1. Broadband Business Models to meet deployment targets
Dr. Raul L. Katz,
Columbia Institute for Tele-Information 1 1

2. Broadband business models
Business model: the architecture of the value creation, delivery, and capture mechanisms employed to deliver a service, including offerings, strategies, infrastructure, organization, trading practices, and operational processes and policies
Supply side: business models to accelerate broadband deployment
Policies to stimulate private sector investment
Government intervention as a last resort
Demand side: business models to accelerate adoption
Practices to address demand-side challenges
Models to address the affordability gap
Objectives of targets:
Should be meaningful while not too specific (to be applied to all countries, especially developing countries)
Should be measurable (progress could be included in annual report of BB Commission)
Should be achievable while remaining ambitious
Should be advocated by the BB Commission 2

3. Supply-side business models: Accelerate deployment3 3

4. Supply side business models
Objective: to make sure that universal service targets are met
MARKET STRUCTURE
SEVERAL OPERATORS
2-3 OPERATORS
ONE OPERATOR
NO OPERATOR
HIGH
Dense urban areas with high business and residential density
MEDIUM
Urban areas/towns with primarily residential density
LOW
Rural areas with sparse residential density
VERY LOW
Rural areas with very low density
DENSITY AND SIZE OF DEMAND
The price of BB plays a critical role in terms of BB diffusion. BB prices are falling worldwide, in particular in developing countries, but are still too high and therefore make BB unaffordable for many people.
ITU collects price data annually as part of its ICT Price Basket. This target refers to developing countries only.
In most developed countries, BB prices correspond to less than 2% of monthly GNI p.c. (2010)
In 2010, in 35 (out of 118) developing countries, the price of an entry-level fixed BB package cost an equivalent of 5% or less of monthly GNI p.c. In 2008, this was the case for only 21 developing countries. Over the 2-year period, fixed BB prices fell by more than 50% in developing countries, and this is likely to continue, especially in view of the emergence of mobile BB. We therefore consider that by 2015, many developing countries will have achieved this target of 5% (and most likely, the developing countries as a group will have achieved it).
The current calculation is based on fixed BB, but ITU is planning to collect data on mobile BB as well in the near future.
The price target has been computed taking into consideration target 4 (50% of the population should be online by 2015). 4

5. Supply side business models
Stimulate private investment
Business model development to address isolated areas begins by understanding deployment economics
The price of BB plays a critical role in terms of BB diffusion. BB prices are falling worldwide, in particular in developing countries, but are still too high and therefore make BB unaffordable for many people.
ITU collects price data annually as part of its ICT Price Basket. This target refers to developing countries only.
In most developed countries, BB prices correspond to less than 2% of monthly GNI p.c. (2010)
In 2010, in 35 (out of 118) developing countries, the price of an entry-level fixed BB package cost an equivalent of 5% or less of monthly GNI p.c. In 2008, this was the case for only 21 developing countries. Over the 2-year period, fixed BB prices fell by more than 50% in developing countries, and this is likely to continue, especially in view of the emergence of mobile BB. We therefore consider that by 2015, many developing countries will have achieved this target of 5% (and most likely, the developing countries as a group will have achieved it).
The current calculation is based on fixed BB, but ITU is planning to collect data on mobile BB as well in the near future.
The price target has been computed taking into consideration target 4 (50% of the population should be online by 2015). 5

6. Supply side business models Stimulate private investment
Deployment economics highlight the business case “choke points”
The price of BB plays a critical role in terms of BB diffusion. BB prices are falling worldwide, in particular in developing countries, but are still too high and therefore make BB unaffordable for many people.
ITU collects price data annually as part of its ICT Price Basket. This target refers to developing countries only.
In most developed countries, BB prices correspond to less than 2% of monthly GNI p.c. (2010)
In 2010, in 35 (out of 118) developing countries, the price of an entry-level fixed BB package cost an equivalent of 5% or less of monthly GNI p.c. In 2008, this was the case for only 21 developing countries. Over the 2-year period, fixed BB prices fell by more than 50% in developing countries, and this is likely to continue, especially in view of the emergence of mobile BB. We therefore consider that by 2015, many developing countries will have achieved this target of 5% (and most likely, the developing countries as a group will have achieved it).
The current calculation is based on fixed BB, but ITU is planning to collect data on mobile BB as well in the near future.
The price target has been computed taking into consideration target 4 (50% of the population should be online by 2015). 6

