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Broadband Business Models to meet deployment targets Dr. Raul L. Katz,

Broadband Business Models to meet deployment targets Dr. Raul L. Katz, Columbia Institute for Tele-Information. 1. Broadband business models.

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Broadband Business Models to meet deployment targets Dr. Raul L. Katz,

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  1. Broadband Business Models to meet deployment targets Dr. Raul L. Katz, Columbia Institute for Tele-Information 1

  2. Broadband business models • Business model: the architecture of the value creation, delivery, and capture mechanisms employed to deliver a service, including offerings, strategies, infrastructure, organization, trading practices, and operational processes and policies • Supply side: business models to accelerate broadband deployment • Policies to stimulate private sector investment • Government intervention as a last resort • Demand side: business models to accelerate adoption • Practices to address demand-side challenges • Models to address the affordability gap 2

  3. Supply-side business models: Accelerate deployment 3

  4. Supply side business models • Objective: to make sure that universal service targets are met DENSITY AND SIZE OF DEMAND 4

  5. Supply side business models Stimulate private investment • Business model development to address isolated areas begins by understanding deployment economics 5

  6. Supply side business models Stimulate private investment • Deployment economics highlight the business case “choke points” 6

  7. Supply side business models Stimulate private investment • Highlighted “choke points” enable the determination of policy initiatives to stimulate deployment 7

  8. Supply side business models Stimulate private investment • Reduce property taxes and VAT on initial equipment purchase to decrease CAPEX burden • Reduce infrastructure costs linked to ROW, pole attachment or spectrum access costs (release spectrum for mobile broadband, lower and standardize pole attachment rates, “Dig-once”/joint trenching rules) • Provide grants to fund capital investment • Provide low cost real estate for central facilities • Enforce infrastructure sharing and wholesale access 8

  9. Supply side business models Government intervention • If despite incentives, private sector investment does not materialize, government intervention can be justified if expenditures are outweighed by the broader socio-economic benefits • The first question is where should the State intervene? • Which communities can be, or are, served by market forces? • Which communities will need assistance with initial investment to become self-sustaining? • Which communities cannot become self-sustaining and will require ongoing funding?” • The second question is how should the State intervene? 9

  10. Supply side business modelsGovernment intervention National government deploys backbone to reach isolated area (leveraging government utilities infrastructure) Private service provider operating under protected conditions (e.g. regulated monopoly) Facilities or service- based competition Community-owned service provider Scope of government intervention

  11. Supply side business models Government intervention • Community-based service provisioning can follow four models • Closed network, whereby local government provides retail services • Local government wholesales access to a single retail service provider • Local government is wholesaler of transport to multiple retail service providers (open access) • Local government is provider of dark fiber 11

  12. Supply side business models Government intervention ALTERNATIVE MODELS OF GOVERNMENT INTERVENTION • Subsidize incumbent telco/BB to upgrade to “utility” • In greenfields, government could build (contracts) for the construction of universal access network • Promote competition for government contracts to lower initial costs • Government can then auction the broadband infrastructure to highest (qualified) operator • Monopoly for wholesale-only/open access “utility” operator? • Any “loss” is a one-time infrastructure subsidy (like building a highway and road system) 12

  13. Supply side business models Government intervention • Government intervention should consider opportunities and risks 13

  14. Demand-side business models: Accelerate adoption 14

  15. Demand-side business modelmodels should address the demand gap BROADBAND DEMAND GAP REASONS FOR NOT ACCESSING TO THE INTERNET AT ALL Sources: Horrigan, J. (2009); Ofcom (2008) Sources: Analysis by the author, based on data from EU; FCC; BMWi; OECD; PTS - Sweden; and Israel Minister of Communication .

  16. Demand side business models Accelerate adoption • Three business model initiatives to initially stimulate adoption 16

  17. Demand side business models Accelerate adoption • Aggregate demand: the local government can become an anchor user to guarantee revenues at ramp-up phase of broadband • Coordinate demand for broadband access from government administration, public safety, local schools and health care facilities • Negotiate a wholesale rate and long-term contract and define Service Level Agreements • Create a flow of revenues that eases the economic pressure on the business case • Organize groups of people (schools, communities, SMEs) at the grass-root level • Establishment of a Broadband Expertise Centres to spread knowledge on broadband for institutions that do not have ICT as their core task • Deploy broadband demonstration areas for consumers and conduct training 17

  18. Demand side business models Address the affordability gap • High consumer taxes as a percentage of total cost of broadband ownershipare an obstacle to adoption • For every dollar that taxes are reduced over a 5 year period, US $1.4 to 12.6 will be created in additional GDP Source: Telecom Advisory Services LLC 18

  19. Demand side business models: Address the affordability gap • Fiscal incentive • A reduction in local taxes to small and medium enterprises linked to ICT adoption has been found to stimulate adoption in areas that can have an impact on economic output • A subsidy targeted to economically-disadvantaged subscribers addresses the social inclusion problem (Universal Service) • However, subscriber subsidies need to be used sparingly 19

  20. Broadband business models: Conclusion • The primary business models to guarantee broadband deployment pertain to the private sector • Should governments intervene in broadband and wireless deployment? Yes, but initially facilitating market forces not preempting them • Should Government be the risk-taker of last resort? Maybe • Governments, communities, businesses, and operators should coordinate to identify supply and demand conditions and tailor services to tackle unmet needs • The establishment of a “business case” to deploy broadband is a joint effort 20

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