Fibre Investments for Greece’s Recovery

1. Fibre Investments for Greece’s Recovery ChristosJ. Bouras Professor University of Patras & Research Academic Computer Technology Institute http://ru6.cti.gr/bouras/

2. The impact of Telecommunications on the Economy and Growth • Investments in the telecommunication sector represent almost the 0,5% of GDP while revenue in the telecommunication sector represent more than 3,6% of GDP. Source:EC Commission , “Progress Report on the Single European Electronic Communications Market 2008 (14th Report)”, March 2009 2

3. Broadband and Growth • Jobs & Growth • According to a study prepared for the European Commission, broadband development would contribute to the creation of more than 1 million jobs in Europe and a broadband-related growth of the economic activity of €849 billion by the year 2015, when broadband household penetration is expected to reach 81%. Source:Micus Management Consulting, “The Impact of Broadband on Growth and Productivity”, Study on behalf of the European Commission, 2008 3

4. Bundled offers Subscribers as % of Population • Bundled services gain ground continuously Source:EC Commission , “Progress Report on the Single European Electronic Communications Market 2008 (14th Report)”, March 2009 4

5. Broadband Penetration Towards Convergence • The degree of broadband penetration in Greece has increased substantially in the past few years and is from the highest in the EU. This fact that has led to the provision of innovative broadband services to a big part of the country as well as to the reduction of access prices is mainly owed to the existence of competition. However this rate of growth should be retained in the next years so that we can reach the EU average. The question is how we can ensure that? Source:EC Commission , “Progress Report on the Single European Electronic Communications Market 2008 (14th Report)”, March 2009 5

6. Broadband penetration – Greece vs. EU average

7. Network Readiness Index (NRI) for Greece 2004-2005 42nd place 2005-2006 43rd place 2006-2007 48th place 2007-2008 56th place e‑readiness for Greece 2003 26th place 2004 27th place 2005 28th place 2006 29th place 2007 32nd place 2008 30th place Network Readiness Index (NRI)& e‑readiness for Greece

8. Greece’s Regulatory Scorecard • Greece is lagging behind in terms of regulatory performance as measured by ECTA’s regulatory scorecard in 2008 8

9. Limitations in the deployment of Broadband networks Certain issues that limit the development of broadband networks: • Average length of local loop in Greece • Rights of Way • Deployment cost and viability of NGN’s • Regulatory framework in the deployment of NGN’s The provision of innovative bundled services to the whole population is directly related to the development of NGN’s 9

10. Loop Length vs Bandwidth 10

11. Limitations in Bundled Services Provision due to the Local Loop length • The average length of the local loop (especially in Greece) constitutes a restrictive factor for xDSL network deployment and the provision of IPTVservices. 11

12. Next Generation Networks (NGN’s) • Basic Principles of NGN’s deployment: • Technological neutrality and open access • Possibility of equal-base access to telecommunications operators • Cost-oriented pricing policy • Safeguard competition • Simplification of concession processes for rights of way and unified procedures for fees • Regulation for internal networks of electronic communications • Facilitate the interconnection with existing operatortelecom networks • SLA's (Service Level Agreement) for the maintenance and fault restoration of fibre networks • Avoidance of depreciation and obsolescence of existing investments in broadband and LLU infrastructures • Provision of collocation space for operator equipment • Secure future network expansion option • Enhancement of demand for the provision of FTTx services for the networks deployed by municipalities and the existing or under construction FTTx networks

13. The Economics of Next Generation Access - Regulatory Aspects The effect of regulatory policy in the growth of NGN’s The following conclusions have resulted from a study (*) performed by WIK-Consult on behalf of ECTA with regard to the economics NGN’s : (1) NGA fibre roll-out (FTTH as well as FTTC) needs substantial investment • FTTC in Germany for 37% of population: 4,8 billion € • FTTH in France for 7% of population: 3,4 billion € • Nationwide NGA roll-out not profitable in any of the six countries that were examined in the study (Germany, France, Italy, Portugal, Spain, Sweden) (2) Incumbents benefit from lower costs and are better placed than entrants to make these investments on a large scale (*)WIK Consult, “The Economics of Next Generation Access“, Study for the European Competitive Telecommunication Association (ECTA), September 2008

14. The Effect of Regulatory Policy in the Deployment of NGN’s (1/4) (3) Without regulatory intervention, degree of replicability of NGA even for one operator is rather limited • Under rather optimistic assumptions: Second mover FTTC (VDSL) in Germany would achive reach of 13,7% of population at the maximum; while this percentage 2,4% for two or more entrants. • Replicability of FTTH is viable in France only in case of infrastructure sharing/regulated access. • NGA in Sweden is only profitable in urban areas which account for 8% of potential customers. FTTH is not replicable.

