Modeling of Next Generation Network Deployment in Developing Countries

Full Length Research Paper

Modeling of next generation network deployment in developing countries

Dragan Bogojevic 1* and Natasa Gospic 2

1Alcatel-Lucent Serbia, Omladinskih brigade 88a, Belgrade 11070, Serbia. 2Traffic and Transportation Engineering Faculty, Vojvode Stepe 305, Belgrade 11000, Serbia.

Accepted 11 March, 2011

The development of next-generation networks (NGN) is a growing trend in the global telecommunications sector. Although the technological requirements are known, NGNs target a new generation of users, sources for revenue, and regulation. Telecom firms in developing countries are encountering new challenges in managing NGN deployment and often seek to draw upon experiences from developed countries. However, the differences in technological needs, market profitability, and legislative framework are remarkable, and the mapping of those experiences is not always possible. In this paper, the authors analyze the main differences between developed and developing countries to define an appropriate approach for developing countries. Also, examples of NGN introduction in developing countries are analyzed and discussed from the viewpoint of speeds, investments, and revenue opportunities. Based on the analyses discussed in this paper, an analytical framework for a national model to plan and deploy NGNs in emerging economies is proposed, with the focus of facilitating developing countries’ paths towards implementing an NGN. The roles of government and public-private partnerships are emphasized.

Key words : Next-generation networks, broadband access, developing countries, analytical framework, national model, public-private partnership, government.

INTRODUCTION

From a technological perspective, NGN is based on a and profits over the past few decades? Some global new architecture that modifies both the core and access vendors have concluded that currently there exists an portions of a telecommunication network and changes unstable and unsustainable business model that is split the way it delivers services to end-users. The telecom- between the web world and networks and is suboptimal munication industry is evolving towards NGN as it adopts for everyone concerned. On one hand, the Web World the convergence of different network architectures into an exists - it is a space where application and content all-IP (Internet Protocol) network that guarantees providers (like Google, YouTube, and Amazon) run seamless connectivity to all services over any access various applications and services, many of which are network and any device. In its Recommendation Y.2001, Web 2.0 centric and targeted at the Digital Youth, who International Telecommunication Union (ITU) has defined are growing up completely comfortable with computers NGN (ITU-T, 2004). and without pre-Internet memories. Networks, on the Why have telecom operators/service providers in other hand, are capital-intensive. To serve a subscriber, developed countries (DCs) completely or partially high speed connectivity is required everywhere – both replaced their existing PSTN (Public Switched Telephone wired and wireless. To build a network with that kind of Network), which has brought them enormous revenues scale, performance and carrier-grade reliability requires substantial quantities of capital. Until recently, this capital was available in the form of subscriptions and user consumption. As long as the average revenue per user *Corresponding author. E-mail: [email protected] Tel: +381- (ARPU) was climbing at a rate that was in line with the 63-238-352. Fax: +381-11-2288-298. investment required to upgrade the network to support 5272 Afr. J. Bus. Manage.

