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No. 78 - New business models for Next Generation Access

DigiWorld Economic Journal - C&S - 30/06/2010 No. 78 - New business models for Next Generation Access

2nd Quarter 2010

Many carriers around the world are investing in high bit rate broadband infrastructure. It is common sense among experts that an FTTH network infrastructure will be the most capable and reliable network infrastructure for Next Generation Access. This dossier presents the views of experienced authors who develop their thoughts on how Europe can close its current gap in fibre development and investment. We also have included papers on case studies on successful fibre projects in Europe. Furthermore, we present papers which will analyse the national broadband plans which have been developed by some European Governments to foster the deployment of NGA.


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Dossier

New business models for Next Generation Access

Edited by Karl-Heinz NEUMANN & Lorenzo Maria PUPILLO


Introduction

By the Editors

General Overview of FTTx Markets at end 2009
Valérie CHAILLOU

Papers


Do NGAN Economics Allow for Network Competition?
Bruno SORIA & Félix HERNÁNDEZ-GIL

Competition via Investment, an Efficient Model for FTTH Rollout
Marc LEBOURGES

Price Squeezes and Imputation Tests on Next Generation Access Networks
Henry ERGAS, Eric KODJO RALPH & Emma LANIGAN

Fiber to the Home Unbundling and Retail Competition:Developments in the Netherlands
Annemijn van GORP & Catherine MIDDLETON

National FTTH Plans in France, Italy and Portugal
Marc BOURREAU, Carlo CAMBINI & Steffen HOERNIG

Productivity Questions for Public Sector Fast Fibre Network Financiers
Bronwyn HOWELL & Arthur GRIMES

Interviews
Adrian von HAMMERSTEIN, CEO of Kabel Deutschland


Features
Firms and Markets
• FTTx: The Leading Operators' Strategies
Roland MONTAGNE, Didier POUILLOT & Valérie CHAILLOU

Technical Innovations
• (Re)shaping the Mobile Sector: the Breaker, the Trojan and…the Shopping Malls
Denis LESCOP and Thierry ISCKIA

Book Review
• W. H. LEHR & L. M. PUPILLO (Eds), Internet Policy and Economics. Challenges and Perspectives
Zdenek HRUBY

Author biographies  

Future
events
• ITS Asia-Pacific Regional Conference
Wellington, New Zealand - August 26-28, 2010
• 21st European Regional ITS Conference
Copenhagen, Denmark - September 13-15, 2010
• 38th TPRC conference
Arlington, Virginia, USA - October 1-3, 2010
• DigiWorld Summit 2010 – 32nd IDATE international conference
Montpellier, France - November 17-18, 2010
Dossier: New business models for Next Generation Access


Do NGAN Economics Allow for Network Competition?
Bruno SORIA & Félix HERNÁNDEZ-GIL Telefónica
Key words: regulation, competition, broadband, access networks, fibre optic.

This article analyses whether the economics of Next Generation Access Networks for broadband services allow for the market to be competitive in Europe in absence of ex ante regulation of wholesale network access. This is done by two methods: cost modelling of operators with different technologies and market shares, and the review of market entry decisions by European operators. Both methods arrive at the same conclusions: a) network economics allow competition in most geographic areas between two to four operators; b) the economics of NGANs will lead to different industry structures iin different geographic areas; c) even where there is not a pre-existing cable operator, other entrants can successfully deploy their networks and challenge the incumbent telecommunications operator; and d) price levels and availability of ducts greatly increase the degree of potential competition.

Competition via Investment, an Efficient Model for FTTH Rollout

Marc LEBOURGES France Telecom
Key words: NGA, FTTH, Regulation, Competition, Dynamic and Static Efficiency.

The debate on the regulation of Next General Access started in Europe several years ago. It addresses the question of whether or not fibre access networks should be subject to the same regulation as the copper local loop. This debate is often examined as competition vs. investment. The present paper suggests that the best way for regulation to
solve the dilemma is to promote competition through competitive investments in the fibre access market. In particular a combination of individual and co-investment from/among competing fibre operators could provide the desired outcome in terms of efficient investment, coverage, competition, innovation and prices/cost. Such an option corresponds to the choice of several European national regulators. It is also the the historical and highly successful option used in European mobile markets.


