Research Notes

What drives competition on the broadband market in the USA and what will stimulate it in the EU?

Is it regulation, government subsidies, or technology development?

There is no doubt that that many broadband markets around the world are competitive. Speeds are increasing faster than consumer demand. At the same time, mobile broadband prices are plummeting. For many companies this is a war. DSL and cable companies occupt the front lines with fiber, mobile, and other technologies on the flanks.

This research note examines the American and EU broadband experience, how technologies affect competition, and the the risk associated with government subsidies for broadband.

The product is called broadband, but it varies widely
On one front are the traditional DSL providers. They can be divided into two types of companies: those that own the original fixed line copper infrastructure and those that rent space on the infrastructure to produce their own DSL products.

On the other side of the front are the cable TV providers that deliver broadband and fixed line telephony in addition to their television offerings. The cable TV providers have been successful in many countries in upgrading their TV customers to triple play products and are many see lower churn among their customers as a result.

On the flanks in a number of countries are a variety of fiber to the premises providers that are trying to build new infrastructure in order to offer customers very high-speed broadband connections and triple play solutions.

On the opposite flank are mobile operators. They offer increasingly faster products at increasingly lower prices with mobile broadband via 3G technologies such as HSDPA and LTE. It is a fact that the bandwidth that many mobile operators offer is faster than most of their customers need or care to buy.

Telecommunication companies, regulators and politicians can learn from the U.S. experience
Strand Consult’s report on the broadband market in the United States The 10 Myths and Realities of Broadband Internet in the USA described how the world’s largest broadband market looks and what drives competition. The analysis shows that different technologies (DSL, cable, and mobile) drive competition and investment. It is clear that history and operators’ technological choices have had a greater impact on broadband development than regulation. To put it glibly, the situation in the U.S. today is the result of a civil war and three lucky punches. Read the research note.

Competition on the mobile broadband market
Strand Consult’s report “Successful Strategies for the Mobile Broadband Market” examines the impact of mobile broadband and the winners and losers. Strand Consult concludes that the competition on the mobile broadband market has an enormous impact on the entire telecommunications industry, and particularly broadband providers. Here are the trends that Strand Consult sees:

1. Companies that purchase access to copper and deliver their own DSL services experience that the access price they pay is more expensive than the cost of a low speed mobile broadband connection. This is already the case in Denmark and Sweden.

Telcos selling DSL on their own copper networks extend the life span of their copper by using technologies such as VDSL, ADSL2 and ADSL2+ and retain some of their customers by offering IPTV in addition to their existing broadband packages.

Companies offering broadband connections via fiber are having difficulty attracting enough customers to justify the infrastructure investments they have made over the years. Many of these providers have no option but to report an extraordinarily large infrastructure depreciation in their financial statements.

Cable TV providers that sell triple play packages see that their customers are not as price sensitive as many other broadband segments. In practice cable TV providers often poach customers from the traditional DSL providers.

5. The battle over the mobile broadband market is so fierce that prices are decreasing faster than can be justified by the customer growth. In practice the mobile broadband market players can undercut general prices on the broadband market.

Strand Consult believes that the development of the mobile broadband area will have enormous consequences for all companies that produce and market broadband, and the trend of decreasing prices for mobile broadband will spread to other broadband markets.

Strand Consult’s report “Successful Strategies for the Mobile Broadband Market” describes these developments and the future mobile broadband market. It analyses the strategic consequences of that development and how it will influence the other broadband players.

Will government subsidies provide citizens with better broadband? Strand Consult says no
Stories from a number of other countries suggest that the use of government subsidies for broadband creates marketplace distortions. Strand Consult has worked extensively with this topic and is generally opposed to using taxpayer money to build broadband networks. The long explanation is available here. The short version is that there is a high risk for inefficiency (shortages and surpluses) when the government gets involved the broadband market. If the market is driven by public tender instead of consumer demand don’t expect efficient outcomes that make good use of taxpayer money.

Strand Consult finds little justification to provide government subsidies to the telecom industry, which is generally a profitable business. There is enough money in the telecom industry to build the infrastructure customers demand and, given the right framework, telcos can invest in areas with geographic and financial challenges. Essentially when a government defines an area for subsidy, operators will take the subsidy and then downgrade investment in other areas. By providing subsidies, governments unwittingly create a telecom monster that starts to feed on public money.

To be sure, politicians and regulators want to ensure broadband coverage, and Strand Consult offers a number of strategies and tools to help save on subsidies and implement models which increase the incentive for telcos to prioritize investment in challenged areas. Contact Strand Consult to get a copy of the free broadband report as well as other products and products and services specifically for governments.

Strand Consult has worked with the broadband market for a number of years, published a series of reports on the topic, and conducted workshops that help broadband operators be more successful in a competitive market. Learn more about Strand Consult’s report “Successful Strategies for the Mobile Broadband Market” by completing the request form and receive information about how this unique report can help you understand the development of the mobile broadband market and its impact to your business.

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