Wednesday, September 19, 2007

Who'll Win Out - Government Intervention Or Private Enterprise for Telecom Infrastructure?

In nations with a clear digital divide, especially urban / rural, should governments intervene with support mechanisms (funding, tax breaks, direct ownership, PPP's, or anything else) or take a hands-off approach and leave it to private enterprise?

It appears today that the impact of telecom infrastructure, especially broadband and mobile coverage, on the economy is now widely known (though I still think the definitive study on the topic is yet to come).

So, even beyond the digital divide issue, local governments are legitimately worried that their territory will become less and less attractive if the digital resources aren't there. Inversely, they think that they can boost their attractivity (and therefore their economy) with telecom infrastructure.

Seen in this context, it makes sense that local governments would want to invest in such infrastructure, and in the FTTH area we are seeing more and more examples of this approach in Europe (Pau, Stockholm, Amsterdam, Cologne, Hauts de Seine) and in the US (Lafayette, Chatanooga, Palo Alto).

The issue is really broader than that. Private ventures should be favoured whenever possible.....but the stakes are high. Again, in the case of FTTH, the attractivity that could result from a wide availability of very high bandwidth services at a national level could potentially impact economies at the state or country level. In Italy and Germany, the incumbents have already stated that they would not deploy FTTH because it's too expensive for them. Supposing a government saw this as short sighted, should they intervene?

To be honest, I'm on the fence on this issue. Perhaps direct government intervention when service is available or likely to be available within a reasonable time frame should be discouraged. However, defining "service" is tricky.

Aat the very least governments could legislate to encourage private investment and lower the costs. Infrastructure deployment is costly afterall. And a good portion of that cost comes from the often nightmarish administrative aspects that slow down deployments (hence impairing revenues) and thus cost a lot of money in administrative handling.

Unfortunately, it appears that countries who take a completely hands off approach will pay the price in time. They will inevitably fall behind as is currently seen in the US regarding broadband.

Fighting against the Digital Divide is an honorable cause. But at the end of the day any entrepreneur will need to assess the risk and reward (you have to do your due diligence here) before engaging such a venture. And of course "his" stakeholders would be keen to know details of their forecasted ROI. In general when you run some numbers, it's not that exciting for an entrepreneur to invest alone in such a business without seeking incentives or government's participation in round funding.

The digital divide is something that is, or will become, a big issue for politicians as soon as they wake up to the implications of not having a high speed infrastructure in their constituency. You can already see this in many countries but IMO very few politicians really understand the implications. Figures from studies suggest ICT can have a positive impact of between 2-4% GDP at a national and regional level across OECD countries, very important where votes are involved.

The issue then surrounds how much government should get involved vs leaving up to the private sector.

From reading various press articles most government interventions become huge unwieldy burdens that deliver little in the way of progress but consume much in the way of time, meetings and reports..... oh & take 5 times as long as anyone expected to reach any consensus.

However if left purely to the private sector you run the risk on nothing being done due to the fairly short sited metrics used by many service providers who expect ROI of 3-5 years or less.

As in many things in life no one size fits all but some things can be done.

Over the last 12 to 24 months there have been significant market developments in the provision of next generation broadband globally; for example, Germany is giving DT a regulatory ‘holiday’ to allow a €3billion investment in a Fibre to the Home, in France both FT and competitors are now investing in fibre to apartment buildings and in Sweden such fibre solutions are becoming increasingly prevalent for businesses and residential customers alike.

Anyone looking to build a network will need to understand their economic, spatial and service drivers as applicable to the region.

So, the answer is ...... it depends. Government needs to see the importance and find ways of partnering with the private sector to ensure they can look beyond the 3-5 year time frame. Or find some way of helping the private sector to ease the pain.

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