Price Squeezes and Imputation Tests on Next Generation Access Networks
Henry ERGAS, Deloitte, Canberra, Australia
Eric KODJO RALPH, EKonomics LLC, Baltimore, U.S.A
Emma LANIGAN, Independent Consultant, Marlborough, New Zealand

Key words: price squeeze; imputation tests; next generation access  networks; vertical discrimination; electronic communications; regulation.


A vertically integrated firm that wholesales to its retail rivals can, if it has sufficient market power, set the margin between its retail and wholesale prices so as to harm its rivals. Conventionally, an imputation test is used to determine whether such
behavior is being undertaken. Such tests are common in electronic communications, and the EC calls for their potentially intensive ex ante application in the supply of NGANs. This paper shows that while imputation tests are helpful analytical tools for understanding the nature of price squeezes, difficulties associated with implementation, which are sharp in
an NGAN context, can make them misleading in practice. Instead, price squeezes are best dealt with through the rigorous comparison of expected outcomes, given the alleged anticompetitive behavior, with the outcomes expected in that behavior's absence. Such analysis is not suited to ex ante application.

Fiber to the Home Unbundling and Retail Competition: Developments in the Netherlands
Annemijn van GORP & Catherine MIDDLETON, Ryerson University, Toronto, Canada
Keywords: FTTH, broadband, Netherlands, open access, regulation, competition

This study provides preliminary insights into how fiber to the home (FTTH) networks affect competition in the broadband Internet access market, and how, and if, competition on FTTH networks can be sustained. This study focuses on the Netherlands, a fast growing FTTH market with regulation mandating unbundling. Even though it is too early to paint a full picture of developments in the competitive landscape, initial findings suggest that rollout of FTTH has positive short-term effects on facilities-based competition. However, the extent to which competition on FTTH networks will develop at both the active operator and retail level remains unclear at this point. Additional uncertainties regarding the future of facilities-based competition suggest continued close monitoring of the market is necessary. Future research should address the extent to which competition at the active and retail level affect innovation.

National FTTH Plans in France, Italy and Portugal
Marc BOURREAU, Telecom ParisTech, Paris, France
Carlo CAMBINI, Politecnico di Torino, Turin, Italy
Steffen HOERNIG, Universidade Nova de Lisboa, Lisbon, Portugal; CEPR

Key words: broadband; fibre; next generation access networks; regulation.

In this paper, we analyse the specific national broadband plans which have been developed by some European governments to foster the deployment of next generation access networks, namely in France, Italy, and Portugal. In particular, we discuss the strategies adopted to achieve wide fibre coverage and encourage coinvestment
between competing operators. Finally, we highlight the similarities and differences between the strategies followed in these three countries.

Productivity Questions for Public Sector Fast Fibre Network Financiers
Bronwyn HOWELL, New Zealand Institute for the Study of Competition and Regulation; Victoria University of Wellington, New Zealand
Arthur GRIMES, Motu Economic and Public Policy Research; University of Waikato, New Zealand

Key words: Internet, broadband, productivity, public investment.

Fast internet access is widely considered to be a productivity-enhancing factor. However, despite promises of substantial gains from its deployment, the evidence from recent empirical studies suggests that the productivity gains may not be as large as originally hypothesised. If substantiated, these findings suggest that current government plans to apply significant sums to bring forward the deployment of fast fibre networks (e.g. in both Australia and New Zealand) may not generate returns to the extent anticipated by their sponsors. Drawing upon the original 'computer productivity paradox' literature, this paper develops a critical questioning framework to assist policy-makers in identifying the salient productivity issues to be addressed when making the decision to apply scarce public resources to faster broadband network deployment. Using multiple literatures, the framework highlights the nuanced and highly complex ways in which broadband network
speed may affect productivity, both positively and negatively. Policy-makers need to be satisfied that, on balance, government-funded investments in faster networks will likely generate the anticipated net benefits, given the significant uncertainties that are identified.

