Telecommunications Investment as an Economic Stimulus Taylor Reynolds, OECD 22 June 2009 The views expressed in this presentation are those of the author.

Telecommunications Investment as an Economic Stimulus

Taylor Reynolds, OECD

22 June 2009

The views expressed in this presentation are those of the author anddo not necessarily reflect the opinions of the OECD or its Membership.

Key questions

• Can communication network infrastructure investment be used as an effective economic stimulus?

• If governments decide to invest, how can they structure projects for maximum benefit?

Why telecom as a stimulus?• Projects:

– can be initiated relatively quickly (slack) – are labour-intensive– can minimize economic leakages

– are a key foundation for commerce– may provide stronger marginal impacts on

supply and productivity than investing in established networks such as electricity, gas, water and transportation.

Demand

Supply

Public broadband investment

• Goal one: Stimulate the economy on demand side through construction projects for infrastructure rollout

• Goal two: Increase the productive capacity of the economy via spillovers from broadband networks

• Goal three: Bridge the digital divide and improve competition

Public broadband investments as part of stimulus packages

Country Spending (local) Spending (USD)

Australia AUS 40 billion 32,700,000,000

Canada CAD 225 million 212,500,555

Finland EUR 66 million 94,700,000

Germany EUR 150 million 215,200,000

Japan JPY 3 trillion 28,130,000,000

Luxembourg EUR 195 million 279,800,000

Portugal EUR 50 million 71,700,000

United States USD 7.2 billion 7,200,000,000

Policy Responses to the Economic Crisis: Investing in Innovation for Long-Term Growth, June 2009, OECD, Paris.

How public funds are being used for broadband

Building out different network components

• High capacity networks connecting larger cities– Transport: highways– Telecommunication: backhaul

http://www.infovisual.info/05/photo/highway.html

• Mid-capacity networks connecting neighborhoods/business areas– Transport: mid-size roads– Telecommunication: middle-kilometre/

metropolitan area networks

• Lower capacity networks to individual homes and businesses – Transport: Local roads– Telecommunication: “last kilometre” access

networks

Network components

Backhaul

Middlekilometre

Last kilometre

Fibre as a foundation

• Investment in high-capacity fibre optic lines is the foundation for all types of broadband Internet access– Wired: DSL, cable, power-line communication– Wireless: Mobile, WiMAX, satellite

• Investments in targeted fibre infrastructure can be structured to benefit all network providers (wired and wireless)

Capacity of new networks

One fibre optic strand the width of a human hair currently has the capacity to support 3 billion simultaneous phone conversations. That is equivalent to every person in the world on the phone with someone else at the same time.

coppercopperNetworkoperator

Fibre to the city/town

Cityor

town

Neighbor-hood

Homeor

premises

wirelesswireless

Copper(faster)

Fibre to the neighborhood (faster)

Networkoperator

Cityor

town

Neighbor-hood

Homeor

premises

Wireless(faster)

Fibre to the premises (fastest)

Networkoperator

Cityor

town

Neighbor-hood

Homeor

premises

Likely stimulus targets bytelecommunication market type

• Least-developed– Expanding international capacity and building local traffic exchanges– Upgrading mobile networks for higher-speed data connections– Basic fibre connections between cities and to mobile sites

• Developing– Building higher capacity backhaul connections between geographic areas– Expanding fixed-line, cable and mobile coverage– Upgrading mobile networks for higher-speed data connections

• Developed – Extending initial access to the last underserved areas – Pushing fibre deeper into neighborhoods to improve speeds of all

technologies• Highly-developed

– Upgrading last-kilometre connections all the way to the premises with fibre and shifting rural wireless users to faster fixed/wireless networks

Policy and investment

• Investment without a efficient regulatory framework is likely to have minimal impact.

• Little need to build backhaul networks without unbundling. Operators won’t need it.

• Investments in networks must be paired with pro-competitive policy moves

• Should not strengthen existing monopolies

Balancing policy and investment

• Policy– Unbundling of the local

copper loop to enable market competition

– Ensuring sufficient spectrum is available to support high-speed wireless applications

– All investments in telecommunications networks using public funds should be accessible to competitors via open access rules on transparent, cost-based terms

• Technology– Push fibre closer to end users

to support higher-speed wired and wireless use

– Invest time in developing the most efficient network routes for fibre investments

– Make use of copper, coax, fibre and wireless technologies for the last kilometre as appropriate

– Balance backhaul and last-kilometre investment

Example: Mexico

• Backhaul – In May 2009, the Mexican

government announced it will open up the electric company’s fibre-optic network to competitive telecommunicatoin service providers

– Operators should have improved fibre access deep into Mexican cities, towns and villages

• Last kilometre– However, Mexico does not

have local-loop unbundling over the copper telephone network which is necessary for competitors to offer attractive broadband services

– Without access to the local loop, backhaul investments will have a much smaller impact in Mexico, particularly on competition and service development

Telecom investment with limited funds

• Some economies are constrained in spending potential• Choose projects offering highest return per unit spent• Magnify the impact of investment by introducing necessary

telecommunication reform at the same time

• When fiscal constraints limit investment possibilities, policy makers should target specific bottlenecks– Backhaul networks (open access) throughout a region can lay the

foundation for competition service delivery in the future (Korea)– Network investments can extend to schools and government buildings

but should be built will excess capacity which is available on competitive terms to all providers (Canada)

Project considerations

Demand side

Speed to come onlineShovel ready

Rights of way / spectrum availability

Spending composition

Employment effects (local)

High marginal propensity to consume

Avoids leakages

Supply Side

Connectivity

Number of affected users

Marginal benefit per user

Capacity of the lines

Topology effects on bandwidth

Longevity of the network

Ease to upgrade network

Competition

Competitive access to network

Broadband choices

Potential for market distortion

Innovation/growth

Economic impact per unit spent

Upgradability for new services

Balanced rollout backhaul/last kilometre

Social benefit

Universal service

Cultural benefits

Inclusion

Long-term viability Private sector viability Viability of project after stimulus

Thank you