7. Supply side business models
Stimulate private investment
Highlighted “choke points” enable the determination of policy initiatives to stimulate deployment
The price of BB plays a critical role in terms of BB diffusion. BB prices are falling worldwide, in particular in developing countries, but are still too high and therefore make BB unaffordable for many people.
ITU collects price data annually as part of its ICT Price Basket. This target refers to developing countries only.
In most developed countries, BB prices correspond to less than 2% of monthly GNI p.c. (2010)
In 2010, in 35 (out of 118) developing countries, the price of an entry-level fixed BB package cost an equivalent of 5% or less of monthly GNI p.c. In 2008, this was the case for only 21 developing countries. Over the 2-year period, fixed BB prices fell by more than 50% in developing countries, and this is likely to continue, especially in view of the emergence of mobile BB. We therefore consider that by 2015, many developing countries will have achieved this target of 5% (and most likely, the developing countries as a group will have achieved it).
The current calculation is based on fixed BB, but ITU is planning to collect data on mobile BB as well in the near future.
The price target has been computed taking into consideration target 4 (50% of the population should be online by 2015). 7

8. Supply side business models Stimulate private investment
Reduce property taxes and VAT on initial equipment purchase to decrease CAPEX burden
Reduce infrastructure costs linked to ROW, pole attachment or spectrum access costs (release spectrum for mobile broadband, lower and standardize pole attachment rates, “Dig-once”/joint trenching rules)
Provide grants to fund capital investment
Provide low cost real estate for central facilities
Enforce infrastructure sharing and wholesale access
Objectives of targets:
Should be meaningful while not too specific (to be applied to all countries, especially developing countries)
Should be measurable (progress could be included in annual report of BB Commission)
Should be achievable while remaining ambitious
Should be advocated by the BB Commission 8

9. Supply side business models Government intervention
If despite incentives, private sector investment does not materialize, government intervention can be justified if expenditures are outweighed by the broader socio-economic benefits
The first question is where should the State intervene?
Which communities can be, or are, served by market forces?
Which communities will need assistance with initial investment to become self-sustaining?
Which communities cannot become self-sustaining and will require ongoing funding?”
The second question is how should the State intervene?
Objectives of targets:
Should be meaningful while not too specific (to be applied to all countries, especially developing countries)
Should be measurable (progress could be included in annual report of BB Commission)
Should be achievable while remaining ambitious
Should be advocated by the BB Commission 9

10. Supply side business models Government intervention
National government deploys backbone to reach isolated area (leveraging government utilities infrastructure)
Private service provider
operating under protected
conditions (e.g. regulated
monopoly)
Facilities or service-
based competition
Community-owned service
provider
Scope of government intervention

11. Supply side business models
Government intervention
Community-based service provisioning can follow four models
Closed network, whereby local government provides retail services
Local government wholesales access to a single retail service provider
Local government is wholesaler of transport to multiple retail service providers (open access)
Local government is provider of dark fiber
Objectives of targets:
Should be meaningful while not too specific (to be applied to all countries, especially developing countries)
Should be measurable (progress could be included in annual report of BB Commission)
Should be achievable while remaining ambitious
Should be advocated by the BB Commission 11

12. ALTERNATIVE MODELS OF GOVERNMENT INTERVENTION
Supply side business models
Government intervention
ALTERNATIVE MODELS OF GOVERNMENT INTERVENTION
Subsidize incumbent telco/BB to upgrade to “utility”
In greenfields, government could build (contracts) for the construction of universal access network
Promote competition for government contracts to lower initial costs
Government can then auction the broadband infrastructure to highest (qualified) operator
Monopoly for wholesale-only/open access “utility” operator?
Any “loss” is a one-time infrastructure subsidy (like building a highway and road system)
Objectives of targets:
Should be meaningful while not too specific (to be applied to all countries, especially developing countries)
Should be measurable (progress could be included in annual report of BB Commission)
Should be achievable while remaining ambitious
Should be advocated by the BB Commission 12

13. Supply side business models
Government intervention
Government intervention should consider opportunities and risks
IS PROJECT SUSTAINABLE AND PROFITABLE?
YES NO
IS GOVERNMENT INTERVENING?
Preemption of private investment (“crowding-out”)
Alleviate the constraints of the business case to stimulate private investment
Re-creation of access bottlenecks
Erosion of the public utility model
Market addresses the need of public good
Supplier of last resort
Objectives of targets:
Should be meaningful while not too specific (to be applied to all countries, especially developing countries)
Should be measurable (progress could be included in annual report of BB Commission)
Should be achievable while remaining ambitious
Should be advocated by the BB Commission 13

14. Demand-side business models: Accelerate adoption14 14

15. Demand-side business model models should address the demand gap
BROADBAND DEMAND GAP
REASONS FOR NOT ACCESSING TO THE INTERNET AT ALL
Country
Households passed (*)
Households connected
Demand Gap
Australia
89 %
69 %
20 %
Denmark
96 %
76 %
France
100 %
77 %
23 %
Germany
98 %
58 %
40 %
Israel
83 %
17 %
Italy
95 %
55 %
Republic of Korea
93 %
7 %
Spain
61 %
32 %
Sweden
11 %
United Kingdom
68 %
United States
92 %
62 %
31 %
Reasons
Percentage of answers
United States
United Kingdom
Relevant ( lack of interest, busy doing other tasks)
45 %
60 %
Price
15 %
28 %
Service availability
16 %
14 %
Easy to use (difficulty , senior citizen, physical handicap)
22 %
Sources: Horrigan, J. (2009); Ofcom (2008)
Sources: Analysis by the author, based on data from EU; FCC; BMWi; OECD; PTS - Sweden; and Israel Minister of Communication .

