Telecommunications Investment as an Economic Stimulus Taylor Reynolds, OECD 22 June 2009 The views expressed in this presentation are those of the author and do not necessarily reflect the opinions of the OECD or its Membership.

Key questions Can communication network infrastructure investment be used as an effective economic stimulus? If governments decide to invest, how can they structure projects for maximum benefit?

Why telecom as a stimulus? Projects: –can be initiated relatively quickly (slack) –are labour-intensive –can minimize economic leakages –are a key foundation for commerce –may provide stronger marginal impacts on supply and productivity than investing in established networks such as electricity, gas, water and transportation. Demand Supply

Public broadband investment Goal one: Stimulate the economy on demand side through construction projects for infrastructure rollout Goal two: Increase the productive capacity of the economy via spillovers from broadband networks Goal three: Bridge the digital divide and improve competition

Public broadband investments as part of stimulus packages CountrySpending (local)Spending (USD) AustraliaAUS 40 billion32,700,000,000 CanadaCAD 225 million212,500,555 FinlandEUR 66 million94,700,000 GermanyEUR 150 million215,200,000 JapanJPY 3 trillion28,130,000,000 LuxembourgEUR 195 million279,800,000 PortugalEUR 50 million71,700,000 United StatesUSD 7.2 billion7,200,000,000 Policy Responses to the Economic Crisis: Investing in Innovation for Long-Term Growth, June 2009, OECD, Paris.

How public funds are being used for broadband

Building out different network components High capacity networks connecting larger cities –Transport: highways –Telecommunication: backhaul l Mid-capacity networks connecting neighborhoods/business areas –Transport: mid-size roads –Telecommunication: middle-kilometre/ metropolitan area networks Lower capacity networks to individual homes and businesses –Transport: Local roads –Telecommunication: “last kilometre” access networks

Network components Backhaul Middle kilometre Last kilometre

Fibre as a foundation Investment in high-capacity fibre optic lines is the foundation for all types of broadband Internet access –Wired: DSL, cable, power-line communication –Wireless: Mobile, WiMAX, satellite Investments in targeted fibre infrastructure can be structured to benefit all network providers (wired and wireless)

Capacity of new networks One fibre optic strand the width of a human hair currently has the capacity to support 3 billion simultaneous phone conversations. That is equivalent to every person in the world on the phone with someone else at the same time.

copper Network operator Fibre to the city/town City or town Neighbor- hood Home or premises wireless Copper (faster) Fibre to the neighborhood (faster) Network operator City or town Neighbor- hood Home or premises Wireless (faster) Fibre to the premises (fastest) Network operator City or town Neighbor- hood Home or premises

Likely stimulus targets by telecommunication market type Least-developed –Expanding international capacity and building local traffic exchanges –Upgrading mobile networks for higher-speed data connections –Basic fibre connections between cities and to mobile sites Developing –Building higher capacity backhaul connections between geographic areas –Expanding fixed-line, cable and mobile coverage –Upgrading mobile networks for higher-speed data connections Developed –Extending initial access to the last underserved areas –Pushing fibre deeper into neighborhoods to improve speeds of all technologies Highly-developed –Upgrading last-kilometre connections all the way to the premises with fibre and shifting rural wireless users to faster fixed/wireless networks

Policy and investment Investment without a efficient regulatory framework is likely to have minimal impact. Little need to build backhaul networks without unbundling. Operators won’t need it. Investments in networks must be paired with pro- competitive policy moves Should not strengthen existing monopolies

Balancing policy and investment Policy –Unbundling of the local copper loop to enable market competition –Ensuring sufficient spectrum is available to support high- speed wireless applications –All investments in telecommunications networks using public funds should be accessible to competitors via open access rules on transparent, cost- based terms Technology –Push fibre closer to end users to support higher-speed wired and wireless use –Invest time in developing the most efficient network routes for fibre investments –Make use of copper, coax, fibre and wireless technologies for the last kilometre as appropriate –Balance backhaul and last- kilometre investment

Example: Mexico Backhaul –In May 2009, the Mexican government announced it will open up the electric company’s fibre-optic network to competitive telecommunicatoin service providers –Operators should have improved fibre access deep into Mexican cities, towns and villages Last kilometre –However, Mexico does not have local-loop unbundling over the copper telephone network which is necessary for competitors to offer attractive broadband services –Without access to the local loop, backhaul investments will have a much smaller impact in Mexico, particularly on competition and service development

Telecom investment with limited funds Some economies are constrained in spending potential Choose projects offering highest return per unit spent Magnify the impact of investment by introducing necessary telecommunication reform at the same time When fiscal constraints limit investment possibilities, policy makers should target specific bottlenecks –Backhaul networks (open access) throughout a region can lay the foundation for competition service delivery in the future (Korea) –Network investments can extend to schools and government buildings but should be built will excess capacity which is available on competitive terms to all providers (Canada)

Project considerations Demand side Speed to come online Shovel ready Rights of way / spectrum availability Spending composition Employment effects (local) High marginal propensity to consume Avoids leakages Supply Side Connectivity Number of affected users Marginal benefit per user Capacity of the lines Topology effects on bandwidth Longevity of the network Ease to upgrade network Competition Competitive access to network Broadband choices Potential for market distortion Innovation/growth Economic impact per unit spent Upgradability for new services Balanced rollout backhaul/last kilometre Social benefit Universal service Cultural benefits Inclusion Long-term viabilityPrivate sector viability Viability of project after stimulus

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