Government subsidy needed to help boost broadband network

An etisalat engineer checks the wire connections in Al Qouz, Dubai. (EB FILE)

Incentives and funding are the need of the hour for Gulf-based telecom operators to sustain growth and investments of next generation broadband networks (NGN). Governments and regulators have to make sure that they provide subsidies to operators for investments in the telecom infrastructure. According to global management consulting firm Booz & Company regulators have to help investments in NGN networks, stimulate demand and introduce new business models to sustain this growth.

Emirates Business spoke to Farid Faraidooni, Executive Vice President – Commercial, du; Qatar Telecom's CEO Dr Naser Marafih; Dr Ahmed Abbas Sindi, CEO of etihad Atheeb Telecom "GO"; Ihab Ghattas, Assistant President, Middle East Region at Huawei Technologies and Ben Piper, Research Analyst at Strategy Analytics to get their point of view.


What does the market need from the public sector? Is it regulatory definition, funding or some other critical action?

Faraidooni:
The critical actions needed are happening today in the form of active discussions between the operators, under the guidance of the TRA, to share the fibre infrastructure across the country. Both operators will need the continued support of the government and the regulatory authorities to enable the availability of NGN services in a manner that allows access of both operators to each other's fibre networks to enable choice to the customer and the creation of a competitive marketplace. Du and etisalat are leading the development of the NGN network for the UAE – du in certain areas in Dubai while etisalat in the rest of the country.

Marafih: It is becoming increasingly important as the telecom market is mature and growing now. Growth may be limited as government policymakers and regulators issue licences without giving thought to the long-term impact on the existing player.

Both the regulator and the policymaker must take a complete view of the market and in the past it made sense to bring in competition when growth is happening in the region. Now with increased competition it is seen in other markets that players have either consolidated or gone bankrupt.

Abbas Sindi: Governments today provide licences for both fixed and data services. Earlier when they provided fixed line licences they were technology agnostic which meant that you can do fibre to home, wimax, HSPA or LTE. Regulatory framework was provided for universal access. Funding is not yet established but could stimulate the market.

Restimulation is happening in terms of licensing or fixed operators as investments happen in broadband networks. The challenge is also to share infrastructure and then put fibre infrastructure into the network.

In the Gulf, we see more initiatives in terms of PC penetration, generation of local content, to use technology and create national incentives. Technology has to be made cheap.

This enables the market to operate freely.

Ghattas: There are a number of issues which need to be addressed in this area, some of which are related to the regulatory framework and others that are related to governments and its agencies. In some countries the plan for implementing NGN has become a government issue by definition, where the government sponsors and funds a good part of the project. In other countries governments put their weight in the initiative by encouraging all governmental sectors to digitise its business in an attempt to drive the concept. The degree varies from one country to the other, however there is a general understanding for the need for such initiatives.

Piper: The topic of an appropriate role of government in the creation of national broadband network is certainly a contentious one. In a 2008 report Sputnik Moment: The Call for a National Broadband Policy, Strategy Analytics raised the issue of the role of broadband as a utility and drew a comparison between the laying of broadband infrastructure today, and nationwide electrification of the United States 80 years ago.

It was the hand of government, and the passage of the Rural Electrification Act that got America "on the grid". A similar argument can be made for wiring a country for broadband. A multi-sector broadband policy provides the necessary backbone, not just for Internet and HD Video, but also for myriad government, health, employment and education applications.

Indeed, the parallels are evident between broadband and electrification. In the US's case, there was strong opposition to the government's involvement in the distribution of electric power, and claims of anti-competitiveness and socialism were common. Those taking the "long view" saw the benefits achieved by electrifying America's rural heartland and agriculture industry-increased efficiency, output and profitability.

What is the role of telecom operators in such a scenario and how important is to communicate their ideas?

Faraidooni:
The operators need to ensure that there is a sound economic equation for the significant investments needed for the NGNs and the services that run on top of it. It is vital that the operators share this economic viewpoint with the regulatory and relevant public sector bodies.

Marafih: The relationship of operators and regulators need to be strengthened. In Qatar the regulator has been working constantly to make correct decisions and is working with the operator closely unlike other markets.

Abbas Sindi: The main issue is effective regulation and national incentives. Initiatives such as e-government and e-learning must be encouraged, especially for pushing the penetration of broadband technology.

Ghattas: Telecom operators have a great role to play in this area by deploying the necessary platforms and networks. However, operators that are driven by revenue may be a bit slow in recognising the benefits of such a plan. Having said that, many operators in our region have come to understand that they need to start the deployment first and the revenue will catch up, a good sign of progress for the betterment of the society.

Piper: Telecom operators – those who truly understand the business – should be at the forefront of any national broadband strategy.

While government may play a key role in the construction and creation of NGNs, they probably should not be in the business of running a network.

What stage must telecom operators get involved in to bring in next generation broadband and make it part of an economic strategy?

Faraidooni:
Du and etisalat as primary investors in NGNs must be involved from the beginning in the creation of any new macro-economic strategies at the country level for the evolution of next generation broadband services.

Marafih: National objectives must be set accordingly from the beginning and the government and operator should work towards achieving this goal. Regulator does not have the insight on the cost of the infrastructure and therefore it is important to get operators get involved in discussions and incentivise them. The regulator can set the time frame for licences and deployments to add value.

Abbas Sindi: In an open market the government puts a regulatory framework which must be hassle free. Telecom operators' business is based on revenue, therefore, national incentives and subsidies become relevant.

Ghattas: In my opinion, operators must be involved from the very start, not only by deploying the networks but also in running programmes for customer education to encourage the end-user to use the broadband services. This will create the demand and hence the market to generate the revenue and increase the ROI.

