A growing number of governments around the world are encouraging the rollout of wholesale-only, open-access, next-generation broadband networks. In many cases, the intention is that - at least for the immediate future - the new networks will be the only network of its type in that country. However, the operators and regulators of these networks must be careful to avoid any return to the old “monopoly mindset.”
The creation of a single national fiber backbone, fiber access network, or 4G access network that all retail service providers (RSPs) can use on an equivalent basis makes sense when capital is in short supply. However, monopolistic companies are often risk-averse, inefficient, and unresponsive to their customers’ needs. This monopoly mindset runs counter to government objectives to increase broadband penetration and customer choice. Steps must be taken by the network operators and regulatory authorities to avoid the temptation of reverting to the easy life of a monopolistic operator by stimulating demand and offering value-added services to support RSPs.
Benefits of increased broadband penetration
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Wholesale Insights November 2015
Many governments have declared plans to increase broadband penetration among their populations by investing in wholesale-only, next-generation fiber backbones, fiber access networks, and LTE wireless networks. Most of these investments are through public/private partnerships (PPPs) in which public funding supplements investment from commercial organizations, but some are entirely state-funded.
State-sponsored national networks result from governments’ frustration that a non-interventionist approach to the rollout of broadband infrastructure has failed to increase broadband penetration sufficiently, and has in some cases resulted in costly duplication. These countries have identified that if broadband rollout is left to commercial operators, those companies would concentrate their infrastructure on centers of population where they can earn sufficient ROI. However, that would inevitably leave many more remote and less densely populated areas without broadband services at all. To avoid this, many governments have decided to invest in national network infrastructure that will provide wholesale services to existing and new RSPs. Sensibly, these governments have realized that their expertise does not lie in owning or operating retail telecoms companies.
The Singapore government announced plans for its state-funded national broadband network in 2007. It features structurally and operationally separate entities responsible for passive and active network infrastructure on a wholesale-only basis. Australia’s government-owned NBN Co is rolling out a wholesale-only national broadband access network using a combination of fiber, fixed wireless, and satellite technologies. New Zealand’s Chorus fiber broadband access network operator was structurally separated from incumbent Telecom New Zealand (now Spark) in 2011 as a condition of participation in the national FTTH program, which is part-funded by the government.
Under the “Argentina Conectada” plan, state-owned Arsat will own and operate the only national fiber-optic network in Argentina (there are also regional networks). Although primarily a wholesale network, Arsat will also serve retail customers in regions where there is no other operator. Following a failed auction, Arsat received wireless spectrum in the 850-MHz and 1900-MHz bands, to operate an LTE access network on a wholesale-only basis.
In 2012, BoFiNet was established by the Botswana government as a wholesale provider of national and international telecommunication infrastructure for the country. Hungary’s national broadband strategy also includes governmental investment in the construction of a national backbone network.
The Mexican government’s “Pact for Mexico” makes broadband access a constitutional right for the population. It is investing in a PPP to create a state-owned wireless network in the 700-MHz band, which will provide wholesale LTE access (no other operator uses this band, although some are using other bands to provide LTE access). The Zimbabwe government, too, is reportedly considering the creation of a national infrastructure entity that will provide wholesale services within the country.
Monopolistic behavior risks failure
We believe a single national broadband network operator risks returning to the monopolistic behavior of single national operators. Before telecoms markets were opened to competitive players, too many incumbents were slow-moving, unresponsive monoliths that put revenue before customer service.
Service provisioning was measured in months or even years. Retail prices bore little relation to costs or affordability, and service innovation was almost unheard of. Often these telecoms operators were state-owned, their employees were civil servants, incentivized to avoid risk while focusing on growing revenue for their governmental masters.
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Wholesale Insights November 2015
The new wholesale-only next-generation network operators must not be allowed to revert to this old monopoly mindset. If they do, investment in new infrastructure will be concentrated where returns are more certain, prices are likely to rise and service innovation will slow. Monopolistic behavior by these national broadband network operators risks running counter to governments’ desire to increase broadband penetration and affordability.
Value-added support for retail service providers
The new wholesale-only next-generation network operators must be encouraged to provide the services needed by RSPs efficiently and cost-effectively. They must be responsive to changing market demands and should proactively invest in service improvement and innovation.
In New Zealand, Chorus took action to stimulate demand for its wholesale services by encouraging demand for the services provided by its RSP customers. In its “Gigatown” competition, Chorus invited communities across the country to develop plans for how they would use gigabit services “to foster new ways of learning, playing, and conducting business.” Although Dunedin won the competition, awareness of the social and economic benefits of broadband access have been felt across the whole country.
In addition to schemes like this to stimulate demand, the wholesale-only next-generation network operators should also create value-added services to help their RSP customers develop their retail offers. For example, wholesale-only operators can assist their customers by advising on marketing, providing training, helping with customer migration, and aiding their service configuration and integration activities. Not only will this foster closer working between RSPs and wholesale-only networks; it should also encourage greater responsiveness to new demands and even help evaluate the benefits of service innovations.
However, regulation will still be necessary to ensure that these wholesale network operators do not abuse their monopoly positions, whether by setting prices significantly above cost or through reluctance to invest where returns are lower or less certain. This regulation should focus on actions that will increase broadband penetration, such as insisting on cost-based pricing, open-access availability of services, and improvements in provisioning and repair times.
David James is principal analyst for wholesale telecoms at Ovum
This article was first published in Telecom Asia Wholesales Insights November edition