FR Ref. Ares(2013)1504256 - 30/05/2013
A Compendium of NGA Case Studies – Annex to the Study Leading to an Impact Assessment on the Structuring and Financing of Broadband Infrastructure Projects, the Financing Gaps and Identification Models for Project Promoters and the Choice of EU Policy
FINAL REPORT
A study prepared for the European Commission DG Communications Networks, Content & Technology
Digital Agenda for Europe This study was carried out for the European Commission by
Deloitte Consulting
Internal identification Contract number: 30-CE-0424493/00-49 SMART number: 2011/0024 under Framework Contract No SMART 2007/0035
DISCLAIMER
By the European Commission, Directorate-General of Communications Networks, Content & Technology.
The information and views set out in this publication are those of the author(s) and do not necessarily reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this study. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use which may be made of the information contained therein. ISBN 978-92-79-29455-6 DOI: 10.2759/9860 © European Union, 2013. All rights reserved. Certain parts are licensed under conditions to the EU. Reproduction is authorised provided the source is acknowledged.
EUROPEAN COMMISSION
Directorate General for Communications Networks, Content and Technology
Study leading to an Impact assessment on the structuring and financing of broadband infrastructure projects, the financing gaps and identification of financing models for project promoters and the choice of EU policy. Framework Contract No SMART 2007/0035
A compendium of NGA case studies
CONTENTS
1. Introduction ...... 13
2. Gigalis (FRA)...... 14
2.1. Pays de la Loire: geography and topography ...... 14
2.2. Project background and partners ...... 15
2.3. Funding and investment model ...... 15
2.4. Implementation and deployment...... 16
2.5. Technology ...... 16
2.6. Demand considerations: Promoting superfast network adoption ...... 17
2.7. Deployment lessons ...... 17
2.8. Progress and success ...... 17
3. Małopolska Broadband Network (PL) ...... 19
3.1. Malopolska: geography and topography ...... 19
3.2. Project background and partners ...... 20
3.3. Funding and investment model ...... 21
3.4. Implementation and deployment...... 21
3.5. Technology ...... 21
3.6. Demand considerations: ...... 22
3.7. Progress and success ...... 22
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4. TEO (LT) ...... 24
4.1. Lithuania: geography and topography ...... 24
4.2. Project background and partners ...... 24
4.3. Implementation and deployment...... 25
4.4. Funding and investment model ...... 26
5. STOKAB (SE) ...... 27
5.1. Stockholm region: geography and topography ...... 27
5.2. Project background and partners ...... 28
5.2.1. The situation ex-ante ...... 28
5.2.2. Stokab business ...... 28
5.3. Implementation and deployment...... 28
5.4. Funding and investment model ...... 29
6. South Yorkshire Digital Region (UK) ...... 31
6.1. South Yorkshire: geography and topography ...... 31
6.2. Project background and partners ...... 32
6.3. Funding and investment model ...... 32
6.4. Implementation and deployment...... 32
6.5. Technology ...... 33
6.6. Demand considerations: Promoting superfast network adoption ...... 33
6.7. Deployment lessons: UK management platforms and operating networks ...... 34
6.8. Progress and success ...... 36
7. Broadband in Friuli-Venezia-Giulia (IT) ...... 38
7.1. Friuli Venezia Giulia: geography and topography ...... 38
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7.2. Project background and partners ...... 39
7.2.1. The situation ex-ante ...... 39
7.2.2. The ERMES programme ...... 40
7.3. Implementation and deployment...... 41
7.3.1. Use of an in-house public company Insiel to deploy the network ...... 41
7.4. Status by 2011 ...... 42
7.5. Funding and investment model ...... 43
8. GITPA (ES) ...... 44
8.1. Asturias: geography and topography ...... 44
2.1. Project background and partners ...... 45
8.2. Funding and investment model ...... 45
8.3. Implementation and deployment...... 45
8.4. Technology ...... 47
8.5. Demand considerations: Promoting superfast network adoption ...... 48
8.6. Deployment lessons ...... 48
8.7. Progress and success ...... 48
9. Superfast Cornwall (UK) ...... 50
9.1. Cornwall: geography and topography ...... 50
9.2. Project background and partners ...... 51
9.3. Funding and investment model ...... 51
9.4. Implementation and deployment...... 51
9.5. Technology ...... 51
9.6. Demand considerations: Promoting superfast network adoption ...... 52
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9.7. Deployment lessons ...... 52
9.8. Progress and success ...... 53
10. Broadband in the Province of Trento (IT) ...... 55
10.1. Province of Trento (Trentino): geography and topography ...... 55
10.2. Project background and partners ...... 56
10.2.1. Situation ex-ante ...... 56
10.2.2. Actors involved ...... 56
10.2.3. Objectives of PAT ...... 56
10.3. Implementation and deployment...... 57
10.4. Funding and investment model ...... 58
11. Broadband in Mozirje (SI) ...... 60
11.1. Mozirje: geography and topography ...... 60
11.2. Project background and partners ...... 61
11.3. Funding and investment model ...... 62
11.4. Implementation and deployment...... 64
11.5. Technology ...... 64
11.6. Demand considerations: Promoting superfast network adoption ...... 65
11.7. Deployment lessons ...... 65
11.8. Progress and success ...... 66
12. Midtsoenderjylland (DK) ...... 67
12.1. Midtsoenderjylland: geography and topography ...... 67
12.2. Project background and partners ...... 68
12.2.1. The situation ex-ante ...... 68
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12.2.2. The municipalities programme ...... 68
12.3. Implementation and deployment...... 68
12.4. Funding and investment model ...... 69
13. OnsNet Nuenen (NL) ...... 70
13.1. Nuenen: geography and topography ...... 70
13.2. Project background and partners ...... 70
13.3. Funding and investment model ...... 71
13.4. Implementation and deployment...... 72
13.5. Technology ...... 72
13.6. Demand considerations: Promoting superfast network adoption ...... 73
13.7. Deployment lessons ...... 73
13.8. Progress and success ...... 74
14. National Broadband Network (Australia) ...... 76
14.1. Australia: geography and topography ...... 76
14.2. Project background ...... 76
14.2.1. Advantages ...... 77
14.2.2. Equity ...... 77
14.2.3. Infrastructure ...... 78
14.3. Partners ...... 78
14.4. Funding and investment model ...... 78
14.5. Implementation and deployment...... 81
14.6. Technology ...... 84
15. Rural Broadband Loan Programme (USA) ...... 87
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15.1. Project Background ...... 87
15.2. Funding and Investment Model ...... 87
15.3. Technology ...... 88
15.4. Demand Considerations ...... 88
15.5. Success Story: Rural Telephone/Nex-Tech ...... 88
15.6. Criticisms ...... 88
15.7. Overall Assessment of the Case ...... 89
16. Reggefiber (NL) ...... 90
16.1. geography and topography ...... 90
16.2. Project Background and partners ...... 90
16.3. Funding and investment model ...... 91
16.4. Implementation and deployment...... 92
16.5. Technology ...... 92
16.6. Demand considerations ...... 92
16.7. Deployment lessons ...... 92
16.8. Progress and success ...... 93
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LIST OF FIGURES
Figure 1: Location of Pays de la Loire region ...... 13 Figure 2: Pays de la Loire network coverage ...... 16 Figure 3 Location of the Malopolska region ...... 18 Figure 4: The general shape of the Malopolska Broadband Network ...... 21 Figure 5: Lithuania: its territory and main cities ...... 23 Figure 6 TEO fiber backbone network ...... 24 Figure 7 Location of the Stockholm project ...... 26 Figure 8: Amount of investments (mln SEK)...... 28 Figure 9 Amount of yearly revenues (mln. SEK) ...... 29 Figure 10 Location of the South Yorkshire ...... 30 Figure 11 Configuration of the Digital Region Network ...... 32 Figure 12 Location of Friuli Venezia Giulia Region project ...... 37 Figure 13 : Current broadband coverage in Friuli ...... 38 Figure 14 Location of the backbone network ...... 40 Figure 15 Industrial areas covered by ERMES ...... 41 Figure 16 Municipalities covered by the GITPA network ...... 43 Figure 17: Asturcón Network’s service structure ...... 45 Figure 18 General structure of the Asturcón Network ...... 47 Figure 19 Location of the Superfast Cornwall project...... 49 Figure 20 Superfast Cornwall project progress ...... 53 Figure 21 Location of the Province of Trento project ...... 54 Figure 22 Actors within the Trentino project ...... 55 Figure 23 Location of the municipalities comprising the Mozirje consortium...... 59 Figure 24 Results of GOŠO 2 ...... 62 Figure 25 Location and overview of the Midtsoenderjylland project ...... 66 Figure 26 Location of Nuenen ...... 69 Figure 27: NBN Co’s Unlevered Funding Requirement ($ Billion) (Nominal Dollars) ...... 78 Figure 28 NBN Co’s Funding Profile (Debt and Equity) to FY2028 ($ Billion) ...... 79 Figure 29 NBN Co’s Forecast EBITDA and Estimated Cumulative Debt Capacity to FY2028 ($ Billion) 79 Figure 30 National Rollout map ...... 81 Figure 31: Current rollout at 18 October 2011 ...... 83
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Figure 32 Product Roadmap ...... 84 Figure 33: Map of the Netherlands ...... 89 Figure 34 :Funding and investment model - Reggefiber ...... 90 Figure 35: Reggefiber FTTH homes passed ...... 92 Figure 36: Reggefiber FTTH homes activated ...... 93
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LIST OF TABLES
Table 1 Deployment schedule ...... 80 Table 2: NBN Co 12-month rollout plan to premises (18 October 2011) ...... 83
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Glossary
3GPP Third Generation Partnership Program ADSL Asymmetric Digital Subscriber Line. ADSL can transmit at high rates of speed both upstream and downstream, depending on line distance Backhaul The middle of the network: a high-capacity line that links the core network with local exchanges Bandwidth The measure of capacity of a particular link in the network, measured in bits per second (bit/s) Broadband An Internet service which provides high-speed access. Cable An abbreviation for HFC (e.g. that offered by Virgin Media),or generically any physical cable (e.g. fibre-optic cables) CAL Cabinet Assigned Loss. A value used to adjust DSLAM-delivered services to ensure compliance with ANFP Core The backbone of a communications network, which carries different services such as voice or data Coverage The extent to which an area is connected to a network (usually expressed as a percentage or fraction) CP Communications Provider. In the UK a company such as BT Wholesale, Tiscali or Rutland Telecom which has rights of access to the national fibre and copper network operated by BT Openreach. Deployment Laying new cables/infrastructure to provide services to a particular location. Digital Being prevented (by skills, equipment, motivation or some other factor) from exclusion going online and using new technologies Digital Being able to go online and use new technologies inclusion DOCSIS Data Over Cable Service Interface Specification DSL Digital Subscriber Line. Technology and equipment that allow high-speed communication across normal twisted pair copper wiring. This can include video signals. ADSL can transmit at high rates of speed both upstream and downstream, depending on line distance. DSLAM Digital Subscriber Line Access Multiplexer - often pronounced dee-slam. Usually located the telephone exchange, but can now be housed in remote
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cabinets, it is a network device enabling high speed internet connections using multiplexing techniques Duct A conduit through which cable/wires can be passed (often a pipe or tube) EAFRD European Agricultural Fund for Rural Development EC European Commission EU European Union EU27 The 27 Member States of the European Union Fibre Fibre-optic cables used for data communications FTTC Fibre-to-the-cabinet. A network in which the copper line portion of the network is shortened by connecting all street cabinets to the local exchange using fibre FTTH Fibre-to-the-home. A network in which the end user is directly connected to fibre FTTP Fibre To The Premises. Connecting DSLAM (qv) to End User premises using fibre. FTTx Fibre-to-the-x, where x is an unspecified point (it could be the home, a building or a cabinet) HFC Hybrid fibre coax (coaxial cable). A network using both fibre (for the backbone) and coaxial cable (for the access) HSPA Habitat Special Programme For Africa ICT Information and Communications Technology IDABC Interoperable Delivery of pan-European eGovernment Services to Public Administrations, Businesses and Citizens IMD Indices of multiple deprivation, the government’s official measure of multiple deprivation at small area level INFSO Information Society ISP Internet Service Provider JASPERS Joint Assistance to Support Projects in European Regions to prepare projects supported by EU Structural and Cohesion Funds JESSICA Joint European Support for Sustainable Investment in City Areas for investment in sustainable urban development LSOA Lower super output area. The unit of geography (spatial unit) used for England and Wales of about 1,500 households MDF Main Distribution Frame. An area within the exchange, PCP or operators cabinet/rack at which the copper lines terminate NGA Next generation access. Fibre technology or upgraded cable (HFC) technology
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deployed in the access network NGA impact An analysis of the impact NGA would have on a spatial unit, determined by social deprivation, rurality and e-attitudes layers NRA National Regulatory Authority NRP National Reform Programme RSFF Risk-Sharing Finance Facility for higher-risk promoters Roll out Laying new cables/infrastructure to provide services to a particular location SDF Sub loop Distribution Frame. An area within the PCP where the Communications Provider connects to the MDF using tie cables SFF Structured Finance Facility established by EIB in 2001 to support sub- investment grade projects SLU Sub-loop Unbundling. CPs have rights of access to the Openreach copper network at intermediate Primary Connection Points (qv) found between the exchange and end-user premises UK United Kingdom UMTS Universal Mobile Telecommunications System
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1. Introduction
This document provides details for thirteen projects (from 15 contacted in Europe) interviewed in the first round of the study. The twelve European cases and the Australian case provide an ‘insiders view' of how those participating in deployment projects have used and viewed the financial support and the instruments offered by public and private sector organisations. They provide the opportunity to get beyond the generalisations and bureaucratic issues and really start to understand what matters and what makes a difference. Cases studies are listed in the same order that they are presented in the Tables in Section 4 of this report (e.g. listed in order of the population size served by the project from the largest; Gigalis in the Pays de la Loire region of France, to OnsNet in Nuenen a suburub of Utrecht.
13 2. Gigalis (FRA)
Gigalis is a new very high speed optical fibre IP/MPLS network which has been installed in the Pays de la Loire region. Having been set up by a joint venture, its management and roll-out were entrusted to Alcatel-Lucent. The high speed network offers savings of up to 80% compared with previous prices. The infrastructure and pricing have helped improve the region’s economic competitiveness, offering innovative services with high added value.
Gigalis is funded with a EUR28 million investment over 15 years from the Regional Council of Pays de la Loire.
2.1. PAYS DE LA LOIRE: GEOGRAPHY AND TOPOGRAPHY Pays de la Loire is a region of France created in the late 20th Century to serve as a zone of influence for its capital, Nantes. It has a population of 3.6 million and an area of 32,000 square kilometres. Pays de la Loire comprises five departments: Loire-Atlantique, Maine-et-Loire, Mayenne, Sarthe and Vendée. The Loire River which passes through the centre of the region marks the transition between the cool climate of the north and the milder climate of the south of France.
Figure 1: Location of Pays de la Loire region
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2.2. PROJECT BACKGROUND AND PARTNERS The Regional Council of Pays de la Loire initiated Gigalis as part of its Regional Digital Innovation Policy enacted in 2006. Project Gigalis is a Joint Venture made up of local authorities and public institutions from sub- districts and towns within Pays de la Loire. The initial managing committee soon realised that it would be impossible to roll-out such a large network with a team of just eight people and so issued an invitation to tender for management of the project. From 2010 the management and roll-out of the Gigalis network were entrusted to Alcatel-Lucent. They oversee its maintenance and operation 24 hours a day, 7 days a week. Yann Helary, Chairman of the Gigalis Joint Venture, explains the overriding factor in their decision, ‘[...](was) the high level of complementary technical skills offered by Alcatel-Lucent. It’s reassuring to know that they can offer a high level of expertise across every field.’ There has been no technical assistance from the EC in the development and implementation of this project. Project Gigalis is a ‘new generation’ electronic communications network, the key objectives of the project being: to offer very high speed brodband over the whole region. The new fibre optic network will offer speeds of between 10 and 40 Mbps. to contribute to the lowering of internet tariffs to levels comparable with those prevalent in large European cities to facilitate the development of local operators able to respond to the specific needs of businesses and stimulate competition beneficial to the local economy. Facilitate the implementation of innovative services Satisfy the current and future needs of public organisations needing broadband capacity and special services to cover often sensitive data. Yann Helary says ‘one of the aims was to take very high speed internet into the towns, districts and sub-districts, with prices and services comparable to those found in Paris, which were 50 to 80 per- cent cheaper (prior to implementation of Gigalis).’
2.3. FUNDING AND INVESTMENT MODEL Gigalis is funded with a 28 million EUR investment over 15 years from the Regional Council of Pays de la Loire. To date there has been no financial assistance from the EC. Phase One (see 1.4 below) was funded entirely by direct grants from the Regional Council. Whilst such grant funding continues into Phase Two, it is anticipated that other modes of financing will also be utilised including loans, joint funding with other public bodies (e.g., health, education) and grants from the European Regional Development Fund (known in France as FEDER). Gigalis must submit accounts to the Regional Council who must in turn approve the budget on an ongoing basis in order to release the next tranche of the allocated 28 million EUR. In 2009 an audit of grant usage was carried out by KPMG. The logic of the funding model is to achieve a long term return on investment whilst responding to the needs of the community. The risk to this ROI is determined by the level of uptake of the High Speed Broadband service provided by the Gigalis network.
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2.4. IMPLEMENTATION AND DEPLOYMENT In assessing its various objectives and in order to ensure autonomy in telecommunications terms, the Pays de la Loire region chose to develop a network of its own, acting as an “operators’operator”. From 2008 it progressively acquired pre-existing fibre optic routes, purchasing the capacity in the form of IRU (Indefeasible Rights of Use). Deployment has been in two phases. Phase One (2008-2010) involved developing a network to connect all the “Préfectures” and “Sous-préfectures” (regional “capitals” and second tier administrative towns) in the region, creating a “backbone”. Phase Two involves expanding the network out from this core backbone to facilitate High Speed Broadband access throughout the region and in particular for key sites such as hospitals, academic campuses, industrial zones etc. This backbone is now present in around seventeen towns, representing more than 500km of optical fibre with multiple services: data, voice, IPv4 and IPv6 internet connectivity, video, fibre channel etc. The Gigalis organising team of eight realised that they were unable to implement the network alone. Alcatel-Lucent won the tender to takeover the management, maintenance and implementation of the network. Gigalis was operational from November 2008, having migrated around 450 public sites from Megalis (its predecessor).
2.5. TECHNOLOGY By comparison with its predecessor, “Megalis”, Gigalis is far more accessible to public entities and private companies and offers far higher capacities. Project Gigalis has developed a passive infrastructure in the form of a 500km long network of 72 pairs of optical fibres bought back from various providers. From the beginning of the project, the objective was to use as much of the existing fibre network as possible. It purchased this in the form of IRU (indefeasible rights of use). This network has been equipped with optical multiplexing equipment to achieve very high data rates with further improvements anticipated.. An FTTH network capable of speeds between 10 and 40 Gbps has been implemented to connect 17 towns in the region. At the end of these fibres is an active IP/MPLS infrastructure with Alcatel-Lucent 7,750 Service Router (SR) and 7,450 Ethernet Service Switch (ESS) solutions, coupled with 24/7 maintenance and operating services managed from the Network Operations Centre in Villarceaux for 3 years.
