Municipal networks contribute to increased broadband coverage

Broadband networksBengt G Mölleryd, Senior Advisor, Swedish Post and Telecom Authority (PTS), written while on secondment to OECD Science, Technology and Innovation Directorate

Although OECD countries have made tremendous progress in recent years fostering the deployment of high-speed broadband networks, many challenges remain in terms of how to enhance and expand these networks in order to meet the growing demands of the digital economy. The availability of broadband networks is not only essential for people to participate in economic and social activities but to create opportunities for future gains in areas such as employment, education, health and improved civic engagement.

All this depends, however, on these networks being in place, connections being available at competitive prices and not limited by capacity constraints. In most places this demand is being met by the market but even in the most advanced countries gaps arise, such as in communities with sparse populations, or where there is insufficient competition due to the substantial cost of infrastructure deployment. In these instances, municipal networks, primarily fibre networks built, operated or financed by local governments, public bodies, utilities or co-operatives, are used in a number of OECD countries to provide service in towns, cities and regions.

A new report from the OECD examines experiences with municipal broadband networks in a number of countries including Australia, Denmark, Japan, Netherlands, New Zealand, the United Kingdom and the United States. Sweden, given its widespread use of municipal networks, is used as an anchor country for the analysis. The models and experience of the municipal networks in these countries have varied from being highly successful to not meeting expectations. In some cases, they have provided welcome competition by offering an alternative infrastructure or increased the geographical availability of advanced telecommunication services where none existed. Sometimes they have enabled retail competition by splitting the provision of infrastructure and services based on an open access approach. Proponents say they have contributed to cities and regions, as there are noticeable effects on social and economic developments in these locations, which the report explores.

Local governments, as well as their service providers and utilities, regard broadband networks as a way to build on their existing infrastructures in other areas such as energy provision, and improve community services in areas such as health and education. They underscore that the public sector can be a lead user of municipal networks, such as in the provision of more cost efficient home care services for the elderly, and say that the market has not moved to sufficiently provide this infrastructure. Others also regard broadband as not only enabling today’s commerce but in attracting new firms, start-ups and retaining young people and opportunities for them in these communities. In addition, they note that mobile providers take advantage of municipal network’s fibre, for the essential backhaul facilities wireless networks require, bringing forward new investment in such networks.

Nonetheless, given that extensive investment is required and that it is complex to deploy and manage high-speed broadband networks, there are substantial risks involved. This requires that the appropriate competence is in place for the organisational and financial capabilities required. Municipal networks can also raise competition issues as public money is involved in direct competition with the private sector or, in some cases, become a virtual monopoly for wholesale or retail capacity.

The report says that broadband speed matters, and that the available evidence indicates that these networks and the broader use of ICTs around them generate positive benefits, contribute to economic growth, and make firms more productive. Broadband networks can also be a substitute for some types of transport for smarter cities and contribute to the creation of new jobs and firms.

Overall, the report notes, municipal networks play a significant role in providing services for many people in OECD countries. As a result they are a viable and sometimes extremely effective way of supporting the objectives of local communities, addressing unmet demand and creating new opportunities for growth and prosperity in those communities, which otherwise would not be there.

Useful links

OECD work on broadband and telecom

PTS Innovation Competition: More active and rewarding leisure time

Stimulating competition through open access networks

Click to download the report
Click to download the report

Today’s post is written by Agustin Diaz-Pines of the OECD’s Science, Technology and Industry Directorate

Even though the term “open access” is widely used in policy discussions surrounding broadband networks, there is little universal agreement as to what it means. A new OECD report entitled Broadband Networks and Open Access helps to shed some light on this important concept by examining how and why open access policies have been implemented in communication markets around the world.

Let’s start by providing a working definition. “Open access” is an arrangement that provides effective, wholesale access to network infrastructure or services at fair and reasonable prices, and on transparent and non-discriminatory terms. Open access arrangements are currently used in a variety of situations, including in fixed access networks, mobile networks, Internet exchange points (IXPs), undersea cables, etc.

So why are they so important? Open access arrangements are crucial for promoting competition, greater consumer choice and lower prices in markets where it would otherwise be extremely challenging. Permitting new businesses to connect to existing communications networks, for example, is more affordable and less risky than building networks from scratch.

Open access policies have played a major role in promoting competition in broadband markets, especially in countries with little infrastructure competition. “Unbundled access” policies, whereby new entrants of the telecommunications market are offered access to facilities of the incumbent, have helped increase the number of unbundled broadband lines in the United Kingdom from 123,000 in 2005 to more than 8 million in 2012.