15. The Effect of Regulatory Policy in the Deployment of NGN’s (2/4) (4) Regulatory intervention and proper access products needed for a competitive NGA market • Duct and dark fibre access increase replicability, but not sufficient for viable competition • Fibre full local loop unbundling and sub-loop unbundling increase scope for competition significantly • Fibre LLU and SLU generate replicability wherever a first mover rolls out FTTH

16. The Effect of Regulatory Policy in the Deployment of NGN’s (3/4) (5) NGA will require a change in regulatory paradigms: • So far: How to provide access to existing network elements? • NGA: How to structure new network elements for efficient access opportunities so as to enable and not to foreclose competition? • Example: Total investment for new street cabinets for two operators nearly doubles if the regulation, design and implementation is performed Ex post instead of Ex ante • NGA architecture of Point-to-Point (P2P) is considered more consistent with open network principle than PON (Passive Optical Network) architecture (6) Risk of NGA investment, different costs in different regions can only be coped with if alternative operators can choose between different access opportunities.

17. The Effect of Regulatory Policy in the Deployment of NGN’s (4/4) (7) Incumbents can reduce their own risk and cost of rolling out NGA by sharing infrastructure with or provide access to alternative operators (8) Open NGA networks expand the scope for investment in NGA (9) Many areas remain unviable without subsidy; in case of subsidies effective tender process and regulated open access is of vital importance

18. How to Maximize Economic Benefits of Broadband • In order to maximize the economic benefits of broadband according to the Micus study, action at the political level is necessary: • Develop the broadband infrastructure. E-inclusion in the less-advanced European regions and the development of the fibre-to-the-home (FTTH) infrastructure in the most advanced areas are major challenges for a successful development of the knowledge society in Europe. • Rely strongly on education for a long-term development of the knowledge society. Spread IT skills within the population and increase autonomy in the learning process by developing the online availability of educational and technical resources. • Foster the use of online technologies in businesses, public services and by individuals. E-government should become the rule, not the exception, for the exchange of information between public services and companies (B2G) as well as within public services (G2G).Business services providers and professional organizations should be incited to play a role in the adoption of online services in SMBs. • Promote the development of innovative online services. Innovation policies are key to maximizing the benefits from broadband development by increasing internal markets for online services and exporting high value-added technologies and services to the rest of the world. 18

19. Broadband as a new public infrastructure • The Knowledge Society needs the existence of a new public infrastructure. This new infrastructure is of equivalent importance and usability as highways, ports, airports, and electricity. • This new public infrastructure, one of the public goods / commons of the Knowledge Society is the fibre optic networks. The fibre must reach out to homes, to businesses, to public services. It must reach out everywhere. • Our country needs today a large infrastructure development project that will provide fibre optic connection to homes, schools and universities, across the public administration and health, and to businesses in all towns. • A project to develop new public infrastructure with public goods / commons features: open architectures, serving the public without speed restrictions, with continuous opportunities to develop new applications. • These infrastructures are the determinant for the development of open schools, energy saving, development of new electronic services, but mainly they contribute to building platforms for innovation in the private and public sectors.

20. The role of broadband in coming out of the recession • The big bet in this recession is not for the country to just endure. It must come out stronger and competitive with a productivity growth. • The Knowledge Society and the Information & Communication Technologies give this opportunity, if this new infrastructure emerges and evolves. • This, of course, should be done through a large Public Investment Program, but integrated into a different type of Financial Management, which foresees and invests in the new infrastructure of the 21st century • This intervention will help the country emerge from the recession, if accompanied by appropriate fiscal policy, and ensure that after the recession the country is stronger, competitive and productive. • Such a project represents an investment of around 4 billion Euros in competitive infrastructure and it will create the conditions for new models of development and social participation. • The research and education networks that already operate in the country, show us that there are local forces which, in cooperation with local authorities, can plan and support such a project. • Sweden, France, South Korea, the USA are just some of the countries that invest strategically in these new infrastructure.

21. Next steps • The next steps for the completion of the infrastructures, that started to be implemented with the broadband metropolitan fibre optic networks of the various municipals, are: • 1st phase: Successful and immediate completion, maintenance and productive operation of the municipal broadband infrastructures. • 2nd phase: expansion of the municipal broadband infrastructures targeting the support of more users and the coverage of more areas • 3rd phase: Interconnections of the various metropolitan fibre optic networks with each other, and possibly with other broadband networks, in order to create a national backbone network. (For the effective use of existing municipal broadband infrastructures they should be linked with the National Network of Public Administration «Syzefxis», the schools network, etc.) • 4th phase: Provision of Fibre to the Home/Building (FTTH/B). Provision of dark fibre to every home/apartment/building. • In the next phase 5 regional schemes should be formed, based in the 5 regions of NSRF (as with LOCALRET, in Catalonia)

22. Advantages • The advantages of this approach are: • Accumulation of a critical mass of users • Network’s neutrality • Accommodation of the local needs • Economies of scale • Special leverage for negotiations with customers and suppliers • Sufficient human resources – Potential of collaboration with Universities and Research Centres • Regional nature of the development planning, in the EU