Marc BOURREAU is Professor of Economics at Telecom ParisTech, Paris, France. He is also a research associate at the laboratory of industrial economics (LEI) of the Center for Research in Economics and Statistics (CREST). He obtained
a Master's degree in engineering science from Telecom ParisTech and a Ph.D. degree in economics from Université Paris 2 Panthéon-Assas. His research interests lie in the field of industrial organization, with a strong emphasis on telecommunications. He has published several articles on these topics in leading economic journals. His recent research focuses on the relation between regulation and investment in the telecommunications industry.

Carlo CAMBINI (Ph.D.) is Associate Professor in the Department of Production Systems and Business Economics at the Politecnico di Torino (Italy) and he is also a member of the Scientific Committee at the Florence School of Regulation –
Communications and Media, Robert Schuman Centre for Advanced Studies, at the European University Institute (EUI). He was awarded the Young Economist Essay Award at the EARIE conference in Losanna (CH), for a paper on network competition in telecoms. His research interests lie in the field of industrial economics with a special focus on competition policy and regulation in telecommunications. He has published in several leading economic journals and he is the author of two books on the economics of telecommunications.

Valérie CHAILLOU is a Senior Consultant at IDATE since 2000. Valérie's prime areas of expertise are the Internet and broadband sectors, and access technologies in particular. Valérie has been the Project Manager for several market reports,
including: FTTH, World Internet Atlas, Wi-Fi, Powerline Carrier Systems and WiMAX, in addition to contributing her talents to various studies dealing with IP networks and services, on behalf of operators or local authorities. Before coming to IDATE, Valérie took part in a variety of computer science projects, working as a consulting engineer for Cap Gemini. She holds a Telecommunications Engineer degree from ENST Bretagne (Ecole Nationale Supérieure des Télécommunications de Bretagne, 1997) and a Master's Degree in Physics (Université II de Montpellier,1995).
v.chaillou@idate.org

Henry ERGAS is Senior Economic Adviser, Deloitte, Australia. He joined Deloitte in 2009 after working as a consultant economist at NECG, CRA International and Concept Economics. Prior to that, Henry was an economist at the OECD in Paris (1978 to 1993), serving as Counsellor for Structural Policy in the Economics Department. Since leaving the OECD Henry has acted as a consultant to a wide range of governments, regulators and corporations. He has taught economics at a number of universities and is Adjunct Professor of Economics at Monash University, Melbourne

Annemijn van GORP is a Post-Doctoral Fellow at Ryerson University in Toronto, Canada. She received her Ph.D. in Information Sciences & Technology from Penn State University in the USA. Her research focuses on national and international policy and regulatory aspects related to the provision of communication and Internet access technologies, and ICT for development.

Arthur GRIMES is Senior Fellow at Motu Economic and Public Policy Research, and Adjunct Professor of Economics at University of Waikato. He has a Ph.D. in Economics from the London School of Economics, and degrees from University of
Waikato. His current research focuses on the economics of infrastructure and housing; and determinants of New Zealand firm success.

Adrian von HAMMERSTEIN (born in 1953) has been Chief Executive Officer of Kabel Deutschland since May 2007. He holds a doctorate in economics and has been active as an executive in the sector of information and communications for 20 years. In his most recent position, von Hammerstein was CEO at Siemens Business Services, an IT service provider. Prior to that, he managed the business of Fujitsu Siemens Computers for five years, first as CFO then as CEO. Under his leadership, the joint venture evolved into a profitable and recognized supplier of IT hardware and infrastructure. Previous stages of his occupational history include CFO of the Information and Communications Products Group at Siemens AG, Finance Director of the Open Enterprise Computing Division at Siemens Nixdorf and System Business Finance Manager at Digital Equipment.

Felix HERNANDEZ-GIL received a Telecommunications Engineer degree (1981) and a Ph.D. degree (1987) from the Polytechnic University of Madrid where he worked at the Microwave Department until 1985, when he joined Telefonica to work on the development of radio communications systems. In 1988 he joined AT&T's Bell Laboratories in New Jersey to work on WDM optical communication systems for access networks. He has been at Telefonica R&D for more than 10 years working as head of the Optoelectronics Division and the Multimedia Technology Division. He is presently at the Corporate Regulatory Affairs department in Telefonica, where he is working in new products and services. He has been author or co-author of more than 100 conferences and journals papers and is author of several patents.

