is currently widespread discussion in the USA of the merits of amending legislation to allow competition in the cable television market, notably from the telecommunications companies. This article explores what economic theory can contribute to this debate, and adduces empirical evidence on the effects of competition in the cable market where it presently exists. The authors conclude that blocking entry into cable, and indeed into telecommunications markets, is likely to be poor policy, and that increased competition would foster the development of an efficient modern broadband network.     

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.     

Net neutrality and market power: The case of South Africa

Net neutrality rules have been implemented in many developed countries, often in response to concerns over network operator market power and potential blocking or throttling of content. However, developing countries typically have significantly lower levels of internet penetration and usage. Market power in respect of internet access looks quite different given that mobile is the predominant means of connection and there are often three or more mobile operators. In South Africa, there is a quasi-monopoly in the paid satellite broadcasting market and broadband providers zero-rating content from third parties (such as Netflix) may bring about more competition. We test the main theories of harm arising in the net neutrality debate, including network operator market power and exclusion among content providers using data on the number of announced prefixes and peers and IP addresses and considering examples of bundling and zero-rating conduct by operators. We find that net neutrality rules are less likely to be required in South Africa and other developing countries and that strict enforcement of such rules could in fact hinder competition in markets for content, telecommunications networks and other related markets.     

Coordination versus organization: Diverging logics of firm cooperation in Denmark and Sweden

Employers and their business associations have become increasingly important actors promoting market competition – even in once highly coordinated and regulated European economies. Based on a comparison of the Danish and Swedish telecommunications industries, we ask how differences in business association structures relate to the ways firms cooperate in competitive markets. In Denmark, fragmented, competing business associations encouraged a more unstable logic of coordination, with firms predominately focussed on pursuing particularistic interests in public policy lobbying and exit-oriented strategies in employment relations. In contrast, the unified business association in Sweden encouraged a logic of organization, with firms predominately seeking collective good provision in public policy lobbying and engaging in mutual gains bargaining. Findings contribute to debates on the role of business associations in fostering firm cooperation and collective regulation.     

Technological and geographic heterogeneity in broadband markets: The challenge for regulation

When the telecommunications industry was liberalised in Europe and North America in the 1980s and 1990s, it inherited a legacy of monopoly providers whose footprint was national or multi-regional in its character. The regulatory framework, particularly that adopted in EU member states, reflected this pattern of relatively homogeneous deployment achieved, in part, by decades of cross-subsidised pricing and universal service goals. Perhaps because of this legacy, telecommunications regulators have often adopted the presumption that relevant markets are national in character, unless proven otherwise Although geographically-variegated regulatory remedies have been permitted (even in the face of allegedly national relevant markets) and adopted in many member states, many regulators have never done so, and overly cautious thresholds for permitting geographically based forbearance suggest a continued bias towards presuming national markets and remedies. We find that this presumption of uniformity and the tendency to aggregate geographic markets together is not supported by first principles of antitrust analysis, although there may have been strong practical reasons to apply this presumption in the past circumstances of the telecommunications and broadband industries.On the ground, however, there has arguably never been as much heterogeneity across geographies and across technological solutions that provide effective ultra-fast broadband speeds. Both technological (i.e., product market) and geographic heterogeneity are likely to increase with the advent of mobile 5G networks. With their deployment, a cautious regulatory stance towards geographic variation and a cautious regulatory stance towards inter-technology or inter-modal competition may result in regulation that could exceed what is required to ensure effective competition and could instead distort the incentives to enter of facilities-based actors. This may also result in higher-cost and inefficient investment. A more geographically varied and technologically agnostic regulatory framework may satisfy the principle of proportionate and focused regulation—with the possibility that the locus of regulation shifts from the access network to bottleneck facilities such as fibre, ducts and poles.This discussion is especially germane when one considers the highly speculative nature of forecasts and projections about future demand, and the competing claims of proponents of 5G and fibre. While there is some scepticism about the performance of mobile networks, we note that pure mobile and fixed 5G services may have synergies in deployment, and that the idea of competing with residential broadband services is a core strategy of very influential large-scale industry actors. In terms of a future research agenda, regulatory decisions could benefit from much more research into the relationship between domestic and global bandwidth constraints and their influence on development of software and application, as well as much more quantitative research by academics on the drivers of bandwidth demand. The risks associated with promoting investment that results in large-scale wasted resources should also be central to the regulatory agenda.     

Ex ante margin squeeze tests in the telecommunications industry: What is a reasonably efficient operator?

This paper studies the implementation of Reasonably Efficient Operator margin squeeze tests by National Regulatory Authorities in European telecommunications markets. It provides a theoretical framework which shows how regulatory authorities deal with the asymmetries between entrants and incumbents by adjusting the Equally Efficient Operator margin squeeze test used in competition policy. Using this framework, this paper presents a benchmark of implementation choices by inspecting authorities' guidelines, market analyses, and decisions. Whereas some implementation choices are very similar across authorities' decisions, some others display a strong heterogeneity.     

