4.3

Mechanisms

  • 4.3.1 Government Intervention

    Governments have an important role to play in the development of broadband infrastructure, given the centrality of access to this technology to economic and social development. Not only do broadband networks make national economies more efficient, they can assist government agencies with the delivery of important services like healthcare and education. Governments are also aware of the risks of being left behind, with decisions about international business investment increasingly dependent on ready access to broadband networks. In this context, over the past decade governments have tended to re-engage in the development of telecommunications infrastructure, reversing the trend of diminishing government involvement in the sector following the trend to privatisation in the 1990s.* 

    The manner in which governments have engaged in the provision of broadband infrastructure has been diverse, reflecting the needs and limitations of different jurisdictions and markets. While each government is likely to tailor their intervention in the market to local conditions, there can be significant benefits to policymakers in studying the successes and failures of other government interventions.

    Municipal authorities in the South African cities of Cape Town, Tshwane and Stellenbosch have proceeded to roll out free Wi-Fi with a particular focus on low-income suburbs. Authorities in Tshwane have stated that increased opportunities to utilise broadband are seen as a priority tool to tackle systemic educational and employment problems. Free Wi-Fi is expected to be delivered by November 2013 in 5 locations across Tshwane including community centres, University grounds and the main city square in a bid to ensure internet access is available to as many residents as possible.* Tshwane has a roadmap to deliver Wi-Fi in all schools and educational institutions by 2016.* 

    Stellenbosch’s CBD  now has activated free Wi-Fi with the project moving into its second phase to extend the network coverage to the outer suburbs of the town. The free Wi-Fi does not support large downloads but otherwise allows for normal internet surfing and related activities. The initiative is seen as a vital tool in promoting entrepreneurship in the area as well as aiding in  the alleviation of local unemployment. 

    BOX 4.13
    Case Study: South African municipalities in race to provide free Wi-Fi

    Government intervention to improve broadband access can focus on reforms to regulation, market interventions or on the provision of infrastructure. Some governments may choose to intervene at each of these levels, while others may choose to narrow the focus of their intervention. The types of intervention that could be undertaken at each of these levels are set out in the table below.

    Level of intervention

    Possible government interventions

    Anticipated effect of intervention

    Regulatory reforms

    - governments may be allowing for open access to broadband supporting infrastructure like pits and pipes, towers, points of interconnection, and international gateways;

    - governments could consider structural separation of telecommunications providers, between wholesale and retail arms;

    - governments could implement fair and competitive spectrum sharing arrangements.

    Improving the economic efficiency of broadband service delivery and increasing competition. Both of these will likely lead to lower consumer prices for services and higher user take-up.

    Market intervention

     - governments may intervene to stimulate demand in an emerging broadband market by loaning or subsidising computer hardware purchase by individuals or businesses.

    Stimulating demand will make private sector investments in the broadband market more attractive and therefore more likely to be delivered.

    Infrastructure provision

    - governments may choose to build broadband infrastructure itself;

    - governments may choose to offer incentives to the private sector to build broadband infrastructure in certain areas;

    - governments may require the private sector to roll out broadband coverage in certain areas as a licence condition, or other similar requirement.

    Governement intervention will mean that broadband infrastructure is built in places where the market would not build it otherwise.

    Facilitation of public/private partnerships

    - governments can contribute part of the initial investment in an infrastructure project;

    - governments can offer other incentives or favourable operating conditions to private entities.

    Infrastructure will be deployed in areas which would not otherwise receive it due to perceived unprofitability but at lower cost to government and lower risk to private entities than would otherwise be the case
    TABLE 4.2
    Options for government intervention

    In developing broadband policy plans, policymakers may consider the approaches outlined above. Some policy interventions may prove more successful in one environment or another, giving policymakers the flexibility to shift resources to the interventions that are proving successful.

