Paris, 29 April 2005
Broadband has been growing very strongly in France and has become a key element for the competitiveness of businesses. It is one of the concerns of governments both nationally and locally. So much so that last June, Parliament adopted a law for trust in the digital economy which, by modifying article L.1425-1 of the Local and Regional Collectivity Code, authorises local governments to invest in the development of telecommunications networks.
In order to contribute to discussions on the coordination of public and private investments, Autorité de Régulation des Télécommunications (ART) and Caisse des Dépôts ordered a series of studies from several consulting firms (Wik, Analysys, The Channel, Between) on public intervention and its impacts on competition in various countries: United States, Korea, United Kingdom, Ireland, Spain, Germany and Italy. In a concern for transparency and information, these studies were made public today.
What do the studies teach us?
- The broadband market, growing strongly in all countries
In all the countries studied, the broadband market is seeing extensive development and is becoming an increasingly important concern for both public and private players. The number of broadband subscribers more than doubled in the countries studied between 2002 and 2004.
However, operators have adopted different policies in different countries, resulting in substantial differences in equipment rates: for example, in Korea, the market is almost saturated (78% of households have a broadband connection) whereas in Ireland, just 1.7% of the population (approximately 5% of households) had a broadband subscription in June 2004.
These disparities are accentuated by the differences in price and service observed in the countries studied. For example, while in France broadband subscription fees are between €15 and €30 and triple play offers are available for more than half of the population, in Spain, a 512 kbit/s offer cost between €70 and €80 in 2004.
Finally, competition among operators is seen in different ways: unbundling is developing rapidly in Germany and Italy, whereas it is almost nonexistent in the United States and United Kingdom. In these countries, on the other hand, powerful cable operators have developed competitive offers on the local loop and these countries have even seen the emergence of private and public new generation FTTx local loops.
- Differences observed between urban and rural areas
The economy of telecommunications networks is based on economies of scale and the sharing of fixed costs among users. The economic conditions of service deployment are therefore more favourable in densely populated urban areas than in rural areas.
In all the countries studied, we observe a difference in the penetration rate between the areas served and those which do not receive broadband service. Broadband developed first in major cities, while some rural areas are still not serviced by operators. However, it is important to note that broadband accessibility is growing strongly in all countries: in the United Kingdom, close to 90% of the population had access to broadband in June 2004, compared with less than 60% two years earlier.
In certain countries, the debate concerned the development of differentiated offers between dense areas, which benefit from competition among operators and in which innovative and efficient low-cost services are available, and less dense areas in which broadband, although available, remains more expensive and less efficient. This "digital gap" can be prejudicial for businesses and causes differences in productivity between well-served areas and less developed areas.
- Intervention of authorities
Historically, local governments intervened in the telecommunications sector for economic reasons: they wanted their own network in order to free themselves from operators for their telephone consumption. Moreover, they sometimes had water or electrical networks and saw in the deregulation of the telecommunications sector an opportunity to generate a profit from these networks. This model was used to create German city carriers, based on local utilities, and the creation of a joint-venture between a local utility and a national operator in Parma, Italy.
This method is still used today in major British programmes which combine demand: e-education, e-health, etc., are used, for example, in the Cambridgeshire Community Network project.
In recent years, public intervention refocused on reducing "digital gaps", regional development and improving regional competitiveness.
The authorities are often called on to extend DSL networks. The incumbent operators BT in the United Kingdom, Eircom in Ireland and Telecom Italia in Italy negotiate with their governments in order to establish the list of distribution frames to be subsidised so they can be equipped. In Germany, on the other hand, the debate on the "digital gap" is just starting and Deutsche Telekom has not requested any assistance from the State.
Recently, public players have begun to try to influence the offer of competitive services on a national scale.
This category includes triple-play projects developed by certain American cities on fibre optic networks (FTTx technologies), a natural extension of local cable network projects which were born of dissatisfaction with the level of services. It also includes the Italian project of developing a cable network in the Tuscan countryside, as well as public networks, accessible to all operators, built by French and Swedish cities and Spanish provinces. These subsidised networks are used to create competition through infrastructures between the incumbent operator and its competitors using the public infrastructure.
- The public authorities involved
Different authorities are involved depending on the country.
In Europe, we should first highlight the major role played by European funds, such as FEDER, which can be used for local economic development projects. These funds have been used for telecommunications networks in most public projects in the United Kingdom, Ireland, Italy, Spain and France.
Centralised action at the federal level has been taken in certain countries: the Irish government conducted itself the fibre-optic infrastructure development projects in the country, and "digital gap" reduction programmes in villages with fewer than 1 500 inhabitants. The Italian government, through a development agency (Infratel), deploys networks in southern Italy. Finally, the most striking example is that of the Korean government, which has conducted eight successive national plans in order to make its country a global NTIC leader.
In other countries, on the other hand, the action of public authorities is highly decentralised: in the United States, United Kingdom and France, state support funds exist, but projects are conducted at the regional and local levels. Regional development agencies in Scotland, Ireland and Spain for example, play a key role in setting up articulated and coherent plans which bring together local players around common goals combining infrastructures, services and uses.
In many cases, projects are then implemented by local utilities. These already own networks, thereby reducing deployment costs and requests for passage rights. These utilities are at the heart of the American FTTx and German city carrier projects. This project structure often gives birth to local operators, whose profile is different from major national or international carriers. They do not benefit from significant economies of scale, are solidly anchored in their region and provide assistance to local companies and government. In this way, they often acquire significant market share on the local market, in particular on the professional market.
- The legal structures used
Many different legal means are used for public intervention, adapted to the specific legislative framework of each country:
- Long-term loans have been used in Spain to encourage private players to invest in projects with no prospect of short-term profits.
- For programmes combining public demand, formations similar to French public-private partnerships have been used, such as the British "PFI".
- And, when local governments wish to maintain ownership of the networks they have built, a number of means are used :
- The creation of a utility dependant on the municipality ;
- Direct intervention, sometimes comparable to a French régie ;
- A delegation model, used in France and Spain.
- The impacts of public intervention
It is currently relatively difficult to review public intervention in the sector. Indeed, many public projects are still in the network design or construction phase, and many of the projects in service have been so for only a short time.
Still, we can already highlight a number of key elements:
- public investments vary considerably by country. Their amount can be significant, though lower than private investments in the sector ;
- public intervention will have an impact on national coverage, making it possible to equip areas which might have been ignored and to accelerate the process elsewhere ;
- it also helps increase competition in areas with a natural monopoly, although not all public networks are built on an "open" model ;
- public intervention has most often had major indirect impacts: it has brought to light the "digital gap", encourages the diffusion of uses, thereby expanding the potential market for operators and encouraging them to deploy their services more quickly to avoid competition from a public or subsidised player.
1/ Broadband appears to be one of the primary areas of local development in all the countries studied.
2/ None of the countries has yet reached complete national coverage without public aid. Still, the extent of coverage varies significantly. It goes from direct subsidies to extend coverage to a region to major involvement of municipalities in the construction next-generation open networks.
3/ Public intervention is most often conducted in accordance with economic players, although, in all the countries, projects are debated with operators, which are both competitors and partners. This public intervention accelerates the diffusion of broadband services. Decentralised action sometimes creates local players, with difficult economics but which are strongly anchored in their region and which compete locally with national players.