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Tech companies offer an alternative to PPP investments in broadband networks

"Investments made by multinational tech companies are likely to improve the availability of broadband infrastructure, however established operators will need to consider appropriate strategies to counter the competitive threat posed by these tech companies"

This article presents the findings of a discussion paper1 written by Analysys Mason for the International Telecommunication Union (ITU) and presented at the Global Symposium for Regulators 2015 (GSR15). This article concludes a series of articles based on the GSR15 discussion paper and focuses on alternative and innovative approaches to investing in broadband networks.2

Policy makers in developing and developed markets have used public–private partnerships (PPPs) to drive investment in broadband networks, particularly in areas with challenging economics. However, many governments have limited funds to invest in PPP broadband projects. That's where tech companies such as Facebook, Google and Microsoft can play a key role as they have invested in a range of broadband initiatives in developing and developed markets. This article examines recent investments made by these multinational tech companies and the broad range of market conditions in which they invest, the opportunities they present to existing and other tech companies, and whether they can be considered as complementary or as alternatives to PPPs.

Google and Facebook have invested in wholesale networks in less competitive markets where the telecoms infrastructure is not well established

Internet players such as Google and Facebook are driven by the prospect of generating revenues downstream through the take-up and usage of their content and services as a result of widespread broadband deployment. In November 2013, Google – through its Project Link initiative – announced that it had deployed a wholesale fibre backbone network in the City of Kampala, Uganda.3 Mobile penetration in Uganda is one of the lowest in sub-Saharan Africa, standing at 50.2%.4 Fixed broadband penetration is also very low, standing at only 0.3% of the population, and is hampered by the lack of fixed infrastructure investment by the incumbent Uganda Telecom. In addition, two operators (MTN and Airtel) control 87.9% of the mobile market share, suggesting a lack of competition. Google's wholesale fibre network deployment in Kampala has enabled mobile operators and Internet service providers (ISPs) to enhance their service propositions to end users, resulting in increased take-up and allowing Google to promote its services.

In 2012, Facebook joined a consortium of 12 investors supporting the roll-out of the Asia–Pacific Gateway (APG) – a 10 000km undersea cable designed to improve Internet speeds for citizens and businesses in South Asia.5 The existing broadband infrastructure in South Asia was limiting the user experience of Facebook users due to the high number of hops made by traffic, resulting in poor latency. The APG will provide countries in the region with an alternative to existing cables that have suffered from several cable breaks. The APG will use an open-access model to ensure that all operators in the region benefit from the investment.

The creation of alternative wholesale fibre infrastructure will be good news for ISPs and mobile operators that don't own their own infrastructure; however incumbent operators may feel threatened. In addition, it is likely that tech companies will focus on areas (e.g. cities) and investments that are commercially attractive and are unlikely to replace government-funded PPPs.

Google has also invested in other very competitive markets, where the opportunity for tech companies can be more challenging

In the US, Google – through its 'Google Fiber' initiative – is investing in fibre networks across 12 US cities, offering residential users the potential to receive gigabit broadband.6 In March 2011, Google Fiber announced its intention to build a fibre-to-the-premises (FTTP) network in Kansas City, offering fixed broadband and TV services directly to end users. Fixed broadband providers in Kansas City include AT&T, Time Warner Cable, Comcast, Consolidated Communications, Zayo and Level 3. AT&T and Time Warner Cable have the highest broadband coverage across Kansas City compared to the other fixed broadband providers.7 Despite the dominance of AT&T and Time Warner Cable, Google identified an opportunity to provide an alternative fibre network in Kansas City. The city was also chosen for its good economic infrastructure and a business-friendly environment; for example, the presence of utility conduits meant that there was no need to dig up streets. In addition, local administrations helped with access to rights of way, speeding up planning permits and providing assistance with marketing and public relations to promote the service.8

The level of infrastructure competition will vary across cities and not all local administrations will have the same business-friendly approach as Kansas City. Based on this particular example, it may be possible to deduce that tech companies in established and competitive markets are more likely to invest in infrastructure on a case-by-case basis and are unlikely to invest in ubiquitous national broadband networks. For this reason we believe that tech companies will not pose a major challenge to established operators in competitive markets.