    New Zealand has adopted an integrated approach to broadband infrastructure construction and operation. On the supply side, the government-owned Crown Fibre Holdings is contracting directly with four companies that will build and operate the broadband network. This is supplemented by grant programs like the Rural Broadband Initiative that specifically support broadband rollout in rural areas. The New Zealand Government is also involved in demand-side initiatives that support network expansion by stimulating use and application of the network service. Examples of these demand-side programs include subsidising computer hardware, broadband access and the provision of digital literacy programs.

    BOX 4.14
    Case Study: New Zealand's multiprolonged approach to broadband rollout

  • 4.3.2 Improving the Legal, Regulatory, and Business Environments

    Universal access can be driven by a combination of demand stimulation and various policy and legislative mechanisms to attract investment in and uptake of such services. Efforts to improve the legal, regulatory and business environments can provide a cost-minimising approach to extending service, by encouraging private sector expansion where market forces have not achieved this naturally. In particular, rolling out broadband services in remote regions can be incentivised through improved tax statuses and eased license conditions.

    • 4.3.2.1 Address Universal Access and Service Challenges through Policy and Regulatory Solutions

      Governments can strategically adopt policies and take regulatory actions to encourage private service providers to increase the broadband coverage they offer. This approach entails mutual benefits for governments and service providers. Private providers are encouraged to invest in increasing their coverage as factors impeding their progress are identified and addressed. In turn, governments incur minimum cost as they are able to target their financial input specifically at those areas which do not attract private providers in the first place. Potential solutions include sponsoring programs to increase demand for broadband services, financing network infrastructure and removing barriers restricting competition within the marketplace. Where a traditional framework would impose positive universal service obligations upon designated operators, this approach is less direct and encourages private initiatives.

      Rural areas are a common example of unserved or underserved regions, as the costs of constructing the requisite infrastructure are high and the potential customer base is low. However, an entirely government-funded broadband infrastructure rollout may be prohibitively expensive and not necessary to persuade providers to increase their coverage. Where viable, one of the advantages of a national broadband solution over targeted regional projects is that high costs of rural rollout may cross-subsidised by savings made on lower cost urban rollout. This strategy, adopted by the Australian National Broadband Network, allows wholesale broadband access to be provided at the same price, regardless of the area served. This further reduces disincentives to rural providers, and promotes equality amongst access seekers.

      Broadband access rates are directly linked with population density and wealth. In Brazil, high levels of wealth disparity and a vast populated land area have meant that broadband penetration is lower than in other countries of equivalent income and development levels. There is limited fixed national telecommunications infrastructure for long haul data transmission and a lack of middle mile infrastructure to connect all municipalities to national backbones. Competition in the fixed line sector is low, although there is more competition between 3G mobile networks. In addition, where service coverage is available the costs of access equipment are high   due to import duties, and many of the poor depend on cybercafés and mobile 3G connections.

      Universal service goals incorporated in telecommunications licensing schemes in Brazil currently do not include   broadband services. However, revenues are collected from public telecommunication providers and deposited in a Universal Service Fund which creates infrastructure which can be used to support broadband services. In order to address the issues impeding access, governments at a national, regional, state and municipal level have implemented a range of strategies designed to promote network expansion and improve affordability. Examples include:

