The Appropriateness of Public-Private Partnerships for SatCom in Delivering the Digital Agenda
A coherent overview of the critical issues regarding the delivery of the Digital Agenda in Europe is given in this issue of the ESPI Perspectives series, highlighting the profile of broadband as a public good. In order to identify the appropriateness of a potential Public-Private Partnership (PPP) in this field, it is necessary to point out the advantages of public and private partners working together, sharing risks for investments and resources. Traditionally, PPP models adopted in the SatCom sector have provided space-based assets as infrastructure, but this usage is limited to countries with industrial space capabilities and/or satellites in orbit.
In addition to this however, PPP can be applied to provide another crucial “node” of the broadband- ecosystem, where public good features, externalities, natural monopoly and consequential market failure justify such a state intervention and involvement. PPP is also an emerging way to increase competition in the SatCom market and related substitute and/or alternative market segments of the telecommunications sector in general.
1. The Current State of Broadband
The word broadband is widely used by policy- makers, users, businessmen, non- governmental officers and so on. This demonstrates how relevant the issue of communications is today, and how crucial communications can be for meeting and overcoming global challenges, such as those related to the Millennium Development Goals, and the ambition to eradicate poverty. There is an enormous volume of specialised literature demonstrating the positive relationship between the implementation of advanced communications systems and development in terms of wealth, welfare, happiness and utility for citizens1. A modern communications infrastructure is important for economic growth due to its capacity, inter alia, to facilitate free and open global trade. Among other economic benefits, it supports the smooth flow of foreign investment and the positive value of net exports, increasing Gross Domestic Product
1 See, ITU-Broadband Commission for Digital Development, Broadband: a platform for progress, ©ITU/UNESCO, June 2011. It is available at:
http://www.broadbandcommission.org/report2/full- report.pdf.
(GDP) of an economy. Independently from the size of the quantifiable effects, results always demonstrate the positive impacts of broadband investment and expenditure on job creation, growth rate of GDP, productivity, increased competition and efficiency.
This is also the rationale of the European policy initiative known as the Digital Agenda2, established in order to deploy broadband connectivity in Europe comprehensively. The motivation behind the Digital Agenda came from socio-economic factors, the financial crisis starting in 2008, and the technological factor
2 European Commission, Communication from the
Commission to the European Parliament, the Council, The European Economic and Social Committee and the Committee of the Regions, A Digital Agenda for Europe, COM (2010) 245 final/2, Brussels 2010. Available at http://ec.europa.eu/information_society/digital-
agenda/documents/digital-agenda-communication-en.pdf.
The International Telecommunication Union (ITU) has highlighted the cross- sectional values of broadband through other areas of development of relevance for a better society.
Veronica LA REGINA, Visiting Research Professor at ISU and Christopher WILKINS, former Research Intern at ESPI
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known as “convergence”. The financial crisis has an impact on broadband services’ demand from individual customers, and thus additional policies have been put forward to stimulate and support this market, through restoring consumer and business confidence. In this context, broadband can be seen as a policy tool capable of efficiently enhancing market demand and competition. In addition to this, the digitalization, the role of IP and the high-speed broadband are playing in favour of convergence of previously distinct communication networks and services towards one single comprehensive network.
The process towards convergence is an outcome of an evolution of technologies and business models, rather than a revolution. It is having the benefit to see the entry of new players into the market, the increased competition among actors of different markets and the need for traditional players to co- operate with companies coming originally from other fields3. As a result, convergence touches not only the communications sector, but it encompasses a wider range of activities at different levels, including manufacturers of terminal equipment, software developers, media content providers, ISPs etc. This fact also highlights how the market dimension of broadband reinforces the establishment of a fair and competitive internal market, as described in the Digital Agenda.
Finally, the implementation of the Digital Agenda in an effective way needs of fulfilling the following requirements:
• A high speed communication system for transferring complex data-packages;
• The ability to be “always-on”, where there is no limit in terms of time access or spatial location;
• Two-way capability to guarantee interaction of users with the system and among users themselves.