Microsoft is exploring whether TV white space provides an affordable opportunity to connect remote and rural areas

Investing in rural areas can be expensive due to the need to build infrastructure (e.g. base stations) to cover large areas where there are few subscribers. In some cases there is also a lack of available spectrum. Data transmission using TV white space9 can address these issues because it is licence-exempt and its strong propagation characteristics mean fewer base stations are required to cover a given area.

Microsoft's '4Afrika' initiative is exploring the commercial feasibility of white-space technologies in Africa. In February 2015, Microsoft and Spectra Wireless launched the first commercial high-speed Internet service in Ghana using TV white-space spectrum.10 The commercial launch follows a pilot in 2014 and its objective is to provide affordable high-speed Internet services to students. Students will be able to use Microsoft applications such as Microsoft Office 365 and Microsoft Virtual, allowing Microsoft to increase the exposure of its applications to end users. White-space pilot projects have also been launched across the world for unique applications such as connecting remote health units in Bhutan11 and providing Internet access on ferry boats in Scotland.12

The use of TV white space by tech companies is unlikely to present any significant threat to established operators, and is likely to complement current operator strategies, as it is isolated to unique applications and to remote areas where existing infrastructure is typically underdeveloped.


 

Iqbal regularly briefs government ministers and policy makers on policy-affecting issues in the telecoms and media sector such as digital inclusion, broadband plans, data centres and broadband investment strategies. If you would like to discuss any of the issues raised in this article you can contact him on iqbal.bedi@analysysmason.com

 


 

1 The paper, Investment strategies for the deployment of broadband and access to the digital economy, draws on practical examples from a wide range of countries to develop best-practice guidance for regulators and government policy makers ('managing authorities') that wish to foster and secure investment in broadband networks. The paper is available at http://www.itu.int/en/ITU-D/Conferences/GSR/Documents/GSR2015/Discussion_papers_and_Presentations/Discussion%20paper_investment.pdf
Since its inception in 2000, GSR – attended by chief regulatory officers, policy makers and senior industry executives – has met annually to examine key issues affecting the regulation of telecoms and digital services. See also http://www.itu.int/en/ITU-D/Conferences/GSR/Pages/GSR2015/default.aspx
2 The first article in this series can be found at http://www.analysysmason.com/About-Us/News/Insight/Broadband-investment-strategies-digital-economy/ and the second article in this series is available at http://www.analysysmason.com/About-Us/News/Insight/Broadband-network-investment-three-actions-for-regulators-and-policy-makers/
3 See http://www.google.com/get/projectlink/
4 Mobile and fixed penetration results as of 1H 2014. Source: Analysys Mason's Uganda telecoms market report 2015
5 Facebook has noted that the APG will improve the Facebook experience for users in India, Indonesia, Malaysia, the Philippines, Hong Kong and Singapore
6 See https://fiber.google.com/about/
7 See http://www.telecomramblings.com/metro-fiber-maps/great-plains/
8 See http://www.forbes.com/sites/eliseackerman/2012/08/04/how-kansas-won-the-google-fiber-jackpot-and-why-california-never-will/
9 The term 'TV white space' usually refers to currently unoccupied portions of spectrum in the VHF/UHF terrestrial television frequency bands in some geographical areas
10 http://mybroadband.co.za/news/wireless/118405-tv-white-spaces-not-competition-for-operators-microsoft.html
11 See http://www.telecomreviewasia.com/index.php?option=com_content&view=article&id=641:white-space-a-gold-mine-of-untapped-spectrum&catid=67:august-september-2014&Itemid=264
12 See http://www.scotsman.com/news/scotland/top-stories/rural-scotland-to-lead-with-white-space-internet-1-3569913

Google has also invested in other very competitive markets, where the opportunity for tech companies can be more challenging