the subscriber, the situation was sustainable. This role what broadband will have in the 21st century for all business model of pay per use worked well because countries, ITU, also, runs a campaign called “Build on each user paid his/her own cost and facilitated Broadband”. investment by the network owner. Web 2.0 business The ITU WSIS Report (ITU, 2010b) reflects a joint effort models, however, have punctured the equilibrium and among several international organizations (ITU, operators find themselves in a situation where traffic is UNESCO, WHO, UNDESA) and representatives of civil growing 1000% for some customers, but revenues are society in achieving Millennium Development Goals in only growing at a fraction of that rate. They obtain limited 2015. This report shows that progress has been made monetary compensation for their assets and support; the with close to five billion mobile cellular subscriptions application/content provider has restricted access to worldwide at the end of 2010 and almost two billion network capabilities (such as location, presence, quality people throughout the world having access to the of service, and security) that could strengthen their Internet, but it is necessary to bring affordable fast relationship with the end user who is separated from the broadband access within reach of the great majority of full value that the network and service provider could the world’s people — noting today that three quarters of deliver. the world’s inhabitants still have no access to the Internet The situation in developing countries (devCs) could be at all. The rapid spread of broadband networks and even worse because investments are limited and can recognition that broadband networks deliver benefits only be recouped by returns over the long run. However, across society are key targets for future. devCs do not wish to stay behind and watch the At the macro level, in the USA, Japan, South Korea, worsening of the already-existing digital divide. The Australia, European Union (EU) and individual countries devCs would like to find a model that allows them to like Greece and other, large attention is given to models continue progressing towards digital economies based on of development of broadband access. In March 2010, the Information Communications Technologies (ICT), using EU adopted a strategy for smart, sustainable and NGN as the infrastructure. In this paper, the authors inclusive development called Europe 2020 Strategy (EU analyze the main differences between DCs and devCs to Agenda, 2010) where the role of information determine an appropriate approach for devCs to take. communication technology has been identified as one of Also, examples of NGN introduction in developing most important. countries are examined from the point of view of speeds, Frieden (2005) examined best practices in broadband investments, and revenue prospects using business network development with an eye toward determining the cases of several operators from southeastern Europe, optimal mix of legislative, regulatory and investment particularly from Serbia. Based on the analyses done in initiatives. The paper tracked development in Canada, this paper, an analytical framework for a national model Japan and Korea as these nations, based on govern- for planning and deploying NGN in emerging economies mental efforts, had achieved success despite significantly is proposed with the main aim of facilitating developing different geographical, political and marketplace countries’ needs and paths towards NGN. conditions. The paper concludes with suggestions that investment in a robust broadband infrastructure requires extensive coordination and cooperation among private LITERATURE REVIEW and public sector players. The private sector needs to make the necessary investments for the incubation of The development of broadband (BB) Internet and NGN, ICT, but the government can create incentives for such over the past few years, was in the focus of attention investment by underwriting and guaranteeing loans, from both developed and emerging economies. Since providing favorable tax treatment and financially sup- 2009, this development is additionally forced as a key porting a portion of the necessary research, development element in overcoming the current economic crisis. It is and technology demonstration projects. At the macro- stated that broadband services play an important role in level, these nations adopted laws that created incentives the people' social and economic lives and are effective for risk taking and innovation and penalized litigation and tools against recession. All this has led to the initiation of strategies to delay making necessary investment in various regional and national initiatives on the capital-intensive projects. At the middle-level, they linked deployment of BB Internet. public funding with private initiatives that aggregated Analyzing the reference literature, four levels of demand, generated matching funds and justified the initiatives and models for the BB deployment are installation of ICT even in geographically unattractive identified: global, macro (country), middle (regional) and locales. micro (company, user, citizen) level. At the middle level, regarding the growing gap between To improve the development of broadband access at the urban and rural areas DNTA (2009) presented an global level, ITU and UNESCO have formed the overview of key elements of an analytical model to Broadband Commission for Digital Development (BB support subsidized deployment of rural broadband Commission, 2009). To increase awareness of the vital networks in commercial non-viable locations in the United Bogojevic and Gospic. 5273