Steffen HOERNIG is an Associate Professor at the School of Business and Economics of the Universidade Nova de Lisboa, Lisbon, Portugal. He obtained a degree in Management at the Universität Bielefeld in Germany; a Master in Applied Mathematical Sciences at the University of Georgia, Athens, USA; and a Ph.D. degree in Economics at the European University Institute in Florence, Italy. His research and publication area is Industrial Organization, with particular emphasis on
telecommunications economics. Recently he has concentrated on issues related to competition between mobile networks. He has been a consultant for ICP-ANACOM in Portugal and companies on matters including the EU Framework for Telecommunications Regulation and issues in network competition.

Bronwyn HOWELL is General Manager of the New Zealand Institute for the Study of Competition and Regulation and a faculty member of Victoria Management School, Victoria University of Wellington. In 2007, she was Visiting Research
Scientist at the Networking Laboratory, Helsinki University of Technology. Bronwyn has a background as both an academic researching telecommunications, ICT and health markets, and as a practitioner, holding managerial positions in the ICT and
health sectors in both New Zealand and multinational firms. Her research interests relate to the ownership, governance and management of firms operating in regulated industries.

Zdenek HRUBÝ is a senior Fellow at the Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague doing research and teaching of theory of regulation end economics of network industries. Zdenek is a BoD member of several companies, including CEZ (energy utility), European Investment Bank, European Investment Fund, etc. He is former Deputy Minister of Finance, BoD of Czech Telecom and participant and coordinator of a number of international research projects.

Thierry ISCKIA is associate professor of Strategic Management and head of the research team "Innovation, Globalization and Transformation" at TELECOM Business School (member of TELECOM Institute). His research deals with collective
strategies, knowledge management and innovation within business ecosystems. He spent six years in France Telecom R&D division working on Computer Supported Cooperative Work services and two years in Wanadoo as business analyst.

Eric KODJO RALPH is an economist with expertise in regulation, antitrust and industrial organization more broadly. Eric has worked in a range of industries, most notably electronic communications, advising corporations and government bodies
around the world. Eric's research interests include net neutrality, regulation of electricity transmission, network interconnection, and various forms of anticompetitive behavior. He has taught economics at several universities including the George Washington and Monash Universities. Eric has a Ph.D. from Duke University.

Emma LANIGAN specialises in regulatory and competition economics, primarily in the telecommunications industry. Examples of telecommunications projects that Emma has worked on include: anticompetitive conduct assessment; retail and wholesale pricing strategy utilising economic models of strategic interaction; the establishment of regulatory compliance programs; regulatory policy analysis; cost modelling and the development of access prices; and the assessment of competitive effects of mergers and joint ventures. Emma has a detailed knowledge of telecommunications regulatory regimes in a number of jurisdictions having worked on projects in Europe, Australia, New Zealand, Asia, the Middle East and the Pacific Islands. Emma has an M.A. in Economics (with First Class Honours), from the University of Auckland, New Zealand.

Marc LEBOURGES is currently Head of European and Economic Regulation, France Telecom Corporate Regulatory Affairs. He was previously marketing director of France Telecom domestic wholesale division. He started as a researcher in
operation research and network management studies at the Centre National d'Etudes des Télécommunications and moved to France Telecom's strategic planning division were he was involved in the preparation and the implementation of
interconnection, access and universal service regulation in France and in the elaboration of France Telecom's Internet strategy. Marc Lebourges is a graduate from the Ecole Nationale Supérieure des Télécommunications and holds a Ph.D. in
Computer Science from Université Paris VI.

Denis LESCOP is associate Professor of law and economics and Director of the Research Centre at TELECOM Business School (member of TELECOM Institute). His research focuses on open innovation, platform strategies and the analysis of
regulation policies in the telecommunications and media sectors. He was previously case handler for the French competition Council and head of economic and technical studies unit at the French Telecommunications Regulator. Denis holds a Doctorate in Economics from the Université de Franche Comté.