      • a National Broadband Plan (PNBL) with a budget of R$1 billion (US$437 million) per year was implemented in 2010 with the aim of tripling uptake by 2014. This will bring access to at least 40   million homes (serving 68 per cent of the population) at a bit rate of at least 1 Mbps;
      • the dormant former state-owned monopoly operator Telecomunicacoes Brasileiras (Telebras) has been tasked with implementing the required network expansion under the PNBL. Deficiencies in   existing backbones will be addressed by bringing oil and electricity operators’ fibre networks on board to fill gaps;
      • the PNBL has established a monthly pricing target of R$35 (US$15) based on research that 70 per cent of Brazilians who are still offline would be willing to pay this amount for a connection;
      • the national telecommunications regulator, Anatel, has proposed that service providers with more than 50,000 connections be required to guarantee delivery of connections at least at 60 per cent of   the headline rate, raising this to 70 then 80 per cent over the two subsequent years. Currently, operators on the Telebras network are only required to provide a minimum of 20 per cent of customers access at the target bit rate, meaning that many connections operate at significantly less than the stated rate;
      • in 2011 Anatel also implemented a General Plan for Competition (PGMC) which will compel large telecommunications providers to share network infrastructure with smaller players, who must be   offered wholesale pricing lower than retail service pricing;
      • radio spectrum has been freed up to allow mobile 3G and fixed wireless services to be expanded. These solutions are particularly well-suited to meet the requirements of isolated areas where cable connections to individual premises and users may be expensive;
      • licence fees have been reduced and duplications across overlapping government areas simplified to encourage market entry;
      • public access facilities are being expanded under the national government’s digital inclusion strategy. The Serpro program, for instance, has rolled out over 8000 telecenters since 2003 and   provides free broadband access across 98 per cent of municipalities. In addition, the Brazil Digital Network Database is being created to integrate telecenter management and form a database of digital inclusion initiatives in order to help shape government policies; and
      • a Broadband in Schools and a One Laptop Per Student program also work to facilitate access linked with education.
      BOX 4.15
      Case Study: Brazil's policy and regulatory solutions to achieve broadband development

      For a more extensive analysis, the broadband toolkit chapter on Brazil is available at: /Case/br

      A balance of incentives and regulatory requirements may be sufficient to persuade private sector investment. This attitude of quid pro quo is also demonstrated in Sweden, where government policies require recipients of public funds to operate open-access networks in a non-discriminatory manner. Similarly, in the Czech Republic, legislation has been implemented to enable the government to set aside 1 per cent of the proceeds of the privatisation of Český Telecom to co-finance infrastructure projects. Those receiving funds will be required to operate open-access networks.

    • 4.3.2.2 Revise the Scope of Universal Access and Service to Include Broadband

      Most global telecommunications laws provide for universal service obligations to be imposed on a telecommunications provider to ensure citizens’ access to services. These initially focused upon basic telephony services, but have recently been expanded to include broadband services. The United Nations aims to ensure that all countries at least include broadband access in their national service definitions by 2015.* 

      Unlike a national broadband plan, a universal service definition will generally establish technology-neutral aspirational service levels, costs and coverage. This allows those called upon to provide universal service to adjust their delivery strategies in a manner appropriate to their business. Universal access and service does not necessarily demand connections to individual premises, but instead may encompass institutional or communal access, where appropriate.

      Region

      Total countries included surveyed

      National policy to promote broadband in place

      No national policy, but plans to adopt one

      No national policy, no plans to adopt one

      Africa

      33

      23

      6

      4

      Arab States

      13

      5

      7

      1

      Asia and Pacific

      30

      24

      2

      4

      CIS

      7

      3

      2

      2

      Europe

      39

      37

      0

      2

      The Americas

      30

      20

      4

      6

      Other

      1 (Hong Kong)

      1

      0

      0
      TABLE 4.3
      Number of economies with plans to adopt a national policy to promote broadband, 2011

      Source: Broadband Commission Survey on Broadband Policies Worldwide (Selected Countries report, 2011). Available at: http://www.broadbandcommission.org/Documents/NationalBBPolicies_2012.pdf

      The following are examples of countries that have revised the scope of their universal service and access policies and universal service funds to include broadband services:

      • as set out in Part 4.1.2,in Finland access to broadband is a legal right. Since July 2010, every person in Finland has a guaranteed right to a one Mbps broadband connection;* 
      • India was one of the first countries to include broadband in the Universal Service Access Fund (UASF) in 2006. The UASF allows for the support of broadband connectivity and mobile services in rural and remote areas of the country;
      • in Morocco, the priorities of the Universal Service Fund (USF) were expanded through a revision of the law in 2004 to include rural public telephony, installation of community internet centres, and an increase in broadband capacity through various programs;* 
      • in Switzerland, the government decided that, beginning in January 1, 2008, universal service providers must provide a broadband connection to the whole population, via digital subscriber line (DSL), satellite, or other technologies. Connections must offer bit rates of at least 600 kbps downstream and 100 kbps upstream, and the monthly subscription cannot be more than SWF69 (US$85); and
      • the United States aims, as part of the universal service objective, to provide access to broadband services to all people at an initial rate of 4 Mbps downstream and 1 Mbps upstream by 2020.* 