Competitive dynamics in Polish telecommunications, 1990–2000: growth,regulation, and privatization of an infrastructural multi-network

This paper analyzes the relationship between governmental regulatory policies and competitive dynamics amongst private operators and the national monopolist, TP SA, in three network segments of the Polish telecommunications sector. Special attention is paid to the evolution of organizational strategies in a regulatory environment characterized by constant strategic indecision and reorientations of national policy makers. The paper finds that regulatory/competition coevolution has taken diverse forms in the three network subsegments, with asymmetric duopoly operating in the local fixed network, hidden competition at work in the long-distance fixed network, and oligopolistic technology-driven competition characterizing the high-growth cellular network. The conclusion reached is that Polish telecommunications to date has been stuck in a broad stage of pre-competitive market maneuverings by domestic and international capital, in preparation for privatization of the national operator and for full liberalization as part of EU integration.     

Wireline deregulation: The Canadian experience

Changes in the state of telephony markets paved the way for significant regulatory and legislative reforms in the telecommunications sector in the 1990s. In Canada, the 1993 Telecommunications Act was enacted to promote the emergence of competitors in a market that had until then been dominated by regional monopolies. This paper examines the Canadian telecommunications regulatory framework and analyzes the regulatory privileges given to new entrants at the expense of former telecommunications monopolies. Such regulations, which were meant to induce competition, ended up hurting consumers and distorting the market process. This paper also shows how the Canadian government recently eliminated many of those regulations by seizing control of the policy agenda from the telecommunications regulator.     

The impact of non-neutral federal regulatory policy on competition

We present a duopoly competition model to illustrate how the simultaneous incorporation of two US federal regulatory programs negatively affected telecommunications competition during the past decade. Our model shows that the simultaneous implementation of the Universal Service Fund policy that grants subsidies to incumbent telecommunications providers serving in high-cost areas, and the carrier of last resort policy that mandates incumbents to provide service in under-served geographic areas, deters competitive entry in low-cost markets and thereby runs counter to the objectives for which the policies were intended. This model provides a theoretical explanation of a failure of federal policy.     

Means not ends: Deterring discrimination through equivalence and functional separation

It is sometimes forgotten that the much debated remedy of functional separation is simply a means to an end. That end is to reduce the incentives for discrimination by the integrated firm, which damages its downstream rivals and ultimately harms competition and the interests of consumers. Functional separation, though now considered to be at the centre of the Undertakings was in fact not mentioned by name in them. This article examines the background to the Undertakings and why non-discrimination and accounting separation remedies were inadequate to deter sabotage behaviour. It draws on interviews with UK industry participants to consider whether equivalence and functional separation are “fit for purpose”. Although not perfectly implemented, the remedies have reduced discrimination and have helped to create the right conditions for dynamic efficiency gains in access and downstream broadband markets. However, there has been little or no “spillover” benefits into product markets not covered by the Undertakings.     

Good intentions,poor outcomes: Telecommunications reform in South Africa

As the first decade of democratic rule draws to a close in South Africa, this paper reviews the telecommunications reform process in terms of the performance of the sector against the twin national policy objectives of affordable access to communications services and accelerated development to meet the needs of a modern economy. It critiques the implementation of international reform models which have in practice tended to emphasise privatisation at the expense of other reform mechanisms—including competition and, in particular, regulatory measures. It argues that this has impacted negatively on affordable access and has inhibited market innovation.This paper identifies the root of the problem as the market structure. Designed around the vertically integrated incumbent operator, it induces inherently anti-competitive impertives that demands a resource-intensive regulatory response. The regulator has often not had the statutory powers, and seldom the capacity, to circumscribe the behaviour of the incumbent so that it does not impact negatively on new entrants. Without effective regulation, the assumed benefits of liberalisation—including more affordable access through improved management of the incumbent and more efficient allocation of resources in the market through competition—do not materialise.The paper argues that developing country telecommunications markets demand more from a regulator than simply meeting the threshold requirements of transparency and predictability via so-called international “best practice” models. Such a limited approach will not be sufficient to meet the challenges facing most developing countries. The highly imperfect nature of developing country markets, and the enormous income disparities and inequities that exist, require strategic regulation. This is necessary to enable innovative service provision, especially to under-serviced areas, and to facilitate fair competitive markets that promote the viability of the new entrants needed to build the information infrastructure—the infrastructure necessary for a country's participation in the global network economy.Simply removing all market-entry restrictions, however, is likely to place an even more onerous burden on already-struggling regulators and is unlikely to contribute to universal access and other developmental goals. A new policy approach involving the fundamental restructuring of the market is needed to remove the anti-competitive incentives that exist in the vertically integrated market structure that generally accompanies privatisation in developing countries. While a more horizontally structured market will not remove the incumbent advantage entirely, it is likely to reduce the need for constant adjustment of anti-competitive behaviour on the part of the incumbent, freeing up regulatory resources for more strategic regulation towards achieving national developmental objectives.     