Catherine MIDDLETON holds the Canada Research Chair in Communication Technologies in the Information Society at Ryerson University, Toronto, Canada. Her research focuses on the development and usage of broadband networks and mobile communication technologies.
http://www.ryerson.ca/itm/fcty/Middleton/Middleton.html

Roland MONTAGNE is Director of Studies, Head of Broadband Practice at IDATE. In recent years, Roland has managed several assignments focused on DSL, cable and wireless access network economics – exploring global issues such as
bundled offers over DSL, and the economics of bitstream access and unbundling. Roland is also in charge of all of IDATE's FTTx activities. In the area of satellite, he has conducted a variety of assignments devoted to satellite broadband access
economics (AGORA) and to market opportunities for a satellite mobile TV offer (SDMB). Before joining IDATE, Roland achieved several developments in the area of digital radiocommunications and mobile services. He worked for a year for AT&T as a Bell Labs research engineer in New Jersey, and has conducted a variety of research projects on optical networks (DWDM) and ATM technologies. He has also attended several research training programmes on optical communications at CNET (FranceTelecom R&D). Roland Montagne is a regular speaker in key events related to FTTH
topics at an international level (FTTH Councils Europe, Asia Pacific and US, FTTH Forum and Digiworld Summit).
r.montagne@idate.org

Karl-Heinz NEUMANN is Director and General Manager of WIK GmbH as well as of WIK-Consult GmbH. Dr. Neumann studied economics and later on assisted as a research fellow at the University of Bonn. From 1982 till 1995 he was already part
of the WIK research team. During this time he was a member of several regulatory commissions on telecommunication policy and regulatory issues (e.g. Research Commission on Regulation and Competition of the former Ministry of Post and
Telecommunication, Steering Committee Mobile Communication). From 1995 till 2001 he worked for RWE Telliance AG. Here he started as head of the department of regulation, strategy and national projects. Later in 1999 he became member of the board of directors of RWE Telliance AG. Furthermore, he was a member of the board of directors and supervisory boards of various national and international telecommunication companies. Dr. Neumann is member of the Board of Directors of the International Telecommunications Society (ITS), Member of the Research Committee
of the Münchener Kreis, and Member of the Wissenschaftlicher Arbeitskreis für Regulierungsfragen of the Federal Network Agency.

Didier POUILLOT is Director of Studies and Head of Practice "Telecom Economics and Business modelling" at IDATE. A specialist in telcos and telecom services markets, he contributes to a variety of research and study assignments on
the sector's regulatory, technological and industrial issues (ultra-broadband outlook, telecommunications investments and employment, European industry's competitiveness, …). Didier is also the Editor-in-Chief of the annual DigiWorld
Yearbook on the stakes and challenges of the digital economy. Before joining IDATE, Didier worked as a consultant for Paris firm, B.I.P.E. He is a graduate from the ESSEC business school in Paris, France (1982).
d.pouillot@idate.org

Lorenzo Maria PUPILLO is an Executive Director in the Public Affairs Unit of Telecom Italia and Affiliated Researcher at Columbia Institute for Tele-Information. In Telecom Italia, he is working on Next Generation Networks, ICT & Energy, Net
Neutrality, Geographic Markets, Functional Separation and is providing Policy Advising to senior management. He is an economist by training and has worked in many areas of telecommunications demand and regulatory analysis, publishing
papers in applied econometrics and industrial organization. He has also been Advisor to the Global Information and Communication Technologies Department of the World Bank in Washington. Before joining Telecom Italia in 1992, he was member of technical staff at AT&T Bell Laboratories in Murray Hill, New Jersey. Dr. Pupillo also serves on numerous committees for international organizations and on scientific and advisory boards around the globe. He earned a Ph.D. and an M.A. from University of Pennsylvania, an MBA from Istituto Adriano Olivetti in Ancona Italy and a MS in
Mathematics from University of Rome.

Bruno SORIA holds an MSc degree in Telecommunications Engineering, an MBA and a Ph.D. in Economics. In 2001 he joined Telefónica as Director for Competitive Intelligence in the Corporate Strategy Team. In 2002 he moved to the
Corporate Regulatory Team where he is now Director for Regulatory Services. He is also the Chairman of the Regulatory Economics Task Force of ETNO (European association of Telecommunications Network Operators). Before joining Telefónica,he was Technical Manager at AUTEL (INTUG Spain), Project Leader in The Boston Consulting Group and Business Development Manager for Spain in MCI Worldcom. He has authored or co-authored several books, articles and papers on telecommunications strategy and regulation.


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