Following the broadband money

Split network supply from services, UN Broadband Commission says

with 4 comments

Whether to divorce those who provide the physical network infrastructure from those that supply the services that run on it.

This is the thorny question hidden in the bouquet of platitudes that is the Broadband – Platform for Progress report to the UN’s Broadband Commission, presented today (6 June 2011). The report encourages governments, politicians and policy advisors to invest in broadband networks because they create jobs and grow the economy directly and indirectly.

Given the deeply vested interests and controversial positions on the severance of network provision from service provision, the authors are probably right to hide this thorn among some attractive blooms. But they do put it there to be grasped.

Deep into Chapter 6 the authors, which include Mexican mobile phone magnate Carlos Slim, Rwandan president Paul Kagame and ITU secretary general Hamadoun Toure, say, “The physical network is distinct from the services and functions that travel across it…If applications become ‘built in’ to the network, it might be more difficult for the natural evolution of increased functionality to occur in some cases.”

They go on to say “Policy-makers should be cautious in considering the degree to which the network operator — that is, the supplier of the physical infrastructure — should be directly involved in providing services or functionalities that use and depend upon that infrastructure.”

In a UK context, this is a clear call to split Openreach, which supplies and operates BT’s physical network, from the rest of the company, which sells services that use the network. But it is also recognition that in most countries there is little or no competition to the former (or present) state-owned monopoly network operator, particularly when the incumbent controls access to its infrastructure.

The report stops short of an explicit recommendation to set up or recreate national network monopolies to deliver broadband. The authors argue that to optimise the benefits to society, “broadband should be coordinated on a countrywide basis, promoting facilities-based competition and with policies encouraging service providers to offer access on fair market terms.”

The commission’s report shows clearly that privatisation and breaking up the former fixed network monopolies, mainly in developed countries 30 years ago, have led to lower consumer prices but patchy delivery of new technologies such as broadband.

Network operators did little to expand coverage, preferring to sweat their existing assets. As a result, mobile broadband users in Europe outnumber those with fixed wire service by two to one. In Africa, the continent served most poorly by fixed network operators, the ratio is 18:1.

The authors present much evidence, mainly from economists, that shows that, as with telephones, there is a direct correlation between broadband penetration and GDP growth. They argue for making access to broadband a universal obligation on network operators, but stop short of advocating Finland’s position where access to a 1Mbps broadband connection is a legal right.

The problem for developed countries is that having privatised their telcos, they cannot now force them to ignore economic and financial reality, and insist they rebuild their existing networks to deliver “always on, high capacity” broadband to every citizen. Developing countries may in fact have more sway over their telcos, most of which retain close relationships with the government.

In any event, the direct cost of converting existing or building fully digital networks fit for always on, high capacity broadband, (the report’s standard) is going to be high. Harald Gruber, the man who evaluates broadband project proposals for the European Investment Bank, says meeting the European Digital Agenda targets of universal broadband access by 2013 and then 30Mbps for all and 100Mbps for half by 2020, will cost between €72bn and €200bn.

According to Gruber, the bank’s “back of the envelope calculation” suggests that markets can deliver about one-third of the money at normal commercial rates. Delivering the rest will require government intervention, he says.

Fortunately for Europe, the European Commission is exploring ways to harness national budgets and other Euro budgets, and to make infrastructure investment more attractive to private sector investors.

It remains to be seen how many member states will grasp the thorn they have been presented. If they do, private investment may suddenly become easier to find.


David Brunnen, one of the authors of the report, assesses the relevance of the report for UK policy makers, telcos and funders here.


4 Responses

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  1. All the more reason to build rural fibre networks. These will stimulate existing players to update urban ones. That is where intervention should start, at the hardest to reach areas, the people desperate for a connection. They will support the initiatives and help build the new information superhighways that put the existing incumbents old copper to shame.
    Market forces will do the rest, otherwise the new rural networks would make a fortune and put them out of business.


    2011/06/06 at 12:09

  2. Openreach would need redefining to fit this, as they do more than own & operate the *physical* network eg FTTC.


    2011/06/06 at 12:20

  3. What’s the cost of building rural fibre networks across the whole of the UK? Will this happen where ADSL currently provides an acceptable service?

    Interesting how the only people saying start in the difficult areas are…


    2011/06/06 at 12:21

    • Not sure what you meant to say, but the German regulator, as part of its 4G spectrum auction, said to start in the sticks and work back. So it’s not only our Cumbrian hill farmers that want high speed broadband.
      Cost is the wrong question. It’s about affordability and need, two things BT has exploited mercilessly, with the resultant patchiness in quality of service, a growing digital divide, and lack of infrastructure-based competition outside the cities.
      If the government decides to provide services digital by default, it had better make sure it can deliver digitally, or voters will kick it out.
      The Broadband Commission calls for a joined-up, consensual approach to achieving (high speed) broadband for all. If you are not part of the solution, you are part of the problem.


      2011/06/06 at 15:47

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