Executive Summary

One of the significant challenges facing network operators today is the high capital cost of deploying next generation broadband network to individual homes or schools. Fiber to the home only makes economic sense for a relatively small percentage of homes or schools. One solution is a novel new approach under development in several jurisdictions around the world is to bundle the cost of next generation broadband Internet with the deployment of solar panels on the owners roof or through the sale of renewable energy to the homeowner. Rather than charging customers directly for the costs of deployment of the high speed broadband network theses costs instead are amortized over several years as a small discount on the customer’s Feed in Tariff (FIT) or renewable energy bill. There are many companies such as Solar City that will fund the entire capital cost of deploying solar panels on the roofs of homes or schools, who in turn make their money from the long term sale of the power from the panels to the electrical grid. In addition there are no Energy Service Companies (ESCOs) and Green Bond Funds that will underwrite the cost of larger installations.

For further information and detailed business analysis please contact Bill St. Arnaud at bill.st.arnaud@gmail.com.

Thursday, December 24, 2009

Must Read: Excellent OECD report on FTTh and Innovation

[Some excerpts -- BSA]



This report makes a case for investment in a competitive, open-access national fibre-to-the-home network rollout based on potential spillovers in four key sectors of the economy: electricity, health,transportation and education.

This research offers a new approach to evaluating the costs of building the most forward-looking network possible by evaluating what short-term cost savings (benefits) would have to be achieved in other key economic sectors to justify the investment. On average, a cost savings of between 0.5% and 1.5% in each of the four sectors over ten years resulting directly from the new broadband network platform could justify the cost of building a national point-to-point, fibre-to-the-home network.

If the cost savings in these and other industries are potentially large enough to justify the investments then governments have an incentive to find ways to encourage rollouts to capture the social gains. While the calculations in the paper are rough estimations they clearly highlight the fact that investments in fibre
networks can be justified relatively easily through minimal cost savings in other sectors even when the savings are often discounted in investment calculations by private firms.

Policy and regulatory measures to promote competition in a next generation environment should be based on a sound economic assessment of specific market conditions and local factors. Proposals for government investment in FTTH networks should include a thorough cost-benefit-analysis which considers any potential deployments of next-generation networks by the private sector and any public funding of networks must be evaluated and targeted to avoid market distortions and crowding-out of private investment.

There could be cases where the social returns of broadband connectivity are potentially much larger than the costs of building the network but the operators do not invest because their private returns would not justify the investment. The inability of markets to take into account network externalities can lead to
non-optimal provisioning of services and potentially limit innovation.
Some OECD governments have committed substantial economic stimulus funds to the rollout of broadband networks. This paper proposes that these investments could have an important impact in other sectors in the economy, helping justify the initial investments.
High-speed communication networks are a platform supporting innovation throughout the economy today in much the same way electricity and transportation networks spurred innovation in the past. Future innovations in many sectors will be linked to the availability of high-speed, competitive data networks and new applications they support. The emergence of many of these innovative services tied to broadband are visible today in four key sectors: electricity, health, transportation and education.

Broadband is having a significant impact on education and e-learning by improving access to digital learning resources; encouraging communication among schools, teachers and pupils; promoting professional education for teachers; and linking local, regional and national databases for administrative purposes or supervision.

New high-speed broadband networks are also impacting other sectors of the economy not considered as part of this analysis. Broadband has become the leading delivery system for a wide range of content as witnessed by the transformation of the newspaper, music and video industries. Broadband is also the foundation of innovations in cloud and grid computing which efficiently centralise computing power and resources across the Internet and enable the rapid scalability of services in sectors such as transportation and education. Spillovers in these sectors, which are not included in the calculations, could also help justify
large investments in a national high-speed network.

Policy implications
Policy makers need to consider the potential spillovers of new broadband platforms when considering any public investment in new networks and when assessing potential regulatory requirements on next generation networks.
Innovation thrives on open platforms with expansive bandwidth for new applications. Government should promote network technologies and topologies which are the most flexible, create the most opportunities for competition, offer the highest potential for innovation and those which can provide the most bandwidth in the future.

Policy makers and networks planners should focus on developing a broadband platform which easily supports capacity upgrades to match the bandwidth demand of new applications as they appear. Bandwidth constraints should not inhibit innovation.
Symmetric bandwidth will also be increasingly important.
Upload speeds over the network will become an increasingly important determinant of innovative capacity. The bandwidth dedicated to downloading is often 10 to 16 times higher than the bandwidth set aside for uploads. This creates an unfortunate dilemma for users, in that their ability to acquire content is vastly enhanced, while their ability to submit content back to the network does not grow proportionally.

High-speed broadband is increasingly considered a general purpose technology. There have been suggestions that a utility-style model for installing and maintaining passive infrastructure such as ducts and poles or dark-fibre connections could promote competition and provide connectivity particularly in areas where private firms have not found it profitable to build out next-generation networks. A utility-style model may also require lower returns than a similar private investment, thus reducing costs and making rollouts more economically feasible.

Access to high-speed broadband is an important foundation for innovation but there are a number of other roadblocks and bottlenecks which slow down innovation and may hinder implementation in sectors and minimize broadband’s impact even when it is available. Any broadband investment with the goal of cost savings in other sectors should be coupled with initiatives to ensure a smooth transition from existing
service models and address any bottlenecks which could hinder adoption and innovation.

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