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

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Slide 11 Broadband Business Models to meet deployment targets Dr. Raul L. Katz, Columbia Institute for Tele-Information Slide 2 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 Slide 3 3 Supply-side business models: Accelerate deployment Slide 4 4 Supply side business models Objective: to make sure that universal service targets are met MARKET STRUCTURE SEVERAL OPERATORS 2-3 OPERATORSONE OPERATORNO OPERATOR HIGH Dense urban areas with high business and residential density MEDIUM Urban areas/towns with primarily residential density LOW Rural areas with sparse residential density VERY LOW Rural areas with very low density DENSITY AND SIZE OF DEMAND Slide 5 5 Supply side business models Stimulate private investment Business model development to address isolated areas begins by understanding deployment economics Slide 6 6 Supply side business models Stimulate private investment Deployment economics highlight the business case choke points Slide 7 7 Supply side business models Stimulate private investment Highlighted choke points enable the determination of policy initiatives to stimulate deployment Slide 8 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 Slide 9 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? Slide 10 Supply side business models Government intervention Facilities or service- based competition Private service provider operating under protected conditions (e.g. regulated monopoly) Community-owned service provider National government deploys backbone to reach isolated area (leveraging government utilities infrastructure) Scope of government intervention Slide 11 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 Slide 12 12 ALTERNATIVE MODELS OF GOVERNMENT INTERVENTION Supply side business models 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) Slide 13 13 Supply side business models Government intervention IS PROJECT SUSTAINABLE AND PROFITABLE? YESNO IS GOVERNMENT INTERVENING? YES Preemption of private investment (crowding-out) Alleviate the constraints of the business case to stimulate private investment Re-creation of access bottlenecks Erosion of the public utility model NO Market addresses the need of public good Supplier of last resort Government intervention should consider opportunities and risks Slide 14 14 Demand-side business models: Accelerate adoption Slide 15 BROADBAND DEMAND GAP Country Households passed (*) Households connected Demand Gap Australia89 %69 %20 % Denmark96 %76 %20 % France100 %77 %23 % Germany98 %58 %40 % Israel100 %83 %17 % Italy95 %55 %40 % Republic of Korea100 %93 %7 % Spain93 %61 %32 % Sweden100 %89 %11 % United Kingdom100 %68 %32 % United States92 %62 %31 % Sources: Analysis by the author, based on data from EU; FCC; BMWi; OECD; PTS - Sweden; and Israel Minister of Communication. REASONS FOR NOT ACCESSING TO THE INTERNET AT ALL ReasonsPercentage of answers United States United Kingdom Relevant ( lack of interest, busy doing other tasks) 45 %60 % Price15 %28 % Service availability16 %14 % Easy to use (difficulty, senior citizen, physical handicap) 22 %16 % Sources: Horrigan, J. (2009); Ofcom (2008 ) Demand-side business model models should address the demand gap Slide 16 16 Demand side business models Accelerate adoption Three business model initiatives to initially stimulate adoption Slide 17 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 Slide 18 18 Demand side business models Address the affordability gap High consumer taxes as a percentage of total cost of broadband ownership are 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 Slide 19 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 Slide 20 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


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