      A number of countries, including Korea, Japan, the United Kingdom and Australia, have chosen to develop plans or strategies to ensure that broadband is available to all through other universal service policies. Since 2009, Australia has been committed to the roll out of the National Broadband Network (NBN), a wholesale-only, open access network delivering broadband to all Australian premises. Some countries have also opted to not support broadband through inclusion in universal service obligations or other commitments to provide broadband for all. Countries in this group include Denmark, Norway, Germany, the Netherlands and Ireland.* 

      The Telecommunications (Consumer Protection and Service Standards) Act 1999 creates a Universal Service Obligation (USO) in Australia. The USO obliges certain Universal Service Providers (USPs) to ensure that all people in Australia have reasonable access on an equitable basis to standard telephone services, payphones and prescribed carriage services.

      In 2011 the Australian Government reached an agreement with the incumbent telecommunications provider, Telstra, for the ongoing delivery of voice and payphone services under the USO while the telecommunications industry transitions to the National Broadband Network. In March 2012 universal service reform legislation was passed to establish the Telecommunications Universal Service Management Agency (TUSMA). TUSMA manages the agreement with Telstra and grants to ensure that universal service obligations are met. TUSMA’s current grants include:

      • the agreement with Telstra to deliver the Universal Service Obligation (value: approximately A$230 million (US$213 million));
      • the agreement with Telstra to provide public payphones which are reasonably accessible to all Australians (contract value up to A$40 million per year);
      • the agreement with Telstra to provide emergency call services (contract value up to A$20 million per year);
      • the agreement with the Australian Communication Exchange to deliver a National Relay Service; and
      • the agreement with Telstra to extend the zones where local calls are untimed to cover larger rural and regional areas.

      Currently, the government business enterprise NBN Co is in the process of rolling out a new national broadband network. The NBN is a wholesale-only, open access network delivering high quality broadband to all Australian premises. The network will connect 93 per cent of Australian premises with fibre cables, while the remaining 7 per cent will receive broadband by fixed wireless or satellite service, and be completed by 2020.

      As the network rollout progresses, voice customer contracts within the fibre footprint will be migrated from the existing copper and HFC networks to the NBN fibre networks. The Telstra Structural Separation Undertaking (SSU) and Migration Plan require Telstra to progressively disconnect its copper and hybrid-fibre coaxial (HFC) networks as the NBN fibre network is rolled out. Similarly, the Definitive Agreements between Telstra and NBN Co require Telstra to progressively disconnect its copper and HFC networks when they fall within the fibre footprint. As a result, in order to meet its USO and other obligations Telstra must provide customers with voice services over the fibre network, where it is present, or otherwise maintain its existing network services.

      Although plans to provide universal broadband access are not included in the USO, the national broadband network will connect all homes and businesses. While the National Broadband Network is being rolled out, NBN Co must provide interim satellite service to eligible users in rural and remote areas who will be served by the NBN Co fixed wireless and satellite services, when they are completed. When the NBN is completed, it will be the responsibility of TUSMA to distribute universal service funds to ensure that both voice and broadband services are provided on a retail basis as NBN Co’s network is only supplied on a wholesale basis.

      BOX 4.16
      Case Study: Universal Service Obligations and National Boradband Network in Australia

      In September 2008, the Malaysian government announced an agreement with the incumbent fixed-line operator, Telekom Malaysia for a high-speed broadband network.

      Under the terms of the agreement, Telekom Malaysia is required to rollout an access network to provide a High Speed Broadband (HSBB) service to households and businesses in certain high economic impact areas. The access network uses three technologies: Fibre-to-the-home (FTTH), Ethernet-to-the-home and Very High Speed Digital Subscriber Line (VDSL2). The Public Private Partnership (PPP) is phased over ten years, with phase 1 (providing HSBB access to over 1.3 million premises) ending in 2012.