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Figure 2: Pays de la Loire network coverage
2.6. DEMAND CONSIDERATIONS: PROMOTING SUPERFAST NETWORK ADOPTION Across the Pays de la Loire region, Gigalis has been the driving force behind a transformation in the marketplace bringing NICT plans to fruition and the greatest benefits are available to industrial clients who can access Gigalis via its local operators. With Alcatel-Lucent behind it, Gigalis’ technical quality is assured and the affordable 100 Mbit/s price tag is now 50 to 80 per cent cheaper than its competitors. The very high speed Internet dream has become a reality.
2.7. DEPLOYMENT LESSONS The extensive use of pre-existing fibres for the network backbone assisted in minimising initial development costs and wherever possible, extensions are made to the existing fibres during infrastructure improvement works such as road, railway electrification etc. in order to continue to minimise deployment costs.
2.8. PROGRESS AND SUCCESS The success of the project will be measured by the actual take up of services provided by the Gigalis network and the integration of the network “catchment” with that of other public infrastructure networks across the region. Demand for the services provided by Gigalis has so far been in line with anticipated levels. Objectives for revenue generation foreseen in the initial Business Plan have been achieved in both the first two full years of activity (2009 & 2010). The project has been judged a success, generating more and more interest from local internet providers wanting to satisfy their clients and from national operators wanting to extend there High Speed Broadband services across the Pays de la Loire region.
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The introduction of the Gigalis network has revolutionised the way in which healthcare works across the Loire region. For example, thanks to the connections established between seven CHUs (university hospitals) and six CHs (general hospitals), more than 9,600 hours of video conferences have taken place over the year, compared with 3,600 previously, enabling doctors working in different specialisms across the west of the country to gather twice a week around a “virtual table”. The aim? To agree strategies on cancer care for patients. The result: this practice has now won recognition from the National Cancer Institute (INCA), which feels that it ought to be replicated across the whole of France. Through SITE (Pays de la Loire Inter-hospital Health Telecommunications Syndicate), one of the Joint venture’s clients, emergency treatment in traumatology and neurology has been transformed. Digitised scans of accident victims can be sent by an emergency department to experts in a distant CHU, via Gigalis; the decision can be taken either to keep the patient stable in situ, or to transport them by ambulance or helicopter. A vital venture which is now a reality, eliminating unnecessary patient transfers and ensuring improved management of emergency cases. Finally, this network also allows surgeons performing coronary angioplasty at Laval general hospital to conduct their operations with the benefit of direct real-time help and advice from eminent specialists at Angers university hospital, by means of a videoconferencing solution. Gigalis also has a role to play in education, with the establishment of connections between the university towns of Nantes, St-Nazaire and La Roche-sur-Yon. The teacher training institutes (IUFM) of Laval, Le Mans and Angers have now been grafted onto this network. Gigalis has made it possible for the three universities to concentrate their file storage in Nantes, via 10 Gbit/s links to the other two towns. Students in these three universities now have their own virtual workspace, with remote access to teaching documents such as presentations, text, audio or video files. Video conferences are also used to enable a lecturer based in Nantes to pass on his knowledge to students in the other two towns. But Gigalis goes further than this. With connections to the Renater science network and international networks, students on the other side of the world can “attend” their session with a panel sitting in Nantes. The same principle applies to staff and research lecturer recruitment sessions. High Schools will be progressively added to the network, creating the conditions to enable development of digital projects within in between educational establishments at staff and student levels. The Gigalis network permits services such as real time applications, high reliability IP telephony, data replication, reliable video conferencing etc., stimulating company performance and growth across the region.
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3. Małopolska Broadband Network (PL)
The Malopolska Broadband Network project’s goal is to increase the coverage of broadband in the region so as to reach at least 90% of household and 100% of private companies and public institutions by December 2014. The Malopolska Broadband Network project will have a budget of 60 million Euros. Approximately 60% of this is to be provided by Malopolska Region (Malopolska Regional Operational Programme for 2007-2013)
3.1. MALOPOLSKA: GEOGRAPHY AND TOPOGRAPHY Malopolska is a province in southern Poland. It has a population of 3.3 million and an area of 15,108 square kilometres. Malopolska was created on 1 January 1999 pursuant to the Polish local government reforms adopted in 1998. Kraków is the capital of Malopolska with a population of 757,000. Almost all of Malopolska lies in the Vistula River catchment area. The province is bordered by mountains on the north, west and south sides.
Figure 3: Location of the Malopolska region
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3.2. PROJECT BACKGROUND AND PARTNERS The Malopolska Broadband Network was developed as part of the Malopolska Region Development Strategy 2007—2013. The strategy provides support and intensive development of the Information Society through the expansion of ICT infrastructure in the Malopolska Region. In order to meet this challenge the Malopolska Broadband Network project was initiated1. According to available statistics, Poland is one of the last places in the European Union in terms of penetration of broadband Internet access. Based on data provided by telecommunication operators as well as the Office of Electronic Communications the analysis of white, grey and black areas in Malopolska was carried out. Currently, according to the interviewee in the region about 6% of households and 30% of localities do not have the ability to access the Internet at the basic level (2 Mbps) and approximately 35% of households and 87% of localities do not have access to next generation broadband. One household out of free is therefore endangered by the digital divide. Nevertheless, for operators investment in fixed network areas not currently covered by broadband access (often sparsely populated, mountainous or inhabited by people with low incomes) have no economic justification. The Malopolska Broadband Network project’s goal is to increase the coverage of broadband in the region so as to reach at least 90% of household and 100% of private companies and public institutions by December 2014. The project consists of deployment by the Malopolska Region of broadband infrastructure in the areas, where market forces do not and will not provide such infrastructure due to a lack of profitability. The new network will complement the existing network belonging to various operators, infrastructure and will be open, that is available to all telecommunication operators under transparent and non-discriminatory conditions. The Malopolska Broadband Network is in line with the objectives of the Digital Agenda for Europe. The fibre optic technology deployed will allow the network to offer next generation broadband of 40 Mbps and 100 Mbps in the future. The broadband network will be launched gradually (as soon as certain sections of the network have been deployed). In July 2011 Malopolska Broadband Network Limited Company was established by the Malopolska Regional Assembly. The company has the task of finding a private partner that will take active part in the construction costs of broadband infrastructure and that will also provide technical support for the Malopolska Broadband Network project. Then the company's goal will be to obtain the regional funding (already inscribed Malopolska Region Development Strategy 2007—2013) for the implementation of the Malopolska Broadband Network project and subsequently to design, construct, and operate the telecommunication infrastructure created within the project. Jagiellonian University and AGH University of Science and Technology are part of the partnership. They will combine their potential and experience for efficient and effective implementation of the Malopolska Broadband Network bringing in technological expertise. A key factor determining the success of the project is working with all interested parties. By working with the operators and telecommunications companies the network infrastructure can be designed to avoid overlapping existing or planned resources of other operators. The public consultation aimed primarily at operators from Malopolska launched in 2011 enabled to update initial analysis of
1 http://www.doitinmalopolska.net/network.htm 20 broadband coverage and should eliminate the risk of building the infrastructure on the areas already covered or that are planned to be covered by other operators.
3.3. FUNDING AND INVESTMENT MODEL The Malopolska Broadband Network operates a Public-Private Partnership model. The Malopolska Broadband Network project has a budget of around 67 million EUR. Approximately 60% of this (30 million EUR) is to be provided by the Malopolska Regional Operational Programme for 2007-2013). The application for co-funding within MROP will be submitted by the below mentioned special purpose vehicle in the second quarter of 2012. The Malopolska Region provided 8 million Euros. The 2 universities will provide 2.5 million EUR. A private partner will contribute the remaining 25 million EUR. A Special Purpose Vehicle (SPV) is being established to carry out the Malopolska Broadband Network project. The Malopolska Region is to hold 51% of the SPV shares. The SPZ is going to be a telecommunication operator and will be responsible for designing, building and operating the Malopolska Broadband Network.
3.4. IMPLEMENTATION AND DEPLOYMENT The project, operated by the Malopolska Broadband Network Limited Company is scheduled to be completed by December 2012. The project is to be implemented as follows: 2011 – establishment of a special purpose vehicle to implement the Project (finalised); start of a private partner selection procedure (ongoing). 2012 – selection of a private partner for the Project; submit an application for funding within the Malopolska Regional Operational Programme (MROP); sign an MROP subsidy contract; carry out necessary procedures for selecting contractors for the project (acquisition of fibre optic infrastructure, construction works; supply and installation of active broadband infrastructure appliances); prepare construction design and building permits. 2013 – finalise preparation of construction design and building permits; construction and installation works; launch first sections of the network. 2014 - finalise construction and installation works; launch next sections of the network; completion of the project. By the end of the project it is hoped that 90% of households and 100% of business will have access to broadband.
3.5. TECHNOLOGY The Malopolska Broadband Network construction is scheduled to begin 2012 and be completed by December 2014. Currently the region faces the problem of poorly developed broadband infrastructure which is owned mainly by the incumbent. In order to stimulate the broadband market it is necessary to develop backbone and distribution networks. As a result internet service providers (ISP) will be able to provide broadband services (last mile) in new areas without no need for big infrastructure investments.
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The project’s scope includes the creation of a regional fibre optic network of over 3,365 km of that will contain nearly 500 telecommunication nodes. These will be 19 backbone nodes, 161 distribution nodes and 276 access nodes. The network will create a backbone ready for broadband services and various other technologies of access. The network will complement existing networks and will be ready for easy further development. The fibre optic technology will offer next generation broadband of 40 Mbps with the possibility of 100 Mbps in the future. The fibre optic will be the optimal technology but may be complemented with radio technology used by local ISPs.
Figure 4: The general shape of the Malopolska Broadband Network
The network will be implemented in the digitally excluded areas where market forces do not and will not provide broadband infrastructure due to a lack of profitability.
3.6. DEMAND CONSIDERATIONS: Although project is in the early stage, is already gained a wide media attention that may help to popularise the projects amongst end-users. The Malopolska Broadband Network LTD foresees activities aimed at stimulating demand, for example promoting entrepreneurship focused on small operators. According to interviewee, the demand will be high given the high percentage of white areas in Malopolska and fast adoption by Polish citizens of new technologies. Close cooperation with operators in every step of the project (commencing with public consultation) should minimise the risk of their lower than expected interest.
3.7. PROGRESS AND SUCCESS So far, the SPV was established and the private partner selection procedure was announced. The negotiations with the partner should bring more information on how the revenue will be divided and paid. One of the challenges foreseen will be the preparation of construction design and building permits. For the project manager, the measure of success will be the number of households connected to the network and the speed with which the maximum capacity of the network will be reached. Project
22 aims at enabling access to broadband services for 90% of households and 100% of public institutions and enterprises in Malopolska. In the long term project should contribute to creation a number of jobs not only in the ICT sector (access to NGA broadband may attract investors to more remote areas), higher level of education thanks to the Internet access at school and at home, equal opportunities in access to information, administration streamlining, local communities engagement.
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4. TEO (LT)
The ongoing TEO project was selected as a case study because, thanks to it, Lithuania is leading the way in deployment of fibre access when compared to other EU countries. TEO, the country’s incumbent operator is, quite differently from other similar companies, undertaking such an important investment, that covers an important part of the territory with a FTTH infrastructure. The Lithuanian project is entirely funded by TEO. For the time being the high-speed FTTH broadband project meets the needs of more than one and a half million people. TEO is the largest Lithuanian broadband Internet access and voice telephony services operator, providing integrated telecommunication, IT and TV services to residents and business.
4.1. LITHUANIA: GEOGRAPHY AND TOPOGRAPHY Lithuania is the largest of the three Baltic states. It covers 62,500 square kilometres, it has an estimated population of 3.2 million (in 2011), and its capital and largest city (half million inhabitants) is Vilnius: other main cities are Kaunas (350,000 inhabitants) and Klaipeda (161,000 inhabitants). The population is intensively concentrated: the five largest cities accommodate almost 40% of the whole population.
Figure 5: Lithuania: its territory and main cities
4.2. PROJECT BACKGROUND AND PARTNERS In 2006, TEO decided to shift its broadband investment up a gear, embarking on the building of fibre connections directly into as many households as possible. The intention was to reach a large
24 proportion of the population with FTTH services. In comparison, many competitors were still relying for their services on FTTB or copper networks. In fact, the main catalyst for action was competition on the market, whereas local ISPs were providing relatively high speed on the retail market. Initially, the infrastructure deployed by the company was P2P (point-to-point). At a later stage, company strategy changed the architecture of the part of the network that was not yet built into a GPON. Within two years, Lithuania enjoyed the highest penetration of fibre in Europe, with 23% of households connected, one of the highest worldwide. This technology was selected after an analysis of the potential technological development. Investment costs and uptake predictions were important while the decision was being taken. It was also determined by a future-proof factor. The objective of TEO is to turn Lithuania into a fibre-country, with an important number of users enjoying high-speed ultra broadband, where it will be possible to develop innovative services. There is not a specific final coverage (time as well) target, as the deployment follow economic convenience of the incumbent.
4.3. IMPLEMENTATION AND DEPLOYMENT According to the Lithuanian Statistics department, there are 1,2 million households and 50,000 active companies in the country. The rollout of a FTTH infrastructure is implemented in all the country, in more than 70 cities. The project has been managed by the company itself, and there is no involvement of other entities.
Figure 6: TEO fiber backbone network During 2007-2011 TEO has passed 57% (689,000) of Lithuanian households. Connected homes (both residential and business) are around 130,000. Company plans to continue its investments until it is economically convenient. Investment plan was setup accordingly to distribution of residents in Lithuania in order not to overinvest into certain regions. Investments are undertaken by calculating economic value in every
25 stage of development – future payback is calculated by estimating number of FTTH clients and investments needed there. The project grew-up organically starting from large cities with concentrated multi-dwelling houses and it was developed thanks to a multitude of installation contractors operating on the field. The company believe that it is able to carry the investments itself, without relying on State subsidies. Public sector should instead focus on investments to regions where private companies are not investing (white and grey areas), also thanks to the support of EU funds.
4.4. FUNDING AND INVESTMENT MODEL TEO has invested 325 million litas (94 million EUR) for the FTTH rollout during the period between 2007 and 2011. TEO is a private listed company (on OMX Vilnius stock exchange) and only own cash/resources were used for the investments. Investments has been made by calculating economic value in every stage of development – future payback was calculated by estimating the number of FTTH clients and investments needed: the ARPU for residential customers is around 30 EUR (for triple-play). For the time being, predictions matched actual outcome, also in the number of predicted take-up. The copper infrastructure is left to run side-by-side with fibre so as to provide fixed-voice services. Internet and IPTV clients have been shifted to fibre technology. There is currently no obligation for TEO to provide access to fibre for other ISPs. Every investment region is being evaluated according to its profitability and payback time: the cost per home passed is, on average, 130 EUR; similarly, the cost for each home connected is around 300 EUR. Effective topology of the network (FTTH-GPON) was used in order to decrease investments, and the economic crisis helped to reduce investment-size due to lower prices of construction companies’ services. A return on investment is forecast in a period of ten years. The government has not supported the project with the funds. Tax exemptions for investment to new-generation networks were used in order to ease funding. In fact, according to Lithuanian law, companies investing into innovative technologies can benefit from tax exemption for any profits (which can be applied for the sum of investment, up to 50% of all profits). Only in 2011, did TEO benefit from an amount of 7.8 million LTL.
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5. STOKAB (SE)
The Stockholm-Stokab case was selected because it is, according to many reports, an interesting way for public authorities to implement and develop a FTTH (passive) infrastructure on an urban and suburban geographic area. The aim of the deployment is to create a wide access infrastructure where operators can compete in order to provide NGAN services to the entire population. The Stokab infrastructure has been entirely funded by the municipality. When the project is completed its high-speed broadband should meet the needs of two million people.
5.1. STOCKHOLM REGION: GEOGRAPHY AND TOPOGRAPHY
Figure 7: Location of the Stockholm project
Stockholm is the capital of Sweden and the country's largest city. It constitutes the most populated urban area in Scandinavia. It is the most populous city in Sweden, in 2010, with a population of 851,155 inhabitants in the municipality, 1.37 million in the urban area, and around 2.1 million in the 6,519 square kilometres metropolitan area. The territory has 22% of the Swedish population and it is pretty large as a geographic area and is spread over an entire archipelago. Sweden is one of the most advanced information and communication technology societies in the world. It was named the world’s most networked economy in the 2010 edition of the ITU “Measuring the Information Society” report. It is also one of the world’s leading countries in fibre deployment. By the beginning of 2009, fibre accounted for 15% of all Internet subscriptions
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(BuddeComm, 2009). In 2009, the broadband penetration in the country was 32.4 subscribers per 100 inhabitants.
5.2. PROJECT BACKGROUND AND PARTNERS
5.2.1. The situation ex-ante
Stokab was founded in 1994 as a municipally owned-company with core tasks to build, maintain and lease out a fiber based communications network in Stockholm. The company’s mandate from the municipality of Stockholm is to provide “public service on commercial terms” with the objective to promote economic growth by stimulating the telecom market and IT development in the Stockholm region, particularly in the city of Stockholm. Stokab’s vision is to “put the city of Stockholm on the global IT map as a driving force in the creation of information society for all”. At that time, no broadband was available in Stockholm and the municipality idea was that a better competitive market at service level would have been achieved whereas the ownership of the infrastructure would be kept separate from the wholesale/retail level.
5.2.2. Stokab business
The company aimed to achieve the target set from the municipality by providing to operators a neutral passive dark fibre network that is open to all market players on equal terms. Consistent with its mission statement, Stokab has limited its involvement just to passive dark fibre infrastructure, including required ducting and digging activities required to install dark fiber. It therefore acts as a pure infrastructure provider and does not own or operate any active network elements: it is fully separated and independent from communication operators or end user service providers. Stokab does not have exclusive contracting arrangements, and leases fibre connections on equal terms to all players. There are two main fibre providers in Stockholm: Stokab and telco incumbent TeliaSonera through its infrastructure company that is called Skanova. Stokab operates only in the passive infrastructure layer, whereas TeliaSonera is a vertically integrated fixed line and mobile telephony incumbent.
5.3. IMPLEMENTATION AND DEPLOYMENT The municipality founded Stokab in 1994 by providing a capital of 5,000 Euro taken from its balance, conferring public ducts available on the territory (including the access to the Metro tube system, in order to diminish the required construction works and relative costs for the company) and guarantees to the bank, so that the company could fund itself by loans at more competitive conditions. Thanks to Stokab, Stockholm is now wired with 1.2 million km of fibre and 5,500 km of fibre optic cables. The infrastructure counts around 600 nodes and 6,000 ODFF sites. The FTTH network was serving 150,000 households in 2010, while forecasts predict 400,000 households connected by 2012. 68.3% of companies in Stockholm had access to a fiber-optic connection in 2009. Stokab’s network roll out on-going plans includes increased coverage to 100% of buildings in the inner city by the end of 2011, and it is forecasted similar action in the entire municipality by the end of 2012. This would cover 90% of all Stockholm households and all businesses.
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The network is based on a multi- fiber point-to-point (P2P) technology, with two dedicated fiber available for each residence at an ODF connection point, typically in the basement of a building (FTTB). The in-building network can instead be accomplished with various technologies, including additional fiber to the apartments or Ethernet LAN. There are different options for installing the vertical fibre infrastructure in the buildings to achieve a FTTH connection (the vertical section inside buildings is, in fact, not developed by the company). City owned public housing are a special case, where public housing companies owned by the city of Stockholm install themselves the vertical section of the (last-mile) fibre infrastructure in the buildings, thus achieving a FTTH connection: here Stokab brings into the building one fibre for each household, while housing companies use competitive procurement to contract with three telecom operators to operate the access (vertical) network. The latter ones are then required to provide open access to other service providers, also to their active infrastructure: in this way, the public companies achieve both the roll-out of FTTH while still increasing consumer choice: end-users are in fact free to select between one of the three operators, or else one of the other service providers. The actual connection speeds available to end-users depend on the active equipment installed by the communications operators leasing fibre from Stokab. The speed for residential users is currently 1Gpbs.
