Competition and investment: An analysis of the drivers of superfast broadband Ilsa Godlovitch

Transcription

1 Competition and investment: An analysis of the drivers of superfast broadband Ilsa Godlovitch WIK Conference New rules for a Digital Single Market? 13 October 2015, Brussels 0

2 Context The DAE targets call for policies to support deployment and take-up of fast broadband there is a high risk the ultrafast target may not be met Other countries notably Japan and Korea have already set sights on 1G The European Commission has initiated a wide-ranging review of the EU framework for electronic communications, while the UK is undergoing a Strategic Review of Digital Communications In all these matters an important question is the role that competition plays in driving investment and consumer outcomes especially in relation to fast broadband The WIK (2015) study Competition and investment: analysing the drivers of superfast broadband seeks to assess: which are the main drivers for NGA deployment and consumer outcomes in Europe and other major international markets; and What are the implications for NRA objectives and policy focus at EU level Analysis based on time series data and case studies from 12 countries 7 EU and 5 international (US, Canada, Japan, Korea, Australia) 1

3 How do countries compare in NGA outcomes? Summary ranking table NGA coverage (IDATE 2014) NGA takeup (IDATE 2014) Speeds Mbps (Akamai 2014) Usage GB per sub (Cisco 2014) Prices - high basket >30Mbits (OECD 2012) International ranking Australia Canada EU ranking France Germany Italy Japan Korea Netherlands* N/A Spain Sweden UK US Based on ranking of averaged rankings (NL over 4 observations) Source: WIK (2015) Competition and Investment based on data sources as indicated 2

4 How do countries compare in NGA outcomes? Some observations NGA outcomes in Korea and Japan are world-leading in many respects One exception fast broadband has not converted into high usage in Japan Europe is not overall - falling behind the US or Canada NGA coverage, take-up and data usage are higher in North America than in the UK (and much of the rest of Europe); however Prices in the US and Canada are comparatively high and average actual speeds are comparable with many European markets Australia trails most of the countries reviewed But usage has since increased following the 2015 launch of Netflix 3

5 What is driving NGA outcomes? Summary comparison table NGA outcomes and potential influencing factors NGA outcome average rank Korea 1 Japan 2 US 6 Outcome measures NGA Coverage (>30MBit/s) % HH (IDATE) NGA Take-up (% coverage) (IDATE) Market supply-side factors Coverage infrastructurebased in urban % population competition areas (OECD) Policy supplyside factors Regulatory forebearance Demand-side factors Video usage/ file sharing (Cisco VNI) NGA basket (>30M) price (OECD) NL 3 Sweden 4 Canada 7 UK 5 Germany 8 Spain 9 France 10 Australia 11 Italy 12 All data 2014 except price (2012) Green >80% Yellow 50-80% Red <50% Green >50% Yellow 25-50% Red <25% Estimates based on cable, independent FTTH - Green >70% HH Yellow 40-70% Red <40% Source: WIK (2015) Competition and Investment based on data sources as indicated Green= 70%+, yellow=50-70%, red=<50% Green = complete NGA forebearance. Red= costbased NGA regulation Green >100GB per month yellow GB Red <50GB By rank - 4 lowest cost = green etc 4

6 What is driving deployment? The role of infrastructure-based competition Impact of cable on NGA coverage Source: WIK based on data from IDATE FTTx World Infrastructure-based competition plays an important role in driving NGA coverage, explaining much of the variation across countries examined The role of cable explains NGA coverage levels in the US, Canada and NL In some countries eg Sweden, Japan, Korea, NL independent FTTH deployments also relevant Altnets have played a role in deploying FTTH in France and Spain 5

7 What is driving take-up? The Netflix effect Fixed online video usage Online video consumption may play a role in driving NGA uptake For example, NGA take-up in the US and Canada is high despite high price premia, while it is low in France despite no price premium Availability of online local language content may be one factor PayTV may create opposing effects drives NGA if bundled with fast broadband; but Source: WIK based on data from Cisco VNI relative satisfaction with TV vs online video may either limit NGA demand (France, Germany?), or in reverse lead to cord-cutting (eg US, Nordics) 6

8 Service comp Infra comp Assessing the impact of regulation: Features of infrastructure vs service competition models Where on the ladder? Price regulation Timing of intervention Business models Structural separation Long term caps Functional separation/eoi Vertically integrated wholesale Opex (rental) Ex ante Risk sharing Local/regional access Two-part tariffs Network sharing/co-investment Duct/terminating segment Capex (eg IRU) Ex post (dispute resolution) End-to-end infrastructure competition None None Ex post (comp law) Source: WIK Regulatory models can be characterised in several dimensions: The business model (end-to-end infrastructure competition vs structural separation) Level of wholesale access (eg regional active access vs local access vs deep passive ) Wholesale price control regime (flexibility vs cost-orientation, capex/opex balance) Timing of any intervention (ex ante, ex post following dispute, ex post competition law) 7

9 Broadband ladder of investment US, Canada, Korea Italy, Germany Portugal, Spain, France UK, NL, Sweden Australia Assessing the impact of regulation: Example approaches along the ladder of investment Degrees of intervention: approaches to economic regulation of NGA Standard broadband (EU) Forbearance Next generation regulatory approaches Climbing up the ladder to FTTH Remaining on the ladder Full ladder (FTTC focus) Service competition Own infrastructure Duct access Subloop/termina ting segment Local access Nearly universal Regional (bitstream) access Less focus/in process of full or geographic deregulation Resale Deregulated Source: WIK (2015) Competition and Investment 8

10 Assessing the impact of NGA regulation: Some observations Countries pursuing forbearance (US, Canada) Infrastructure competition through cable gives most Americans (75%) a choice of at least 2 providers. However, this choice reduces to 25% for fast broadband The CRTC (Canada) decided in July 2015 to introduce NGA access regulation Deep passive access approaches (France, Spain) Approach has (together with other facilitators eg sewers) enabled 3+ infrastructure-based competition on FTTH in dense urban areas contrast with local access countries France and Spain are taking different paths for less dense areas Spain has proposed VULA while France focuses on network sharing /mutualisation (on IRU basis) Cost-orientation vs flexible pricing for incumbent wholesale NGA There is a trend towards flexible pricing (subject to economic/technical replicability) Sweden from 1 Dec 2016 NL prefers commercial negotiations for VULA price Structural separation and service-based competition Australian Govt has only recently settled acquisition of historic copper/cable networks Poor outcomes may reflect previous uncertainty around NBN Co. Only now fully operational. How would outcomes be affected if more had been left to the market? 9

11 Lessons and questions for telecom framework review Promoting competition (and in particular infrastructure-based competition) remains an important factor in driving NGA deployment Evidence that passive focus can drive FTTH infrastructure competition in dense areas (in presence of potential alternative investors) Should the ladder of investment approach be adapted? What should policy-makers do (if anything) outside dense areas? Should these areas be defined in advance or ex post? Incentivise incumbent through pricing flexibility/deregulation of higher speeds? Trigger an upgrade race eg VDSL vectoring in Germany? If so, how? Incentivise/mandate co-investment through IRU? Could this obviate need for wholesale access in long term? The presence of FTTH does not guarantee demand Demand-side efforts needed role of online content What role does competition play in demand see for example Nardotto et al (2014)? 10

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