      The residential HSBB service will have a minimum speed of 10 Mbps, with options available up to 100 Mbps. Services to business customers are up to 1 Gbps. The expected investment costs were split between the government and Telekom Malaysia in a PPP. The government and Telekom Malaysia committed to investing RM2.4 billion (US$780 million) and RM8.9 billion (US$2.9 billion) respectively.

      Certain services provided over the HSBB network are subject to access regulation through the Access List under the Communications and Multimedia Act 1998. Specifically, the Malaysian Communications and Multimedia Commission has defined two layer 2 access services (one with quality of service selected by the access seeker, the other provided on a best efforts basis) specific to the HSBB, which Telekom Malaysia must supply to access seekers on reasonable terms and conditions. The Access List also contains backhaul transmission services.

      BOX 4.17
      Case Study: Malaysian High Speed Broadband Network

  • 4.3.3 Support Private Sector Network Build-Out: Supply

    Governments may adopt a range of instruments to accelerate the supply of broadband ahead of or beyond the market. These can include subsidies for investment, equity in PPPs, facilitated access to rights-of-way, preferential tax treatment, long-term loans for investment in local currency, on-lending loans, credits or grants from international development organizations, and guarantees to offset regulatory or political risk. Implementation of such policies can encourage operators to focus on deploying networks and services in unserved areas since they will be able to earn a higher rate of return on their investments over the long-term.

    The most common practice is for the government to contribute money when needed to ensure that important investments in rural development are commercially viable. Governments provide one-off subsidies for investment and start-up, focusing on unserved and underserved areas. The New Zealand government, for example, will provide approximately NZ$300 million (US$245 million) towards the cost of the Rural Broadband Initiative, which aims to deliver faster broadband to rural households and schools: 97 per cent of rural households and enterprises receiving at least 5 Mbps, with the remainder receiving at least 1 Mbps, and 97 per cent of rural schools receiving at least 100 Mbps (fibre), with the remainder receiving at least 10 Mbps.* 

    Alternatively, governments can contribute equity to PPPs with similar objectives. For example, the government can help to build broadband backbone networks that are then made accessible in equal terms to all interested downstream providers. When well designed, these practices can mobilize substantial private sector investment, enable large projects that otherwise would not materialize, contain the cost and risk borne by the government, and jump-start sustainable markets from which the government can exit quickly. PPPs used in broadband projects include the following examples:

    • in Ireland, the government has funded the development of publicly owned, privately operated Metropolitan Area Networks (MANs). The MANs provide wholesale access to networks of ducting, subducting and high capacity fibre optic cable in urban areas. The MANs operate on an open-access basis;
    • in the Netherlands, Amsterdam’s open-access, wholesale FTTH network was developed as a PPP between the local municipality, housing corporations and private sector investors. Each group invested €6 million for a one-third stake in Glasvezelnet Amsterdam (GNA), the company delivering the project;
    • New Zealand features a PPP agreement between CFH and Chorus, the structurally-separated network business which emerged from the voluntary demerger of Telecom New Zealand. The agreement provides for a 50/50 debt-equity instrument (with an investment by CFH of up to NZ$929 million) as the mechanism for Crown funding of Chorus’ fibre network rollout;
    • Qatar’s National Broadband Network (QNBN) is a government-funded project that aims to accelerate the deployment of a FTTH network nationally. QNBN provides equal, non-discriminatory access to the FTTH network, enabling any operator to use the infrastructure to deliver services. QNBN is also part of a number of initiatives introduced to stimulate the take-up of FTTH services, notably Qatar National Vision 2030 and Qatar ICT Strategy 2025;* and
    • Saudi Arabia’s Universal Service Project provides grants for operators to provide voice and broadband access to unserved and underserved locations using wireless technology, as part of the universal access/universal service policy established in 2006.*   

    It may be possible to reduce the cost of broadband development by giving investors access to rights-of-way along railways or roads, on rooftops, and on other public property. Absent alternative uses for these rights-of-way, their opportunity cost to the public is negligible, and if they are made equally available to all interested parties, their use will not distort competition. Therefore, granting rights-of-way may help to reduce the total investment cost of broadband development.

