Effective Broadband Policy: International Benchmarks

1. Effective Broadband Policy:International Benchmarks Arabcom 2005 Tunisia, 30th June 2005

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3. Outline • The importance of policy – reduce uncertainty • Policy levers and market growth – supply, demand and competition • Lesson from Abroad – South Korea and the UK • Effective Intervention – competition and demand • International Lessons Applied – Egypt case study

4. Global Broadband Markets Top Ten OECD Economies by Broadband Penetration DSL is currently estimated to account for around 60% of the global broadband market. • DSL • Cable Modem • Other OECD Rankings by penetration June 2004

5. The US Market – Suffering without policy? 2001 A lack of government intervention arguably means... • Greater demand uncertainty – slower private investment rates. • No guarantee that rural communities will be connected – greater pressure on regulators and USO funds. • Less end-user perception of the need for broadband. 2003 2004

6. Policy – Different objectives for different markets Access Connectivity Sweden ‘An information society for all’ South Korea‘Every household connected by 2005’ Japan ‘90% households connected by 2005’ Subscribers Competition Malaysia ‘10% penetration by 2008.’ Broadband Britain ‘the most competitive market (and extensive network) in the G7 by 2005’ Egypt ‘2% penetration by 2007’

7. Policy levers – How can governments intervene?

8. South Korea – Direct aid and investment Demand • Rolled-out e-government • Migrated public services (health and education) to the internet • Invested in public access facilities • Training in industry and public sector Supply • ‘Soft’ loans/grants to investing operators • Tax breaks for rural and remote service provisioning • Made DSL port installation compulsory in all new MDUs • Invested in a nationwide fibre-optic backbone Broadband Subscribers per 100 Inhabitants YE 2001-June 2004

9. South Korea – Policy implications Investment Intensive • More than US$1.5bn invested to date in backbone network • Around US$1bn in soft loans for local infrastructure investors • Close to US$3bn allocated for investment in R&D between 1995 and 2007 Source: MIC

10. South Korea – Policy implications Despite soft loans, the leading alternative broadband ISP Hanaro has had to sell equity and re-finance debt... • At end-2003, Hanaro’s W2,220bn long-term debt was double its market capitalisation, and the firm was still making losses. • At end-2003, Hanaro management voted to sell 40% equity to Newbridge Capital and AIG as a means of gaining access to a US$600m loan facility. • Hanaro posted its first profit since its inception in 1999 at the end of 2004.

11. UK - From Investment to Competition Demand • e-government • e-public services • Tax breaks for content developers Supply • Tax breaks for SMEs and teleworkers  Competition • LLUB - full and bit stream • Reductions in wholesale DSL tariffs Broadband Subscribers per 100 Inhabitants YE 2001-June 2004

12. UK Compared with South Korea • Retained focus on stimulating demand • Less investment intensive • More targeted fiscal approach • Left supply-side to competition • Implied lower debt burdens for private players ...but still delivering results! Broadband Penetration as % Households 24% 10.7% 5.6% 1.4% 2001 2002 2003 2004

13. Arab Broadband Progress DSL subscribers as % households Source: Global Insight, OECD, June 2004

14. International Lessons Applied - Egypt Demand • Free internet model – driving demand/increasing usage • Private-public PC initiative • e-government and e-public services Supply • Private ownership of internet backbones • Reductions of international bandwidth tariffs Competition • Introduced LLUB and capped collocation/unbundling tariffs • Accommodated alternative infrastructure ADSL Subscription Growth in Egypt Policy Introduced Policy Introduced

15. Egypt’s Policy Highlights Getting the balance right... • Clear policy target introduced early on – reduced uncertainty and encouraged private investment. • Usage data from Free Internet model allowed for reliable uptake estimates. • Targeted Support – PC initiative. • Low capex intensive – No direct infrastructure investment. • Competition put centre stage in the supply-side of the market – at the international/national bandwidth and local access level. ...other regional examples are Bahrain, Jordan and UAE

16. The Future of Broadband Policy Policy Essentials and Efficiencies • Clear transparent approach introduced early on – speeds investment rates by reducing uncertainty. • Intervene on the demand side – early adopter and aggregator. • Leave supply-side to competition - This is where regulators come in. • Keep direct aid and investment targeted – Egypt’s private-public PC initiative. • Pick market targets that meet market needs.

17. Thank you for listening Lucy Norton, Senior Analyst, Global Insight lucy.norton@globalinsight.com www.globalinsight.com