knowledge centre

Attracting investment in broadband infrastructure is a matter of timing

Ian Adkins Principal, Consulting

"Private investment in broadband infrastructure could be stifled by government intervening too early.”

The broadband targets of the Digital Agenda for Europe (DAE)1  are ambitious. Probably the most challenging target is to achieve 50% of households having subscriptions at 100Mbit/s or higher by 2020. With the current deployment and low take-up,2 attracting more investment is critical to help achieve this target. There could be a temptation by policy makers and regulators to intervene in the supply side of telecoms markets to deploy broadband infrastructure – this may be a premature move.

This article builds on a recent study that Analysys Mason completed for the Republic of Cyprus, looking at how to create the right environment for attracting investment in broadband infrastructure. 

Market-led approach

An over-arching recommendation from the study, along with immediate demand stimulation actions and a series of policy and regulatory recommendations, was to follow a market-led approach towards deployment of infrastructure. Findings from the study highlighted there would be a risk of stifling private investment if there was early intervention by government using public funding for broadband infrastructure deployment. Instead, a key focus of our recommendations was aimed at encouraging continued private investment.

Consultations, market analysis and modelling 

After consultations with a wide range of stakeholders (including operators, potential investors, policy makers, the regulator and representatives from relevant government departments and trade bodies), we conducted work on three parallel workstreams: demand- and supply-side modelling, policy and regulatory analysis, and additional research and consultations. Our analysis of the market situation quickly established that there was a stable regulatory environment and a competitive market with international investment in broadband. 

We then defined a range of demand forecast profiles specific to Cyprus and, using our geotype-based approach to deriving network costs, we determined the economic viability of commercial network deployment for more than 20 different scenarios. Our appraisal of the scenarios considered investment returns, technology choices, wholesale access options, market share outcomes and economic benefits – further details can be found in the published report.3  The preferred option of a market-led approach was selected from the scenario appraisal.

Broadband coverage predictions

Our economic viability modelling enabled us to forecast the expected premises coverage in Cyprus of different broadband speeds in 2020, which is shown in Figure 1 for the market-led approach. This forecast of future coverage includes both the results of our economic network modelling and the stated plans from operators.

Figure 1: Forecast of broadband premises coverage in 2020 in Cyprus under market-led approach [Source: Analysys Mason, 2016] 

Figure 1: Forecast of broadband premises coverage in 2020 in Cyprus under market-led approach [Source: Analysys Mason, 2016]

This figure demonstrates that under a market-led approach, Cyprus would enjoy significant coverage of broadband infrastructure from private investment. This approach also benefits from limited distortion of the market, as very little infrastructure-based (supply-side) intervention is envisaged. 

Robust economic network modelling

Ian Adkins, Analysys Mason’s project manager for the study, highlighted: “A key differentiator for determining a pragmatic way forward was our ability to undertake independent and robust modelling of the economics of broadband network investment across Cyprus, which enabled us to recommend a credible roadmap.” 

Fall-back flexibility

Within the overall approach, we suggested that demand stimulation measures should promptly be taken to encourage private investment, for example a connection voucher scheme and a business support programme to increase take-up by small and medium enterprises (SMEs). However, for flexibility we also recommended that continued monitoring of the market should take place and a critical decision point should be set around the end of 2017. At that time, authorities should assess whether the operators are investing as expected (i.e. on the basis of their stated plans) and take further action as appropriate. 

Summary

Prior to embarking on the study, many stakeholders in Cyprus anticipated one of its recommendations would be an extensive supply-side intervention requiring significant public funding. However, conclusions from the study demonstrated that private investment in broadband infrastructure could be stifled by government intervening too early. Immediate demand-side actions along with a review of policy and regulatory measures were recommended to support the overall market-led approach, and a fall-back option to intervene at a later stage was incorporated should private investment fail to materialise. Overall, by undertaking an evidence-based approach with robust analysis, as well as nurturing a collaborative approach between policy makers, potential investors, regulators and operators, the right conditions for accelerating private investment in broadband infrastructure can be found. 


Analysys Mason has worked on national broadband plans globally as well as designing and implementing some of the largest European State-aid broadband intervention projects. Further information about our previous work and how we undertook the study described in this article can be obtained by contacting Ian Adkins at: ian.adkins@analysysmason.com.


1 In March 2010, the European Commission (EC) set the DAE broadband targets to improve Europe’s economic competitiveness. 

2 In July 2015, only 11% of all EU subscriptions were at least 100Mbit/s (European Commission, Digital Agenda Scoreboard 2016). 

The report was launched at an event by the Minister of Transport, Communications and Works: http://www.ocecpr.org.cy/el/content/paroysiasi-ton-apotelesmaton-tis-meletis-gia-tin-epispeysi-tis-anaptyxis-diktyon-epomenis.