5.4. FUNDING AND INVESTMENT MODEL Stokab owns then dark fibre in Stockholm. The company’s mandate from the municipality is to provide “public service on commercial terms”, by providing to service operators a neutral passive dark fiber network open to all market players on equal terms. Although owned by the City of Stockholm, it operates on a commercial basis as it is fully funded by loans and earnings consequent its commercial activity with operators, and does not receive tax funding.
Figure 8: Amount of investments (mln SEK).
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In order to set up the infrastructure, during the 1996-2008 period, the sum of 320 million EUR were invested, while in the 2009-2012 period it is forecasted an expenditure of 160 million EUR: the average cost for house passed is of 460 EUR.
Figure 9: Amount of yearly revenues (mln. SEK)
Regarding the financial viability of the company, the information received shows that Stokab begun to be bring positive revenues by the 4th financial year, whereas the return over investments appeared in 1998, during the 14th year of operations.
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6. South Yorkshire Digital Region (UK)
The South Yorkshire Digital Region project was selected as a case study because it provides an insight into a project that has received a relatively large amount of public sector funding (EU and local municipalities). The project is primarily focussed on the four urban areas of Barnsley (population 227,6002), Doncaster (290,600), Rotherham (254,600) and Sheffield (population 555,000). However, the intervening areas, between the four major settlements, are distinctly rural in character. The South Yorkshire Digital Region project has received 105 million EUR funding from the European Commission and local municipalities. When the project is completed high-speed broadband deployment should meet the needs of more than one million people
6.1. SOUTH YORKSHIRE: GEOGRAPHY AND TOPOGRAPHY South Yorkshire is a Metropolitan County in the Yorkshire and the Humber region of England. It has a population of 1.29 million and an area of 1552 square kilometres. It consists of four administrative areas: Barnsley, Doncaster, Rotherham and the City of Sheffield. The County has a rich mixture of rural and urban areas. Indeed, it has been suggested that wherever you are in a city in South Yorkshire you are never far from the countryside 3. The landscape consists of rolling hills, escarpments and broad valleys. The main settlements of South Yorkshire grew up around the industries of mining and steel manufacturing. Figure 10: Location of the South Yorkshire Digital Region project
2 Mid 2010 population estimates from Office of National Statistics 3 South Yorkshire Partnership 2004 Sub-regional spatial strategy vision for South Yorkshire p 23 31
6.2. PROJECT BACKGROUND AND PARTNERS The South Yorkshire Digital Region project is the first major regional deployment of ‘superfast broadband’ in the UK. The project was announced in the Government’s 2009 budget statement4 and the project went live on 29 April 2009. The project has been driven by a partnership between Yorkshire Forward (the Regional Development Agency), Sheffield City Council, Barnsley Council, Rotherham Council and Doncaster Council. Interviewees suggested that in 2006 representatives from Barnsley Council and Sheffield City Council were keen to revitalise the sub-region. The IT and creative digital industries had been targeted for development and it was thought that the development of superfast broadband would assist growth and make a clear statement about the dynamic intentions of the region. At the time, BT, was announcing the deployment of 8Mbit/s broadband connectivity. There was a common understanding that the sub-region was not included in deployment plans at the time, and the vision for the region was for superfast broadband, not the slower 8Mbit/s option being deployed. Interviewees suggest that the world has moved on quickly and this visionary idea is now more commonplace. It took time (2006 to 2009) to develop the concept and to apply for and obtain funding. Throughout this period, it has been suggested that BT has been actively competing to develop a competitive product offering in the sub-region.
6.3. FUNDING AND INVESTMENT MODEL The four local authorities provided about GBP10 million (11.7 million EUR at prevailing exchange rates in July 2009); Yorkshire Forward GBP40 million (46.7 million EUR), Thales UK GBP10 million (11.7 million EUR) and the EU GBP30 million (35.0 million EUR). Funding from the EU was mainly grant funding; UK organisations primarily provided loan capital, which will be repaid in due course. The public sector organisations are shareholders in the project and should the project make a profit, after loans have been repaid, they will receive dividends. Thales agreed to a revenue sharing agreement that would provide them with rewards if targets were achieved. These targets have not yet been reached.
6.4. IMPLEMENTATION AND DEPLOYMENT The project is led by Digital Region Limited (DRL), which is wholly owned by Yorkshire Forward, Barnsley Metropolitan Borough Council, Doncaster Metropolitan Borough Council, Rotherham Metropolitan Borough Council and Sheffield City Council. Thales UK has been appointed after a competitive tender to deliver, manage and operate the state- of-the-art fibre-optic cable infrastructure on behalf of DRL, and leads a consortium that includes Alcatel–Lucent and the KCOM Group. The project is scheduled to be completed in May 2012. By then, it is expected that it will have connected 97% of the South Yorkshire population, approximately 546 000 homes and 40 000 businesses. The initiative is focussing on the cities, towns and villages of Sheffield, Doncaster, Barnsley and Rotherham.
4 www.hm-treasury.gov.uk/budget.htm 32
6.5. TECHNOLOGY Building the Digital Region network began at the end of June 2009 and is scheduled to be completed in May 2012. The first services were provided at the beginning of 2010. The configuration of the Digital Region network is shown in Figure 12. A central superfast fibre loop is at the core of the approach and a number of other loops and spurs extend from this to reach local communities. The system uses VDSL2 with IP routers and Ethernet switches. The 54 exchanges in the region are housing VDSL and ADSL equipment, and there are 15 designated business exchanges for fast and Gigabit Ethernet. The project also includes the deployment of 1589 new base station access network (BSAN) street cabinets, to enable ‘local’ access by households and businesses. The South Yorkshire Digital Region project is laying 700 kilometres of new fibre (as well as utilising 500 kilometres of existing fibre infrastructure). It is reported that this fibre has been laid at a price of less than 50 EUR per metre by reducing the number of contracting layers that are sometimes used to undertake this activity. This represents a cost that is less than half the level usually considered to be the norm in the UK. This relatively low cost for fibre deployment has been surprising for some UK policy makers that were perhaps guided in their thinking by the costs quoted by incumbent broadband providers.
Figure 11: Configuration of the Digital Region Network
6.6. DEMAND CONSIDERATIONS: PROMOTING SUPERFAST NETWORK ADOPTION
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Interviewees suggested that the difficult part of the project was not building the network, although obtaining sufficient funds was problematic. They suggested that the hardest activity has been getting people on to the network. This has been due to two key difficulties: Attracting new users from incumbents and others, offering triple-play services.5 Triple play focuses on a combined business model rather than solving technical issues. The Digital Region network’s offering is simply a faster broadband access. Triple play and other operators offer a product service on their networks, whereas the Digital Region network offers faster connectivity but it does not have a well-developed value proposition. Administrative and technical problems in connecting new users to the Digital Region network. At present, all new users have to be connected by BT and BT is reported to be reluctant to take on this role. This situation arises because individual superfast broadband subscribers have to be connected from their home (or business) to the street cabinet, usually administered by BT. In this procedure, there can be technical problems in co- ordinating the different operating systems utilised by different local superfast broadband suppliers. Common interconnection standards for superfast broadband would help to address this problem. The South Yorkshire Digital Region project is providing fibre to the street cabinet. Digital Region customers (or their ISPs) are responsible for making the final connection from the street cabinet to individual households or business premises. Interviewees stated that the charge levied by BT for each connection is GBP127 (currently 145 EUR). It has been suggested that when BT Retail makes a charge to its own customers to connect, it only charges GBP35 (40 EUR). It has also been suggested that international prices for connection are about GBP50 (57 EUR) on average. The South Yorkshire Digital Region project has taken a complaint to the UK Office of Communications (Ofcom), the government-approved regulatory authority for the telecoms industries in the UK
6.7. DEPLOYMENT LESSONS: UK MANAGEMENT PLATFORMS AND OPERATING NETWORKS The problem of connecting new users to a superfast network is not confined to the Digital Region project. Making connections to local superfast broadband networks has been recognised as problematical by the Community Broadband Network and others in the UK. The Digital Britain Interim Report6 partially recognised this problem; Action 5 stated that “the Government will help to develop an umbrella body to bring together all the local and community networks and provide them with technical and advisory support” (page 12). In June 2006, BT introduced an Equivalence Management Platform (EMP)7 in response to Ofcom’s demand that ISPs and communication providers should use the same mechanisms and processes as BT Retail to access Openreach’s network. The creation of Openreach as a business entity and the creation of the Wholesale Line Rental 3 (WLR3) product (made available by the BT EMP) is the
5 Triple play is a marketing term for the provisioning of two bandwidth-intensive services, high-speed Internet access and television, and a less bandwidth-demanding (but more latency-sensitive) service, telephone, over a single broadband connection. 6 Department for Business Enterprise and Regulatory reform (2009), Digital Britain: Interim Report. Available at www.culture.gov.uk/images/publications/digital_britain_interimreportjan09.pdf. 7BT Wholesale (2006), Broadband order delay reasons: A best practice guide. Available at www.btwholesale.com/pages/downloads/help/order_delay_reasons_best_practice_guide.pdf. 34 framework that met a further Ofcom requirement – the need for ISPs and communication providers to be able to replicate BT Retail’s lines products. These ‘equivalence’ principles were founded on two key factors:8 Equivalence of access – This means that communications providers should all have access to the same wholesale line products from BT (at the same underlying price) so that BT’s services can be replicated to encourage competition. Equivalence of input – This means that all communications providers (including BT Retail) should have access to, and use, the same systems to order, manage and maintain these line services. This means that BT would have no competitive or technical advantage by having access to systems that other providers did not. The same level of equivalence is not currently evident in the superfast broadband market in the UK. BT Retail does not have to consume the same access product as everyone else, and systems to ensure equivalence of input are not present. The need for equivalence of input has been highlighted by the Community Broadband Network and others advocating the development of a ‘Joint Operating Network’ (JON).9 Initially, this was envisaged as connecting local projects but later effectively become a superfast broadband market place with a series of hubs or ‘meet me’ points enabling local access projects to offer connections to service providers seeking customers. The purpose of JON is to establish common technical and operating standard for local networks. This will help national and regional ISPs to deliver their services to consumers and businesses connected to local fibre networks in a cost-effective way. Observers have suggested that the development of this type of network is not viable as a commercial venture because payback periods take too long. If this view is correct and a joint operating network is thought to be a valuable way of ensuring competition and equivalence in the UK and across European Member States, it may be necessary for governments or European organisations to support this type of initiative. A JON type of initiative that would offer superfast broadband technical arbitrage, at the national level and/or European level, could help to ensure that if a variety of local projects are developed in a Member State(s), they all have the capability to be more easily and cost-effectively connected to local households and businesses, thus, to a large extent, overcoming the problems encountered by the Digital Region project. It has been suggested that an initiative similar to JON is also being promoted in Sweden. Observers have suggested that local loop unbundling (LLU), with the main incumbent (BT) having to offer equivalent products to the wholesale and retail arm of its business and to other providers, was very effective in stimulating competition and enhancing broadband deployment and take-up in the early years of deployment. The superfast broadband market is new and it has been suggested that one way to enhance roll-out and cost-effective take-up on a level-playing field will be to establish something similar to the proposed JON. This could offer a simple way for ISPs to plug new users into the local superfast network projects developed throughout Member States; it would also enable users to switch more easily between providers.
8www.akjl.co.uk/knowledge/telecoms-news/?WLR3-Opportunity-or-Threat. 9www.broadband.coop/acajoom/mailing-view/1.html. 35
6.8. PROGRESS AND SUCCESS In June 2011 Digital Region claimed that its rollout was already "well underway", with more than 50 per cent of the final network completed. 30 telephone exchanges had been upgraded, out of an initial 36 planned for phase one and a total of 54 for the complete network in 2012. However, press reports suggest that the Digital Region project is struggling to achieve its goals. An interview with David Carr10 noted that the project had funding “for the first 80 per cent of the population, and that will be complete by the early part of next year (2012). But this is still absolutely a 97 per cent project. It’s in our plan to roll out to the final 17 per cent (of properties) - it’s just a question of timing [...]. It was always the plan to have the final 17-20 per cent built from our revenue. The revenue forecasts were over-emphasised when the plan was first put together. In the original plan the last 17 per cent was done more quickly, and we’ve had to revise that”. The project aimed to provide broadband speeds of 25Mbps to 97 per cent of businesses and homes in the South Yorkshire UK region. Commentators have observed that the project is facing growing competition to attract users from BT's comparable 40Mbps superfast broadband service which is now being deployed, in direct competition to Digital Region, in some of the county's most profitable areas11. More recent press reports in September 2011 suggested that the project could be sold off to the private sector when Yorkshire Forward, a 50 per cent shareholder in the project, is wound up next year. The assets of Regional Development Agencies, such as Yorkshire Forward, are due to be re- allocated in April 2012. Observers have suggested that assets could be ‘inherited’ by the UK Department for Business, others have suggested that assets could be sold off in a firesale to generate funding for HM Treasury12. When asked to reflect on strengths and weaknesses, interviewees suggested that technical progress and deployment had been successful. However, as noted above, problems have arisen over increasing the subscriber base. There is a growing need to improve the ease with which ISPs and communication providers are able to utilise the Digital Region network. The need for an easier method to administer connections and ensure equivalence of input was highlighted above. At the development stage one of the goals of the Digital Region project was to develop a network capable of providing IPTV to the home. At the time, fibre was the only technical solution. However, it is now thought that wireless might have been able to provide this level of connectivity and this could be adopted as an option to extend coverage of the network (from the current goal of 80% to the maximum coverage of 97% envisaged for the project) more cost-effectively. The South Yorkshire Digital Region project established its own network operations centre NOC in Doncaster in December 2009 to oversee network security, technical quality and superfast broadband performance. The NOC is manned 24/7/365 from a pool of 12 people, 4 senior analysts and 8 network analysts.13 Interviewees suggested that it might have been more effective to sub-contract NOC activities (and thus receive the benefits of the economies of scale that the sub-contractor could
10 16th July 2011 - http://www.yorkshirepost.co.uk/news/at-a-glance/main-section/exclusive_slow_customer_take_ up_delays_100m_flagship_broadband_project_1_3584819 11 19th July 2011 - http://www.ispreview.co.uk/story/2011/07/19/south-yorkshire-uk-digital-region-broadband-project-in- peril-due-to-low-uptake.html 12 17th September 2011 http://www.yorkshirepost.co.uk/news/at-a-glance/main-section/exclusive_troubled_south _yorkshire_broadband_scheme_may_be_sold_off_1_3782998 13 www.digitalregion.co.uk/news-detail/31/Digital-Regions-Network-Operation-Centre. 36 achieve). The current agreement is for Thales UK to develop and run a local NOC for a fixed term of ten years. Some observers have suggested that the original business plan of the Digital Region project could have been better informed by greater input from telecoms experts. The need for a NOC has been questioned and forecasts for take-up were optimistic. In reflecting on these observations interviewees have suggested that the required levels of technical and operation expertise to produce realistic and robust business plans could be difficult to obtain for many local projects. Several interviewees have advocated the need for greater sharing of knowledge, access to sources of expertise and networking and communication activities among superfast broadband project developers.
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7. Broadband in Friuli- Venezia-Giulia (IT)
The Friuli Venezia Giulia Region project was selected as a case study because it provides an insight into a project that has received a relatively large amount of public sector funding (EU, national and regional). The project focuses primarily on the coverage of local public authorities offices, industrial areas in the region and those in digital divide (DD). However, the intervening areas, is pretty rural due to the geography. The Friuli Venezia Giulia Region project has received EUR120 million funding, mainly from the EU and the Region. When the project is completed high-speed broadband deployment should meet the needs of around 1,2 million people.
7.1. FRIULI VENEZIA GIULIA: GEOGRAPHY AND TOPOGRAPHY Friuli Venezia Giulia is one of the twenty regions of Italy, and one of five autonomous regions with special statute. The capital is Trieste. It has an area of 7,858 square kilometres and has about 1.2 million inhabitants. A natural opening to the sea for many Central European countries, the region is traversed by the major transport routes between the east and west of southern Europe. It covers an area of 7,858 square kilometres and is the fifth smallest region of the country. The landscape consists in a large part of mountains and hills.
Figure 12: Location of Friuli Venezia Giulia Region project
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7.2. PROJECT BACKGROUND AND PARTNERS
7.2.1. The situation ex-ante
As testified into Commission’s decision N436/201014, the non-flat and remote condition of the region resulted into a territory with a patchy broadband coverage: such service was offered only in main cities, leaving aside part of population and territories, like industrial districts, located into peripheral areas but central for the economic development of the region. By a public consultation with operators, the Region was able to discover that in 114 municipalities, “white areas”, there was no broadband infrastructure available while, in other 96 areas defined “grey”, price and access conditions were not retained adequate.
Figure 13 : Current broadband coverage in Friuli
14 C(2011)3498 final of 23.05.2011 39
7.2.2. The ERMES programme
Launched in 2005, ERMES (an Excellent Multimedia Region in a European Society) is a programme of the Region of Friuli Venezia Giulia, which aims to make the region a European area of excellence in information and communication technology (ICT). In particular, the project ERMES has the following objectives: enable a public network fibre optic for the connectivity of the PA, called RPR; overcome the digital divide by ensuring regional connections of at least 1Mbps throughout the region, based on the use of fibre technology; link areas of both districts and industrial consortia present in the region.
The objective of the project is therefore to create a backbone and backhaul fibre infrastructure with surplus capacity available that can be then leased to private operators (that otherwise would not invest in those facilities) in order to ensure broadband coverage also in remote areas. Furthermore, another aim is to deploy an access network (FTTH) both for public administrations (RPR) and industrial districts, that otherwise would not be reached by this technology. Such actions will replace marginal interventions connection radio technologies that were previously put in place. The objective of the Region is to allow both citizens and businesses to receive connectivity services from private operators, at market prices, diminishing differences of potential availability between metropolitan areas and those currently in digital divide (DD). In particular, ERMES is expected to enable the implementation of telemedicine programmes, teleworking, distance learning, and control systems and monitoring environment (e.g. video surveillance of the waters, landslide monitoring in order to enhance public safety. Furthermore, ERMES plan aims to stimulate broadband by increasing the competition between the operators present on the market. ERMES is articulated as a platform with technology solutions to suit at best the needs of the territory: it involves the massive use of fibre, that will replace completely the use of radio technologies made today in the regional backbone network. In areas with a high digital divide (DD) - where private operators might consider any investment to ensure access to the regional fibre optic network as unsustainable and unprofitable – the programme provides the possibility of using alternative technologies (for example satellite). The choice of technology has been decided on the basis of a number of technical and economic considerations adopted in a study report, called "Study on infrastructure assets development in the region Friuli Venezia Giulia" (2005), by University of Udine. The Region’s broadband policy underlying the ERMES programme is built on two pillars: the first one being public interventions in the setting-up of a backhauling RPR network (Unified Network for Public Administration Regional) and the connectivity to individuals in Digital Divide areas, the second one being the connectivity of industrial areas present in the region.
