Broadband Business Models to meet
deployment targets
Dr. Raul L. Katz,
Columbia Institute for Tele-Information
1
Broadband business models
 Business model: the architecture of the value creation, delivery,
and capture mechanisms employed to deliver a service, including
offerings, strategies, infrastructure, organization, trading practices,
and operational processes and policies
 Supply side: business models to accelerate broadband
deployment
 Policies to stimulate private sector investment
 Government intervention as a last resort
 Demand side: business models to accelerate adoption
 Practices to address demand-side challenges
 Models to address the affordability gap
2
Supply-side business models:
Accelerate deployment
3
Supply side business models
 Objective: to make sure that universal service targets
are met
MARKET STRUCTURE
DENSITY AND SIZE OF
DEMAND
SEVERAL
OPERATORS
HIGH
MEDIUM
LOW
VERY LOW
2-3 OPERATORS
ONE OPERATOR
NO OPERATOR
Dense urban areas with
high business and
residential density
Urban areas/towns
with primarily
residential density
Rural areas with sparse
residential density
Rural areas with very low
density
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Supply side business models
Stimulate private investment
 Business model development to address isolated areas begins by
understanding deployment economics
BROADBAND
MARKET
DEPLOYMENT
PLANS
MARKET SHARE
RETAIL
WHOLESALE MIX
HOMES
PASSED
CPE
COSTS
CONSTRUCTION
COSTS
EQUIPMENT
COSTS
WHOLESALE
ACCESS LINKS
RETAIL
ARPU
RETAIL
REVENUES
WHOLESALE
ARPU
WHOLESALE
REVENUES
OPERATING
EXPENSES
EBITDA
AMORTIZATION
AND TAXES
EBIT
FREE CASH FLOWS
5
Supply side business models
Stimulate private investment
 Deployment economics highlight the business case “choke points”
DEPLOYMENT
PLANS
Primary demand
is too small, so
even if 100%
share, revenues
do not allow for
positive NPV
BROADBAND
MARKET
MARKET SHARE
CPE
COSTS
EQUIPMENT
COSTS
Capex too high relative to
operating profits leads to
lengthy horizons for a
positive NPV
WHOLESALE
ACCESS LINKS
RETAIL
WHOLESALE MIX
HOMES
PASSED
CONSTRUCTION
COSTS
Low share
impacts
revenue
streams
RETAIL
ARPU
Inefficient
operations
affect
margins
RETAIL
REVENUES
WHOLESALE
ARPU
WHOLESALE
REVENUES
OPERATING
EXPENSES
EBITDA
AMORTIZATION
AND TAXES
EBIT
FREE CASH FLOWS
6
Supply side business models
Stimulate private investment
 Highlighted “choke points” enable the determination of policy
initiatives to stimulate deployment
DEPLOYMENT
PLANS
HOMES
PASSED
Reduce
property
taxes
Reduce
VAT on
equipment
purchase
Reduce
ROW or
spectrum
access
costs
BROADBAND
MARKET
MARKET SHARE
Provide low cost
real estate for
central facilities
CPE
COSTS
CONSTRUCTION
COSTS
EQUIPMENT
COSTS
Provide
grants to
fund capital
investment
WHOLESALE
ACCESS LINKS
RETAIL
WHOLESALE MIX
RETAIL
ARPU
RETAIL
REVENUES
WHOLESALE
ARPU
WHOLESALE
REVENUES
OPERATING
EXPENSES
EBITDA
AMORTIZATION
AND TAXES
EBIT
FREE CASH FLOWS
7
Supply side business models
Stimulate private investment
 Reduce property taxes and VAT on initial equipment purchase to
decrease CAPEX burden
 Reduce infrastructure costs linked to ROW, pole attachment or
spectrum access costs (release spectrum for mobile broadband, lower
and standardize pole attachment rates, “Dig-once”/joint trenching rules)
 Provide grants to fund capital investment
 Provide low cost real estate for central facilities
 Enforce infrastructure sharing and wholesale access
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Supply side business models
Government intervention
 If despite incentives, private sector investment does not
materialize, government intervention can be justified if
expenditures are outweighed by the broader socio-economic
benefits
 The first question is where should the State intervene?
 Which communities can be, or are, served by market forces?
 Which communities will need assistance with initial investment to
become self-sustaining?
 Which communities cannot become self-sustaining and will require
ongoing funding?”
 The second question is how should the State intervene?
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Supply side business models
Government intervention
National government deploys
backbone to reach isolated
area (leveraging government
utilities infrastructure)
Private service provider
operating under protected
conditions (e.g. regulated
monopoly)
Facilities or servicebased competition
Community-owned service
provider
Scope of government intervention
Supply side business models
Government intervention
 Community-based service provisioning can follow four models
 Closed network, whereby local government provides retail services
 Local government wholesales access to a single retail service provider
 Local government is wholesaler of transport to multiple retail service
providers (open access)
 Local government is provider of dark fiber
11
Supply side business models
Government intervention
ALTERNATIVE MODELS OF GOVERNMENT INTERVENTION
 Subsidize incumbent telco/BB to upgrade to “utility”
 In greenfields, government could build (contracts) for the
construction of universal access network
 Promote competition for government contracts to lower initial costs
 Government can then auction the broadband infrastructure to highest
(qualified) operator
 Monopoly for wholesale-only/open access “utility” operator?