    One of the most significant obstacles in rolling out new communications infrastructure can be the myriad of consents and approvals that an operator needs to obtain from central and local government. In some countries such as India, government is facilitating and fast-tracking these consents and approvals to speed up the deployment of broadband networks.

    In India, obtaining right of way (RoW) permission is regarded as a major hurdle in rolling out new telecommunications infrastructure. Service providers have noted that local authorities take a long time to grant permission. Permission requirements also give rise to additional cost as service providers must pay for the cost to local government and/or agencies granting a RoW permission. This is recognised in the 2012 National Telecom Policy, which notes the need to review and simplify policies for RoW processes to facilitate smooth coordination between service providers and the relevant government agency.

    BOX 4.18
    Case Study: Right of way permissions in India

    Source: India: National Telecom Policy (2012). Available at: http://www.dot.gov.in/ntp/NTP-06.06.2012-final.pdf

    Granting exceptional tax treatment is another tool policymakers may be able to use. Good tax practice in general suggests that a particular economic activity should not be singled out for tax conditions that do not apply to all like activities throughout the economy. This means that taxes or duties that apply only to broadband should be phased out and, conversely, that exemptions from generally applicable obligations should be avoided. The Hungarian government, for example, took efforts to institute tax incentives to further the build-out of broadband. Specifically, Hungary’s government grants a tax reduction of 50 per cent on profits as a way to support the construction of broadband infrastructure. The concessions are available only to telecommunications companies if their expected profits exceed Ft50 million (US$250,000) and if they have invested at least Ft100 million (US$500,000). The tax allowance cannot be applied to Internet Service Providers (ISPs) if the infrastructure is built in areas where internet service is already provided or where the investment does not contribute to the growth of infrastructure.

    Malaysia is another example of a government using fiscal measures to encourage private investment in broadband. The Malaysian government has introduced tax allowances on ‘last mile’ broadband equipment, which includes giving ‘last mile’ network facilities providers an investment allowance on capital expenditure spent on broadband. In addition to tax allowances, import duty and sales tax exemptions are available on broadband equipment and consumer access devices.* 

    Investment in new open and competitive networks, including broadband networks, can also be supported by the actions of national and local authorities in lowering costs. The European Commission’s 2009 Guidelines on the Application of State Aid Rules (the 2009 Guidelines), for example, lay down the conditions for public financial support on nonmarket terms for broadband deployment in commercially unattractive or unviable areas.

    The main objective of the 2009 Guidelines is to assist the actions of national and local authorities. The 2009 Guidelines are presented as part of the broadband package, together with the two other broadband commitments made by the Commission in the Digital Agenda for fast and ultra-fast internet:

    • the Next-Generation Access (NGA) Recommendation to provide regulatory guidance to national regulators; and
    • the Radio Spectrum Policy Program to improve the coordination and management of spectrum and facilitate, among other things, the growth of wireless broadband.

    In the 2009 Guidelines, the European Commission recognises that broadband networks tend to cover only part of the population since they are generally more profitable to roll out where potential demand is higher and concentrated (that is, in densely populated areas) rather than in areas with less population, specifically because of the high fixed costs of investment and high unit costs. The European Commission distinguishes acceptability of state intervention among:

    • areas where no broadband infrastructure exists or is unlikely to be developed in the near term. Here, support is considered to likely promote territorial, social and economic cohesion, and address market failures (so-called white areas);
    • areas where market failure or a lack of cohesion may exist despite the existence of a network operator, thus requiring a more detailed analysis and careful compatibility assessment prior to allowing state intervention; and
    • so-called black zones, which are defined as a given geographic zone where at least two broadband network providers are present and broadband services are provided under competitive conditions (facilities-based competition). In these black zones, the commission does not consider that there is a market failure, so there is little scope for state intervention. In the absence of a clearly demonstrated market failure, state funding for the rollout of an additional broadband infrastructure is not available.
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