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7.3. IMPLEMENTATION AND DEPLOYMENT
7.3.1. Use of an in-house public company Insiel to deploy the network
Almost all the fibre deployed in this project is owned by the Region. The company (regional in- house) Insiel s.p.a. is responsible for the maintenance and service management of the mentioned network. The relations with private customers will be left to retail telecommunications providers: after being selected through a public competition procedure, private operators will be granted access to the network by hosting and LLU (local loop unbundling), so that they can offer connectivity services to individuals in DD areas. Hereby, they can offer the use of different types of technologies enabled by optical fibre (Fixed, mobile, Hiperlan, Wi-Max, etc.). Regarding the RPR project part, public backhauling is entrusted to the in-house regional company called Insiel, which carries out its duty on behalf of the Region and manages the maintenance of the backbone infrastructure. Operations undertaken will provide the connection of 5 regional nodes (2 already realized by 2011, see Figure 2) of the core backbone network with 14 fibre rings designed to serve all the 218 municipalities presents in Friuli. In particular, the RPR network is used internally, in order to interconnect the public administration (PA): the aim of this measure is to achieve a better (and at lower costs for the Region) service performance than the one generated by existing connections that are provided by the operators.
Figure 14: Location of the backbone network
RPR will provide connectivity and services to the following categories of clients: Regional offices and institutions, including universities and hospitals; Provinces, Municipalities, Chambers of Commerce; Other bodies belonging to Friuli Venezia Giulia Region. The regional government (through INSIEL) launched a number of public tenders, in compliance with national and European regulation of public procurement, for the construction of the network, including the installation of multifibre ducts and the placing of dark fibre. Insiel will therefore build
41 up a fibre optic network, that is meant to be oversized related to the needs of RPR, so that the Region can make available such surplus to private TLC operators (that otherwise would have not undertaken such investment) for carrying out their economic activities. The last part of the project, complement to the one mentioned above, is to connect all districts and industrial consortia (80) in the region, through the construction of a FTTH infrastructure (see Figure 3). The region, however, estimates that fibre deployed in extra supply would be able to serve 4 to 5 potential telecom operators that might desire to establish their business services throughout the territory: this action was undertaken to ensure competitive conditions in the regional market for electronic communication services. The initiative was also established with the aim of overcoming the digital delay hitting the region and following the observation of a deficit situation infrastructure. In particular, when launching the project, the infrastructure backbone network in marginal upland areas and copper wire was not were sufficient to support broadband services deemed necessary even by the regional administration.
7.4. STATUS BY 2011 By 2011, about half of the infrastructure has been completed, with 650 kilometres of optical fibre finalised or under realization, on a total of 1570 kilometres foreseen. The beginning of the migration from the current PA network to the new fibre network is expected to take place in the first half of 2011. The operationalisation of the network for the public, for technical reasons related to the closure rings, will be initially patchy.
Figure 15: Industrial areas covered by ERMES
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7.5. FUNDING AND INVESTMENT MODEL The project, to be implemented through ERDF co-funding of POR 2007/2013, plans to provide link to each production unit established through the laying of fibre in each well on the road to public ownership. Even in this case, the connection to the end user will be provided by private operators, selected through public procedures. State Aid notification (N436/2010) from the European Commission has been granted. The foreseen investment is of 120 million EUR, with the following quota: Regional funds: 80 million EUR (by which 12 million EUR by equity present already in INSIEL s.p.a capital); National funds: 33 million EUR; FESR and FEASR funds: 7 million EUR. According to the Region, the choice of a separate management (called functional separation) of broadband services and infrastructure management remains in line with the recommendations of the European Commission on broadband access, and facilitate the emergence of market areas initially excluded from private investment. The separation of the network ownership from retail operations enabled the region to set up a consistent infrastructure plan across the region, creating an infrastructure that would lower barriers to entry for new competitors and increase broadband coverage also in areas where it is currently not available. In addition, the realization public infrastructure allowed a considerable cost savings, both for the PA and the Region.
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8. GITPA (ES)
The telecoms infrastructure operator of the Principality of Asturias (Gestor de Infraestructuras de Telecomunicaciones del Principado de Asturias, ‘GITPA’) has been operating a high-speed broadband access network since 2007 that offers connectivity to rural areas in Asturias. GIPTA offers 100Mbit/s- symmetric bitstream services to residential users. At present, Orange, Adamo and Telecable offer final services to residential users using GITPA’s open network. GITPA and the Asturcón Network were partially funded by FEDER (European Regional Development Funds). 47 million EUR of grant funding was provided by the two organisations. Funding covered only the construction of a FTTH 100Mbit/s symmetric open network. It is estimated that deployment costs were 921 EUR per home passed.
Figure 16: Municipalities covered by the GITPA network
8.1. ASTURIAS: GEOGRAPHY AND TOPOGRAPHY The Principality of Asturias is an autonomous community within Spain. It is situated on the Spanish north coast (Bay of Biscay) facing the Cantabrian Sea. The most important cities are the provincial capital, Oviedo (Uviéu), the seaport and largest city Gijón (Xixón), and the industrial town of Avilés. It has a population of 1.08 million and covers an area of 10,604 square kilometres. The landscape consists of rugged coastal cliffs and a mountainous interior. The Cantabrian Mountains (Cordillera Cantábrica) form Asturias’s natural border with the province of León to the south. The Picos de Europa National Park is located to the east. Other notable features of this predominantly-limestone range are the Parque Natural de Redes in the central east, the central Ubiñas south of Oviedo, and the Parque Natural de Somiedo in the west. As the area is rugged and mountainous it is not conducive to deploying high-speed broadband easily.
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2.1. PROJECT BACKGROUND AND PARTNERS GITPA is a public company that is 100% owned by the Principality of Asturias. It manages and maintains the telecoms infrastructure (including transmitters, repeaters and fibre), systems and services, and co-ordinates the planning of the infrastructure deployment of the different regional public administrations, as well as the technical support provided to them. The principal network managed by GITPA is the Asturcón Network (Red Astur de Comunicaciones Ópticas Neutras), which has been in operation since April 2007. Its overriding objective is to promote the availability of a high-quality telecoms infrastructure at affordable prices in the Principality. It also aims to establish and operate telecoms networks (e.g. the Asturcón Network) and their associated resources, thereby providing communication services to third parties.
8.2. FUNDING AND INVESTMENT MODEL GITPA and the Asturcón Network were partially funded by FEDER (European Regional Development Funds)15 for the recovery plans of the mining valleys of the region and through the Spanish National Development Funds (through the AVANZA plan). EUR 47 million of grant funding was provided by the two organisations. The nature of the funding has influenced the deployment plans and the areas to which the network offers its services. Due to its funding arrangements, the Asturcón Network offers connectivity only to rural areas, where private operators cannot establish a viable business model. They are not allowed to deploy in more urban city areas, such as Gijon and Oviedo. Funding covered only the construction of the network. It is estimated that deployment costs were EUR 921 per home passed. The project is based on the fact that CAPEX is subsidized and incomes are used just to compensate OPEX. Due to the legal company structure, if incomes are greater than OPEX, then further investment must be undertaken. The company cannot have a profit. Operationally the network generates a sustainable revenue stream (based on the number of subscribers on the network) and will continue to do so in the future. It is envisaged that this revenue stream will be used to further expand the network in the future. In October 2011 uptake was thought to be around 19% and the network has more than 9,000 subscribers. However, changes in these parameters would not create a financial risk. The company is structured to cover OPEX with income. If incomes reduced the company would be restructured to accommodate lower income levels. The aim of the Asturcón Network is to promote the generation of new businesses through ICT in the region, thereby diminishing emigration from rural valleys. GIPTA will reinvest profits to improve its infrastructure and balance the public funds transferred to GITPA to develop telecoms services in Asturias.
8.3. IMPLEMENTATION AND DEPLOYMENT The creation of the Asturcón Network began in 2005 and lasted until 2007. This first phase covered 21 towns in the mining regions of the Principality. It was financed by the Administration of the Principality using the FEDER ‘mining funds’. Phase 1 covered Tineo, Cangas del Narcea, Tuilla, Blimea, El Entrego, Sotrondio, Rioturbio, Barredos, Pola de Laviana, Santa Eulalia de Morcín, Santa Cruz de
15 Fonds européen de développement regional 45
Mieres, Figaredo, Turón, Ujo, Pola de Lena, Villanueva, Caborana, Moreda, Oyanco, Cabañaquinta and Felechosa. This phase passed a total of over 31 000 homes. The first 15 towns started using the network in December 2007. However, six villages could not be connected until October 2009 due to the trunk network in the Aller valley being unavailable. In 2007, as requested by the local government of the Principality of Asturias (and as part of the ‘Llanes, Paraíso Digital’ project, from the ‘Plan Avanza’ initiative of the Spanish Ministry of Industry), GITPA included the central area of the Llanes region in the network. Phase 2 connected a further 1500 homes to the network. In 2008, as part of the agreement to promote competition, employment and welfare, ACEBA (the local government of the Principality of Asturias) asked GITPA to expand the network to include the towns of Colombres, Celorio, Posada de Llanes, Sevares, Villamayor, Nava, Infiesto, Arriondas and the uncovered areas of Llanes on the east of Asturias and Soto del Barco, Muros del Nalón, San Esteban de Pravia, Luarca, Navia, Puerto de Vega, La Caridad, Tapia de Casariego, Castropol, Figueras and Vegadeo on the central and western coast of the region. This Phase 3 expansion is currently underway, and is due to be completed in 2011; it will cover an additional 19 000 homes. In 2009, as part of the Plan Avanza, ACEBA also requested that GITPA expand the network to cover four small towns with populations between 500 to 1000 inhabitants (Porrúa, Santa Eulalia de Cabranes, Villallana and Corigos). With this latest expansion (Phase 4), the Asturcón Network offers broadband services to a total of 45 towns, with over 51 000 homes covered (9.5% of households in Asturias). The Asturcón Network offers service providers a centralised PoP, located in Gijón, where the service providers interconnect. This PoP is connected with Telefónica and the dark fibre networks of ADIF and HC. Cogent is also present in the PoP offering interconnection services. By connecting at the PoP, service providers have access to all users connected to the network. GITPA’s services are defined separately for business and residential use, as shown below in Figure 2. Triple-play services can be offered to the residential segment, supporting 100Mbit/s symmetric data access, voice and video.
market bandwidth mode connection delivery traffic mono best effort standard point-to- service real time (voice) residential 100Mbps (best effort) point multi multicast IP service (VoD, TVoIP) 10Mbps point-to- 30Mbps point mono 100% business guaranteed 50Mbps point-to service guaranteed 100Mbps multipoint Figure 17: Asturcón Network’s service structure Service providers can also offer services using GITPA’s infrastructure. GITPA manages all operations apart from commercial and billing services. GITPA installs the equipment at customers’ premises; this provides data services (and voice and video services when applicable) and guarantees connectivity between the final customer and the PoP in Gijón. Service providers pay for these transport and support services with a monthly fee per user that is publicly available on published in
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‘ARPA Network document’.16 Operators therefore only offer their services, promote their commercial offer and support their customers.
8.4. TECHNOLOGY The Asturcón Network provides fibre to the home (FTTH), which is based on the following principles: neutral – it can be used by several operators concurrently without interference or communication between them transparent – service providers do not have to modify their basic service catalogue to use the Asturcón Network open – interconnection is done at the IP level secure – its design permits different levels of network availability that allow operators to deliver an excellent service end users flexible – it covers operators’ transmission requirements for those new services demanding large broadband capacity scalable – possible to increase the range of services provided or to widen the network without needing to modify its design easy provision – simple installation for operators, executed by GITPA, by activating those services the operator has requested attractive – for operators concerning cost, quality, services provided and operational facilities. The network uses gigabit passive optical network (GPON) standards to reach customers. Voice, video and data are delivered over a unified infrastructure, using video radio frequency (RF) overlay technologies to distribute video. This approach limits the number of video operators using RF technologies to just one, which at present is Telecable. It offers 2.5Gbit/s downstream and 1.25Gbit/s upstream. The splitting factor is 1:32 and the aggregation to the PoP is done using GbE and 10GE links. Fibre enables 100Mbit/s symmetric to be offered to end users, a level of service that is possible regardless of their distance from the head end. A network head end is installed in each municipality to reach customers (i.e. the access network) and the transport network interconnects the different nodes with the PoP located in Gijón, where the different service providers install their equipment to deliver final services. This structure is shown in Figure 3 below.
Voice GITPA access GITPA IP/MPLS Service Provider Video ONT network OLT network IP Network Data
CATV Service Provider Network
Figure 18: General structure of the Asturcón Network
16 ‘Access to the Asturcon Public Network’ document 47
The existing telecoms infrastructure of the regions covered is very poor. Due to the limited number of potential customers in those areas, competition is limited to the incumbent’s traditional phone infrastructure, which offers low-speed ADSL services. Advanced mobile broadband services are also limited due to the difficult topography. The highly distributed and low-density population has made it unattractive for the private sector to invest in broadband infrastructure, hence little investment in the region’s infrastructure. The deployment of the Asturcón Network is therefore very significant.
8.5. DEMAND CONSIDERATIONS: PROMOTING SUPERFAST NETWORK ADOPTION The Asturcón Network does not manage final customers, it only deals with service providers. The service providers promote the service and inter-act with the end users. Network promotion is therefore led by the private sector. As present, Adamo,17 Orange18 and Telecable19 offer final services using Asturcón Network. Telecable offers video RF services using the RF video overlay carrier. Orange offers voice, video (using IPTV) and data while Adamo just offers voice and data services.
8.6. DEPLOYMENT LESSONS Two key problems have arisen in relation to the project: the network provides data, video and voice telephony services. Data and video management and administrative protocols are well established and not problematical. Voice telephony, however, has proved problematical, as most service providers have their own relatively unique standards and methods that have been developed for analogue telephone connections. This was perceived as a barrier by some operators entering what is ostensibly an ‘open’ network. More extensive common standards could overcome this problem. Moreover, the network is digital and this has required the conversion of analogue systems to digital at the user (household or business end) and the integration of the subsequent digitally generated administrative information with methods that were predominantly developed for analogue information by each of the providers. This has created considerable problems in providing accurate and transparent billing information to customers. Indeed, it is suggested that Vodafone declined to become involved in developing a similar, but slightly bespoke internal, operating systems to meet the requirements of the network: the potential market size was thought to be too small to warrant the required investment by Vodafone.
8.7. PROGRESS AND SUCCESS The Asturcón Network operates within the parameters of structural separation by segmenting infrastructure and services. ACEBA only establishes a telecoms network in those areas where the private market will not deploy infrastructure, enabling a more competitive market and offering economic benefits to end-users. In exchange, suppliers pay a monthly fee for every user. Put simply, the process involves: the Principality of Asturias deploys a network
17 http://www.adamo.es/ 18 http://www.orange.es/ 19 http://web.telecable.es/ 48
GITPA manages the network service providers offer their services to the general public over the network. At present, the Asturcón Network covers the Asturias mining valleys and the Eastern and Western coast. However, the cities that have a competitive telecom market are excluded from the Asturcón Network’s coverage (Oviedo, Gijón, Mieres, Avilés, etc.).20 The network is publicly funded and therefore is restricted to those areas where private operators do not find a viable business model. The network covers 45 municipalities. In total 51 000 homes are passed by the network and 9000 users are connected. Network deployment costs are estimated to amount to EUR47 million, this would equate to about EUR921 per home passed. The FTTH network offers 100Mbit/s symmetric access and additionally voice and video are also offered. Technically, the Asturcón Network is based on fibre to the home (FTTH) technology using gigabit passive optical network (GPON) standards, offering 2.5Gbit/s and 1.25Gbit/s for downstream and upstream, respectively. The splitting factor is 1:32 and the aggregation to the PoP is done using GbE and 10GE links. The Asturcón Network was the first open-access FTTH deployment in Spain, an example that has been followed by other operators, such as the municipal FTTH open-access network in Viladecans. The key strengths of the network are the fibre network that provides the basis for a future-proof technology. The network offers up-to-date high-speed services at relatively low operational costs. The initiative provides a high-speed infrastructure in predominantly rural areas that are otherwise unattractive to traditional providers. Some observers have suggested that an extended remit to cover additional areas, such as more profitable urban locations, would provide the opportunity to enhance economies of scale and improve profitability. However, regulations do not currently permit deployment in areas where traditional providers are likely to deploy services.
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9. Superfast Cornwall (UK)
Superfast Cornwall was selected as a case study because it provides an insight into a project that has received a relatively large amount of private sector funding in an extensive rural area. The project is expected to provide 100% high speed broadband access to the population of 537,000. Superfast Cornwall is £132m project that will deploy 130,000 km of fibre-optic cables throughout Cornwall and the Scilly Isles, and along with other technologies, will provide 100% of the predominantly rural based population with superfast broadband by 2015.
9.1. CORNWALL: GEOGRAPHY AND TOPOGRAPHY Cornwall is a county in south west England. It has a population of 537,400, and covers an area of 3,563 square kilometres. The administrative centre and only city is Truro. Cornwall is bordered to the north and west by the Celtic Sea, a part of the Atlantic Ocean, to the south by the English Channel and to the east by the county of Devon. Cornwall is noted for its wild moorland landscapes, its extensive and varied coastline. Historically tin and copper mining were important in the Cornish economy however, during the 19th century the mines entered a period of decline. Traditionally fishing and agriculture were the other important sectors of the economy. Tourism is now a dominant local industry.
Figure 19 Location of the Superfast Cornwall project.
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9.2. PROJECT BACKGROUND AND PARTNERS Superfast Cornwall was announced on 30 September 2010. The project is major undertaking that it is reported has never been attempted on this scale in a rural location anywhere else in the world21. Superfast Cornwall will create and high speed fibre network that will be open to all communications providers on a wholesale basis. The project has been driven by a joint partnership with BT, the European Union, Cornwall Council and Cornwall Development Company with funding from Europe providing its largest ever grant for broadband. Superfast Cornwall is committed to making sure that everybody in Cornwall and the Isles of Scilly (a group of islands about 75 km from the mainland) get the chance to benefit from the internet. Superfast Cornwall is working with BT’s Digital Inclusion programme, Get It Together, and the UK charity Citizens Online to help make this happen. They will work with communities and local partners to provide free or low cost computer training for computer novices.
9.3. FUNDING AND INVESTMENT MODEL £78.5m (91.9 million EUR) of funding for the project has been provided by BT, the formerly state-run monopoly22. The European Regional Development Fund is investing up to £53.5 (62.6 million EUR) million through the Convergence programme to help transform the economic competitiveness of Cornwall and the Isles of Scilly. This is the largest amount that the European Union has provided for a broadband project23.
9.4. IMPLEMENTATION AND DEPLOYMENT Deployment is led by BT. It will take 150 Openreach engingeers a total of 60,000 days to build the new network. Another 75 Openreach engineers will be required to connect individual homes and businesses to the service as people place orders. BT will work closely with Cornwall Development Company, council’s economic development company, to plan deployments and will also engage with planning and highways departments. To introduce a high speed broadband infrastructure to a rural area on this scale is a major engineering task that reportedly has never before attempted worldwide24. The programme will deploy 130,000 km of fibre optic cable. Superfast fibre broadband will be available to at least 80% of Cornwall and Isles of Scilly by 2014. Faster broadband will be brought to everyone else in hard to reach areas through alternative technologies. By 2015 it is hoped that 100% of Cornwall and the Isles of Scilly will be connected to fast broadband. This is around 250,000 premises25.
