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Salzburg, 27th of May 2014

Creative Commons CC0. Common myths, truths and fears that need to be overthrown when deciding about rural broadband projects. Goran Živec, Vahta d.o.o. Salzburg, 27th of May 2014.

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Salzburg, 27th of May 2014

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  1. Creative Commons CC0 Common myths, truths and fears that need to be overthrown when deciding about rural broadband projects Goran Živec, Vahta d.o.o. Salzburg, 27th of May 2014

  2. Since 2003: ICT Technology Network- a consortium of cca. 45 leadingSloveniancompaniesandresearchinstitutions in thefieldof ICT (tripplehelixstructure) • Main activities: • innovationsystems in thefieldof ICT • academia-industry networking • national and EU project management • internationalization& promotion • business modelandstrategy development WWW.PPP4BROADBAND.EU

  3. OAN in Slovenia • White spot <2Mbit • GOŠO1 (1, 2, 3)-15.921 WS • GOŠO2 (1)-13.497 WS • Home passed 120.000 in suburbanandruralareas Until recently, only white spots could be connected.

  4. Myths, truths, fears Myth – any broadband is good! Truth – FTTH is expensive! Fear – there will be low interest for broadband in rural areas!

  5. Fear: Take-up rate • 300 properties passed, ~150 connected by end of month (Barry Forde, FTTH Forum, London 2013, Broadband for the Rural North Ltd www.b4rn.org .uk ) • In new developments, even when copper is installed in parallel, the take rates for fiber are very high, in the 60-70% range. In social housing, the take-rates can reach 30-50% in less than a year (depending on pre-existing contracts signed by tenants) (BenoîtFelten , FTTH Forum, London 2013, THE BENEFITS OF FIBER BROADBAND FOR THE REAL-ESTATE MARKET)

  6. OANTake-up rate in Slovenija THE RELATIVE UTILITY OF BROADBAND TO RURAL AREAS IS MUCH BIGGER THAN TO URBAN AREAS! IT IS CRITICAL TO ASSURE AS MUCH SERVICE PROVIDERS AS POSSIBLE - SERVICE IS THE KEY! IN RURAL AREAS, COOPERATION WITH LOCAL INHABITANTS AND LOCAL AUTHORITIES IS A MUST!

  7. Truth: FTTH is expensive Fiberprojectscanhave a higherinitialinvestment, butiftotalcost is considered, theymightbealreadythe most convenient! Theinitialinvestmentcanbeheavilylowered (more thanhalved) ifthereuseofexistinginfrastructureandtheconcurrentexecutionofworkswithotherinfrastructure is possible (EU regulation). As fiberbringsmuchloweroperationalcosts, on long term (20years) theprojects are lesssensitive to economicenvironment.

  8. Whyeveryonesays FTTH is tooexpensiveforruralareas? Infrastructureinvestments are not meantforfastpayback! Ifsomeonewants to be a real infrastructureprovider, thenequity (like) capitalmustbeinvested in ruralareas! Equityrequires ROE, and not ROI! Theinitalinvestmentmustproducelong term adequatereturn, but not repayitself (it is aninvestmentfor a long, undefined time). Equitywill not bewithdrawnfromtheoperation. Fiber is misunderstood as tooexpensivebecauseofimproperinvestmentsource!!

  9. Cost per HH passedandcostper HH connected?! Example: OŠO projects in Slovenia An areawith more than 100.000 HH wascovered(mostly FTTH, withfiberconnectivity 200m or lessfromthe HH), usingtotalof 110M EUR (PPPs, with 81M EU andnationalfunds), 29.000HHoutofthose 100.000 did not haveaccess to 2 Mbps (clear market failure). At the moment, 13.000 ofthose are connected. Howmuchdidwespendper HH? 110M/13k? 81M/13k? 110M/29k? Or 110M/100k?!

  10. Is Broadbandriskyforequityinvestors? Source of graph and formula: Wikipedia, „CAPM“ Higher risk => Higher expected return Bloomberg industry data, 2008 Broadband is infrastructure, andhaslowrisk. Source: Damodaran, Stern Univ, 2014 Fixed broadband is THE ONLY industry, where natural monopoly is possible without paynig concessions!

  11. Myth: any broadband is good! • For every one percentage point increase in broadband penetration in a state, employment is projected to increase by 0.2 to 0.3 percent per year. Source: The Effects of Broadband Deployment on Output and Employment: A Cross-sectional Analysis of U.S. Data. Robert Crandall, William Lehr and Robert Litan, the Brookings Institution, 2007 • An increase in the broadband penetration rate by 10 percentage points raises annual growth in per-capita GDP by 0.9 to 1.5 percentage points. Source: Broadband Infrastructure and Economic Growth, 2009. Nina Czernich Oliver Falck, Tobias Kretschmer and LudgerWoessmann • According to the U.S. Department of Commerce, between 1998 – 2002 communities that gained access to broadband service experienced an employment growth increase of 1% to 1.4%, a business establishment increase of 0.5% to 1.2%, and a rental value increase of 6%

  12. It does good, but…. Ericsson, Arthur D Little, Chalmers, 2013

  13. …not necessarily! THE OVERALL EFFECT OF A BROADBAND PROJECT IS THE SUM OF THE THREE! THE THIRD COMPONENT HAS THE GREATEST AREA (EFFECT). EXTEND THE TIMELINE Impact Time • Short term, initial investment stimulated increase, • Mid term, productivity increase, • Long term, structural change induced increase.

  14. Broadband is good if: • - Ifandonlyifthe most durabletechnologicalsolution • is choosen! • As long term perspective is crucial, in rural • deploymentsthis is even more important! • Ifandonlyifthesolutionwiththelowesttotalcost • is choosen! • As lowoperationalcosts are crucial, in rural • deploymentsthiseven more important!

  15. Final thoughts I • Because of the (extremely) low population density, generalisation from projects in urban areas cannot be done! • For the sustainability of the rural broadband projects, operational costs are very important (including the cost for mandatory equipment substitution). A long term planning is therefor required.

  16. Final thoughts II • Ifthetotalcost (investment plus operational) is calculated, in deepruralareas FTTH is the most economicsolution. • Fortheinitialinvestment, it‘s not a problem ofcost, butofthefinancingsource. • TherecentRegulativefrom EU Commissionabout GBER (21.5.2014) mightbe a real game changer, as undercertainconditions, Broadbandprojectssmallerthan 150M are relievedfromstateaidaproval.

  17. Fibre to the people initiative • Open, inclusive and future oriented Europe needs pervasive, very high speed connectivityfor every citizen. Recent trends are showing an alarming intention of the industry to consider European rural areas as less important, deeming any solution is good enough for „those few elder farmers who live there“. • European rural areas are not only agriculture! Half of EU citizens live in rural areas! • This means half of those Europeans who pay taxes and have the right to vote! • We, people who live in rural areas, demand proper, future oriented, fibre broadband connectivity! • We do not accept any second-choice solution as good-enough, like wireless or similar! • To those, who argue that it cannot be done, we answer: „If you don‘t know how to do it, this doesn‘t mean it cannot be done. We will do it by ourselves!“. • Fibreto the people!

  18. www.fibretothepeople.org goran@vahta.eu contact@fibretothepeople.org

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