Due to this set of requirement the delivery of broadband is going to involve different items of a complex ecosystem.
2. The Profile of Public and Private Good Within the Ecosystem of Broadband The ecosystem of broadband and the related digital economy, assuring the above-mentioned three requirements, is more complex than the traditional sequential supply chain, largely due
3 OECD, Convergence and Next Generation Networks, Ministerial Background Report DSTI/ICCP/CISP (2007)2/
Final.
to the convergence phenomenon. The ecosystem exhibits dynamic interactions among the different players per each node (Fig. 1).
The supply side has five layers interacting in vertical and horizontal directions. Network operators, of fixed and/or mobile type, play two roles, providing access with components of radio-bridges and backbones, and transport with next generation access and satellite, as well as mix-elements for both roles of fixed/mobile networks. In this context, the infrastructure has all the requirements of a
“public good”, and the chosen technology must satisfy, as much as possible, the requirements of non-rivalry4 and non-excludability5. Platform operators provide aggregation of content to deliver applications through user selection of access due to the intermediary activity between content and service providers. Here, the nature of the activities permits the replication of platforms, while their duplication with low fill factors of usage is not economically sustainable. Thus, a regulated market approach is preferable instead of pure free market competition.
The service providers offer telecommunication, broadcasting and multi-casting services. They are the most affected cluster by the convergence phenomenon. ICT providers of software and hardware components are becoming more and more relevant within the value chain of the sector due to their direct impact on the users’ choice of communication.
Content providers represent one of the most central neural nodes of the ecosystem, because they have to satisfy a market and continuously propel the communication needs of users, subject to temporary trends, ideology, religion and other changing societal values and factors. Services, ICT and content providers, satisfy demand featuring a private good with rivalry and excludability in consumption behaviour. Thus a context of free market competition is easily implementable and a
4 Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others.
5 Non-excludability means that no one can be effectively excluded from using the good.
The ecosystem presents different market players on the supply side, while the demand side is represented by users participating as citizens in the e- government system, as well as consumers of electronic services and/or products.
consequently efficient allocation of resources is assured by spontaneously dynamic market powers. Due to these considerations, Fig. 1 also presents the appropriate market framework per each player contest in the green box.
Furthermore, the entire system must be functional, assuring the dominant position of the user, free to choose the market solution satisfying its communication needs. The European Digital Agenda, above all, was designed to establish a uniform and highly competitive internal market of electronic communication.
3. The SatCom Relevance for the Digital Agenda
The policy implications of the current state of broadband utilization in Europe are significant.
The European Commission has slated their goals for the Digital Agenda in the following terms: “the objective to bring basic broadband to all Europeans by 2013 and seeks to ensure that, by 2020, (i) all Europeans have access to much higher internet speeds of above 30 Mbps and (ii) 50% or more of European households subscribe to internet connections above 100 Mbps.” The wording of these goals appears not actually too clear and it can be open to different interpretations and related implementation. The same EC communication alleges that “without strong public intervention there is a risk of a sub-optimal outcome, with fast broadband networks concentrated in a few high-density zones with significant entry costs and high prices,” however, the commercial market has already provided the opportunity of “basic”
broadband access to every European via satellite-based internet services.
Given the apparent capability of the private sector in both ground and satellite based telecommunications, the policy of the Digital Agenda should not be one of intervention, but rather of support and growth. Rather than
“bringing” basic broadband to all Europeans, the goal should be the facilitation of the field of telecommunications. Specifically regarding Space Policy, a lesson can be learned from the US Administration where government, through NASA, was withdrawn from the provision of space-access services to facilitate the growth of private industry in the space sector, acting as both an advisor, and engaging in research and technology development to promote innovative new technologies. In the case of the European Digital Agenda, similar policy would promote research that will enable the 2020 goal to be achieved and exceeded easier, lowering the cost of existing telecommunications’ services.