9.5. TECHNOLOGY 80% of the premises in Cornwall and the Isles of Scilly with fibre optic superfast broadband by 2012. Alternative technologies, such as satellite and wireless, will be used to reach the remaining 20% of premises with faster broadband.
21 http://www.callington-tc.gov.uk/phpBB3/viewtopic.php?f=3&p=222&sid=a5b9568e2df3063c949a4a8a55240ec5 22 http://www.btplc.com/News/Articles/ShowArticle.cfm?ArticleID=09E09367-DD85-4A73-A08A-B455F68A39A8 23 http://www.bbc.co.uk/news/technology-11435640 24 http://www.superfastcornwall.org/broadband-rollout-cornwall-uk-eu.html 25 http://www.superfastcornwall.org/frequently-asked-questions-superfast-broadband.html 51
BT’s local network business, Openreach, will physically install 130,000km of fibre. Approximately 50% of the premises will be connected by FTTP (Fibre to the Premises) technology to deliver speeds of up to 100Mbps. Other premises will be provided by FTTC (fibre to the Cabinet) which can provide speeds of up to 40Mbps. Businesses and homes outside the fibre footprint will also receive faster speeds than today through a mix of alternative technologies such as advanced copper, wireless and satellite broadband. These technologies are more suitable to deploy than fibre broadband in the remotest and hardest to reach locations. The recent news of the Access Network Frequency Plan being changed to allow the VDSL2 17a profile to be used rather than the current 8c profile, means that rather than some 7 MHz being available on the copper elements, this will expand to 17 MHz. The result being maximum downstream speeds will rise from 40 Mbps to 80 Mbps, the changes will involve trials in the first three months of 2012, followed by a product launch later in 201226. Engineers need to upgrade more than 500 green roadside cabinets that connect Cornish homes and businesses to the 100 telephone exchanges in the country with new fibre optic technology. Over 100,000 telephone lines across Cornwall and the Scilly Isles also have to be manually re-terminated.
9.6. DEMAND CONSIDERATIONS: PROMOTING SUPERFAST NETWORK ADOPTION Superfast Cornwall is working with BT's Digital Inclusion programme, Get IT Together, and the UK charity Citizens Online to encourage broadband adoption. They are working with communities and local partners to provide free or low cost computer training for computer novices. They are also developing a network of volunteers to support community learning, and they will look for new, innovative ways to help support those people who are the hardest to reach. An example of promotion at the local level has been the appointment of an EverybodyOnline Project Officer, who will be permanently based in Newlyn, to run an Internet taster session for local residents. The local project will be working in partnership with The Trinity Project, Actnow Broadband and Penwith District Council. EverybodyOnline27 is unique in its approach. Rather than simply bringing in technology and walking away, the local representative will be working with the community to overcome the issues that prevent access. For example, setting up partnerships to provide childcare at computer taster sessions so parents don’t miss out, or ensuring that current community equipment is made available at the times that suit the residents as opposed to the venue.
9.7. DEPLOYMENT LESSONS The Cornwall Superfast broadband project won the Project of the Year award at World Communication Awards in November 2011. An announcement 28 noted that the award recognised BT's "Big Build" effort to deploy superfast broadband ISP services across at least 80% of Cornwall and the Isles of Scilly by the end 2014.
26 http://www.thinkbroadband.com/news/4836-superfast-to-arrive-early-in-parts-of-cornwall.html 27 http://www.citizensonline.org.uk/conline/media/display?contentId=3898 28 http://www.thinkbroadband.com/news/4867-superfast-cornwall-project-wins-accolade.html 52
The judges reportedly said that BT's Superfast Cornwall project was "a good example of a private company partnering with the public sector" to create "Europe's most ambitious rural deployment of super-fast broadband". Deployment costs are estimated to be 618 EUR per premises in Cornwall29.
9.8. PROGRESS AND SUCCESS Broadband deployment began in October 2010. In May 2011 it was announced that over half of the 100 exchanges were expected to be enabled within 18 months. Cornwall Council estimated that 17 exchanges would be upgraded by March 2012 with a further 26 planned for completion by Autumn 201230. In July 2011 8 of the 100 exchanges in Cornwall and the Scilly Isles had received upgrades. Around 80% of people in these areas now have access to fibre based broadband. On 19th July 2011 BT announced that they have connected their 1000th customer to their superfast broadband service in Cornwall. BT expects superfast broadband services (FTTC and FTTP) to be available to 90,000 Cornish homes and businesses by the end of March 2012 31. On 25th October 2011 there was news32 of slower than expected roll-out for Openreach FTTP projects in the UK. However, it was reported that FTTC appears to be progressing well, particularly in Cornwall where it was reported that superfast broadband would be delivered to nine communities in East Cornwall at least three months earlier than their expected date of March 2012 as the first major phase of Superfast Cornwall was nearing completion ahead of schedule. John Reynolds, BT’s South West regional director was reported as saying: “As the engineering and survey work progressed we found it was possible to start in these exchange areas earlier than expected.”. He added that “over the coming months this first major phase of the roll-out will make superfast broadband available to a further 700 Cornish homes and businesses each day.”33 BT's local network business Openreach also announced34 in October 2011 that it expected to roughly double the download speeds of FTTC to up to 80Mbps next year in Cornwall. Upload speeds, reported to already be the fastest in the UK, were also expected to improve with up to 20Mbps being likely. Even faster speeds of up to 110Mbps are available with FTTP. And from Spring 2012 FTTP download speeds will be boosted to up to 300Mbps.
29 GBP 132 million divided by the 250,000 premises in the county. 30 http://www.cornwall.gov.uk/default.aspx?page=28175 31 http://www.ispreview.co.uk/story/2011/11/09/bt-win-project-of-the-year-award-for-superfast-broadband-rollout-in- cornwall-uk.html?cpage=15 32 http://www.thinkbroadband.com/news/4836-superfast-to-arrive-early-in-parts-of-cornwall.html 33 http://www.yourfibreopticnews.com/bt+to+bring+fibre+broadband+to+east+cornwall+ahead+of+schedule _31120.html 34 http://www.btplc.com/news/articles/showarticle.cfm?articleid={808ac5ad-75c9-4786-80f0-972ed64ffb33} 53
Figure 20 Superfast Cornwall project progress35
35 http://www.superfastcornwall.org/where-and-when.html 54
10. Broadband in the Province of Trento (IT)
The Province of Trento project was selected as a case study because it is, according many parts, a best practice at EU level in order to implement and develop a FTTH infrastructure on a wide and not densely populated territory, covering both urban and rural areas of the province. Furthermore, part of the project aims to overcome the second generation digital divide (DD) by ensuring a minimum 20 Mbps connection to 100% users by 2012. The Trentino project is entirely funded by the Province for the DD part while the NGAN network will be developed by setting up a public-private partnership (PPP). When the project will be completed high-speed broadband should meet the needs of more than half million people.
10.1. PROVINCE OF TRENTO (TRENTINO): GEOGRAPHY AND TOPOGRAPHY Province of Trento is a district in the north of Italy. It has a population of half a million and an area of 6,207 square kilometres. It consists of one administrative area, Trento, and it has a rich mixture of rural areas and urban areas. It has 217 municipalities, where only five of them have more than 10000 inhabitants. The territory is pretty covered by mountains (only 10% of the province is at an altitude below 500 meters) and the Province itself has legislative and administrative powers awarded by Italy Constitution in 1948, where the local entity has direct administration of 90% of tax revenues collected within the area.
Figure 21: Location of the Province of Trento project
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10.2. PROJECT BACKGROUND AND PARTNERS
10.2.1. Situation ex-ante
Due to the characteristics of the territory, access to broadband services was not present in most areas, especially those more rural: in these areas, cabinets were not connected to fibre backhaul and then the Province decided to overcome this problem by starting the deployment of a fibre dorsal and by setting a wireless data transmission network infrastructure (WiNet, one of the biggest in Europe): such infrastructure has provided fast access to the population of Trentino that was not covered yet by xDSL services. By overcoming such 1st generation Digital Divide, Trentino Network (TNNET) deployed a Province-wide fibre optic backbone network of over 750kms, with 80 network nodes and a Network Operations Centre designed to accommodate also the emergency unit. Wireless connection has been provided to about 90% of the population and businesses with a speed of up to 8 Mbps thanks to WiNet. This facility has 1,600 access points in more than 760 sites, 63 fibre-optic network nodes and primary radio links at 155 Mbps.
10.2.2. Actors involved The PAT (Provincia Autonoma di Trento) project is the first major regional deployment project of ‘superfast broadband’ in Italy. The project was launched in 2010 and is still under development. The project has been driven by the Province, which is adopting an integrated approach involving five public local institutions, to achieve the goals set up by the Province with efficiency and effectiveness, in order to ensure the innovative nature of technology and service developments.
Figure 22: Actors within the Trentino project
10.2.3. Objectives of PAT
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Currently (2010 data) 52% of households have access to broadband services. However, the main objective of the PAT is to turn Trentino into an innovative area, positioning it as an area of excellence in ICT. According PAT, in fact, broadband infrastructure will be the backbone of the economic activities of the territory, which is the reason why the Province has decided to take major steps allowing its citizens and companies not to be excluded from the economic, social and occupational development resulting from innovation in telecommunications. In order to do that, PAT is implementing a medium-long term plan based on three steps (the second and the third one being the focus of this case study): The Province eliminated the first generation Digital Divide (up to 2Mbps) thanks to the WiNet project (already implemented); PAT is about to overcome the second generation DD (20Mbps); PAT wants an FTTH infrastructure covering 100% of the population by 2018. The objective of the project is to create a FTTH fibre infrastructure by the setting up of a separate (not vertically integrated with retail) company owning the infrastructure and providing wholesale access to operators.
10.3. IMPLEMENTATION AND DEPLOYMENT In order to implement the plan and to realise the FTTH infrastructure, an in-house company, Trentino Network - TNNET (fully owned by the province), is being used by PAT. PAT already deployed a network for the public offices using a wide range of technologies - fibre optics, xDSL, Hiperlan, laser - with 1.284 locations served. The initiative resulted into a significant saving for the Province’s public administrations. By overcoming the second generation DD, PAT wants to ensure a min. 20 Mbps connection to 100% of users by 2012, promoting the development of innovative services through the deployment of a new open network, available to all operators interested in such facility. Some characteristics of the setting up of the FTTH infrastructure - as the technological choice - are however still under discussion: the network is forecasted to be around 6,000 kilometres long, and the re-use of some of the network (ducts and spare capacity in the passive facility) already deployed by TNNET would decrease the length of new infrastructure to build up. Based on the results of a feasibility study, conducted during September 2010, the Province of Trento finally decided to realise the conditions to set up an ultra-broadband optical fibre network for the whole region (to be finalised by 2018). Therefore, in order to connect at least 60% of users, a public- private partnership (PPP) has been established, involving private network operators. The remaining (low profitability) areas will be covered via TNNET (with funds, whose amount has not been set yet, that will be provided by PAT), thus leveraging on the investments already made by the Province for the deployment of the fibre-optic provincial backbone and PoPs to overcome the DD problems already mentioned above. PAT organized meetings (auditions) with all telecom operators in order to understand their interests to participate into the FTTH project: questions regarding present infrastructures and investments’ plans were asked to ensure coherence of public action. With the operators that expressed concrete interest, PAT organized detailed discussions and negotiations.
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On February 2011, the Province signed a preliminary Memory of Understanding (MoU) with Telecom Italia (TI), agreeing that TI will be responsible to provide the civil infrastructure (ducts) and that, at a later stage, it will open up its whole copper access network to the PPP company, called Trentino NGN. The MoU provided no exclusive negotiation and aimed to initiate a deeper discussion with TI in connection with its participation to the initiative: in fact, later this year, other private operators (called Mc-link and FOS) showed their interest to join the company and are now negotiating in details their participation.
10.4. FUNDING AND INVESTMENT MODEL With regard to the Digital Divide objectives, local authorities provided funding for about 130 million EUR from their own resources, of which around 8 million EUR assigned for overcoming second generation digital divide. PAT launched a call for tender to allow operators to participate in an investment programme for second generation Digital Divide areas (mainly backhaul and active equipment for cabinets), expanding potentially the coverage of broadband access services to 100% of users in the areas defined. The State Aid measure was approved by DG COMP (N 305/2010 “Reduction of the digital divide in Trentino, Italy on 16/11/2010”) and it was assigned to Telecom Italia, which is expected deploy the mentioned infrastructure in less than 48 months. Concerning the FTTH plan, PAT agreed upon a preliminary allocation of 60 million EUR budget for the initiative. In September 2010 it launched a public consultation among private telecom operators and potential financial investors. In December 2010, the Province founded the Trentino NGN s.r.l., initially fully owned by the Province, but with the possibility to open up the ownership structure to private Operators (by PPP) on a later stage. The mission of the company is the design, implementation, maintenance and provisioning of fibre optic access network (passive network) to private Operators and Service Providers. PAT plans to sell the company as soon as its involvement is not necessary anymore (after the deployment phase). The FTTH infrastructure – which aims to connect around 210.000 households - is expected to cost around 500 million EUR (with a multiple GPON technology architecture for residential users and P2P for businesses); 60% will cover the cost of civil works to set up the passive infrastructures (digging, etc) while the rest will be used for active equipment. Deployment costs vary according to the population density, and accounts between 800 and 4.000 Euro per house connected. In order to fulfil the objective of connecting 60% of PAT population – thus in area with higher profitability and less average cost of deployment - an investment of a 165 million EUR is required over a period of 10 years. Funding will also come from financial contributions by PAT and Mc Link – FOS, capital venture (overall about 66 million EUR), and by conferring Telecom Italia assets to the new company (a value of 39 million EUR). The remaining part of the cost will be ensured either through loans provided by the financial arm of PAT, named Cassa del Trentino (or by Cassa Depositi e Prestiti). In such project PAT intends to follow MEIP (Market Economy Investor Principle)36, whereas capital remuneration is aligned to normal market expectations: the expectation is therefore to build a financial structure that would make economically convenient for private operators to invest and
36 The only other example of projects following MEIP principle is Citynet-Amsterdam (Commission Decision on 11th December 2007 - Case C 53/2006) 58 develop broadband infrastructures even in an area where the deployment is, on average, more costly. The contribution by Telecom Italia will take place along two steps: first, the company will upgrade the capacity of existing ducts over the territory; furthermore, at a later stage, Telecom Italia will increase its involvement by conferring entirely its passive infrastructure (including copper lines) to Trentino NGN (either after the 4th financial year or whenever 20% take-up is reached), having recognized a premium price (not set yet) per each copper line connected to fiber until then. During the 7th year of the plan, it is forecasted that the company will both run break-even and generate a positive cash flow.
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11. Broadband in Mozirje (SI)
The Republic of Slovenia joined the European Union (EU) in May 2004. It is one of the smallest countries in the EU (with a population of approximately two million) and has a relatively low gross domestic product (GDP) per capita (EUR16 908 at purchasing power parity (PPP) in 2009 in comparison to a European average of EUR25 836). Slovenia has the highest proportion of rural inhabitants among Member States (52%). The Mozirje consortium of 11 municipalities received EUR 6.03 million funding, after competitive tendering from central government. A local regional industrial aggregator (Iskra) was selected as a deployment partner and they provided EUR 2.58 million to support the deployment of broadband to more than 2,360 premises.
11.1. MOZIRJE: GEOGRAPHY AND TOPOGRAPHY Mozirje is a small town and municipality in northern Slovenia. The area was part of the traditional region of Styria. The topography of the area is extremely diverse, ranging from the flat landscape adjacent to the Savinja River to rolling hills that eventually increase in height as one gets closer to the Mozirje Mountains. The area is now included in the Savinja statistical region; the region has a population of 256,752 (in 2009).
Figure 23: Location of the municipalities comprising the Mozirje consortium.
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The population density of the Mozirje commune is much lower than the Slovenian average: the natural population has been stagnating for quite some time and there has been net out-migration in recent years, particularly among younger people. The active population (in work) does not exceed 25% of the total population, which places the Mozirje commune at the bottom of Slovenia’s active population distribution. Prior to funding broadband deployment was confined to fibre links to the towns of Mozirje, Rečica, Ljubno, Nazarje. These towns have acted as nodes for the deployment of broadband to households within a 3km radius. Other towns and villages in the area did not receive broadband and there was very little commercial interest for Internet deployment in these more hilly areas of Mozirje. Deployment costs are relatively high due to its topography and there is also a view that likely income generation from potential users is limited due to the relatively low levels of work activity among the local population.
11.2. PROJECT BACKGROUND AND PARTNERS The government of Slovenia recognised the importance of broadband in the Resolution on National Development Projects for the Period 2007–202337 (hereafter ‘the Resolution’) adopted in October 2006. The Resolution contained a National Broadband Plan for Slovenia. Although broadband penetration in Slovenia was relatively high (64.3% in 2010) and DSL coverage in terms of households is also relatively good (92% nationally and 82% in rural areas in 2008, source Analysys Mason), the Plan still highlighted the need for enhanced broadband deployment. The Plan involved accelerated construction of broadband networks in less-developed regions, particularly in rural areas, connecting these networks to a national backbone, and upgrading the existing fixed broadband network with fixed or wireless broadband networks, depending on economic justification. In June 2007, the government of Slovenia, based on the European i2010 initiative 38, adopted the national Development strategy for the information society in the Republic of Slovenia si2010 39 (hereafter ‘the si2010 strategy’); this established the Slovenian information society policy framework until 2010. The si2010 strategy promoted broadband development to enable access to broadband networks to all end users in Slovenia. The strategy’s basic goal is to provide Internet connectivity at functionally adequate speeds, and where possible access at higher speeds. Its final long-term goal is to connect the majority of Slovenian citizens with a high-speed network. The strategy’s indirect effects are expected to be seen after 2013, when access to broadband connections for all citizens is provided in all territorial units across the country (e.g. 100% coverage, up from the 2007 level of 92%). It is suggested that this will contribute significantly to Slovenia’s competitiveness and economic growth. Broadband deployment is also one of the objectives set out in the Slovenia’s Development Strategy 40 as a way to increase international competitiveness. Other goals include: sustainable increase of the wellbeing and quality of life of all people
37 www.slovenijajutri.gov.si/fileadmin/urednik/publikacije/resolution_en.pdf 38 http://ec.europa.eu/information_society/eeurope/i2010/index_en.htm 39 http://www.mvzt.gov.si/fileadmin/mvzt.gov.si/pageuploads/pdf/informacijska_druzba/61405- EN_Strategija_razvoja_informacijske_druzbe_v_RS_si2010.pdf 40 http://cordis.europa.eu/erawatch/index.cfm?fuseaction=policy.document&uuid=7D87A4CA-C30B-7F76- 24B2D3F6E1735FDE 61
increased global competitiveness by promoting innovation and entrepreneurship, expanding the use of information and communications technology, and efficient upgrading and investment in learning, education, training, and research and development faster development of all regions and a ‘closing the gap’ for the least developed regions.
