Broadband rural development: the “déjà vu” from the European Commission

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While people are still speculating about what will be the approach of the new European Commission to boost investments in broadband, Mr. Oettinger – the (German) commissioner for the Digital Agenda – launched a provocative proposal via his blog: in order to boost investments in rural areas, one should limit consumers’ choice by restricting the possibility to switch to another operators (lock-in) and/or exempting investing operators from regulation. According to Oettinger “wouldn’t it be better to have the option of broadband with a longer contract, than not to have broadband at all?”.

For sure, this declaration will shake the debate in Brussels well before to see the concrete proposals tabled by the new Junker Commission. Truly speaking, Oettinger’s proposal only addresses rural areas where objective reasons (small density, wide territory) for investment actually exist; however it is clear that many operators (Deutsche Telekom in primis) will soon flag this idea as a general solution for the BB market.

The most surprising aspect of this declaration is that Oettinger consider his idea to be a”fresh” one, as he ignored the last 5 years of regulatory debate in the EU. Just to remind, during the Kroes’ mandate (2010-2014, RIP) the European Commission embraced the mantra that competition could be a little sacrificed in exchange of more investments. This mantra was reflected in a deregulatory agenda with took place via the new Relevant Market Recommendation, the new NGA recommendation, the Connected Continent proposal and so on. While Kroes’ proposals shaked a lot the regulatory and conference debates in Brussels, the real market was basically indifferent, since broadband penetration and investements in Europe remained quite stable. There were lot of fibers announcements (so-called fibers to the press release) but less in practice, and depending on the country. The main effect of Kroes’ policy was to migrate the investments from FTTH to FTTC (i.e. shortening the fiber deployment to the streets cabinets, rather then up to house-holdings), because many operators, mostly incumbents, found more convenient to invest less in fibers and continue to exploit the monopolistic profits of the last mile made of copper. That’s BB Kroes’ heritage in peanuts.

The reason why this deregulatory solution could work in rural areas is still not clear. Oettinger says that it worked in the energy sector, where in facts similar proposals were made for very depressed areas in emerging countries. Maybe he referred to some zones of Germany, where some local municipalities are providing electricity in small territories. We do not know exactly, since his post provides for little explanations about. Oettinger says that “in some limited cases, for new pipelines, companies can be exempted from the requirement to provide competitors with access to pipelines. This is only given if they can convince the EU Commission that without that exemption the investment would not have been made”.

In any case, broadband is a bit different from energy. Most rural areas in the EU are considered niches markets and are frequently covered by small, alternative operators of any kind, with different business models: fixed, wireless, satellites, privates, municipalities, dark fibers providers, ecc. There is no clear evidence that regulation may be The Obstacle for operators, especially incumbents, to invest. It seems more a problem of margins: a big operator like Deutsche Telekom, with 235.000 employes and related costs, needs to concentrate on rich areas. A small flexible operator may have the costs structure to try the venture in niche areas, and the same for municipalities which also have to pursue a public objective. The main players, by contrast, prefer to stay in metropolitan/high density areas for obvious reasons, irrespective of regulation.

The lesson coming from US confirms this scenario: the main US operators, such as AT&T and Verizon, have massively invested in areas where they had to counter the competitive presence of the cable operators (Comcast and TW) providing Internet access. Outside of these areas very little was made, including rural areas, despite the fact that broadband access is fully deregulated in US.

This proposal would therefore not change too much in European rural areas, however it will be welcomed by European incumbents as a first step to enhance deregulation and remonopolization of BB markets in general. Oettinger seems aware of this and tries to avoid too rapid conclusions: “The needs of a dense city with rich competition may be different to those of an unserved rural area“. Thus, It will mainly depend on the concept and ambit of “rural areas”. Somebody in Brussels will soon argue that Tiergarten as well as Villa Borghese should be regarded as rural areas – at the end, there is lot of green there.

A final comment: Oettinger seems to say that an expensive, maybe crap, and not changeable BB may be better than no BB at all. It could be. However, there might be better solutions, like using public funds, financing pure network infrastructures with access to any service providers, leaving to citizens the property of their last miles, ecc ecc. The debate is open.

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