An evaluation of China's evolving broadband policy: An ecosystem’s perspective

Although it is generally agreed that governments should have some roles in the development of broadband, questions about the specific role of governments remain unanswered, particularly from the perspective of developing countries. This paper evaluates China’s evolving broadband policy by developing a two-dimensional analytical framework, with the different stages of broadband development represented by columns and the four components of broadband ecosystem represented by rows. Generally speaking, China's telecommunications development has been driven by investments from government-allied entities and features a strong industrial policy. However, the Chinese government has chosen a somewhat soft-intervention approach in broadband development and relied on the market itself to grow by creating a competitive market structure. As the market has recently evolved to a certain degree of saturation, there is a seemingly shift of emphasis in China's broadband policy from infrastructure buildup and service provision to application creation and user demand stimulation. However, China’s broadband future is uncertain due to unsettled but important institutional and financial issues. Policy changes appear not to keep up with the broadband ecosystem evolution.     

The endless need for regulation in telecommunication: An explanation

Telecommunication services have existed as a legal monopoly nearly throughout its entire history. In 1998, telecom market liberalisation was achieved across the European Union (EU) through the introduction of competition among telephone services. Asymmetrical obligations were deemed necessary in order to compensate the market power of the former monopolist.As the evolution of asymmetrical regulation in Spain illustrates, obligations and the telecommunications operators subject to them increased with the regulatory framework established in 2002 in the EU. This new regulatory framework may continue to expand through the inclusion of functional separation as another possible asymmetrical obligation. In short, it seems that the regulatory pressure on the telecommunications industry is increasing, despite the lapse in time since the liberalisation of the industry.In this paper, a methodology developed by the Austrian School of Economics is applied in order to explain why the telecommunication market is subject to increasing regulation in Europe, rather than deregulation, after more than 10 years of liberalisation. In particular, Mises's theory of price control is used to explain the evolution of the regulation of local loop unbundling.     

Fibre-to-the-home,high-speed and national broadband plans: Tales from Down Under

In recent years governments in many countries have acknowledged the higher complexity involved in finding the more efficient path towards a so-called broadband ecosystem. As the first decade of the twenty first century was ending, the governments of Australia and New Zealand committed to the construction of high-speed, fibre-optics next-generation access networks. This paper is about the approach followed by Australia and New Zealand to developing broadband infrastructure, the means deployed to build the network, and policy and market issues. The paper critically analyses the short history of each experience, including the political process, the reasons exhibited to justify the governments' involvement in infrastructure deployment, and the institutional arrangements introduced to manage the participation of private partners. The paper proposes a framework for analysis and uses its elements to critically analyse policy and regulatory decisions affecting the deployment rate and goals set by Australian and New Zealand government for their respective fibre-based next-generation platforms. The framework is used to draw comparisons between the two country cases and in so doing allowing the appreciation of commonalities and differences in the development and expectations for the future of telecommunications markets in the region.     

Different paths to universal access: The impact of policy and regulation on broadband diffusion in the developed and developing worlds

The authors examine the broadband digital divide by analyzing the impact of policy and regulation on broadband Internet diffusion. Their multiple regression analysis shows factors that determine broadband diffusion in technologically developed countries do not necessarily have the same impact in less developed countries. They show that in technologically developed countries, there is greater broadband diffusion in countries that make a higher financial investment in information and communication technologies (ICTs), have effective governing practices at the national level, have higher levels of education, and are more urban. In technologically developing nations, a competitive telecommunications sector and higher investment in ICTs lead to greater broadband diffusion, with investment having an even larger impact in the developing world than in the developed world. In addition, stronger democratic political institutions, higher levels of national income and lower levels of income inequality increase diffusion, but the presence of a national telecommunications regulatory authority has a negative impact. These results suggest that the path to widespread availability and use of broadband requires different strategies depending on a nation's level of technological development.     

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.     

Regulation and efficiency in transition: The case of telecommunications in Italy

In regulating the telecommunications industry, the separation between network and retail functions, which is designed to countervail the market power of incumbent operators, is a relevant issue. Despite its importance, little empirical research has addressed the effects of such a separation. Accordingly, this paper provides insights into the consequences of the Italian communications regulatory authority's (AgCom) decision to impose this type of separation on the incumbent telecommunications operator, Telecom Italia. In particular, the studied separation is between the firm's network-related functions, and those used for provision of its communication services. The present research finds that the type of separation implemented by AgCom allows a provider to maintain the advantages of operational scale in its network structure without dampening competition in the existing market for communications services. The study also offers further empirical evidence on the advantages of a composite vs. translog function in analyzing the multiproduct cost structure of a telecommunications operator.     

Trade patterns,industry structure and industrial policy in telecommunications

This article examines three major changes which have been occuring in the telecommunications market: liberalization, leading to increased competition in services and equipment, the internationalization of the equipment market, and a rapidly changing industrial structure. The interrelationship among the three trends is analyzed, and the authors hypothesize that it is the technological determinants which are driving the changing structure of the industry and its trade patterns and regulatory environment. The instruments of industrial policy are discussed, with examples from several countries. The European Community's policy in telecommunications is explained in some detail.