11.3. FUNDING AND INVESTMENT MODEL As part of its national broadband strategy, Slovenia has allocated more than 82 million EUR of public funding (including monies from the European Structural Funds, the Republic of Slovenia and public– private sector partnerships) to accelerate the deployment of broadband networks across the country. So far, there have been two competitive rounds of funding: GOŠO 1 and GOŠO 2. Both funding rounds focused on supporting the development of open broadband networks in white spots (areas where there is no commercial interest in deploying broadband). This case study provides details of an initiative that received public funding (6.03 million EUR) from the second round of funding. In compliance with instructions from the European Commission (‘EC’ of ‘the Commission’) on implementing EU programmes, State-aid measures require adherence to transparent regulations to prevent the restriction of competition, while directing aid to areas where private investment is not possible under current market conditions. Direct State-aid is eligible only for areas without a competitive fixed network provider, where the existing infrastructure does not comply with modern standards in the field of speech and data communications, and areas which are not – or are not likely to be – of interest to investors in fixed networks. In accordance with the Slovenian Operational Programme for Strengthening Regional Development Potentials for 2007–2013, funding is provided across the whole country with an emphasis on accelerating the deployment of broadband networks in less-developed regions, especially in rural areas. Funding is provided to Municipalities, which are the primary unit of local government in Slovenia and are regarded as local self-governments. There are 211 municipalities in the country with an average population of 9,500 inhabitants. Municipalities eligible to apply for funding are those located in the so-called ‘white areas’. These were defined as those areas where broadband connections are not provided at the time of the invitation to tender, or where potential consumers have no possibility of getting a broadband connection although some broadband connections already exist in the area, or where the non-existence of commercial interests has been established by operators on the day of the publication of the invitation to tender. The primary criteria for selection of areas for support where adherence with the broader objectives. These included an emphasis on areas where private investment is not possible under current market conditions and areas that did not have a current competitive fixed network provider. In addition existing infrastructure was poor and did not comply with modern standards. The longer term viability of projects and supporting funding from private sector partners were also important in selecting areas for funding in GOŠO rounds one and two.
FIRST ROUND OF FUNDING (GOŠO 1) Municipalities were first invited to tender for broadband deployment resources in 2007 (GOŠO 1). After a selection procedure comprising three stages 20 municipalities were selected for support. The total value of the projects selected was EUR60.8 million (support funding from public funds amounted to EUR 45.2
62 million) and the projects were completed in December 2010. 15 921 households in white areas were provided with the ability to access broadband networks. This would equate to an average connectivity cost of EUR3819 per household in white areas. Mozirje submitted an application in in the first round of funding. However, the scoring system for bids in this funding round did not favour the Mozirje bid. Thus, in the second round of funding, Mozirje included in its application areas between, and including, the Logarska valley and Braslovče. The consortium of 11 municipalities: Mozirje, Gornji Grad, Rečica ob Savinji, Luče, Ljubno, Solčava, Vransko, Prebold, Polzela, Tabor and Apače. was brought together by Mozirje, which contacted mayors of ten other municipalities, all of whom responded positively to the idea of submitting a second bid for funding.
SECOND ROUND OF FUNDING (GOŠO 2) The invitation to tender for the second round of public funding (GOŠO 2) was issued in July 2010. Funds available amounted to 37.1 million EUR. In total, 14 applications were received before the closing date. All bids were incomplete, so applicants were invited to provide supplementary information regarding their applications within 15 days of receipt of the invitation. Four applicants failed to provide the additional information and their applications were rejected. Five of the remaining applicants were rejected because they either had insufficient coverage of ‘white areas (two applicants) or had issues related to lack of competition for potential co-investors or other contractual matters with potential infrastructure partners (three applicants). The five projects selected in GOŠO 2 are expected to provide high-speed broadband connectivity to 13 497 households in white areas, which equates to an average connectivity cost of 2725 EUR per household. Approximately 344,000 EUR remained for a further round of bids, the closing date for which was 28 April 2011.
Applicant Municipalities in consortium Number of Eligible costs Expert municipalities in (EUR million) rank consortium
Mokronog – Trebelno Mokronog-Trebelno, Trebnje, Mirna 6 14.649 1st Municipality Peč, Šentrupert, Žužemberk, Sevnica
Sežana Municipality Sežana, Ilirska Bistrica, Hrpelje-Kozina, 4 10.5 2nd Komen
Pivka Municipality Pivka 1 2.831 3rd
Mozirje Municipality Mozirje, Gornji Grad, Rečica ob Savinji, Luče, Ljubno, Solčava, 11 6.030 4th Vransko, Prebold, Polzela, Tabor, Apače
Slovenske Konjice Slovenske Konjice 1 2.777 5th Municipality
TOTAL 23 36.786 Figure 24: Results of GOŠO 2
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Observers reported that the hardest part of developing the bid for Mozirje was identifying which households were in ‘white areas’. The Ministry for Higher Education, Science and Technology assisted in the identification of white areas, since it was the primary source for determining and providing this information. The addition of further municipalities in the Mozirje bid enabled the second round document to include more households (over 2,000) in ‘white areas’ and Mozirje was successful in applying for a second round of public funding. Funding was confirmed at the beginning of 2011. The bidding process required applicants to have established contractual relationships with infrastructure and technical partners prior to the submission of applications. The Mozirje municipality put out an open call for tenders for infrastructure providers. Iskra was selected by the consortium as the partner to deploy, manage and operate the state-of-the art fibre-optic cable infrastructure and wireless network. Iskra41 is the largest national and a recognised regional industrial integrator, based in Ljubljana. The business is divided into three divisions: power, traffic and telecoms. In total, the Mozirje consortium has secured 6.03 million EUR of European funding. In total, the value of the project is 8.61 million EUR. Iskra, the private-sector partner, was prepared to fund the 30% shortfall (2.58 million EUR) in the total estimated cost for the project, and this is thought to be a key reason why they were selected to partner the consortium.
11.4. IMPLEMENTATION AND DEPLOYMENT Municipalities play an important role in broadband development in Slovenia. They identify local needs, encourage citizens to engage with the technology, balance interests, and ensure that local development programmes are aligned with regional and national development plans. Local communities in Slovenia prescribe the content of, and provide input to, Spatial Planning Conditions (SPCs), these are coordinated by Municipalities. The development of broadband infrastructure has the potential to become an important component of SPCs. However, the development of planning for infrastructure deployment requires appropriate expertise and input from local organisations and staff within Municipalities and between Municipalities. Municipalities (or consortia of Municipalities) have the ability to support and sometimes hinder the development of infrastructure deployment. They negotiate the nature of relationships with infrastructure deployment organisations, they issue of permits for construction work and way leave, they determine the speed of administrative procedures, and in particular control access to passive infrastructure owned by public utilities. As noted earlier Iskra, the private sector partner is leading the day-to-day deployment, management and operation of the network. Deployment work started in Autumn 2010 and is expected to be finished at the end of 2012. The goal is to provide connections to 2,360 premises. It was reported that all connections were in the process of deployment in October 2011.
11.5. TECHNOLOGY Due to the difficult terrain the majority of connections will be provided by wireless. It is estimated that only five per cent of connections will be made by fibre.
41 www.iskrasistemi.si/index.php/en 64
The Internet network will provide access to a number of ISPs. Households will be able to choose from a number of different providers. The ISPs currently expected to provide services are Amis42, Siol43, Telemach44 and T245. The ISPs will pay a wholesale charge for each household connected on the network. It is expected that household connectivity will cost 30–40 EUR per month when the deployment is completed. This is about twice the prevailing level in Slovenia (20 EUR per month).
11.6. DEMAND CONSIDERATIONS: PROMOTING SUPERFAST NETWORK ADOPTION The consortium has recognised that its hardest task will be promoting the take-up and use of broadband. Levels of emigration from the area are high and those migrating are primarily younger and more qualified people. This has resulted in a relatively large proportion of older people remaining in the area. It is known that take-up among this age group is frequently lower than among younger people. Indeed, one of the main objectives of the project was to attract businesses to the area and assist the development of smaller businesses, thus providing younger people, who might have emigrated, with greater opportunities in the area. Another benefit will be the provision of broadband access to the tourist centres around Golte, which offers skiing and summer activities.
11.7. DEPLOYMENT LESSONS The si2010 strategy, now extended to 2013, has assessed the barriers to broadband deployment in Slovenia and undertaken research to investigate the current distribution of broadband connectivity across the country. Guidelines for broadband deployment have been provided by government. The research has also identified a number of barriers to broadband deployment in Slovenia, including: Geographically remote, economically less-developed and sparsely populated areas do not provide a critical mass of users or economically viable investments in broadband network development. Smaller municipalities do not have adequate organisational and personnel capacities to develop plans for the deployment of broadband networks and accompanying public utility infrastructure, for the subsequent implementation of these projects. The existing public utility infrastructure (in particular ducts, pipes and shafts) is insufficient and not available to potential investors fast enough. Administrative procedures are slow, and there are difficulties in the interpreting legislation. The small market size (at both the national and local level for deployment), the slow changes in opening networks and the lack of co-operation between some operators, combined with the previously mentioned administrative hurdles, do not encourage large investments in electronic communications infrastructure in Slovenia.
42 www.amis.net 43 www.siol.net 44 www.telemach.si 45 http://english.t-2.net 65
Investors prefer short-term investments with a quick return, but the electronic communications infrastructure is a typical example of a long-term investment. The fragmentation and local orientation of cable network operators prevents the emergence of more dominant operators which might offer economies of scale and provide an enhanced basis for competition. Traditional access networks are in the hands of the initial and dominant operator, but the unbundling of the local loop is gradually improving. This should enhance options for improvement and wider access to existing communications networks. Until recently, building regulations did not require the provision of passive telecoms infrastructure during road and earth works on publicly owned land. It is expected that this shortcoming will soon be overcome. The lack of highly qualified and skilled technical personnel. The lack of multimedia and interactive content (e.g. distance education).
11.8. PROGRESS AND SUCCESS As noted earlier, at the time of writing deployment work is still underway and the network is not yet fully active. Nonetheless, some general observations about progress and success can be observed. The first round of funding (GOŠO 1) provided connectivity to 15,921 households in white areas. The total value of projects supported was 60.8 million EUR (this equates to an average connectivity cost of 3,819 EUR per household). Support from public funds in GOŠO 1 was EUR45.2 million (or an average connectivity cost of 2,839 EUR per household of public funding in white areas). The second round (GOŠO 2) provided funding of 36.8 million EUR to deploy broadband connectivity to 13,497 households in white areas (this equates to an average connectivity cost of 2725 EUR per household). Several of the organisations that have partnered with Municipalities under both rounds of funding have been involved with infrastructure and utility deployment, but some others do not appear to have much experience in broadband deployment. Thus, partnering with deployment organisations prior to submitting bids for public funding might bring together municipalities with little experience and deployment organisations which also have little experience of broadband roll-outs.
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12. Midtsoenderjylland (DK)
The Midtsoenderjylland project was selected as a case study because it is an interesting example on how the interaction between public and private actors might function. In this case, public involvement in this case was extremely important as an enabler of private investments, but financially proved to be of a small size. The Midtsoenderjylland project is being developed by the establishment of an informal public-private partnership (PPP), in which most of investments were undertaken by two local utility companies. When the project is completed, high-speed broadband should meet the needs of 74.000 people who live mainly in rural areas.
12.1. MIDTSOENDERJYLLAND: GEOGRAPHY AND TOPOGRAPHY
Figure 25: Location and overview of the Midtsoenderjylland project Midtsoenderjylland is an area on the peninsula of Jutland, in Denmark. before the 2007 municipal reform it was composed of four small municipalities, that cover an area of 1,008 square kilometres, 42,000 inhabitants and 19,100 homes/enterprises (or termination points). Vejen Kommune that was one of these municipalities (which now belong all to this entity) and had an area of 814 square kilometres and 43,000 inhabitants, is the area where the broadband project is currently focused.
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12.2. PROJECT BACKGROUND AND PARTNERS
12.2.1. The situation ex-ante Over the recent years, the Danish Government has taken a liberal view on the development of broadband (NGN) infrastructures: there has been no public involvement at all at national level. In many cases the deployment of broadband has been left to operators (such as cable technology companies) or to local or national utility companies (mainly electricity companies): such approach was not effective in areas where market uncertainty was relatively high (like the one considered here), as it left part of the territory with an insufficient broadband availability.
12.2.2. The municipalities programme In the Midtsoenderjylland case, the municipality is the main driver: it adopted the approach of simply incentivising private action and coordinating the arrangement of civil works. Its first aim was to develop a FTTH network to provide all citizens with 100Mbps internet in a rural area of 1,008 square kilometres by 2007. Currently, civil works are being carried out to introduce a similar infrastructure in every remaining part of Vejen. This initiative is expected to be completed by the end of 2012. A first analysis undertaken in 2002 showed that fibre technology would be the only solution capable of offering triple-play services to all citizens present into the municipality. Based on the conclusions of this analysis, the municipality developed a master plan for the deployment of a fibre network in the area. One research, developed by Aalborg University (AAU), suggested that the realisation of a fibre network in the area could be facilitated if two conditions were satisfied. They were for barriers to entry to the market to be reduced or eliminated (f. eg., by lowering infrastructure costs, small operators would have more easily incentive to invest into such facilities), and for local authorities to coordinate broadband infrastructure (and digging) activities. According to Danish law, municipalities and local authorities do not have the legal competence to build and operate themselves a FTTH network for private households or enterprises. By investing in the creation of the backbone network, which in turn would facilitate private investments to be carried out complementarily in the area, like the deployment of a FTTH network in Vejen municipality, the public authority acknowledges that such infrastructure cannot be developed in rural areas without public intervention and that public level has a task to ensure that the introduction of new digital public services are accessible to its population.
12.3. IMPLEMENTATION AND DEPLOYMENT The broadband project is led by the municipality itself. As a first step, it built two fibre rings (with 48 wires inside) – developed in 2004 and 2006 – with own resources. The two rings were intended mainly for its own purposes in terms of support of public administrations. With such facility, the authorities intended to provide connectivity services to the following categories of administrations: Municipalities;
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Public offices present on the territory. However, the remaining capacity in these fibre rings was then leased as dark fibre to a number of private operators. The dark fibre formed a passive infrastructure which meant that operators could use the network but have to use their own electronic devices to provide broadband services. In the early phase of the project, this capacity was often used as backbone network which sped up the roll- out of the FTTH access networks in several local areas in the municipality. In 2004 two co-operative electricity providers, Syd Energi and TRE-FOR, took the indirect incentive set by the authority and developed their own FTTH project by using the spare capacity available leased from the fiber backbone network of the municipality. They linked the access network to the municipality’s fiber rings, and used them as a backbone network until their own supply network was ready and operational. Currently both part (backbone and access) of the network is owned and managed by the two electricity providers. Such network is designed as a point to point (P2P) FTTH solution, and every household, farm and company in the area is now offered a service with basic bandwidth of 100Mbps and triple play services (internet, telephony, TV). The whole infrastructure is expected be fully ready by 2012. It aims to cover approximately 1,550 square kilometres, mainly in rural areas, connecting 74,000 inhabitants and 34,000 homes/enterprises (or terminations points).
12.4. FUNDING AND INVESTMENT MODEL Local authorities (the 4 municipalities merged into Vejen Kommune) have provided about two million EUR of its own resources (equity from budget) for the development of the backbone network (which consists of the two fibre rings mentioned), while the access FTTH network has been completely financed by the finances of the two electricity providers. It is estimated that, on average, the deployment cost for the private companies to set the FTTH infrastructure amounted to around 2,400 EUR for each house passed, with an expected payback time of 20 years: the revenues that were forecast would come from the provision of services to both companies and households which would pay to the above mentioned operators a monthly fee for this. According to this calculation, since the area has about a total of 34,000 homes and enterprises, the total private investment is expected to amount to 81.6 million EUR.
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13. OnsNet Nuenen (NL)
OnsNet Nuenen provides a good example of one of the first community-driven projects in Europe that provided fibre to the home (FTTH). The personnel involved in the project have gone on to share their experience and knowledge with many other community-led organisations and initiatives in the Netherlands, the UK and other Member States. One notable collaboration is between Close the Gap (an organisation set up by one of the main proponents of the Nuenen project) and the Community Broadband network in the UK, which now partner for UK and international projects. Nuenen was one of the first community-driven FTTH projects in Europe. The project received government funding of 6.2 million EUR. 8 million EUR was received from community and private investment. A key element in the success of the project was the high level of promotion in the local community to promote broadband adoption.
13.1. NUENEN: GEOGRAPHY AND TOPOGRAPHY Nuenen is a compact and well laid out town with a population of 22,437 located in the province of Noord-Brabant in the Netherlands. It is located in the municipality of Nuenen, Gerwen en Nederwetten about 10km east of Eindhoven. Income and education levels are generally above average for the Netherlands.
Figure 26: Location of Nuenen
13.2. PROJECT BACKGROUND AND PARTNERS
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OnsNet, which literally translated means ‘our network’, originated in about 2001 when a local Housing Corporation (‘Helpt Elkander’ – ‘Helps each other’) had the idea of installing Internet access, and providing video connectivity with doctors, in a housing development for elderly people. The prices quoted by the incumbent for the services were, however, prohibitively expensive, and led the housing corporation to consider creating its own network. In 2001, it was reported46 that the Minister for Economic Affairs was keen to undertake a test project on the deployment of fibre and the development of a ‘knowledge area’. Those involved with OnsNet suggest that lobbying was undertaken by incumbents to thwart OnsNet’s desire to obtain some of this funding for a community-led broadband FTTH initiative. Kees Rovers (a local businessman, founder of Close the Gap47 and an evangelist for broadband) lobbied government, local community organisations and the community to seek support for the project. Kees reports that the local population initially saw little need for fibre and less than 30% wanted broadband. But over time interest in FTTH rose as local Internet service provision (ADSL at less than 10Mbit/s) became perceived as expensive, of poor quality and unreliable. Awareness of the Internet as a way to provide local benefits also grew. The services that attracted most interest were video-based applications – such as high-definition (HD) viewing of local church services, the ability to consult local doctors and the ability to communicate real time in high-quality video with friends and family members. Kees stresses that the promotional campaign focused on the beneficial services that high-speed broadband could provide, not on the merits of the technology or the methods of provision. A video on YouTube provides a flavour of the promotional methods and benefits promoted by OnsNet48. In 2003, a local co-operative (Cooperative OnsNet Nuenen UA) was established to develop a business plan and to promote interest in the project. An office was created in the town, and it is suggested that within six weeks of opening 90% of local citizens signed up to express their interest in receiving the local FTTH service.49 This process was important, because the business plan estimated that a take-up rate in excess of 50% was necessary in order to break even. A co-operative structure was chosen to encourage and facilitate greater community involvement and support. It is reported that government funding was provided to individual citizens and then transferred across to the co-operative. A consequence of the decision to use a co-operative structure was that (under Dutch law) there was no obligation to advertise a tender to undertake deployment work.
13.3. FUNDING AND INVESTMENT MODEL After considering the business plan for deployment and reviewing the evidence of a high level of local interest, in December 2003 the Ministry for Economic Affairs provided funding of 800 EUR per household.50 Total central government funding was estimated at 6.2 million EUR. Community and private investment of 8 million EUR was secured and additional public funding was also received. At that time it was envisaged that deployment would cost about 2,000 EUR per house, but in fact costs actually amounted to 1,300 EUR per house. The shortfall between government funds and the
46 See www.telco2.net/event/october2007/speakers/Kees_Rovers.php 47 See www.closethegap.nl 48 See www.youtube.com/watch?v=-ZtGD0tA5N0 49 See www.broadband.coop/Download-document/9-Initial-visit-to-Ons-Net-in-Neunen.html 50 See www.telco2.net/event/october2007/speakers/Kees_Rovers.php 71 total deployment cost was met by the co-operative and private investors. The payback period for the project is expected to be ten years.