16. Demand side business models
Accelerate adoption
Three business model initiatives to initially stimulate adoption
The price of BB plays a critical role in terms of BB diffusion. BB prices are falling worldwide, in particular in developing countries, but are still too high and therefore make BB unaffordable for many people.
ITU collects price data annually as part of its ICT Price Basket. This target refers to developing countries only.
In most developed countries, BB prices correspond to less than 2% of monthly GNI p.c. (2010)
In 2010, in 35 (out of 118) developing countries, the price of an entry-level fixed BB package cost an equivalent of 5% or less of monthly GNI p.c. In 2008, this was the case for only 21 developing countries. Over the 2-year period, fixed BB prices fell by more than 50% in developing countries, and this is likely to continue, especially in view of the emergence of mobile BB. We therefore consider that by 2015, many developing countries will have achieved this target of 5% (and most likely, the developing countries as a group will have achieved it).
The current calculation is based on fixed BB, but ITU is planning to collect data on mobile BB as well in the near future.
The price target has been computed taking into consideration target 4 (50% of the population should be online by 2015). 16

17. Demand side business models
Accelerate adoption
Aggregate demand: the local government can become an anchor user to guarantee revenues at ramp-up phase of broadband
Coordinate demand for broadband access from government administration, public safety, local schools and health care facilities
Negotiate a wholesale rate and long-term contract and define Service Level Agreements
Create a flow of revenues that eases the economic pressure on the business case
Organize groups of people (schools, communities, SMEs) at the grass-root level
Establishment of a Broadband Expertise Centres to spread knowledge on broadband for institutions that do not have ICT as their core task
Deploy broadband demonstration areas for consumers and conduct training
Objectives of targets:
Should be meaningful while not too specific (to be applied to all countries, especially developing countries)
Should be measurable (progress could be included in annual report of BB Commission)
Should be achievable while remaining ambitious
Should be advocated by the BB Commission 17

18. Demand side business models Address the affordability gap
High consumer taxes as a percentage of total cost of broadband ownership are an obstacle to adoption
For every dollar that taxes are reduced over a 5 year period, US $ 1.4 to 12.6 will be created in additional GDP
The price of BB plays a critical role in terms of BB diffusion. BB prices are falling worldwide, in particular in developing countries, but are still too high and therefore make BB unaffordable for many people.
ITU collects price data annually as part of its ICT Price Basket. This target refers to developing countries only.
In most developed countries, BB prices correspond to less than 2% of monthly GNI p.c. (2010)
In 2010, in 35 (out of 118) developing countries, the price of an entry-level fixed BB package cost an equivalent of 5% or less of monthly GNI p.c. In 2008, this was the case for only 21 developing countries. Over the 2-year period, fixed BB prices fell by more than 50% in developing countries, and this is likely to continue, especially in view of the emergence of mobile BB. We therefore consider that by 2015, many developing countries will have achieved this target of 5% (and most likely, the developing countries as a group will have achieved it).
The current calculation is based on fixed BB, but ITU is planning to collect data on mobile BB as well in the near future.
The price target has been computed taking into consideration target 4 (50% of the population should be online by 2015).
Source: Telecom Advisory Services LLC 18

19. Demand side business models: Address the affordability gap
Fiscal incentive
A reduction in local taxes to small and medium enterprises linked to ICT adoption has been found to stimulate adoption in areas that can have an impact on economic output
A subsidy targeted to economically-disadvantaged subscribers addresses the social inclusion problem (Universal Service)
However, subscriber subsidies need to be used sparingly
Objectives of targets:
Should be meaningful while not too specific (to be applied to all countries, especially developing countries)
Should be measurable (progress could be included in annual report of BB Commission)
Should be achievable while remaining ambitious
Should be advocated by the BB Commission 19

20. Broadband business models:
Conclusion
The primary business models to guarantee broadband deployment pertain to the private sector
Should governments intervene in broadband and wireless deployment? Yes, but initially facilitating market forces not preempting them
Should Government be the risk-taker of last resort? Maybe
Governments, communities, businesses, and operators should coordinate to identify supply and demand conditions and tailor services to tackle unmet needs
The establishment of a “business case” to deploy broadband is a joint effort
Objectives of targets:
Should be meaningful while not too specific (to be applied to all countries, especially developing countries)
Should be measurable (progress could be included in annual report of BB Commission)
Should be achievable while remaining ambitious
Should be advocated by the BB Commission 20