States. The model evaluated the underlying economic Tongie (2007) analyzed how new business models and costs to provide access to broadband service in new technologies can go hand-in- hand to leapfrog in “unserved” and “underserved” areas. The methodology is emerging regions. The proposed generalized techno- geographically-based, focusing primarily on rural areas economic model of broadband connectivity indicated that where current networks are not available. last mile access and interconnections are significant According to the European Regional Information barriers. Extending the open access idea with a leapfrog Society Association (http://www.erisa.be) guidelines for model, the analysis indicated that in the absence of policy regional and local broadband projects, the following and regulatory add-on costs, only ~$1/capita one-time business models can be defined: (a) Network model of investment provides connectivity up to an African village local community (local communities build, own and or a school, where it would be shared by many people. maintain the entire network infrastructure and provide This underscores that the access in poorer regions may broadband services to users); (b) Operator’s model (local be shared instead of individual like in richer countries. communities build and maintain infrastructure and Chen et al. (2010) provided general method for CAPEX provide broadband equipment, generally through a public and OPEX analysis of fiber access network architectures private partnership (PPP) model and then sell wholesale with consideration of changed components cost in time capacity to commercial service providers); (c) Passive as well as different take rates – percentage of homes or infrastructure model (local communities build passive buildings covered and subscribed for the service. Passive infrastructure, which is then transferred as a concession optical network is considered the most promising solution to an independent third party); (d) Aggregation model on and always has had the lowest total cost among all the request (more generic approach for local government to basic architectures. achieve a critical mass of users and traffics required to Zagar and Krizanic (2009), using the basic profitability guarantee necessary income and justify the investment in evaluation methods, calculated costs of ADSL and broadband); and (e) Model of individual property (supple- WiMAX implementation in three different rural scenarios ment in order to obtain justification for the introduction of (80, 40 and 10 users) for fixed broadband access optics in the last mile, where owner of the apartment is services and residential users in Croatia. Measuring the owner of optics, too). profitability with values of payback period, net present Bouras et al. (2009) proposes a business model for the value and internal rate of return, results of economical optimal exploitation of the currently developing analyses showed that the fixed wireless networks are broadband metropolitan area (MAN) networks in Greece. less cost-effective than DSL networks for Osijek-Baranja The three basic levels are presented: The first level County. (Level 1) determines who (a private or public enterprise, Ellershaw et al. (2008) modeled and compared the etc.) exploits the network’s passive equipment (channels, deployment costs of three broadband access techno- optical fibers etc.); the second level (Level 2) determines logies (xDSL, passive optical networks and WiMAX who provides and exploits the active equipment of the wireless access) in Australian rural and remote areas, for network (switches, routers etc.); the third level (Level 3) data rates of 20 Mb/s and 50 Mb/s. The analysis showed determines who offers access to the network, the that wireless technologies are cheapest for 20 Mb/s when services and the content. The most attractive business the number of homes per square kilometer is less than model for Greece is one applied at the national level. one, and passive optical networks are the most economic Competition exists among private companies in the two for 50 Mb/s. upper levels (services and active equipment) while the Hengyuan et al. (2006) examined the difference of National Broadband Enterprise (NBE) is responsible only telecommunication market between developed countries for the first level (passive equipment). and developing countries by using adopter categorization According to Hughes (2003), there were the following which divides consumers into five categories: Innovators, main local and regional models for broadband deploy- early adopters, early majority, late majority and laggard. ment: (1) Community operated network and services; (2) The results indicate that the size of innovators in Carrier’s carrier model (The public sector develops and developing countries is smaller than that in developed manages both Level 1 and Level 2. Level 3 is subject to countries; on the contrary, the size of early adopters in competition); (3) Passive infrastructure model (The public developing countries is larger than that in developed sector develops and manages Level 1. Both Level 2 and countries. Level 3 are subject to competition); (4) Aggregation of Based on the examples described above, we can public demand (Coordinate efforts exerted by regional conclude that there is no single solution that covers all of carriers and aiming at aggregating broadband services’ the situations, but rather a limited number of solutions demand. The regional carrier presents the aggregated that can be selected depending on regional geography, demand as an attractive clientele basis to the service population density, existing telecom infrastructure and suppliers, with whom it negotiates the overall purchase of adopted development policy. These solutions must be broadband services and the percentage ownership upon carefully introduced and executed on an effective way. To the infrastructure). facilitate the NGN deployment authors develop the 5274 Afr. J. Bus. Manage.

Table 1 . NGN-related characteristics in developed and developing countries.

Characteristics Developed countries Developing countries Economy ICT based, Not ICT based, 12,196 < GNI ($)** < 87,340 140 < GNI ($)** < 12,195

Society Information Society, IDI (ICT development Towards Information Society, IDI = 2.70* index) = 5.89*

Fixed broadband penetration Above 20%* Below 5%*

Mobile broadband Above 20%* Below 5%*

Broadband access Driven by new NGN services such as Lack of BB access – lack of demand for IPTV and multimedia communications new NGN services

ICT price basket 1.5* (% of national average monthly GNI 17.5* (% of national average monthly GNI (cost of ICT services) per capita) per capita)

Monthly cost of fixed BB in PPP$ / as 28 PPP$* / 190 PPP$* / % of monthly GNI per capita 2%* 174%*

Expected ARPU per NGN service(s) Above $30 for triple play Below $10

Country’s policy and strategy for Implemented with government funds There exists a plan but no funds for broadband implementation

Spectrum Digital dividend, spectrum reallocation Usually limited or restricted

Approach to NGN Evolutionary No money for evolution, existing networks not ready for revolutionary approach

Drivers for NGN development Competition, Operators Profit, Content Not clear (Policy makers, Regulator, explosion, Government Operators, or Customers)

Services Mobile broadband, Triple play Internet

Expected average bandwidth 50 – 100 Mb 4 - 50 Mb

Time frame for NGN 2010 – 2020 2012 – 20x0

Sources: * ITU (2010a), ** World Bank (2010).

