Broadband intervention - the growing challenge for regulators and governments

Late last year, the Irish government signed a EUR79.8 million contract with mobile operator 3 to deliver broadband to areas in Ireland where broadband services are not available. Interventions such as this have become necessary, to ensure equality of access to what is recognised as an important driver of the modern economy.

Governments worldwide are investing or considering investing in broadband, and Analysys Mason has provided advice for governments and regulators in Ireland, the UK, Europe and South-East Asia over the last decade. During this period, the challenges and complexity of intervention design have increased, as markets and services have evolved.

The inclusion of EUR6 billion of broadband investment in Barack Obama's economic stimulation package is perhaps the most high profile indicator of intervention in recent times, but initiatives are well underway across the developed world.

While the direct benefits can be hard to isolate and quantify, there is unanimity across stakeholders and commentators - including many business representative bodies, economic development agencies and local government - that provision of good broadband connectivity is essential to the sustainability of businesses everywhere, regardless of sector.

This has been backed up by international research:

- in the US, a study by the Brookings Institute (2007) found that for every 1% increase in broadband penetration in any state, there was an improvement of 0.2 - 0.3% in employment

- an EU study commissioned by the DG Information Society and Media found that greater availability of broadband connections could create more than two million jobs by 2015.

- the Australian Telecommunications User Group, points out in a study that between 1998 and 2002 employment in communities with broadband grew one percentage point faster annually than communities without.

But why is intervention necessary‾

Investment in broadband networks usually aims to maximise potential subscribers, and, therefore, revenues. Investment is therefore concentrated on areas with larger exchanges, more businesses and denser residential populations. It is also these areas that attract new entrants and competition, providing consumers with more choice and cheaper services. Inevitably, some areas are less commerically viable, and remain underserved - creating a digital divide. It is these areas that require government intervention.

But when public funding is used, it is important to minimise any market distortion, and to minimise any displacement of investment that would otherwise have taken place. This challenge for governments has increased with the development of telecoms markets and the entry of many competitors, as well as the evolution of next-generation networks, and the convergence of mobile and fixed broadband.

For example, when Analysys Mason worked with the Northern Ireland government six years ago, the market was relatively simple with a small number of players, and "˜broadband' considered to be 512kbit/s, delivered in the main through xDSL technologies and cable.

The recent award of the National Broadband Scheme in the Republic of Ireland was a different matter. The scheme is being applied to a developed market with many broadband providers, using a range of fixed and wireless technologies. The scheme design incorporated the principles of technology neutrality and the provision of equivalent wholesale products for all retail products. The scheme also includes mechanisms for setting tariffs, upgrading the services, demand stimulation and monitoring of the quality of service.

As broadband evolves, governments and regulators will have to look increasingly carefully at their intervention designs - buliding them around principles of technology neutrality and minimising market distortion - to ensure that delivering a fair and equitable digital society, also delivers a fair and equitable market for suppliers.

Patrick Kidney, senior manager, Analysys Mason

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