As promised last week in the initial posting of what is to be a multi-part series, we are taking the first of several deep dives into some of the granularity of the recent white paper, “Government broadband plan: 5 key policy measures that proved to make a difference, done for Nokia (News - Alert) by Diffraction Analysis. This is a valuable resource to keep handy as it looks at the efficiency of five critical public policies regarding the acceleration of broadband deployment.
Just as a quick reminder the five key policy measures that were compared are:
- Public investment in backbone and aggregation
- Public investment in access networks
- Regulatory framework for infrastructure sharing
- Inclusive/social offers
- Regulatory frameworks facilitating FTTx roll-out
- Public investment in backbone and aggregation
Public investment in backbone and aggregation
A very good place to start is with the topic of public investment in backbone and aggregation because as the comparative analysis showed, there really is a lot of bang for the investment buck here. Just how much is reflected in the chart below from the report:
The long and short of the story, as can be seen, is that countries that have included such investment in their plans have seen prices drop by 4 percent of Gross National Income per Capita (GNI p. c.) over 4 years as opposed to a little over 1 percent for countries that haven’t invested. As the paper notes, “Considering the average GNI p. c. for Year 0 among the countries of the sample (US $18,925), this drop in price would represent US $66 per month on average for the first group, but only US $17 for the second group.” It is big.
Colombia shows the way
There are two case studies, Colombia and Poland, presented in the white paper that highlights how investment in backbone and aggregation next generation infrastructure upgrades can pay off. While both are interesting, the Colombian example is quite compelling reading.
Here are a few salient details for what has been a public-private partnership to act as a game-changer in a country where in 2010, out of the 1,122 municipalities – 2 that constitute the Colombian territory – only 287 had access to high-speed broadband services.
- In 2010, newly appointed Telecommunications minister Diego Molina decided that as many municipalities as possible should have access to high-speed services. He initiated a plan to find ways to incentivize the private market to build the national backbone. The goal was to connect 400 hundred priority municipalities (mostly Tier 2). The estimated cost to connect them with backbone fiber— at least 24 fiber cables with a capacity of 2 Gb/s per fiber, upgradable to 10 Gb/s with an estimated length of 19,000 kilometers— was 415B pesos (roughly US $200M).
- In addition to establishing a single node for interconnection in each municipality, the winning bidder— which was Mexican company TV Azteca r— would also have to connect 2,000 schools, hospitals, army and administrative buildings in targeted municipalities.
- As the winner, TV Azteca Mexican also had to agree to a ratio of aerial deployment to buried deployment of no more than 75 percent (where 90 percent of Colombian backbone networks were aerial).
The Colombian government after the initial tend, later requested an extra 1,500 kilometer deployment to cover 788 municipalities, rather than the initial 753, and an additional $10 million was offered to cover the extension. And, Azteca Communications finished rolling out the 20,500 kilometer backbone in March 2015.
The reason all of this is interesting is a few fronts that have made the project one of very keen interest throughout Latin America. First, the company doesn’t own the network. In fact, the contract stipulates it will be managed by TV Azteca for 15 years with no extra subsidies. At this time TV Azteca will assume full ownership. However, in the interim, the network cannot be sold, and if TV Azteca was to go bankrupt, ownership reverts to the state.
This is certainly a vote of confidence by TV Azteca. It seems to be a good one. Between 2011 and 2014, the number of Colombian households with internet access more than doubled from 2.3 million to 4.9 million (on a total of 12.8 million in 2014), while the total of fixed-broadband subscriptions -including businesses rose from 2.6 million to 5.0 million.
The second and third unusual aspects of this are that the bidding process was not based on who would be the low-cost provider (the $200M was committed as a subsidy), but it was about how many more municipalities in addition to the core 400 would be connected. Plus, TV Azteca also had to commit to offering retail and wholesale services. The wholesale services entity is not barred from reselling dark fiber but the wholesale price is capped by the contract at $700 per Mb/s. The good news on the latter is that this has allowed some mobile operators to open new markets, which they could not afford to cover without the network availability.
The report says it has been too soon since contract completion to make an accurate assessment of the socio-economic impact of the connectivity now provided, but it is known to be substantial. It does conclude that the key success factors for the project were:
- Ambition to connect as far and wide as possible rather than minimize spending
- Focus on aggregation and public building connectivity
- Embracing open access from day one
What this really represents is not just the value of upgrading network connectivity, but that making this a public-private partnership, i.e., a win-win, is a great way to get a terrific flow once the pump has been primed.
Edited by Maurice Nagle