23. Preconditions for success • The preconditions for success of the business schemes include: • Proper organisation:Capable and versatile schemata for intensifying technological expertise • Capable personnel of only a few persons (engineers, economists, lawyers) • Acceptance of the fact that ICT projects are different from traditional projects (roads, water, sanitation) • Ensuring adequate funding • Possible contribution of the Local Governments • Preparation of a prototype business plan for the utilization of each Scheme, in order to submit proposals for funding of the Schemes by the NSRF, public funds, and the European Investment Bank • Create demand / a critical mass of users • Enable citizens and small businesses, in order to stimulate demand for such services by them (emphasis on promotion actions, marketing, etc.) • «Open Access» (transparency, cost-oriented pricing) to the infrastructures by all the service providers • High Quality Service, Low Prices

24. Jobs creation (1/2) • Investments in Broadband infrastructures will have a greater positive impact on jobs, while at the same time laying the groundwork for sustained productivity and innovation. • More specifically investments in FTTH infrastructure projects: • contribute to significant immediate direct and indirect job growth in the national economy; • create a “network effect” throughout the economy that creates additional jobs; and • provide a foundation for longer term benefits, including government cost savings, economy-wide productivity, and improved quality of life for all. • In essence these investments not only can provide an important short-term boost to the national economy; it also can lay the groundwork for long-term economic growth, international competitiveness, and significant improvement in quality of life.

25. Jobs creation (2/2) • FTTH infrastructure investments will create direct, indirect and induced jobs. • Direct jobs are those created specifically by new spending (e.g. the workers and the technicians hired to open the trenches and to lay the ducts and the fibre cables). • Indirect jobs are those created to supply the materials and other inputs to production (e.g. the ducts, micro-ducts, cables, ODFs etc.). • Induced jobs are those created by the newly employed (or retained) workers spending their income (creating jobs in e.g. retail stores etc.) • An investment of 4 billion Euro will support an estimated 228.000 – 270.000 new or retained jobs for one year. • It should be pointed out that the above figures are for one year only. If we want the number of workers we should distribute these figures over the investment and an initial operation period.

26. Direct jobs • Direct jobs are created as additional workers and frontline technicians are hired to install the FTTH networks and a host of employees are hired or retrained to fill back-office functions. • Approximately 50 percent of the cost of deploying fibre optic broadband networks is in the labour component. Therefore, a 4 billion Euro investment is expected to create approximately 70.000 – 80.000 jobs for one year (distributed over the project’s duration).

27. Indirect jobs • The balance of the cost is in capital equipment (the actual fibre optic cable, ducts, ODFs etc.). Jobs are created in the industries that manufacture these products, as demand increases for the telecommunication equipment needed to deploy broadband. In this industry approximately 35 percent of the cost to the industry is in workforce compensation. • Thus, a 4 billion investment would create approximately 24.000 – 28.000 jobs for one year. • Unfortunately, a large percentage of the demand will be satisfied by imported equipment, and that means that most of these jobs will leak outside the Greek economy. However, if an approximate one fourth to one third of these goods are supplied by the domestic industry, then the estimated number of job created (or retained) is 6.000 – 10.000 jobs for one year. • Improving the percentage of goods by the domestic industry will improve the number of jobs

28. Induced jobs • The above direct and indirect jobs created support additional jobs throughout the economy in the form of induced effects. • Although it is difficult to estimate these effects, studies suggest that jobs in the communications sector have an employment multiplier of up to 2,5 for the induced jobs. • Using a more conservative factor of 1,5 we estimate an additional number of 114.000 – 135.000 induced jobs for one year.

29. Network effect • The increased deployment of broadband infrastructure creates a network effect multiplier. The reason is the broadband itself increases business productivity, spurs upstream investments, and contributes to the creation of new industries (e.g. in the services sector). • The network effect multiplier can exceed 1,0. However, using a more conservative factor of 0,5 (on the direct an indirect jobs) we expect the network effect to add 38.000 – 45.000 more jobs, over a slightly longer term (i.e. after the completion of the projects and the increased use of broadband).

30. Jobs created or retained for one year by a 4 billion Euro investment in FTTH • Direct jobs 070.000 – 080.000 • Indirect jobs 006.000 – 010.000 • Induced jobs 114.000 – 135.000 • Network Effect 038.000 – 045.000 • Total jobs (for one year) 228.000 – 270.000

31. Workers and employees during the deployment and initial operation period • Years 1 2 3 4 5 6 7 8 ←————→ ←——→ • Direct and indirect jobs 15.200 – 18.000 • (lasting over the 5 year deployment period) • Induced jobs 22.800 – 27.000 • (lasting over the 5 year deployment period) • Network Effect 12.650 – 15.000 • (lasting over the 3 first years of the initial operation period)

32. Thank you. 32