Operators should partner with the public sector to create the applications and services. The e-government concept is a typical example, as is e-health, e-education etc. In this process we should not forget the entertainment domain, the marketing domain, the advertising domain and so on.

All such areas will create ROI for operators.

Piper: The "critical path" nature of network buildouts and the associated dependencies means that Telcos should be involved in the process from the earliest possible (ie, high level planning) stages.

What are the goals to be kept in mind while designing a policy for the implementation of NGN?

Faraidooni:
The primary public policy goal is to ensure that broadband networks and services enable and improve the competitiveness of the UAE as a country, while at the same time ensuring that investments in these networks yield reasonable economic returns. The leaders of the UAE have articulated a visionary view of the future of the country in various sectors that will require the necessary telecom infrastructure to allow applications and services that will enable the fruition of this transformation.

Marafih: Broadband is the future, especially for growing economies that require huge investments. The regulator and government are required to step in to make services more economical.

Abbas Sindi: Policies encouraging the use of low-cost laptops among school children and making sure that content is pushed among the youth helps boost NGNs.

Ghattas: There are many goals we need to consider. The most important one is the advancement of society in general. Here, we mean all sectors of the society and not to limit the advantages to only certain areas. We also need to build the future of the country, this means we need to consider the needs of youngsters as they represent the future.

Piper: Perhaps the most important goal is to keep in mind the ever changing [and increasing] need for broadband speeds. Indeed, the definition of "broadband" itself is a bit of a moving target and varies greatly by market. While 0.5 mbps might have been considered "fast" in some markets several years ago, today it would be considered wholly inadequate by many consumers. All of our forecasts suggest an enormous surge in bandwidth demand, driven largely by online video. As such, it is crucial to consider the scalability of any new network.

Is the government regarding broadband networks as strategic national assets?

Marafih:
Broadband networks are appreciated and competition must be introduced into markets carefully. In Africa, there are six operators where nobody makes money as the first few players entering the market would make money while the rest would struggle. This is why average revenue per user (Arpu) rates have come down in this market.

Ghattas: Technology takes a very advanced place in minds of our leaders and that has been reflected in huge number of technology projects implemented across the country.

It has also reflected in the policies of organisations as seen in fibre to the home (FTTH) projects being implemented across the country. Telecom in the UAE has been always at the front-edge of technology, broadband is not an exception.

Piper: Many governments do view broadband networks as national assets, much in the same way one would view a national electricity grid. Much of this has to do with the non-consumer applications of broadband.

Many governments have committed national funds to accelerate the deployment of future-proof broadband networks while other have adopted rather a facilitator or a mere observer role, what is your opinion on governments of Gulf countries?

Faraidooni:
Today, the UAE Government is a majority shareholder in both the telecom operators and is therefore already involved in the investments required in developing future networks. As an operator who needs to sustain funding in fixed and mobile broadband networks, we would welcome further initiatives to provide incentive to invest further in this vital sector.

Marafih: There is a national plan to improve speeds and internet penetration. It is important to provide incentives to the operator.

Fibre access and fibre to the home in particular are emerging as the solution of choice to address the foreseen bandwidth needs, what is your insight on fibre penetration in the Gulf countries in particular?

Faraidooni:
The UAE is far ahead of the rest of the Gulf in deployment of fibre. Du has a 100 per cent fibre network and etisalat has been engaged in a plan over the past few years to upgrade all legacy copper infrastructure in a phased manner. The road ahead is to ensure that the consumers and businesses have competitive offerings and service from both operators in all geographical areas across the country.

Marafih: The technology was expensive and is becoming a challenge today. There are submarine cables being laid out for international connectivity. The access rate in our region compared to other markets is higher.

In the UAE, telecom operators are also limited and other cable systems are also getting into the region. Cost is still the inhibitor.

Abbas Sindi: Investments are happening in fibre networks area depending on their fund availability. Operators are also realising that infrastructure must be shared and it does not make sense to deploy individual infrastructure everywhere.

Ghattas: Operators in the UAE have gone a long way in this direction and they are at the forefront as compared to other operators in the surrounding countries. However, many countries have started to realise the need for such technology and many initiatives are now in the pipeline that will see the light of day soon.

We also need to keep in mind that such deployments need a lot of investment and hence need to be done wisely. The one thing is sure that we are moving in the right direction and soon will be able to enjoy the results

Piper: We see fibre as a viable option for the UAE, representing almost nine per cent of all residential broadband connections by 2013. Indeed, we are already witnessing ambitious fibre rollouts by both etilisat and du.

What are the main inhibitors to the deployment of fibre networks? Is it the size of the investment, regulatory risks and pressure on revenues from competition or any other point you want to highlight?

Faraidooni:
We believe that investment in fibre-based networks can benefit dramatically from scale and from the sharing of infrastructure. Without these elements, the investments needed for NGN networks can lead to unsound economics. The good news is that there is consensus that fibre economics are better than copper for the upcoming demand for bandwidth and is also future proof.

There is also consensus among the industry players and other relevant stakeholders that sharing of infrastructure is absolutely essential in order to avoid unnecessary duplication of investments. On the other hand, there is the perpetual and inevitable decline of prices for fixed services for voice, data, and TV. This puts pressure on the fibre business case.

The role of regulators and the public sector is to ensure that there is an economic case for the service providers to be able to sustain the needed investment.

Marafih: Qtel has invested in fibre over the years and the complete roll out would be completed in the next couple of years. There are also discussions being held with the government to achieve this penetration.

Ghattas: As mentioned earlier, deploying the fibre network needs a lot of investment and as such the economics need to be correct.

All the other factors you mentioned are also valid.

However, the one thing I believe is most important and that is the mindset. The mindset of the government, the operators and the end user, a collective effort on the national scale will be the only way forward.

 

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