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

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Presentation on theme: "1 Broadband Business Models to meet deployment targets Dr. Raul L. Katz, Columbia Institute for Tele-Information."— Presentation transcript:

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

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

3 3 Supply-side business models: Accelerate deployment

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

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

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

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

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

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?

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

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

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)

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

14 14 Demand-side business models: Accelerate adoption

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

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

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

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

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

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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