 Any “loss” is a one-time infrastructure subsidy (like building a highway
and road system)
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Supply side business models
Government intervention
 Government intervention should consider opportunities and risks
IS PROJECT SUSTAINABLE AND PROFITABLE?
YES
• Preemption of private
investment (“crowding-out”)
YES
IS
GOVERNMENT
INTERVENING?
NO
• Alleviate the constraints of
the business case to
stimulate private
investment
• Re-creation of access
bottlenecks
• Erosion of the public utility
model
NO
• Market addresses the need of
public good
• Supplier of last resort
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Demand-side business models:
Accelerate adoption
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Demand-side business model
models should address the demand gap
BROADBAND DEMAND GAP
Households Households
Country
passed (*)
connected
Demand
Gap
Australia
89 %
69 %
20 %
Denmark
96 %
76 %
20 %
France
100 %
77 %
23 %
Germany
98 %
58 %
40 %
Israel
100 %
83 %
Italy
95 %
Republic of Korea
REASONS FOR NOT ACCESSING
TO THE INTERNET AT ALL
Reasons
Percentage of
answers
United
States
United
Kingdom
45 %
60 %
17 %
Relevant ( lack of
interest, busy doing
other tasks)
55 %
40 %
Price
15 %
28 %
100 %
93 %
7%
Service availability
16 %
14 %
Spain
93 %
61 %
32 %
22 %
16 %
Sweden
100 %
89 %
11 %
United Kingdom
100 %
68 %
32 %
Easy to use (difficulty
, senior citizen,
physical handicap)
United States
92 %
62 %
31 %
Sources: Analysis by the author, based on data from EU; FCC; BMWi;
OECD; PTS - Sweden; and Israel Minister of Communication .
Sources: Horrigan, J. (2009); Ofcom (2008)
Demand side business models
Accelerate adoption
 Three business model initiatives to initially stimulate adoption
Reduce
taxes
DEPLOYMENT
PLANS
BROADBAND
MARKET
MARKET SHARE
Aggregate
state
demand
for critical
mass
WHOLESALE
ACCESS LINKS
RETAIL
WHOLESALE MIX
HOMES
PASSED
CPE
COSTS
CONSTRUCTION
COSTS
RETAIL
ARPU
RETAIL
REVENUES
EQUIPMENT
COSTS
Provide
subsidies
to
subscribers
WHOLESALE
ARPU
WHOLESALE
REVENUES
OPERATING
EXPENSES
EBITDA
AMORTIZATION
AND TAXES
EBIT
FREE CASH FLOWS
16
Demand side business models
Accelerate adoption
 Aggregate demand: the local government can become an anchor
user to guarantee revenues at ramp-up phase of broadband
 Coordinate demand for broadband access from government
administration, public safety, local schools and health care facilities
 Negotiate a wholesale rate and long-term contract and define Service
Level Agreements
 Create a flow of revenues that eases the economic pressure on the
business case
 Organize groups of people (schools, communities, SMEs) at the
grass-root level
 Establishment of a Broadband Expertise Centres to spread
knowledge on broadband for institutions that do not have ICT as their
core task
 Deploy broadband demonstration areas for consumers and conduct
training
17
Demand side business models
Address the affordability gap
 High consumer taxes as a percentage of total cost of broadband
ownership are an obstacle to adoption
50
Tax as a proportion of TCMO
45
40
35
30
25
20
15
10
5
51
49
47
45
43
41
39
37
35
33
31
29
27
25
23
21
19
17
15
13
11
9
7
5
3
1
0
Source: Telecom Advisory Services LLC
 For every dollar that taxes are reduced over a 5 year period, US $
1.4 to 12.6 will be created in additional GDP
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Demand side business models:
Address the affordability gap
 Fiscal incentive
 A reduction in local taxes to small and medium enterprises linked to
ICT adoption has been found to stimulate adoption in areas that can
have an impact on economic output
 A subsidy targeted to economically-disadvantaged subscribers
addresses the social inclusion problem (Universal Service)
 However, subscriber subsidies need to be used sparingly
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Broadband business models:
Conclusion
 The primary business models to guarantee broadband deployment
pertain to the private sector
 Should governments intervene in broadband and wireless
deployment? Yes, but initially facilitating market forces not
preempting them

Should Government be the risk-taker of last resort? Maybe
 Governments, communities, businesses, and operators should
coordinate to identify supply and demand conditions and tailor
services to tackle unmet needs
 The establishment of a “business case” to deploy broadband is a
joint effort
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