Broadband municipal optical networks in Greece: A suitable business model

Abstract

This paper proposes a business model for the optimal exploitation of the currently developing broadband metropolitan area networks in Greece. Having recorded and examined relevant international practices, we describe in detail the way that these networks should be managed, operated, maintained and expanded. Taking into consideration that these infrastructures will widely alter the broadband map of Greece, that Greece has currently one of the lowest broadband penetration percentages in Europe and that the proper exploitation strategy of the networks to be deployed could boost the demand for broadband connections and applications, the application of the optimal business model appears to be of vital importance. We describe the proposed business model in detail, including ways for expanding the broadband infrastructures, as well as tackling of viability issues regarding the authority responsible for managing the broadband metropolitan networks.

Introduction

On 1st June 2005, the Commission adopted the “i2010: European Information Society 2010” initiative, in order to foster growth and jobs in the information society and media industries (European Union, 2004). i2010 is a comprehensive strategy for modernizing and deploying all EU policy instruments to encourage the development of the digital economy. In Greece, the targets of the aforementioned initiative will be attained through the implementation of the Operational Programme “Information Society”.

This Programme has five (5) Action Lines, including “Education and Culture”, “Citizens and Quality of Life”, “Development & Employment”, “Communications” and “Technical Assistance”. Within Action Line ”Communications”, there have been granted actions for the development of local access network infrastructures and advanced telecommunications services for the citizen. The aim of the specific granted actions is to develop broadband access/metropolitan networks in small towns and non-urban or remote areas, in order to provide a broad range of basic telecommunication services. The development of the broadband infrastructures will be based on a regional strategy level and will take into account the physical particularities, the foreseeable social, economic and population developments, as well as the existing telecommunication infrastructure. However, several questions are arisen, regarding the business model that will be used for the optimal exploitation of these networks (e.g. what will be the role of the municipalities, what will be the degree of government interventionism, how is healthy competition going to be promoted, how is the network’s viability going to be ensured, etc.).

Taking a look into the globe, broadband metropolitan networks have been developed in various countries around the world, such as Ireland, Sweden, USA, New Zealand, Canada, France, and The Netherlands. Pioneer countries like Canada and Sweden present successful examples on how broadband infrastructure can reinforce the local economy and contribute in further development. Generally, it is difficult to measure the direct impact of broadband infrastructure to local economy and local development but the general feeling is that broadband infrastructures have a strong impact on local economy and development. One of the most remarkable examples on how broadband infrastructure can reinforce the local economy and contribute in further development is the case of Arjeplog in Sweden. Arjeplog is a city in the north Sweden near the arctic cycle with 3.300 inhabitants and has an area similar to Netherland. The broadband fiber optical network which was developed in Arjeplog reinforces the local economy and plays an important role in the economical and social development of the city. Before the implementation of the broadband network the local economy was based mainly in the lead mining and forestry. The development of the broadband network contributed to the creation of new jobs. The faster and better communication infrastructure attracted many car manufactures to create their winter testing facilities in Arjeplog. The above had a significant result in the reduction of the unemployment in Arjeplog.

Lehr et al. (2006) made a first attempt to measure broadband’s impact by applying controlled econometric techniques to national-scale data. Their results support the view that broadband access does enhance economic growth and performance, and that the assumed (and oft-touted) economic impacts of broadband are real and measurable. More specifically, Lehr et al. (2006) found that between 1998 and 2002, communities in which mass-market broadband became available by December 1999 experienced more rapid growth in (1) employment, (2) the number of businesses overall, and (3) businesses in IT-intensive sectors.

Moreover, concerning the impact of broadband to local economy, Lehr et al. (2006) said that “once broadband is available to most of the country, differences in economic outcomes are likely to depend more on how broadband is used than on its basic availability. The implication for policy makers is that a portfolio of broadband-related policy interventions that is reasonably balanced (i.e., also pays attention to demand-side issues such as training) is more likely to lead to positive economic outcomes than a single-minded focus on availability.”

Concerning the government policies, they would support the competition, and more specifically, the infrastructure competition between DSL and cable TV which according to Höffler (2007) had a significant and positive impact on the broadband penetration. However this is not the case in Greece where DSL is the dominant solution.

According to Picot and Wernick (2007) the role of government in broadband access is important. More specifically they have investigated Europe, Korea and the US which are cases where government involvement differs to some extent. The importance of broadband has become common ground, but the methods of encouraging its development are quite different. They conclude that “successful governmental strategies should consider both, public good and competition-related aspects of broadband. While platform competition seems to have much impact on a high deployment rate, especially in metropolitan areas, LLU can contribute to broadband diffusion in regions and countries lacking of alternative infrastructure.”

Very useful empirical research results presented by Cava-Ferreruela and Alabau-Munoz (2006) concerning public policies to promote broadband supply. According to them soft-intervention strategies should be applied, based on the assumption that the most effective policy for accelerating broadband deployment is to promote technological competition (i.e., between DSL and cable networks). However, Cava-Ferreruela and Alabau-Munoz (2006) notice that there are geographic areas that are likely to remain underserved (rural and scarcely populated areas). They propose to follow medium-intervention strategies that consider public funding for infrastructure supply in these areas as more suitable for a balanced broadband coverage in the whole territory.

This is the case for Greece, especially in rural and remote areas of the country, where there is no alternative infrastructure. The broadband metropolitan area networks deployment from the “Information Society” Operational Programme are very important to Greece, since they are expected to boost broadband penetration, which is now at very low levels. Specifically, Greece has shown a significant increase in broadband penetration (77.3%) from January to July 2006, but still possesses the lowest position in Europe (Observatory, 2006), exhibiting 2.66% broadband penetration (July 2006), when, at the same time, the mean value of broadband penetration in the EU (15 members) is 14.46%. In addition, according to OECD (2006), Greece is ranked 30th amongst the 30 most developed countries, while Denmark is ranked 1st with broadband penetration 29.3% (July 2006).

The main objective of this paper is to decide on the most appropriate business model to be used for the optimal exploitation of the Greek metropolitan area networks. More specifically, this paper intends to:

• Present the status of broadband infrastructures in Greece.

• Examine the basic levels of a potential business model to be applied in broadband networks.

• Record international experience with respect to broadband business models for the exploitation of broadband infrastructures.

• Propose specific business models and designate, through comparative analysis, the most appropriate one for exploiting broadband infrastructures in Greece.