13.4. IMPLEMENTATION AND DEPLOYMENT It was decided that due to the co-operative’s lack of experience, it required a turnkey solution for building the network. The construction company chosen (VolkerWessels Telecom) offered this, as well as having a reputation for reliability and being able to demonstrate previous relevant experience. VolkerWessels Telecom is a major European construction-services business with headquarters in Rotterdam. 95% of the network is owned by the co-operative and 5% by the construction company (although the construction company has full voting control). This ownership split was not originally planned but occurred due to financial complications during the project. The contract with VolkerWessels Telecom was signed in June 2004 and the build was complete before the end of 2004. Deployment to 7,500 homes took just three months. Due to the time and effort required to negotiate the use of existing ducting, it was decided to dig new trenches for all the backhaul and household connections. Only a small number of existing ducts were re-used, as there were only a limited number of areas where this was a more economic option than digging new trenches. Due to the co-operative’s lack of expertise in operating networks, it decided to make an outsourcing arrangement for network operation with Edutel, an existing semi-public telecoms operator affiliated with a number of high schools in the area. Edutel was chosen due to the competitive price and quality it offered, although it has also been acknowledged that few other options were available. The network is now operated by Reggefiber, which bought out Edutel.
13.5. TECHNOLOGY Fibre to the cabinet (FTTC) was considered as a solution because it was 200 EUR per home cheaper than FTTH, but the co-operative wanted the ‘best’ solution for the longer term and so selected FTTH. VolkerWessels Telecom selected PacketFront51 as its preferred supplier for FTTH network roll-outs because of its ability to act as a single supplier for all hardware elements, plus its advantageous automation capabilities. One of largest single elements of the project was thought to be the Backhaul laid from Nuenen to an Internet exchange point at the University of Eindhoven 7km away. This cost approximately 200,000 EUR to build. VolkerWesselsTelecom suggested that fibre deployment was made significantly easier by an EU ruling ensuring that public open utilities (that could be used by any carrier to provide services) should not be charged for wayleaves. The Nuenen project involved 120km of digging for 7,500 connections (approximately 15 metres per household). It was reported52 that VolkerWessels Telecom typically expected to incur costs of around EUR30 per metre for fibre deployment. Emtelle was chosen to provide its blown-fibre system53, a key factor in ensuring fast deployment. Empty tubes were run into each premises, and fibres were blown down them as necessary. Two
51 See www.ipaloalto.com/html/Nuenen_Success_Story_050907.pdf. 52 See www.broadband.coop/Download-document/9-Initial-visit-to-Ons-Net-in-Neunen.html 53 See www.ipaloalto.com/html/Nuenen_Success_Story_050907.pdf 72 fibres were installed at each location: one for IP services (including telephony), and one for a cable TV overlay (at the time of deployment there were concerns about the quality of IP video streaming).
13.6. DEMAND CONSIDERATIONS: PROMOTING SUPERFAST NETWORK ADOPTION The OnsNet Nuenen project was one of the first FTTH projects in the Netherlands when it was launched, pioneering the concepts of universal coverage, open access and the ‘triple play’ of voice, Internet and TV. At launch one service provider was used for voice and data (Internet) services, while a second provided analogue cable TV services. Trials of IPTV and video on demand (VoD) were also run using the online operating system (OoS, a free web operating system which provides access to web applications) component of the PacketFront network system. During the first year of operation residents were entitled to subscribe free of charge, and a take-up rate of about 95% was achieved. At the end of the initial year, when charges were introduced, approximately 80% of the subscribers were still willing to pay for the service. It was highlighted that incumbents adopted very competitive policies to promote their own broadband services when the services was first launched, and a high level of competition still remains today. The network has subsequently developed into an open network, with residents able to choose their own Internet or cable provider. This is of great benefit to consumers, who can not only choose the services they want, but are also able to ‘shop around’ to find those providers offering the best deal. This compels providers to compete for consumers. This has generally led to competition on the basis of price, the provision of more services or better services or the quality of customer services. The Nuenen network offers consumers sophisticated entertainment services, such as ultra-fast movie and music downloads, VoD and HDTV, as well as the potential for competition-driven enhancements such as free local phone calls. It is highlighted that the network really comes into its own in terms of its social benefits, allowing people to participate more fully (and enjoy a greater sense of security) in their community54. For example, people who are too infirm to go to church can watch live transmissions of their local services. Or when people are confined to bed because of ill health and need urgent assistance, a webcam can alert a doctor. Once the doctor arrives at the resident’s home the doctor’s identity is confirmed by a camera at the door and the person monitoring the home can key in an entry code to allow access. While there was no formal measure of increased gross value added (GVA), anecdotal evidence was reported of increased entrepreneurship and a growing number of knowledge workers and high-tech businesses entering the region due to the high level of connectivity.
13.7. DEPLOYMENT LESSONS Nuenen was one of the first community-driven projects in Europe to provide FTTH. It was driven by someone who was an evangelist for broadband and who continues to champion the benefits of community-led broadband provision.
54 See www.ipaloalto.com/html/Nuenen_Success_Story_050907.pdf 73
The personnel involved in the project have gone on to share their experience and knowledge with many other community-led organisations and initiatives in the Netherlands, the UK and other Member States. Approximately two years were spent encouraging the community to understand the benefits of high-speed broadband. The focus was on personal benefits, not the underlying technology or connectivity speeds. This growing groundswell of support was undoubtedly responsible for the high levels of initial interest and take-up (although the offer of free services during the first year would also have been an incentive) and the fact that over 80% of users were retained after the first year, despite intense competition from incumbents. The deployment of two fibres to 7,500 homes was reported to have been completed in three months. The compact and well laid out topography of Nuenen undoubtedly assisted deployment, but the reported deployment cost of 30 EUR per metre for fibre is considerably lower than figures quoted elsewhere. The overall cost of deployment was 1300 EUR per house. Payback on the project is expected after ten years.
13.8. PROGRESS AND SUCCESS When asked to reflect on the success of the Nuenen project, Kees Rovers sums up the core attributes of a successful community-owned broadband project as ‘seven pillars’. These were well documented by the Big Society Broadband Project55 and the Cook Report Europe Issue 256: A viable business model – first and foremost, community broadband projects are businesses. They have to generate income and profits in order to survive and prosper. The business model will vary – some projects will focus more on developing commercially attractive services, while others will focus on attracting funding for projects of public benefit. The critical factor is that the business model must be robust and capable of generating profits for reinvestment and to reimburse the providers of capital. Co-operation – the “us feeling” – Community broadband projects need to develop an “us feeling”; one way to do this is through a co-operative structure, giving ‘customers’ (or more accurately community members) a say in how the business is run, its future strategy, and the shape of the service set. A local community broadband project is likely to aim to reinvest surpluses in new services and/or support new ventures and projects in the community. This keeps the enterprise focused on the needs of its members in both the short and longer term. A set of basic services – Unless the project has a set of basic services to offer it will not last. In most cases projects aim to operate on an ‘open access’ basis. Additional local services – For many consumers, the offer of high-speed Internet alone is not really appealing. What makes the difference is offering telephony, TV and radio together, with the key ideas of ‘local for local’ and ‘more for less’. Local service development is critical. OnsNet provides superfast (symmetric), free telephony to other OnsNet users and more radio and TV for less money than other providers in the Netherlands. There is also local TV (sport, news, local events) made by local people, video health care contacts with GPs, visual communication for the elderly and disabled, safety and security applications, information from the council, health monitoring and telemedicine. OnsNet offers services which need
55 See www.bigsocietybroadband.coop/kb/seven-pillars-wisdom-–-lessons-nuenen 56 See www.closethegap.nl/download.php?uid=22 74 high-speed symmetric bandwidth – and interviewees reported that upload utilisation was at the same level as download utilisation. Community communication – This is commonly thought to be the single most significant factor in the success of OnsNet. Getting the community behind the project drove astonishing levels of demand and delivered significant levels of income to the investors and community from the second year onwards. It was achieved through a process of communication that focused on the needs and aspirations of the community and how these could be met with an FTTH project, not on the technology itself. The key factor was getting the right stakeholder groups on board, engaging with members of different groups in the community and finding clever ways of encouraging demand. Customer care – OnsNet has someone based locally that users can contact when there is a problem. Users find this preferable to using a call centre. In addition, volunteers help users and neighbours help other neighbours. A robust, high-quality network needs high-quality maintenance and support, but from a customer’s perspective it has been suggested that nothing beats the human touch of local support. A high quality network – This is the one factor that major telecommunications companies should always be able to deliver. In the context of next-generation broadband this means getting the balance right between what the community does for itself, and what it contracts others to do for it. With OnsNet, the whole FTTH network was engineered by a civil engineering firm that went on to form Reggefiber, the major Dutch fibre operator, which is now 40% owned by KPN (the Dutch incumbent).
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14. National Broadband Network (Australia)
It was suggested that non-European case studies should be included in this chapter. This case study is different from others since it focuses on a whole country. But due to the nature of broadband deployment in Australia it is advantageous to undertake analysis at this scale of analysis. The National Broadband Network (NBN) will replace Australia’s ageing copper telecommunications network (which is costing $A1billion pa to maintain57), the NBN will be Australia's first national wholesale-only, open access broadband network for all Australians, regardless of where they live. 93% of homes, schools and workplaces will be connected with optical fibre (fibre to the premises or "FTTP"), providing superfast broadband services to Australians in urban and regional towns. For the remaining 7% will be connected to fixed wireless and satellite. The government’s aim is that, by 2020, Australia will be among the world’s leading digital economies based on key indicators such as broadband penetration and usage rankings.58
14.1. AUSTRALIA: GEOGRAPHY AND TOPOGRAPHY The Commonwealth of Australia is a country in the Southern Hemisphere comprising mainland Australia and the island of Tasmania. It is the world’s sixth largest country by area (7,617,930 square kilometres) and is 82 per cent larger than the European Union land mass. Australia has a population of 22,771,379 and a population density of 2.99 persons per square kilometre (the European union average population density is 117 persons per square kilometre). Although most of Australia is semi-arid or desert, it includes a diverse range of habitats from alpine heaths to tropical rainforests and is recognised as a mega diverse country. Climate change has become an increasing concern in Australia in recent years with many Australians considering protection of the environment to be the most important issue facing the country. The difficult topography and low population density, particularly in comparison with Europe makes it an interesting case in comparison with others in this study.
14.2. PROJECT BACKGROUND The challenges for telecommunications in Australia are
57 Professor Reg Coutts The National Broadband Network - The 'inside story' Presentation to Engineers Australia Adelaide 15/11/2011 58 http://www.nbn.gov.au/the-vision/ 76
Distance and Low density Australia’s voice and internet have been delivered primarily over a copper network. This network is owned and operated by Telstra previously government owned prior to privatisation. Telstra provided services to retail clients and in recent years provided wholesale services to other retail providers. Recently other Internet Services providers have installed their own DSLAM units in exchanges to enable them to provide Broadband services to clients over the existing copper network. Broadband services are also available via satellite and through mobile phone 3G networks for areas not covered by fixed line broadband.59 The creation of a broadband network was the policy of the new Labor Government elected in 2007. The NBN was again an issue in the 2010 election, which saw the return of the Labor government as a minority government. The government was formed with the help of a number of independents with the final two being conservative rural independents who were in favour of the NBN and what they believed it would do to revitalise the economies of rural areas. (A major part in the decision to give preference to rural areas in the rollout of the NBN and the agreement to have uniform national wholesale pricing) In the Statement of Expectations released on 20 December 2010 the Government expressed three central objectives to the National Broadband Network (NBN): To deliver significant improvement in broadband service quality to all Australians; To address the lack of high-speed broadband in Australia, particularly outside of metropolitan areas; and To reshape the telecommunications sector. The NBN will enable high-speed broadband to be delivered to all Australian households, businesses and enterprises, through a combination of Fibre-To-The-Premise (FTTP), Fixed Wireless and Satellite technologies. As the NBN is rolled out the existing copper network will be removed.
14.2.1. Advantages Separate from the economic impacts of a rollout of broadband the advantages of the structure and funding model are: Due to the GFC it was not possible for private capital to be raised sufficient to fund such a project The cost of the rollout of the model (FTTH, satellite and fixed wireless) is 60% infrastructure cost therefore providing a greater stimulus to the Australian economy than other models involving greater use of imported equipment (for example street side cabinets for fibre to the node solutions).
14.2.2. Equity The model of 100% coverage with a common wholesale price means that all Australian businesses and households will have the same opportunities’.
59 Note that areas not covered by fixed line broadband can be quite close to major city centres e.g. Bridgewater in the Adelaide Hills is less than 20 minutes drive from the Adelaide CBD and has little coverage. 77
14.2.3. Infrastructure The copper network will be completely removed and replaced by “state of the art infrastructure”.
14.3. PARTNERS To construct the NBN the Australian Government created NBN Co on 9 August, 2009 a wholly-owned Commonwealth company that has been prescribed as a Government Business Enterprise (GBE) and is represented by "Shareholder Ministers" - the Minister for Broadband, Communications and the Digital Economy and the Minister of Finance and Deregulation. To implement the NBN as a wholesale network requires Telstra to be split in two with the infrastructure becoming part of the NBN. Telstra will also be compensated for the loss of a connection to the copper network whenever a premise is connected to the NBN. While NBN Co is wholly government owned the future privatisation has not been ruled out. In fact: On 28 March 2011, the Parliament passed the NBN Companies Act 2011 and the Telecommunications Legislation Amendments (National Broadband Network Measures – Access Arrangements) Act 2011. These Acts set out a clear and robust process that must be followed before the Commonwealth can privatise NBN Co. The future privatisation of NBN Co will be subject to a rigorous process, including a review by the Productivity Commission, consideration by a Joint Parliamentary Committee and the decision of the Parliament of the day.60 “The Telecommunications Act 1997 and the Competition and Consumer Act 2010 regulate all telecommunications industry participants, including NBN Co. NBN Co specific requirements have been enacted by: the National Broadband Network Companies Act 2011; and the Telecommunications Legislation Amendment (National Broadband Network Measures – Access Arrangements) Act 2011. These Acts implement policy commitments made by the Government when it announced the NBN policy on 7 April 2009: that the NBN will operate on a wholesale-only, open access and non- discriminatory basis and, by doing so, fundamentally reshape the structure of the Australian telecommunications sector and provide a platform for robust competition.”61
14.4. FUNDING AND INVESTMENT MODEL On 7 April 2009, the government initially committed to investing up to $43 billion in the NBN. On 20 December 2010, NBN Co Limited’s (NBN Co) Corporate Plan confirmed the total capital expenditure for the project is estimated to be $35.9 billion, less than the government’s original $43 billion estimate. The government expects to contribute $27.5 billion in equity for the rollout.62
60 http://www.nbn.gov.au/frequently-asked-questions/#a535 61 http://www.nbnco.com.au/about-us/corporate-nbn-responsibility/regulation-legislation.html 62 http://www.nbn.gov.au/frequently-asked-questions/#a535 78
Figure 27: NBN Co’s Unlevered Funding Requirement ($ Billion) (Nominal Dollars)63
NBN Co has assumed that Shareholders would like to reduce the total equity requirements. Therefore, NBN Co would seek external funding from the bank and financial markets without the explicit support of the Shareholders. NBN Co has embedded debt funding costs into the financial model, excluding explicit guarantees from the Government. It is expected that total external funding would contribute up to 33% of the total funding to FY2021.
63 NBN CO Corporate Plan 2011 – 2013 http://www.nbnco.com.au/about-us/corporate-plan.html 79
Figure 28: NBN Co’s Funding Profile (Debt and Equity) to FY2028 ($ Billion)
Figure 29: NBN Co’s Forecast EBITDA and Estimated Cumulative Debt Capacity to FY2028 ($ Billion) Maximum debt funding would start from FY2015. Average issuance per annum would amount to $1.9 billion over the six-year period (FY2015 to FY2021) and NBN Co would be in the top tier of Australian issuers. This would imply the sourcing of a significant proportion of the debt requirement from overseas investors as the Australian domestic market is unlikely to provide this level of resource today. The Appendix shows a summary of financials – EBT is not expected to be positive until the 2021 financial year. NBN Co will incur significant income tax losses in the first eleven years of its operations (from FY2010), and it is assumed that these losses will be carried forward and offset against future profits. The Company expects to start utilising brought forward tax losses in FY2021.
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14.5. IMPLEMENTATION AND DEPLOYMENT 7 April 2009 NBN Co Announced 8 April 2009 Tasmania announced as launch state 1 July 2009 Construction of the Tasmania rollout begins 9 Aug 2009 NBN Co Created 21 December 2009 NBN Co Issues Product Consultation Paper 2 March 2009 First Mainland release sites announced 20 June 2010 NBN Co reached a Financial Heads of Agreement with Telstra that will provide access to Telstra facilities and the progressive migration of Telstra traffic onto the National Broadband Network, subject to regulatory approval. 12 August 2010 National Broadband Network launches in Tasmania test sites 29 October 2010 NBN Co commenced public consultation process on its Wholesale Broadband Agreement. 9 December 2010 Fibre in New Developments policy announced 17 January 2011 Equipment contracts awarded to Australian companies 8 April 2011 12 retail service providers (RSPs) signed an agreement with NBN Co to deliver services over the new network as part of end-user trials across the five first release sites on the Australian mainland. 18 May 2011 NBN goes live in first centre on mainland Australia 23 June 2011 NBN Co signed binding agreements with Telsra and Optus to migrate their subscribers to the National Broadband Network (NBN). 1 July NBN Co launched Interim Satellite Service for remote Australians 29 July 2011 Kiama Downs and Minnamurra (NSW) join NBN 3 August 2011 First communities for National Broadband Network fixed wireless service unveiled 4 August 2011 National Broadband Network goes live in Brunswick, VIC 7 September 2011 First new broad-acre development connected to the NBN 16 September 2011 National Broadband Network goes live in Willunga SA 18 October 2011 12 month national rollout plan released Table 1: Deployment schedule
Construction of the National Broadband Network has now started in 24 towns and suburbs across Australia and in the next year this is planned to extend to 49 locations in total; this is in addition to the 8 active sites and representing over 570,000 premises. It is estimated that the average time from construction in a location beginning to NBN services being available is 12 months.
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Figure 30: National Rollout map64 A 12-month rollout plan was released on 18 October 2011. The majority of locations were regional towns with a scattering of capital city suburbs (e.g Prospect in Adelaide and Strathfield in Sydney); of the 49 locations less than 10 could be considered as being in a major city. The 12-month schedule will be updated on a quarterly basis to include additional locations.