Analytical framework for national model for devC. we have a smaller number of users and with limited Implementing the proposed model at country level purchasing power? Who should invest, and who should requires identification of many national aspects that build? Who can guarantee the deployment of the NGN? influence the development. Some of those aspects are Do we need government support, and if so, what is the illustrated on the example of Serbia. role of government in the development of NGN in devCs? We identified the basic differences in telecommunications and NGN deployment between DCs and devCs, Overview of NGN characteristics in developed and factors that should be taken into account to create developing countries sustainable business models in devCs. To illustrate these differences, some typical characteristics are chosen in The usual advice for devCs on NGN deployment is to Table 1 to emphasize readiness for the NGN. follow the path taken by DCs and try to avoid falling into Table 1 shows that differences between DCs and traps and mistakes. Is this the right advice when we devCs are obvious and cannot be neglected when the consider NGN implementation in devCs? Before an NGN is planned. This means that a different approach/ answer can be given, it is necessary to investigate the model for devCs should be considered to best meet the following questions: Are there basic differences between specific conditions that exist in devCs. broadband (BB) telecommunications and NGN needs in When looking at models that have been applied in DCs, DCs and devCs? Can we use the same business model if it becomes clear that most companies are focusing on Bogojevic and Gospic. 5275

Table 2 . Main telecom indicators – world, developed, developing countries and SEE, 2009.

World* DC* devC* SEE** Mobile cellular telephone subscriptions (%) 67.0 113.6 56.8 94.73 Internet users (%) 25.9 64.2 17.5 35 Mobile broadband subscriptions (%) 9.5 38.7 3.0 <3 Fixed broadband subscriptions (%) 7.1 23.3 3.5 8.01

Sources: * ITU (2010a), ** Cullen (2010)

the next billion users. However, this trend masks the provision of 3G (3 rd Generation) mobile services have even larger group of users from devCs who need been issued in Croatia, FYRM, Turkey, B&H, dramatically less expensive solutions than those that Montenegro, and Serbia, and commercial services have exist today. This is especially true for broadband Internet been launched using both UMTS (Universal Mobile access, which, unlike voice communications, is almost Telecommunications System) and HSPA (High Speed never subject to universal service obligations and Packet Access). requires innovative policy and business models, as Mobile broadband Internet (including UMTS and technology alone is unlikely to provide the answer. HSDPA cellular wireless data communications) is also taking off, but below average of developing countries (3%). According to the reported data by the second half Case study: Southeastern Europe of 2009, the penetration of mobile broadband measured as the number of dedicated data card users had reached Scanning the literature, we note that most attention is 4.5% in Croatia, 2.7% in Montenegro, but only 0.1% in directed at the next wave of growth in large economies Turkey. such as China and India and in emerging regions, such Fixed broadband penetration rate, measured as the as Latin America and Africa. In this paper, the authors overall number of broadband lines divided by the national focus on the region of Southeastern Europe (SEE) as population, is significantly below the EU-27 average rate example devCs in close proximity to the developed world that in July 2009 was 23.90%. The weighted average (European Union - EU), in which the specific conditions of broadband penetration rate for seven countries was small countries can be recognized. The observed coun- 8.01%. The highest broadband penetration level was tries are: Albania, Bosnia & Herzegovina (B&H), Croatia, observed in Croatia (13.44%). Broadband retail markets FYR Macedonia (FYRM), Montenegro, Serbia, and are dominated by fixed incumbent operators in most of Turkey. Regarding the EU policy framework and ongoing the countries, where xDSL is the main access techno- stabilization and association processes, there are four logy. The lowest download speed provided by incumbent candidate countries (Croatia, FYRM, Turkey, operator was in Albania (4 Mbps) and highest download Montenegro), along with three potential candidates speed available for broadband Internet access was in (Albania, B&H, Serbia). They together represent 94 Turkey (32 Mbps). The fastest broadband connection of million people, or about 20% of the EU-27 and 1.4% of up to 60 Mbps download speed is offered by a SBB, a the world population. cable TV operator in Serbia. FTTH operators are not To identify the development of the region, Table 2 gives available in any of the SEE countries. the main telecommunication indicators in the SEE region National legislation based on the EU 2003 regulatory in comparison to the world, DCs and devCs. package has been implemented in five countries: Cultural and economic factors lead to considerable Albania, Croatia, Macedonia, Montenegro and Serbia, variations in household spending patterns. For example, and others countries’ legislation is based on the EU 1998 spending on communications in 2008 was 2.7% for the regulatory framework. EU-27 and above 4% for SEE. The value of the market The data presented above gives a rough picture of the for electronic communications in SEE is around 16 billion regional situation and countries’ readiness for NGN. The €, or as a percentage of GDP from 2.37% in Turkey to real picture can be obtained by looking at the specific 9.57% in Montenegro (EU-27 is 2.9%). actions taken in the country towards NGN. As an The strong growth in mobile penetration has continued example, the situation in Serbia is discussed, as one of in all countries, reaching the level of the EU-27 and the larger countries in the region. sometimes even surpassing it, with Montenegro (226%) in the lead. The growth in mobile penetration was accom- panied by intensified competition, as the new players in Serbian NGN deployment players the mobile markets roll out their networks and build their subscriber base; there are now three network operators The Serbian telecommunications market includes a licensed to serve each market. Spectrum licenses for mixture of local and international players and can be 5276 Afr. J. Bus. Manage.