The policy of the Digital Agenda “to ensure that, by 2020, (i) all Europeans have access to much higher internet speeds of above 30 Mbps and (ii) 50% or more of European households subscribe to internet connections above 100 Mbps” seems quite feasible, providing that there is sufficient demand. While Canada and the US both have more prevalent use of cable- based broadband connections (where the 30 Mbps data rate is the norm), Europe mostly fields DSL that, in its current state, cannot be used to reach the 2020 goals. The use of fibre continues to grow around Europe, and it will vastly help to reach the 50% goal. The use of WIMAX to close the last kilometre gap is exemplary in demonstrating how to use EU provided funds to reach both the 100% and 50% 2020 goals: the core fibre infrastructure provides ultra-fast connections, while the current WIMAX standard enables last-kilometre connections at 30 Mbps speeds, with Release 2 of WIMAX expected to enable Gbps data rates (as soon as 2012). The remaining technology barrier to 100% 30 Mbps rates is a satellite option.
As mentioned before, although satellite-based broadband capacity is currently insufficient to provide 100% capacity at 10Mbps rates, the coverage exists and thus the market limit is reached. For the same sort of market limit to match the 2020 goals, the satellite broadband bandwidth must be increased. This would only be possible by deploying more or better satellites, and preferably a combination of both.
Given that the current satellite-broadband option, using the satellite KA-SAT from Eutelsat, offers businesses a 50 Mbps option, the potential for success exists, it is only a question of generating sufficient demand, for inducing satellite providers to increase supply with more satellites capable of even higher rates.
4. The Prospective Uses of PPP Models for SatCom in Delivering the Digital Agenda The provision of broadband infrastructure and services in areas remotely located with low population density is not attractive to private providers of ground based broadband, because of a low expected return on investment and high economic risks. As a result, market mechanisms will fail to fulfil the Digital Agenda policy objectives. Because of the importance of broadband technology for the economic growth
The role of SatCom is crucial to reach the goal of 100% coverage for broadband 30 Mbps rate.
of rural areas with poor infrastructure, there is interest to support its development by public authorities. Such an implementation would be designed to reduce the digital divide and attract investors to the region through PPP implementation. SatCom can deliver the Digital Agenda in a way which can result in the intelligent involvement of economic resources, a sustainable system for investment in terms of long-term usage of the established infrastructure and an inclusive system given the capability to provide a same quality of service to the large number of users dispersed over a large area. PPP can be implemented within different sectors of the broadband ecosystem not only for network provision, but also at a platform manufacturing level.
Concerning SatCom involvement, there is a clear distinction in Europe between space- faring and non-space-faring states, and consequently this issue opens the door to discussing the equitable distribution of PPP benefits between them. When public expenditures go through market mechanisms and commercial vehicles, wealth is transferred to the states that host the funded companies.
Consequently, a coherent PPP model can be a useful tool to assure economic return at the national level for each European member-state, and to equitable distribution of the benefits and costs coming from the implementation of broadband in Europe.
Beyond this, there is no single choice for guaranteed fruitful public-private collaboration.
Every national community will have different economic and social requirements in relation to a communications system: a single policy will probably not work for every state, not only out of respect for national sovereignty regarding telecommunication issues, but also in order to assure more prompt and efficient broadband services for every European.
The choice of how to implement the Digital Agenda through PPP must be addressed with a deep analysis of national context in terms of space industrial capabilities, transfer of space- based knowledge and know-how, and economic feasibility of risk sharing between private and public partners.
Fig. 1: The broadband ecosystem, its public policy relevance and market framework (elaborated from AGCOM Report 2011).
Social
Services Security Transport Waste Healthcare Communicatio
n Austria
Belgium Bulgaria Croatia Cyprus Czech Republic Denmark Finland France Germany Greece Hungary Italy Latvia Lithuania Malta
The Netherlands Norway Poland Portugal Ireland Romania Russia Serbia Slovakia Slovenia Spain Sweden Turkey Ukraine UK
Key - reading Many Cases of PPP (> 10) Few Cases of PPP (< 10) No Case Tab. 1: Number of major PPP Contracts per Country vs. Sector.
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Short title: ESPI Perspectives 59 Published in April 2012
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