The importance of backbone

1. The importance of backbone Rohan Samarajiva and Harsha Vardhana Singh (at time of data collection: Secretary, TRAI; since September 2005: Deputy Director General, WTO Usable knowledge for growing the sector: ICT policy and regulation research from LIRNEasia, New Delhi, 6 March 2006

2. Importance of backbone • Original decisions re open access based on recognition of the significance of backbone • Backbone networks = essential facilities • Essential facilities, as commonly defined • Controlled by one/more operators • Competitors must have access to them • Not feasible to substitute economically/technically

3. Limitations of the claim • Backbone network does not have to be owned by one entity • Though this may make sense in micro or city states • It is especially important in early stages of market opening when • Entrants are much smaller than incumbent

4. India, demand • Massive growth, not only across the country, but also in circles • Only 4 out of 23 circles have less than a million fixed+mobile customers • But unless infrastructure sharing is the practice (commercial arrangements or regulatory mandates), total subscribers not relevant • However, shows the significant effects that can be achieved if sharing occurs

5. India, demand • Decisions are taken by individual operators based on their current/projected demand • In 18 circles, BSNL and MTNL (govt-owned incumbents) have >1 million fixed customers in each circle; also in mobile  Incumbents have incentives to build backbone • In contrast, fixed entrants have >0.5 m only in 8 (1 m in 3); and mobile entrants have >0.5 m only in 9 (1 m in 3)

6. Fixed (unified) entrants with > 0.5 million customers per circle (8/23)

7. Mobile operators with > 0.5 million customers per circle (10/23)

8. Supply, India • Data reported in terms of route kilometers, not capacity (in Gbps) • Not all fiber may be lit • Route km is a reasonable proxy for capacity at this level of abstraction • Dark fiber can be lit easily if fiber has been laid • Capacity can be upgraded easily

9. Backbone supply by operators (route km; March 2005, incl. leased capacity)

10. Backbone supply by infrastructure operators (route km, Q1 2005)

11. Backbone status of incumbent

12. Backbone status of incumbent (2)

13. Connecting supply and demand • Estimated that 1 route km will cost USD 4500-5500 (INR 200,000-250,000) • TRAI calculation for India, based on consultation • Long-distance ARPUs in India = USD 14/yr (INR 600) • Based on TRAI data on incoming & outgoing LD minutes and current prices • Possibly better if ARPUs estimated for circles, not India as a whole • Conclusion: revenues from 140 subscribers needed to make fiber viable

14. Viability analysis for Reliance (viable if ratio <1; not viable if ratio >1)

15. Viability analysis for Reliance (viable if ratio <1; not viable if ratio >1)

16. Analysis • India as a whole is unviable for Reliance according to the analysis • However, 10% growth/yr (very realistic) will move India as a whole into viable range for Reliance • Various methods of estimating growth • Fiber has been built in areas that are “unviable” • Because traffic comes from “viable” areas

17. Analysis • USO funds (supply), government programs to increase broadband (demand) can change the viability frontier • Interconnection and access revenues • Better access regime can shift frontier • Infrastructure sharing can change the frontier • Likely to be highly significant in small markets