broadband business models to meet deployment targets dr. raul l. katz,
Post on 11-Feb-2016
19 Views
Preview:
DESCRIPTION
TRANSCRIPT
1
Broadband Business Models to meet deployment targets
Dr. Raul L. Katz,Columbia Institute for Tele-Information
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
Supply-side business models:Accelerate deployment
4
Supply side business models Objective: to make sure that universal service targets
are met MARKET STRUCTURE
SEVERAL OPERATORS
2-3 OPERATORS ONE OPERATOR NO OPERATOR
HIGHDense urban areas with
high business and residential density
MEDIUMUrban areas/towns
with primarily residential density
LOWRural areas with
sparse residential density
VERY LOW Rural areas with very low density
DEN
SITY
AN
D S
IZE
OF
DEM
AN
D
5
Supply side business modelsStimulate private investment
Business model development to address isolated areas begins by understanding deployment economics
RETAIL ARPU
WHOLESALE ARPU
RETAIL WHOLESALE MIX
CPE COSTS
CONSTRUCTION COSTS
MARKET SHARE WHOLESALE ACCESS LINKS
DEPLOYMENT PLANS
HOMES PASSED
EQUIPMENT COSTS
RETAIL REVENUES
WHOLESALE REVENUES
OPERATING EXPENSES
AMORTIZATIONAND TAXES
EBITDA
EBIT
FREE CASH FLOWS
BROADBAND MARKET
6
Supply side business models Stimulate private investment
Deployment economics highlight the business case “choke points”
RETAIL ARPU
WHOLESALE ARPU
CPE COSTS
CONSTRUCTION COSTS
MARKET SHARE WHOLESALE ACCESS LINKS
DEPLOYMENT PLANS
HOMES PASSED
EQUIPMENT COSTS
RETAIL REVENUES
WHOLESALE REVENUES
OPERATING EXPENSES
AMORTIZATIONAND TAXES
EBITDA
EBIT
FREE CASH FLOWS
BROADBAND MARKET
Capex too high relative to operating profits leads to lengthy horizons for a positive NPV
Primary demand is too small, so even if 100% share, revenues do not allow for positive NPV RETAIL
WHOLESALE MIX
Low share impacts revenue streams
Inefficient operations affect margins
7
Supply side business modelsStimulate private investment
Highlighted “choke points” enable the determination of policy initiatives to stimulate deployment
RETAIL ARPU
WHOLESALE ARPU
RETAIL WHOLESALE MIX
CPE COSTS
CONSTRUCTION COSTS
MARKET SHARE WHOLESALE ACCESS LINKS
DEPLOYMENT PLANS
HOMES PASSED
EQUIPMENT COSTS
RETAIL REVENUES
WHOLESALE REVENUES
OPERATING EXPENSES
AMORTIZATIONAND TAXES
EBITDA
EBIT
FREE CASH FLOWS
BROADBAND MARKET
Provide grants to fund capital investment
Provide low cost real estate for central facilities
Reduce ROW or spectrum access costs
Reduce VAT on equipment purchase
Reduce property taxes
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
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?
Supply side business models Government intervention
Facilities or service-based competition
Private service provider operating under protectedconditions (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
Supply side business modelsGovernment 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
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
Supply side business models Government intervention
IS PROJECT SUSTAINABLE AND PROFITABLE?
YES NO
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
Demand-side business models: Accelerate adoption
BROADBAND DEMAND GAP
CountryHouseholds passed (*)
Households connected
Demand Gap
Australia 89 % 69 % 20 %
Denmark 96 % 76 % 20 %
France 100 % 77 % 23 %
Germany 98 % 58 % 40 %
Israel 100 % 83 % 17 %
Italy 95 % 55 % 40 %
Republic of Korea 100 % 93 % 7 %
Spain 93 % 61 % 32 %
Sweden 100 % 89 % 11 %
United Kingdom 100 % 68 % 32 %
United States 92 % 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
Reasons Percentage of answers
United States
United Kingdom
Relevant ( lack of interest, busy doing other tasks)
45 % 60 %
Price 15 % 28 %
Service availability 16 % 14 %
Easy to use (difficulty , senior citizen, physical handicap)
22 % 16 %
Sources: Horrigan, J. (2009); Ofcom (2008)
Demand-side business modelmodels should address the demand gap
16
Demand side business models Accelerate adoption
Three business model initiatives to initially stimulate adoption
RETAIL ARPU
WHOLESALE ARPU
RETAIL WHOLESALE MIX
CPE COSTS
CONSTRUCTION COSTS
MARKET SHARE WHOLESALE ACCESS LINKS
DEPLOYMENT PLANS
HOMES PASSED
EQUIPMENT COSTS
RETAIL REVENUES
WHOLESALE REVENUES
OPERATING EXPENSES
AMORTIZATIONAND TAXES
EBITDA
EBIT
FREE CASH FLOWS
BROADBAND MARKET
Aggregate state demand for critical mass
Provide subsidies to subscribers
Reduce taxes
17
Demand side business modelsAccelerate 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
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
0
5
10
15
20
25
30
35
40
45
501 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
Tax
as a
pro
porti
on o
f TC
MO
Source: Telecom Advisory Services LLC
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
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
top related