The Internet has developed an efficient, open access system for data transfer. A recent OECD report found that Internet service providers leverage Internet exchange points (IXPs) to send and receive data at 100,000 times lower than typical voice rates. These arrangements for infrastructure-sharing have been reached without the need of public intervention.

Regional and municipal networks in Northern Europe have succeeded in extending fibre deployment. For example, Stokab, owned by the city of Stockholm, runs a dark-fibre network and grants access to all operators on equal terms. Overall an estimated 95% of municipality networks and 42% of housing companies’ broadband networks in Sweden follow an open access model.

Wireless open access policies have contributed to the emergence of mobile virtual network operators (MVNOs), which in turn can drive innovation and increase infrastructure competition. French regulations, for example, compel incumbent mobile operators to offer national roaming to new entrants via a commercially-negotiated price. As a result, the French company Free entered the telecommunications market in January 2012, and three months later opened up its 4 million Wi-Fi hotspots to its smartphone customers, in turn creating the world’s largest carrier-run mobile data offload network.

It should be noted that open access agreements have rarely been reached voluntarily, as firms prefer to reach commercial arrangements that are not necessarily non-discriminatory or transparent. Put another way, most open access policies have been the result of direct or indirect public intervention.

However, regulators need to balance the benefits of open access policies against the incentives for different actors to invest in infrastructure and services.  Too often this is presented as a trade-off between increasing competition and a potential negative effect on investment.  For example, if open access prices are too low it may discourage investment in new networks by both incumbent firms and new entrants.

The goal is to introduce open access polices in a way that facilitates new investments and drives incumbents to respond in kind, thus producing benefits for the overall market. For example, in the case of the French company Free, the incumbent operator, Orange, expects to earn more than $2.5 billion over the next few years from selling its access to Free. It stands to argue that Orange could then use this extra income to re-invest in its own network in order to stay ahead of its new competition. French regulation also specified that Free needed to meet certain targets, like investing in its own network to reach a minimum of 27% of national coverage, before it could benefit from Orange’s roaming prices. In this way, regulators were able to carefully ensure that incentives to invest in infrastructure didn’t suffer as a result of open access polices.

Moving forward, it is clear that broadband adoption – especially in wireless and fibre – remains crucial for overall economic development.  The Internet is now established as a key infrastructure that supports every sector of the economy and is a fundamental driver of innovation, productivity gains and economic growth. Open access broadband policies therefore need to be considered by governments where there is insufficient competition, so that the entire economy can continue to fully leverage its potential.

USEFUL LINKS

OECD work on Broadband and Telecom

OECD work on Internet Economy

OECD Innovation on Twitter

Broadband: the new oxygen

Today’s post is contributed by Piotr Stryszowski of the OECD’s Science, Technology and Industry Directorate, Click on the logo to go to the ITU/UNESCO Broadband Commission website.

Broadband has recently been described as the oxygen of the digital age. For that reason a subject that was once the reserve of “geeks and policy wonks” has become a concern of world leaders from Presidents and the heads of international organisations to Nobel laureates, famous artists and the captains of industry. You can read about one group here.

The use of broadband communications goes far beyond the ICT sector. Broadband has become a necessary tool for countless companies across all industries. Firms have been using broadband as a way to reduce operational costs, facilitate access to communication, improve the management of information, as well as being a platform for innovation in equipment and services. Broadband has also become integral to the daily lives of people in OECD countries, which is pretty obvious for every blog reader.

On a macroeconomic level, the development of broadband has positive effects on productivity and growth. The improved availability and use of ICTs can make real differences to the prospects of firms, and peoples’ lives, in developing countries. Put differently, more broadband means more efficient economies and higher per capita income. This makes the development of improved communications a useful and efficient tool for policymakers on the way towards the Millennium Development Goals.

 Work at the OECD has highlighted the critical role that the use and application of ICTs including broadband can play in economic and social development. To share the OECD’s experience and to underline the potential role of broadband communications in achieving the Millennium Development Goals, the OECD Secretary General joined the ITU/UNESCO Broadband Commission.  During its last meeting in New York, the Commission agreed that the future will be built on broadband and urged all governments to move broadband to the top of their agendas.

Useful links

The OECD and the Millennium Development Goals

OECD broadband portal

OECD Communications Outlook

 Broadband Growth and Policies in OECD Countries

OECD reports on telecommunications and Internet