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DIRECTORATE GENERAL FOR INTERNAL POLICIES POLICY DEPARTMENT A: ECONOMIC AND SCIENTIFIC POLICY INDUSTRY, RESEARCH AND ENERGY Entertainment x.0 to Boost Broadband Deployment STUDY Abstract We explore the definition of broadband and explain its interaction with European policy goals; analyse available data in order provide a detailed, objective and realistic picture of the broadband deployment, adoption, and usage situation in the EU from a number of different perspectives; and assess the drivers of broadband today, with particular emphasis on audiovisual and entertainment services. Measures to promote demand in general and the distribution of IP- based audiovisual content in particular, would appear to be warranted. IP/A/ITRE/ST/2012-18 October 2013 PE 507.479 EN This document was requested by the European Parliament's Committee on Industry, Research and Energy AUTHORS Mr J Scott Marcus (WIK-Consult GmbH) Ms Ilsa Godlovitch(WIK-Consult GmbH) Mr Pieter A Nooren (TNO) Mr Dieter Elixmann(WIK-Consult GmbH) Mr Bram van den Ende (TNO) with the support of Prof Jonathan Cave (RAND Europe) RESPONSIBLE ADMINISTRATORS Mr Fabrizio Porrino Mr Mariusz Maciejewski Policy Department A: Economic and Scientific Policy European Parliament B-1047 Brussels E-mail: [email protected] LINGUISTIC VERSIONS Original: EN ABOUT THE EDITOR To contact the Policy Department A or to subscribe to its newsletter please write to: PoldepH [email protected] Manuscript completed in October 2013. © European Union, 2013. This document is available on the Internet at: http://www.europarl.europa.eu/studies DISCLAIMER The opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the official position of the European Parliament. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the publisher is given prior notice and sent a copy. Entertainment x.0 to Boost Broadband Deployment ______________________________________________________________________ CONTENTS CONTENTS 3 LIST OF ABBREVIATIONS AND GLOSSARY 6 LIST OF TABLES 15 LIST OF FIGURES 17 EXECUTIVE SUMMARY 22 1. Introduction 28 1.1. Broadband deployment and adoption in Europe 28 1.2. Definitions used in this report 29 1.3. Structure of this report 30 2. The definition of broadband and its implications for the assessment of broadband deployment 31 2.1. High-level overview of broadband architectures 32 2.2. Broadband speeds 37 2.3. Definitions in use today 41 2.3.1. European Commission’s Digital Agenda for Europe 42 2.3.2. NGA recommendation 2010/572/EU 45 2.3.3. Point Topic report Broadband Coverage in Europe 45 2.3.4. IDATE report Broadband Coverage in Europe 47 2.3.5. US FCC 48 2.3.6. FCC’s National Broadband Plan 49 2.3.7. Australian National Broadband Network 50 2.3.8. OECD 51 2.3.9. Broadband Stakeholder Group (UK) 52 2.3.10. ITU 2009 52 2.3.11. Infocomm Development Authority (Singapore) 53 2.3.12. New Zealand 54 2.3.13. South Korea 54 2.3.14. Japan 55 2.3.15. Overview and comparison 55 2.4. Evaluation and assessment of existing definitions 58 2.4.1. Speed 58 2.4.2. Coverage 63 2.5. Beyond broadband speed and coverage 64 2.5.1. Quality 65 2.5.2. Openness 69 2.6. Recommended definition for broadband 71 2.7. Assessment of definitions against DAE targets 74 3. Deployment and adoption of basic broadband 78 PE 507.479 3 Policy Department A: Economic and Scientific Policy ________________________________________________________________ 3.1. Availability and gaps 78 3.2. Adoption 81 3.3. Technologies 85 3.4. Competition 86 3.5. Pricing 88 3.6. Mobile broadband 90 3.6.1. Usage trends 90 3.6.2. Mobile broadband and traffic off-load 92 3.6.3. Mobile broadband and ubiquity 94 4. Deployment and adoption of fast and ultra-fast broadband 95 4.1. Availability and gaps 96 4.2. Adoption 99 4.3. Projections on Next Generation Access (NGA) coverage and take-up 106 4.4. Competition in NGA 109 4.4.1. Infrastructure-based competition 109 4.4.2. Access-based competition 111 4.5. Pricing and willingness to pay (WTP) 112 4.6. CAPEX requirements for fibre-based NGA deployment 113 4.7. Monthly wholesale charges for FTTx services 118 5. The financial markets 120 5.1. Share price trends 121 5.2. Revenues and CAPEX 123 5.3. Profits and return on capital employed (ROCE) 132 5.4. Overview of financial data 140 5.5. The policy context 143 6. Drivers for broadband demand 145 6.1. Demographic, Economic and Social Aspects of Broadband Demand 146 6.2. Price as a Driver of Demand 148 6.3. Applications as a Driver for Demand 151 6.3.1. The evolution of audio-visual media as it relates to traffic trends 156 6.3.2. Smart Grid Traffic Demand 157 6.3.3. eHealth and telemedicine traffic demand 157 6.4. The Evolution