Many countries in both the industrialized and developing worlds struggle on some level to achieve efficient and widespread deployment of broadband networks. Rural and thinly populated areas are particularly vulnerable to under-development in terms of broadband access. Two of the most common problems that impede rapid and efficient deployment of broadband networks are:
- the control of bottleneck facilities by a single dominant infrastructure operator, and
- a lack of investment in high-capacity infrastructure in un-served or under-served areas.
Both of these issues may be present in the same country and are often linked to the way infrastructure was constructed and maintained in the past.
In the case of “bottleneck facilities,” the operator (usually the incumbent) has little or no commercial incentives to provide its competitors with access to its infrastructure. The incumbent often has an unfair advantage over its competitors at all levels, but particularly in downstream markets, due to its ownership of key network facilities. Most commonly, this shows up in the price advantages that a vertically-integrated operator can retain unless it is constrained; it is both its own customer and competes with the other customers it supplies. In these circumstances, the dominant infrastructure operator becomes the obstacle to both the development of new infrastructure and, more generally, to the expansion of competition and market growth. The “bottleneck facilities” problem is the most fundamental of all interconnection problems because it can prevent equitable sharing of a dominant operator’s network.
Sharing addresses the obstacle posed by the control of bottleneck facilities by requiring dominant operators to provide access to their facilities on mandated terms and conditions. In some cases, the regulator has also responded to this issue by requiring the wholesale infrastructure (network) business to be as operationally separate as possible from the retail business in order to allow completely transparent trading between the wholesale and retail sides of the business. Another approach is to create a national, state-owned enterprise to construct and to operate a national fibre core network. For more information on approaches taken by regulators to opening up access to bottleneck facilities, please see the Practice Note entitled, “Sharing and Access to Bottleneck Facilities”. A link to this Practice Note is set out below.
In the case of un-served or under-served areas, policy-makers usually aim to create a greater “critical mass” of users by encouraging the roll-out of high-capacity, national infrastructure to a wider range of places than the market alone might initially sustain. Sharing facilitates a wider deployment of a national fibre core network by reducing the high costs associated with rolling out the network infrastructure. In essence, the argument for sharing national infrastructure is that two or more operators sharing (and paying for access to) a common infrastructure will help finance a wider deployment, whereas traffic from a single operator would not sustain a widespread network.
Of course, different approaches are needed for different market dynamics. If multiple existing or potential players want to roll-out a network, then a facilitating agency may succeed by offering passive infrastructure assets like rights of way and government land for sites. In developing countries, however, the main challenge is often finding operators willing to go into under-served areas at all. The common view is that network roll-outs do not make commercial sense in remote, thinly populated areas. Where nobody appears interested in entering such markets, the government might need to take the primary risk by encouraging investment in a wider national network and then devising a fair and efficient mechanism to share this resource with existing market players. The issue for governments is whether to duplicate elements of existing networks or to “fill in” gaps in those networks. The latter might easily be seen as a suitable task for universal access funding, but experience in some regions (Africa, for example) has shown that these funds often do not produce speedy network roll-outs.
In markets where full liberalization has yet to occur, however, the slow progress of infrastructure investment should not necessarily be interpreted as a lack of willingness on the part of the private sector to invest. In some cases, restrictive policy and regulatory environments simply do not allow for commercial evaluation to mature into investment. As the chairperson of the South African Competition Tribunal has noted, “The country's access deficit [the lack of broadband connectivity] was not due to market forces not working, but due to the fact that we have not had a working market. If there is one market that responds to market incentives, it is the telecoms market.”[1]
[1] Paul Vecchiatto, “Telecoms policy a 'mistake'”, itweb.co.za, 15 June 2007.