The cost of increasing broadband speed: who will decide – operators or regulators?

There is significant industry attention on rolling out next-generation access (NGA) to deliver better broadband services. However, the cost of meeting the escalating requirements from users and policy goals is a challenge. Fixed and mobile operators are both competing with and complementing each other in their efforts to reach this target, with fibre and 4G offers. Meanwhile, consumers and regulators are concerned that services meet expectations and, in some countries, regulations on performance. In this article, we focus on bandwidth, roll-out costs and capacity improvement.

Bandwidth for end users

Using a simplified model, we can see that a broadband service offering maximum access speeds of about 40Mbps is delivered in very different ways using fixed and mobile networks. Figure 1 shows how sharing of bandwidth occurs in the networks – highlighting in simple numerical terms how the available capacity per user is obtained from dedicated or shared connections.

Figure 1: Simplified NGA area model and end-user bandwidth [Source: Analysys Mason, 2013]

In a fixed network, dedicated access lines deliver the peak rate to the customer, but capacity is increasingly shared between more users deeper into the network. Each user may have on average only 1Mbps of capacity in the exchange layer, and less in the core network, but 'burstiness' and inactivity of communication means that a 40Mbps VDSL end service can be delivered effectively (although the core network/multicast solutions will need to be upgraded significantly if all users start to stream continuously). The operator's ability to meet speed standards depends on various factors, including performance in the last mile (how many users can actually get 40Mbps signals) and how much sharing and congestion occurs in the shared transmission. Operators can improve the shared transmission performance by investing in more capacity in access, backhaul and core networks – which is increasingly more cost effective on a per-user basis as you move from access to core.

In a mobile network, the air interface is shared between all network users. However, improving the average capacity per user requires 'cell-splitting' – that is, finding and deploying new cell sites – which is a relatively costly upgrade. Finding new sites is increasingly difficult for mobile network operators.

Regulators are becoming increasingly involved in the checking of broadband service performance – for example, Anatel in Brazil, Ofcom in the UK and TRAI in India – so the cost of increasing speed will be an issue for national fixed and mobile operators.

Roll-out costs and capacity improvement

Fixed and mobile operators need to plan their investment and calculate the cost of their future access services. By contrast, regulators that may be expecting, setting or scrutinising (higher) broadband speeds need to understand the advantages and disadvantages of different technologies, as well as their ability to meet established or more-stringent standards.

Our simple model can be used to estimate the cost per customer for NGA upgrades (see Figure 2) and the cost impact of doubling the network capacity (to about 80Mbps peak rate per user).

Figure 2: NGA roll-out costs and upgrade impact [Source: Analysys Mason, 2013]

These estimates illustrate some of the key debates surrounding NGA.

In today's capital-constrained times, operators cannot deploy all networks in all areas. Political, strategic and operational choices have to be made; then consumer and regulatory authorities will increasingly follow how the fixed and mobile operators deliver what they promised at the outset and claim in their advertising. This could lead to additional investments to meet increasing standards in future years. However, there is a compromise between the costs, performance and deployment of capacity for next-generation fixed and mobile networks, and the ability of different networks to meet the short- and long-term goals of policy makers and operators' strategies.

Analysys Mason's work on planning for, investing in and costing NGA networks for many clients – such as the European Commission, regional development agencies, pan-national investment banks, the UK's Broadband Stakeholder Group and BDUK, regulators and ministries (for example, in France, Denmark, Malta, Morocco and Qatar), and numerous network operators worldwide – supports our world-leading position in strategic consultancy for next-generation services.