of End-user Devices as a Driver for Demand 159 6.5. Supply as a Driver for Demand 163 6.6. Public Policy Measures as a Driver for Demand 169 6.6.1. Supply “push” versus demand “pull” 169 6.6.2. Candidate demand stimulus measures 172 7. The public policy context for NGA deployment 176 4 PE 507.479 Entertainment x.0 to Boost Broadband Deployment ______________________________________________________________________ 7.1. Factors potentially influencing deployment of NGA and superfast broadband 177 7.2. Country case studies 181 7.2.1. Laissez-faire: the North American model 181 7.2.2. A comparison to the US: the Netherlands and Belgium 182 7.2.3. Influence of cable and independent investors on market-driven deployment in the UK, Portugal, Sweden and Germany 182 7.2.4. Eastern Europe: leapfrogging Western Europe 183 7.2.5. The French model for FTTH: mutualisation of the terminating segment 183 7.2.6. Market-based NGA deployment in the absence of infrastructure competition 185 7.2.7. State-funded FTTH deployment: Australia, New Zealand and Singapore 186 7.2.8. The Japanese model 188 7.2.9. The South Korean model: infrastructure competition in a dense urban context 188 7.3. The role of wholesale price regulation in NGA deployment 190 7.4. The role of functional and structural separation in NGA deployment and take-up 193 8. Our overall assessment 194 8.1. Our overall assessment 195 8.1.1. Has Europe fallen behind? 195 8.1.2. Why has deployment and adoption of fibre-based fast broadband been slower in Europe than in Japan, South Korea, or the United States? 196 8.1.3. Are there huge benefits to ultra-fast broadband? 197 8.1.4. Is technological neutrality still an appropriate goal? 198 8.1.5. How crucial is the pace of supply? 199 8.1.6. Are special measures required for coverage of lower density areas? 201 8.1.7. Are special measures required for coverage of areas where competition is insufficient? 203 8.1.8. What should be done to stimulate demand? 203 8.1.9. In light of the importance of video, is special attention required? 205 8.1.10. What is the impact of regulated wholesale charges on fibre-based NGA deployment and adoption? 207 8.2. Testing the hypotheses 209 9. Conclusions and Recommendations 216 9.1. Main findings and conclusions 216 9.2. Recommendations 220 References 225 PE 507.479 5 Policy Department A: Economic and Scientific Policy ________________________________________________________________ LIST OF ABBREVIATIONS AND GLOSSARY 2G/3G/4G 2G, 2.5G, 3G, etc.: Refers to the generation of mobile network technology. The figure below depicts the various generations. OTHER? LTE- 1 Gbps Advanced 20?? 4G LTE 10-100 Mbps 2012 HSPA, HSPA+ 2006 3G UMTS ~1 Mbps 2003 GPRS / EDGE ~100 Kbps 2G 2001 1994 NMT 900 1G 1989 NMT 450 1985 ADSL Asymmetric Digital Subscriber Line. ADSL creates an asymmetric connection, where the downstream data is much faster than the upstream. ADSL2/ADSL2+ Enhancements to basic ADSL, providing higher download speeds by extending the occupied spectral bandwidth on the copper line. Always-on Refers to the condition where the user is permanently connected to the network, as opposed to dial-up in which case a connection has to be set-up before communications can commence. Always-on is an important characteristic of IP-networks. Application Refers to the 7th level in the Open Systems Interconnection model which is used a lot in layer telecommunications. The application layer is the layer where the user application oriented protocols reside. In this model the network layer is layer 3 where the network related protocols such as the IP protocol reside. ARPU Average Revenue Per User. BEREC Body of European Regulators for Electronic Communications. Billion 1 000 million. Bitstream It refers to the situation where the incumbent installs a high-speed access link to the customer premises, and access makes this access link available to third parties (new entrants), to enable them to provide high-speed services to customers. Broadband Basic broadband represents fixed-line network technologies capable of delivering broadband at any speed in excess of 144 kbps. Fast broadband represents fixed-line network technologies capable of delivering broadband at any downstream speed 6 PE 507.479 Entertainment x.0 to Boost Broadband Deployment ______________________________________________________________________ of at least 30 Mbps. Ultra-fast broadband represents fixed-line network technologies capable of delivering broadband at any downstream speed of at least 100 Mbps. Cable modem A cable modem lets you hook up your computer or home network to a cable television line to receive data with high capacity. CAGR Compound Annual Growth Rate.