analyzed from two perspectives: the technology and the Based on RATEL (2010), the average Serbian economics. When it comes to technology, Serbia is customer spends 4.2% of his/her monthly salary for a low similar to countries in West Europe (WE), and usage basket, which involves the following services: 9 € development of the infrastructure is on par with the WE for fixed telephony, 4 € for mobile prepaid and 4 € for the average. When it comes to the development of revenue, national TV subscription. The high usage basket for 2009 the situation is very different. This is a consequence of took up 10% of monthly salary and included an additional the low purchasing power of end-users and places Serbia 12 € for postpaid mobile, 11 € for ADSL (Asymmetric in the group of typical developing countries. Digital Subscriber Line), and 5 € for Cable TV. This 10% The main players are the incumbent operator Telecom basket/salary ratio shows, on the one hand, that without Serbia; the cable operator Serbia Broadband (SBB), increasing income levels, Serbian citizen will not accept which was the first foreign investment in the Serbian new subscriptions for new services, but on the other telecom sector (in 2002); the international operator hand, that 41 € in the high basket are “high enough” for a Telenor, which entered the market as the largest bundled package. spectrum purchaser (1.54 billion € in 2006 for a combined To summarize, in Serbia, public operators have a 2G/3G license, assuming the operations and customer limited investment capacity, and the business plans are base of the former operator Mobi 063); and VIP Mobile mainly for development of the BB Internet and the (VIP), which entered as the largest green-field investment deployment of the NGN in the core network and urban in the sector (paid 320 million € for a combined 2G/3G areas. However, there are no plans for NGN in rural license in 2006) (Ratel, 2010). areas. The existing regulatory regime is not supportive of Almost all global vendors are present and participate in new NGN investment and deployment of NGN in this small market. Service providers have recently suburban and rural areas. The role of the government is reduced their capital investments, which has impacted all missing, not only in the investment sphere but also in vendors, although all operators have plans for and have creating e-services. All of these influence to perpetuate started to deploy NGN. Techno-economic aspects of the digital divide. NGN include: investment protection, cost reduction (capi- There exist similar situations in the other countries of tal and operational), carrier-grade reliability, scalability, the region. The question is how to address these improved product selection, increased usage of the problems and who should be the driving force for new existing network infrastructure, and speed of innovation development. It is evident that the significant differences and introduction of services. exist among urban, suburban and rural areas within The regulatory framework in Serbia was delayed by 7 devC, then differences exist between DC and devC in years in relation to the EU: a telecommunications law values of ARPU and lack of money for investment. This is within the EU 1998 framework came into force in 2005, the main reason that we cannot map the DC models when the Serbian Regulatory Agency for Telecommu- directly in devC and we propose to apply the analytical nications (RATEL) was founded. A new law on electronic framework explained later. In this framework, the roles of communications is adopted in July 2010 based on the EU government and public-private partnerships are of the framework from 2003, which again leaves Serbia with a crucial value. 7-year delay over the EU. This weakness has led to a notable reduction in competition, especially in fixed telephony. THE ROLE OF GOVERNMENT The spectrum for mobile broadband access (MBB) in the frequency band below 1 GHz has not yet been Traditionally, telecom has been a vertically integrated regulated in Serbia. Analysis has shown that an sector, with operators owning and operating all elements additional MBB of 170 MHz (790 – 960 MHz) could be of the network while also serving end-users. This vertical made available in Serbia. The operators in Serbia are integration is inhibiting investments in NGN because interested in introduction of LTE and reaping of the digital operators are wary of incurring significant deployment dividend and spectrum reframing. costs and then being forced to share the infrastructure The government and RATEL play a significant role, with their competitors. There is the possibility that govern- both positive and negative, in addressing the situation. ments could take a leading role and propose a solution Past examples include the introduction of real like: multilayer models and models of state participation. competition in mobile telephony in 2006 and a 5-year An extreme exception is Australian National Broadband delay for the introduction of competition in fixed telephony Network (http://www.nbn.gov.au/) where government (the second license was issued in early 2010). Based on formed company to build and operate the network. government interest, second and third mobile licenses Multilayer models (Fredrich et al., 2009) typically have been sold for 320 million €, and the second fixed consist of up to three different entities/layers: Passive license was sold for 1 million €. Looking for the next Equipment, Active Equipment, and Service. If we billion euros , the Serbian government plans to sell off consider the models of state participation in building 51% of Telecom Serbia ownership in March 2011. NGN, the followin g roles and examples of government Bogojevic and Gospic. 5277

