Will we ever see a superfast Europe?

The Digital Agenda for Europe (DAE) published by the European Commission (EC) on 19 May 2010 has defined seven priority areas for action including specific targets for high- and very-high-speed (superfast) infrastructure roll-out and service take-up (by 2013: 100% basic broadband coverage; by 2020: 100% coverage of 30Mbit/s or above and 50% of households subscribing to connections of 100Mbit/s or higher).

Although operators and governments in a few countries have announced plans to roll out very-high-speed broadband infrastructure, to date deployment of superfast broadband in Europe has been limited in comparison to leading countries worldwide (as shown in Figure 1 below), and the current economic situation makes the above-mentioned targets very difficult to achieve.

Figure 1: Very-high-speed network deployment [Source: FTTH Council, Analysys Mason, 2010]

On 3 March 2011, Neelies Kroes, the EC Vice-President for the DAE, hosted a CEO roundtable where she asked industry leaders to come forward with concrete proposals to address the broadband investment challenge, for presentation at a second CEO summit on 13 July 2011.

However, there are a number of reasons why this challenge is very difficult to meet:

• First, as indicated by developments internationally, no killer applications have yet been identified or can be anticipated to justify the huge investment needed to deliver such networks on a national basis. This means that, in the short term, deployment to provide significant national coverage (e.g. above 50–60% of population) needs to be supply- and not demand-driven. This addresses the ‘chicken-and-egg’ question about whether services or infrastructure should come first: if governments want national coverage, they need to accept that supply will lead demand.
• Second, key economic drivers for network roll-out will be different in many countries. As highlighted in a recent study where we interviewed around 40 key stakeholders, although very-high-speed network roll-out relies on a ‘simple’ equation, it is one that is very difficult to balance (see Figure 2 below). The relevant drivers that make up this equation will vary widely from one country to another, depending on the underlying market structure. For example, markets with little retail price differentiation (e.g. uniform retail broadband pricing) are likely to be those where very-high-speed network roll-out would be the most challenging to achieve (without appropriate regulator/government intervention), as it is difficult to demonstrate the ability to generate additional revenues.
  
  In addition, governments may have identified other benefits that are not captured by this equation. However, there are divergent views on the magnitude of spill-over and other benefits, and particularly the incremental benefits of very-high-speed broadband compared to high-speed broadband.

Figure 2: Economic equation for the deployment of very-high-speed networks as a function of coverage [Source: Analysys Mason]

• Third, although the EC tried to clarify and harmonise regulation of next-generation access (NGA) across Europe with its “NGA Recommendation”, European national regulatory authorities (NRAs) have taken many different approaches to NGA regulation (in some cases due to different market structures, as discussed in the previous paragraph). For example, on the one hand, France has been the first European country to publish a global framework for FTTH roll-out, and aims to encourage infrastructure-based competition through symmetric regulation on fibre roll-out (and asymmetric regulation on duct sharing). On the other hand, in the UK the focus has been on developing flexible high-speed bitstream offers (e.g. ‘virtual unbundled local access’ or VULA) based on a single infrastructure.

This all means that achieving a harmonised approach across Europe for investment in superfast broadband is unlikely in the short term, and that different business models are likely to emerge for the financing of very-high-speed network roll-out. Transposition of ‘best practice’ from one country to another could lead to significant misjudgment, as financial or market assessments need to be made at a country-by-country level, based on local market knowledge.

Analysys Mason has significant experience of advising on issues related to the financing and regulation of ultra-fast broadband network, across a number of different countries. For more information on how we might assist with commercial and regulatory analysis and assessment associated with NGA, please contact Stéphane Piot.