Month in which Network built Design and work will Locations & ready for Work underway Construction to start commence on the service within 12 months next module5 Australian Capital Territory Gungahlin 6,000 14,800 Jan 12 New South Wales Armidale 4,900 9,600 Blacktown 11,200 Jan 12 Coffs Harbour 5,800 13,200 March 12 Dapto 5,300 Aug 12 Gosford 11,200 April 12 Jamberoo 2,600 Kiama 2,500 2,600 Lidcombe 8,800 Dec 11 Long Jetty 11,600 April 12 Penrith 17,800 Nov 11 Richmond 2,600 13,200 Oct 11 Riverstone 2,800 7,700 July 12 Sawtell 8,800 Feb 12 Strathfield (Homebush) 2,900 Jun 12
64 http://www.nbnco.com.au/our-network/maps.html 82
Month in which Network built Design and work will Locations & ready for Work underway Construction to start commence on the service within 12 months next module5 Wollongong 5,600 July 12 Northern Territory Casuarina 10,500 March 12 Darwin 2,900 11,400 Nov 11 Queensland Aspley 16,700 Nov 11 Goodna 16,700 Oct 11 Nudgee* 2,900 Jun 12 Toowoomba 5,800 14,600 Oct 11 Townsville 3,000 5,800 25,900 Dec 11 Townsville City 8,800 March 12 South Australia Aldinga Beach* 5,800 March 12 Modbury 14,500 Oct 11 Port Augusta* 6,900 Aug 12 Port Elliot* 2,600 Aug 12 Prospect 10,600 Oct 11 Seaford / McLaren Vale 11,000 April 12 Stirling 7,500 Feb 12 Strathalbyn 2,400 July 12 Yankalilla 2,400 Aug 12 Willunga 1,100 Tasmania Deloraine 1,300 George Town 2,600 South Hobart 2,400 21,900 Jan 12 Kingston Beach 1,000 8,600 May 12 Launceston 11,300 Jan 12 Midway Point 1,200 Scottsdale 1,200 Smithton 1,600 Somerset 2,400 May 12 Sorell 1,100 St Helens 2,400 1,500 May 12 Triabunna 500 Victoria Bacchus Marsh 7,500 Oct 11 Ballarat Central* 8,900 April 12 Brunswick 2,700 17,400 Dec 11 Melbourne City 5,900 July 12 Melton 2,600 June 12 South Morang 2,900 10,500 Dec 11 Tullamarine* 8,300 May 12 Western Australia Applecross 8,300 Feb 12 Geraldton 2,800 16,500 Dec 11
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Month in which Network built Design and work will Locations & ready for Work underway Construction to start commence on the service within 12 months next module5 Mandurah 17,500 Nov 11 Meadow Springs 5,300 April 12 Pinjarra 5,200 April 12 South Perth 6,000 May 12 Victoria Park 16,200 Oct 11 Totals 18,200 63,500 485,100 Table 2: NBN Co 12-month rollout plan to premises 65 (18 October 2011)
Figure 31: Current rollout at 18 October 2011
14.6. TECHNOLOGY NBN will be Australia's first national wholesale-only, open access broadband network to all Australians, regardless of where they live. 93% of homes, schools and workplaces will be connected with optical fibre (fibre to the premises or "FTTP"), providing superfast broadband services to Australians in urban and regional towns. For the remaining 7% will be connected to fixed wireless and satellite. With the introduction of the high speed broadband and telephony capabilities, a product roadmap was released in April 2011. Going forward, the product set will evolve with 4 additional feature and functionality 'releases' which is aimed at creating a strong value proposition for Service Providers to address consumers through to high-end business market's needs.
65 http://www.nbnco.com.au/news-and-events/news/nbn-co-releases-12-month-national-rollout-plan.html 84
Figure 32: Product Roadmap
PRODUCT RELEASE ONE: HIGH SPEED BROADBAND & TELEPHONY Our first Product Release delivers a core set of features to the market; we plan to support Service Providers offering superfast broadband, video conferencing and high definition video on-demand. It is intended to enable Service Providers to "On-Board" and commence interoperability testing of NBN Co services. The Service Provider will be able to offer high-speed internet packages and telephony capability for Fibre, Wireless and Satellite connected premises.1.
PRODUCT RELEASE TWO: EMERGING ENTERTAINMENT CAPABILITY Product Release two is expected to add the capability to distribute content (e.g. IPTV channels) simultaneously to two or more consumers largely as a single stream). This feature will greatly enhance a Service Provider's ability to deliver Internet Protocol television (IPTV) offerings enabling a triple play of internet, voice and IPTV in the fibre footprint. This Multicast technique can achieve significant bandwidth savings when delivering the same content to many Australians and is expected to provide opportunities for retail market innovation.
PRODUCT RELEASE THREE: HIGH SPEED BUSINESS SERVICES Product Release three is designed to provide incremental functionality to support innovation in the small-to-medium-business market. These additional features are specifically designed to connect multiple business locations, are expected to interact seamlessly and provide secure, high-speed and reliable access to various business applications - including video collaboration.
PRODUCT RELEASE FOUR: HIGH SPEED ENTERPRISE SERVICES Product Release four is designed to deliver very high speed services for high-end enterprise services. It is also expected to provide incremental business-oriented functionality, including point-to-point links and transparent VLAN services. Enhanced respond and repair service levels, in support of mission critical applications, are targeted for this release.
PRODUCT RELEASE FIVE: ENHANCED RELIABILITY FOR MISSION CRITICAL SITES Product Release five is designed to deliver the final features to complete the initial NBN Co Fibre Access Service offering including access diversity for end-users. This feature is projected to enable mission-critical sites, such as hospitals, to achieve higher network availability, and reduce their risk
85 of outages. Additional operational capabilities will allow Service Providers to provide greater reliability to their business customers.
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15. Rural Broadband Loan Programme (USA)
The US Rural Broadband Loan Program (RBLP) is administered by the Rural Utilities Service (RUS)66 of the US Department of Agriculture. The program funds the cost of construction, improvement, and acquisition of facilities and equipment to provide broadband service on a technology neutral basis.
15.1. PROJECT BACKGROUND The Rural Broadband Loan Program first came into existence as a pilot project in FY2001 after the lagging deployment of broadband was noticed in rural areas compared to urban or suburban areas. The mission remit of the initial pilot programs was “to finance broadband transmission and local dial-up Internet service in areas that meet the definition of rural area”. Two years later the pilot project became a fully-fledged loan and loan guarantee programme that has loan levels and loan subsidies set every year by the US Congress. The RBLP has several criteria that must be met in order to receive any sort of government aid. The criteria include meeting the definition of a rural area, the necessary conditions for a service area and the eligibility of the company wishing to undertake the project67. It is also a necessary requirement that all projects are completed within a three year period except for the customer premises equipment.
15.2. FUNDING AND INVESTMENT MODEL This program supplies either loans or loan guarantees and is explained below: Direct Cost-of-Money Loan: The interest payable on this loan will be equal to the cost of borrowing for the US Department of Treasury. Direct 4-Percent Loan: this type of loan will bear a 4 percent interest rate on every advance that is given to the borrower. The use of this type of loan rate is at the discretion of the RUS and maybe preferential to help the borrower achieve the financial feasibility necessary. Private Loan Guarantee: This is a loan that is given by a third party to a borrower wishing to invest in broadband infrastructure in a rural area. The borrower must meet the criteria as set out for direct loans but in this case the interest rate will be set by the lender and consistent with current market conditions. RUS will only guarantee up to 80 percent of the loan amount.
66 Currently there is a proposal to reform the Farm Bill that would increase the amount of funding available to the RUS and also to allow the allocation of grants in addition to the loan and loan guarantees that are currently in place. 67 For more information see: http://www.rurdev.usda.gov/supportdocuments/BBLoanProgramBrochure_8-11.pdf 87
The other financial condition imposed on applicants wishing to seek a loan or loan guarantee is the amount of equity the applicant has available. An applicant must have equity equal to 10 percent of the requested loan amount at the time of application and which must remain available until the closing of the loan. Equity is defined according to the Generally Accepted Accounting Principles (GAAP). It is possible to receive a loan without the 10 percent equity in place if a private investor presents an unconditional legal commitment to cover the shortfall.
15.3. TECHNOLOGY As stated in the initial introduction to this case, the funding programme is strictly technology neutral. Therefore the RBLP will lend and guarantee loans for a variety of broadband infrastructures. Projects in the past have funded fixed wireless, DSL, Broadband over power line, hybrid/fibre coax, and fibre-to-the-home.
15.4. DEMAND CONSIDERATIONS While there is not minimum penetration requirement necessary to access RUS funding, applicants are required to carry out market research for the proposed broadband project. Information must be collected from households and businesses regarding the service offerings and the level of interest. RUS requires applicants to show that their market study supports their financial projections and if this is not the case applications will be rejected.
15.5. SUCCESS STORY: RURAL TELEPHONE/NEX-TECH Rural Telephone is an American company that has been operating in Kansas since 1951. With the development of ICT and the growing use of the Internet the services of Rural Telephone have had to change and adapt to what consumer need. This has meant investing in broadband networks. Nex-Tech, a subsidiary of Rural Telephone, has received 6 loans between 2001 and 2009. Since the loans have been granted its service area has increased by 4,600 square miles and includes over 21 new communities. As a direct result of the broadband roll-out by Nex-Tech companies have chosen to stay or locate in the areas that it serves. In fact, Osborne Industries, a company served by Nex- Tech, was able to reach new markets including Canada, Asia, and Europe due to the improvement in broadband infrastructure allowing better electronic communication and billing. In addition, these loans have positively impacted the size of the workforce employed by Nex-Tech and have led to repeat contracts with constructions firms that are sub-contracted to dig the necessary infrastructure. As a result over 1,736 customers are connected by FTTP68.
15.6. CRITICISMS Despite the success stories that exist in relation to the Rural Broadband Loan Program, a number of criticisms have been noted in regards to its functioning: Loan Approval and Application Process This has often been criticised as been too strict and too long. According to official figures in 2009 225 applications were received although only 97 were actually approved and in 2005 only 5% of available
68 For more success stories see: http://www.rurdev.usda.gov/utp_farmbill.html 88 loan money was awarded69. Furthermore, the requirement of equity and cash-on-hand for approval would appear to prevent smaller companies and new start-ups from applying for loan assistance. Often these companies are the ones that in fact need the loan assistance the most. Eligibility Criteria The eligibility criteria have been criticised as being too broad and at the same time too narrow. In the sense of being too broad; investigations showed that loan programs had shifted away from the rural communities, which would not have broadband without government assistance as the definition of a rural area was too broad. Conversely, they were considered too narrow as result of the limitation on community size of 20,000 that often excluded small rural towns that could breach this limit. Loans to Communities with Existing Providers Critics of the Broadband Loan Program have argued that RUS has failed to prioritise loans for areas where there are no current service providers because applications and allocations work on a rolling base. Therefore priorities are decided solely based upon those applications within the pool at a particular moment in time. There is no cut-off date either that would serve to help identify priority cases. A final criticism, according the National Cable and Telecommunications Association (NCTA), is that the loans were being used to unfairly subsidise second and third broadband providers in a community70; thus creating an unfair competitive advantage for those receiving loans.
15.7. OVERALL ASSESSMENT OF THE CASE This case study is different from the majority of cases examined here as it examines a funding mechanisms rather than a specific broadband project. Therefore it is difficult to say whether it has been a success or not as success is dependent on the criteria used. The US National Broadband Map shows that 98 percent of the population in urban areas have access to speeds of at least 3 Mbps compared with 84 percent in rural areas71. There is still a difference in broadband infrastructure between rural and urban areas. Even within rural areas it is possible to talk about a ‘rural-rural’ divide in the US72. Whilst it is not possible to state that there are no inconsistencies between rural and urban areas in broadband infrastructure, there are many success stories that can be cited as a result of the RBLP. In addition, the US Congress is in the process of amending the loan program when the farm bill legislation is passed and this should address several of the main criticisms73.
69 For details see: http://www.nationalaglawcenter.org/assets/crs/RL33816.pdf 70 Letter from Kyle McSlarrow, President and CEO, National Cable & Telecommunications Association to the Honorable Mike Johanns, Secretary of the U.S. Department of Agriculture, May 16, 2006. 71 More details see: http://www.fas.org/sgp/crs/misc/RL30719.pdf 72 http://www.fas.org/sgp/crs/misc/R42524.pdf 73 More details see: http://www.nationalaglawcenter.org/assets/crs/RL33816.pdf 89
16. Reggefiber (NL)
Reggefiber is a provider of Fibre-to-the-Home (FTTH) in The Netherlands. The company was initially created in 2005 as a subsidiary of the Reggefiber Holdings that was solely owned by the private investment vehicle, Reggeborgh. In 2008 an incumbent firm, KPN, agreed a joint venture with Reggefiber that resulted in the acquiring of a 41% share of Reggefiber that has an option to gain a controlling stake depending on the number of homes connected. Reggefiber applied for external financing at the European Investment Bank (EIB) to expand the scale of its FTTH network roll-out.
16.1. GEOGRAPHY AND TOPOGRAPHY The Netherlands has a population of approx. 16.7m. The geography of the Netherlands is unusual in the sense that a large part of the country resides below sea-level, meaning that the current geographical landscape has been formed as a result of reclaiming land.
Figure 33: Map of the Netherlands
16.2. PROJECT BACKGROUND AND PARTNERS Reggefiber, through a joint venture with KBN, had been rolling out FTTH networks in the Netherlands. In 2010 it applied for funding from the European Investment Bank (EIB) in order to further pursue the roll-out of FTTH infrastructure. The project specifically targets 33 towns and cities
90 in the Netherlands and should allow 1–1.3 million households to access high-speed broadband and multi-room HD digital TV by 201274. This project is the first time that Reggefiber has acquired external financing for the roll-out of high- speed broadband. In the context of the Digital Agenda for Europe, this project’s objective was to help drive the knowledge-based economy of the Netherlands and to achieve the 2020 targets of high-speed broadband penetration. The EIB financing of Reggefiber’s FTTH roll-out will help to cover many smaller cities, which often find it harder to get connected than big cities that promise higher profitability. Simon Brooks, Vice President of the EIB, stated “the Reggefiber open network model will encourage existing and new telecom providers to access the FTTH network”75.
16.3. FUNDING AND INVESTMENT MODEL The EIB loan is a joint loan with five commercial banks that have operations in the Netherlands, ABN AMRO, BNP Paribas, Friesland Bank, ING and RBS. Roughly half of the €285m ten year loan will be supplied by the EIB. The statutes of the EIB dictate that it can only give a loan up to half the amount of the total funding required for a project. This means that Reggefiber must find other sources of financing in order to meet the EIB loan requirements. Hence the involvement of the five banks listed above.
Figure 34 :Funding and investment model - Reggefiber
This is the first occasion in which Reggefiber has applied for external funding in the development of FTTH projects. External financing has only become possible for Reggefiber because it has, in past projects, been able to generate stable and reliable revenue streams. There are two particularities that have produced this situation; firstly Reggefiber will only start construction of a passive network
74 EIB and 5 commercial banks support Reggefiber high speed optical fibre network, http://www.eib.org/projects/press/2010/2010-190-european-investment-bank-and-5-commercial-banks-support- reggefiber-high-speed-optical-fibre-network-in-the-netherlands-with-eur-285m-loan.htm 75 The EIB – The EU Bank INFO, issue 01-2011, p. 10. 91 in area once there is 30%-40% guaranteed take-up after completion of the FTTH roll-out76. Demand aggregation is therefore an important facet of the Reggefiber investment model. As a passive network operator it charges a fee for the use of its FTTH network for active operators. This fee is controlled and regulated by the Dutch Regulatory Authority, OFTA, and forms part of a guaranteed regulated income for Reggefiber. Secondly, Reggefiber creates a separate legal entity (NEM) for each area in which it invests. This creates a ‘geographical ring-fencing’ that works in partnership with municipality to ensure the demand conditions and repayments are met. Thus the return on investment is considered relatively stable.
16.4. IMPLEMENTATION AND DEPLOYMENT The style of deployment and implementation, as stated above, of FTTH network by Reggefiber is carried out by creating separate geographical companies for each investment project. The new company then works in partnership with the municipality in question to roll-out the FTTH network, whilst ensuring a solid basis of support for FTTH. Brief example in one sentence. Certain conditions must be met with the municipality in order for the FTTH to be rolled-out, e.g. minimum demand penetration.
16.5. TECHNOLOGY Reggefiber builds, owns and operates passive FTTH networks (dark fibre networks). The networks connect central nodes with individual households by optical fibres and are available on an equal basis (open) to any service provider interested in the provision of high-speed broadband services.
16.6. DEMAND CONSIDERATIONS Demand considerations are a crucial part of the Reggefiber investment model as mentioned above. Reggefiber aims to have at least 30% take-up rate before starting any construction project to roll-out FTTH. As a result Reggefiber takes into account the socio-economic characteristics of an area before proposing projects. They also try to use information and demand-creating workshops that involve key stakeholders e.g. mayors, churches, clubs etc. to create sufficient demand in a region.
16.7. DEPLOYMENT LESSONS The model employed by Reggefiber allows municipalities to actively participate in a FTTH roll-out project and gives a stable and reliable future return on investment. In the first instance the pricing strategy and the passive open network allows new entrants to the market to produce competitive offerings. Nevertheless the investment model has been criticised on two accounts; first, during the Digital Agenda Assembly some participants stated that the return on investment whilst stable was long- term. Therefore other investments, which had shorter period of return on investment77, appear more attractive in terms of investment in broadband capabilities. Second, the pricing strategy that Reggefiber employs dictates the geographic strategy of Reggefiber. This means that only built-up
76 The Reggefiber Model Presentation, Wouter Burger, June 21, 2012. 77 Reggefiber state that this is a payback period of 20 years following their model 92 areas fit its financial model. This constrains the ability to roll-out FTTH to all parts of the Netherlands, particularly rural areas.
16.8. PROGRESS AND SUCCESS In March 2012 Reggefiber Group BV submitted a second loan request to the EIB for €140m, half of the total loan €280m, concerning the second phase of the roll-out of new passive optical fibre telecommunication access networks in about 35 smaller sized towns. Reggefiber is hoping to raise the remaining amount from commercial loans. The request is currently under consideration with the EIB. The previous loan application took around a year to be given the green light, although Reggefiber is hoping for a quicker response.
Figure 35: Reggefiber FTTH homes passed
As for the first phase of the FTTH roll-out (the original purpose of the first EIB loan), there is not enough evidence at this stage to fully state the outcome of this project. The figures show that at the end of the Q1 2012 over 1million households had been passed in the Netherlands, roughly 20% of all households and Reggefiber has a target of 1.5 million for 2013. Considering that only 140 thousand households had been passed in 2007, this represents a significant increase in the FTTH infrastructure. Furthermore according to a press release about the project on the EIB website 1–1.3 million households passed by 2012 was the target. The fact the 1 million figure has been passed is certainly a positive for the project. The annual report from Telecompaper FTTH, FTTH in the Netherlands 2012, states that Reggefiber currently has a 96.2% share of the optical fibre market. The 2012 report predicts that this share will fall to 80% in 2016, although it envisages over 3 million homes to be passed by this date in the Netherlands.
In addition to the number of homes that have been connected, the start of 2012 has also seen new operators and service providers enter the Dutch market. For example GlasOperator, a new operator,
93 is aiming to offer wholesale services in Rotterdam, Alphen aan den Rijn and Vught78. In total nine new service providers for end users were offering internet, telephone, and televisual services at the end of 2011. The Reggefiber has shown some limitations in its business model and the geographical roll-out of FTTH network is highly constrained by the pricing model it employs. Yet the number of homes passed has significantly increased and passed the initial target of 1 million homes by 2012 as laid out in the project details given on the EIB website. It is also clear that the roll-out of a FTTH network has engendered greater competition in the level 2 (wholesale) and level 3 (retail) markets.
Figure 36: Reggefiber FTTH homes activated
78 “New Entrants on Fiber Network”, http://www.eindelijkglasvezel.nl/news-item/items/new-entrants-on-fiber- network.html 94
European Commission
A Compendium of NGA Case Studies – Annex to the Study Leading to an Impact Assessment on the Structuring and Financing of Broadband Infrastructure Projects, the Financing Gaps and Identification of Financing Models for Project Promoters and the Choice of EU Policy
Luxembourg, Publications Office of the European Union
2013 – 94
ISBN 978-92-79-29455-6 DOI: 10.2759/9860
KK-32-13-284-EN-N
DOI: 10.2759/9860 ISBN 978-92-79-29455-6