Figure 1. Analytical framework for national model of the NGN and BB deployment in devCs.

can be identified: government observers (Germany and on the analysis of regulatory, technological, and USA before 2009, governments in developing countries), economic aspects in several different papers, the governments with stimulus policies (Sweden, Norway), analytical model given in DNTA (2009), and the actual and government building drivers (Japan, South Korea). situation in devCs, the authors propose to use the On the one hand, the model applied in Japan and following framework for a national model for NGN South Korea, which provides the fastest and best results, deployment in devCs. The framework is shown in Figure cannot, however, be applied in typical devCs, because 1 (Gospic and Bogojevic, 2010). unfortunately there are no funds available in the To transform this framework into a model for the government budget. On the other hand, the model of particular devC, it is necessary to determine the existing leaving investment solely to investors and the market, level of access, the frontiers of market efficiency, and its without the intervention of the state, has not produced financial feasibility in terms of customer (household) satisfactory results, even in countries in which returns on income and sustainability as well as the cost to potential investment are expected to be recouped much more investors (Figure 1). Concrete structural components of quickly than is the case of devC. Therefore, the authors the model require the determination of the following: found that model, which combine market and Public- detailed input data related to market-specific features; Private Partnership for NGN deployment is more algorithms that represent the process of building the adequate. infrastructure, based on geography, population, and penetration; assumptions about the cost; assumptions about income; and calculation of the net profit. As a PROPOSED WAY OF MODELING FOR NGN result, the territories inside larger geographical areas/ DEPLOYMENT regions with market access and gaps are identified, and the cost of subsidies to remove the access gap can be In devCs, the deployment of the NGN is closely con- calculated. nected with broadband access. As previously mentioned, The framework clearly indentified the area of govern- the role of government is very crucial for balancing out ment responsibility between the sustainability frontier and the role of the market. The synergy of these two roles the government frontier. Market area is between the could lead to faster and broader use of the NGN. Based market efficiency frontier and the affordability frontier. 5278 Afr. J. Bus. Manage.

Table 3. Frontiers for the Serbian national model.

xDSL / FTTx coverage UMTS coverage Serbia Income € Settlement (%) Population (%) Territory (%) Population (%) Existing / Acceptance frontier 7 65 30 56 600 Market efficiency frontier 22 83 < 80 89 300 Sustainability frontier 82 98 84 93 200

The area between government and market areas provided for 130,908 inhabitants in 637 communities. leavesthe space for public-private partnership (PPP), but Universal Access (UA) should be provided for 4,960 current best practice confirms that the PPP is not limited inhabitants in 208 communities, each with less than 50 only for this area and could be expended in adjacent inhabitants or 20 households. The estimated value for areas too. realization of US and UA in Serbia is € 35 million, but this will deliver only fixed telephony and dial-up, not broadband Internet (Bogojevic et al., 2010). These ASPECTS OF NATIONAL MODEL IMPLEMENTATION settlements (18%) and their population (2%) should be government responsibility as broadband US and UA obligation. Having this in mind, the authors have set the Based on (Cullen, 2010; RATEL, 2010), as well as the sustainability frontiers for wireline broadband at 82% of information about service providers, the authors have settlements and 98% of the population. demonstrated the results of using the new national model Starting from the assumption that 2G mobile networks in Serbia (Gospic and Bogojevic, 2010a; Bogojevic et al., will be swapped by 3G networks using PPP financial 2010). Serbia has 7.5 million of inhabitants, 2.5 million of arrangements, sustainability frontiers for 3G technology households and 4715 settlements (178 urban and 4537 are set on the level of existing GSM/GPRS coverage in rural with 56% and 44% of population, respectively). Serbia (84% of the territory and 93% of the population). Frontiers (Figure 1) for Serbian national model are shown As shown in Figure 1, the government responsibility in Table 3. frontier is set to 100% coverage of the territory, Existing frontiers for xDSL are set based on current settlements and population of Serbia. coverage of settlements (7%) and population (65%). With According to the official statistics in Serbia, Internet is ADSL modems and MSAN/DSLAM devices covering available to 83.5% of households with a monthly income 90% of households in urban areas and only 12% of that exceeds 600 €, and the share of households with households in rural areas covered. This is three times income up to 300 € is only 19.2%. The frontier for the worse than the EU-27 average for rural areas. The existing level of acceptance (Figure 1.) is set to 600 € situation is similar for broadband access over cable (e.g., customers with income of 600 € and above will modems. SBB, significant market power cable operator, accept NGN/Broadband). The affordability frontier is set with more than 50% of the total number of cable TV users to 300 € (e.g., customer with up to 300 € can afford operates in 30 cities but offer broadband Internet only in NGN/BB). The sustainability frontier could be set to 21 cities. Rural areas are not covered, and due to the around 200 € or 60% of average net salary, which means current economic situation, the deficiency is not likely to that the majority of those consumers will not accept be addressed soon (Gospic and Bogojevic 2010b). NGN/BB. The average monthly income of households in Three operators with GSM/GPRS technologies covered Serbia in third quarter of 2010 amounted to 474 €; for about 93% of the population, but UMTS technology is illustration, the average net salary in Serbia in November available to only around 56%. The percentage of territory 2010 amounted to 328 €. covered by GSM network signals is 84%, and by UMTS only 30%. We have defined marketing efficiency frontiers using DISCUSSION assumptions that fixed operators will find interest in BB deployment in all urban areas and rural settlements with Research into the Serbian territory covered by ADSL and up to 500 people (22% of settlements and 83% of 3G services indicated that market-oriented methods lead population) and that mobile operators will cover with the to good coverage in urban areas and poor coverage in UMTS signals settlements with up to 200 people (less rural areas. Serbian providers are going to cover with than 80% of territory and 89% of population). broadband Internet the majority of population but a In the rural parts of Serbia, based on the authors’ minority of settlements. In our example the frontiers are research, about 18% of settlements lacked access to set using very optimistic assumptions. However, in fixed telephony, affecting less than 2% of inhabitants reality, the experience of other countries with low ARPU (Bogojevic et al., 2010). Universal Service (US) should be has shown that the roles of the public-private partnership Bogojevic and Gospic. 5279

and the government are extremely important to cover the and operate the new network. The NBN will involve the rural settlements with less than 1,000 inhabitants, which laying of fiber optic cabling to 93 per cent of Australian account for about 80% of the total number of settlements homes, schools and businesses, providing broadband in Serbia. The role of the government should be speeds of up to 100 Mbps, and the remaining premises emphasized again in the government’s responsibilities will be connected via a combination of next-generation, frontiers (Figure 1). It is important to note that the state high-speed wireless and satellite technologies providing should not build its own physical network, but should peak speeds of at least 12 Mbps. The government instead appear on the market as a major customer and committed to investing up to $43 billion in the NBN, of should direct its financial resources primarily towards the which, the Australian Government's contribution will be development of services provided to citizens (e- $27.5 billion and rest of funding and ownership will be Government, e-Health, e-Education, e-Procurement) to from the private sector. promote better business security, better education, and Serbian strategic documents for the telecommunica- improved healthcare. tions and broadband development do not recognize PPP The main characteristics of the proposed model and its models and state subsidies, but the above examples and implementation, stressing on the role of government and the proposed model clearly indicate that such a the PPP, are proved in several scenarios and country development policy should be adjusted to the major strategic plans illustrated below. trends. According to the France national study (Telecompaper, 2010a), to bring fiber optics to 98% of the French population will cost € 23.5 billion over 15 years. The Conclusion proposed financing model includes € 13.5 billion of new public sector investment, € 7 billion from private Generally, there are substantial differences between operators, € 2 billion from the economic stimulus bond, developed and developing countries, and these including € 750 million earmarked for the rural digital differences must be taken into account when making development fund to back local government projects. The NGN business models and performing revenue planning. study proposes levying a € 0.75 'digital solidarity tax' on The main issues that need to be considered are: how every internet and mobile phone subscription from 2012 many people want it, how many can use the NGN and to raise around € 540 million a year for the rural whether the state is ready to help. There are also development fund. differences in the practical implementation between DC The national broadband strategy of the German and devC approaches, as illustrated by the example Federal government would be achieved using three prin- region of southeastern Europe. The case studies from the ciples: market competition where possible; co-operation region show that there are no longer local markets and when competition alone has failed to ensure broadband local competition among the operators or among the provision; and state aid in exceptional cases where all vendors; the locality has shrunk to the individual other possibilities have failed (Telecompaper, 2010b). customer with his/her own specific ARPU and level of The United Kingdom government’s plans of making the acceptance of new services. Competition, internal UK the fastest broadband nation in Europe by 2015 will efficiency, and regional positioning are the main drivers require an additional £ 2 billion in public funding (Trusted for migration to NGN. The government, regulatory agency Reviews, 2010). The plan also guarantees a minimum of and end-user behavior play significant roles in driving 2Mbit broadband universal service (BB US) connections migration. to every household. Costs and financial feasibility are vital and cannot be The U.S. Federal Communications Commission (FCC) ignored. The PPP is probably the only way to solve the created the National Broadband Plan (US Plan, 2010), financial problem. The tendency for partial NGN deploy- which directs up to $15.5 billion in public funds toward ment will increase the existing digital divide and indicates improving U.S. connectivity. The plan aims not only to the need for devCs’ governments to proactively plan out ensure affordable and reliable broadband for every their PPP for coverage in rural areas. community but also to equip the majority of households In line with these views, an analytical framework for (some 100 million homes) with lines running at speeds of NGN/broadband deployment in devCs is proposed. To at least 100 megabits per second. It's an attempt to transform the framework into a model, the frontiers shove the United States into the high-speed age--and all between the effective market, self-sustainable areas, and of it, the FCC suggests, is achievable by 2020. non-sustainable areas should be determined. Non- The National Broadband Network (NBN) project sustainable areas should be served with broadband (Australian NBN, 2010) is an Australian Government Universal Service/Access and be the scope of govern- initiative, which will deliver high-speed broadband to all ment support and/or PPP. Further concretization of Australians. The NBN is a new, wholesale-only, open structures and components within the exact geographic access, high-speed broadband network and NBN Co Ltd. zones are the guidelines for future activities and should a new government established company to design, build be determined separately for each individual devC 5280 Afr. J. Bus. Manage.

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