A cost study of fixed broadband access networks for rural areas

Telecommunications Policy ∎ (∎∎∎∎) ∎∎∎–∎∎∎

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A cost study of fixed broadband access networks for rural areas$ Juan Rendon Schneir a,n, Yupeng Xiong b a b

Pompeu Fabra University, Department of Information and Communication Technologies, Tànger 122-140, 08018 Barcelona, Spain Huawei Technologies, Western European Department, Hansaallee 205, 40549 Düsseldorf, Germany

a r t i c l e i n f o

abstract

Article history: Received 24 November 2014 Received in revised form 7 March 2016 Accepted 12 April 2016

The deployment of high-capacity broadband access networks in rural areas in Europe lags behind that in urban and suburban areas. This study assesses the cost implications for the rollout of fixed access networks capable of providing citizens with downstream broadband capacities of 30 Mbps or 100 Mbps, which have been defined in the European Digital Agenda as targets that should be met by 2020. A cost model was employed to determine the cost of a home passed and the cost of a home connected for various fibre- and copperbased networks in rural areas. It was found that the cost of deploying a network outside a town or village in a rural area is on average 80% higher than the cost of deploying the network in the town or village. This situation may lead to a digital divide within the same rural area. For all the geotypes analysed, the following order of costs (in descending order) was identified: FTTH, FTTdp-Building, FTTdp-Street, FTTRN, FTTC and CO-VDSL. Given the long lengths of distribution, feeder and drop segments required, some network architectures will not be able to provide all households in some areas with the minimum bandwidth of 30 Mbps as defined in the European Digital Agenda. Overall, it is possible that operators will need to create a combination of various broadband access networks, due to the significant cost differences between networks. Policymakers will need to address several topics to promote the rollout of broadband networks in rural areas: how the digital divide within a rural area can be avoided; a National Broadband Plan that clearly addresses the provisioning of broadband in rural areas; elaboration of studies on broadband demand in rural areas; and the assessment of costs and technical capacity of wireless networks in rural areas. & 2016 Elsevier Ltd. All rights reserved.

Keywords: Broadband Rural Cost Fixed networks

1. Introduction In several regions all over the world, policymakers have defined broadband targets that should be met within a certain period of time in order to improve the national or regional telecommunications infrastructure. In Europe, the European Commission defined the Digital Agenda, which states the following broadband targets: a) basic broadband, which is a connection that enables at least 144 kbps or 1–2 Mbps for all citizens by 2013; b) download rates of 30 Mbps for all the

☆ The article was prepared when the corresponding author was affiliated to Huawei Technologies. The views expressed in this article are those of the authors and do not necessarily reflect the opinion of the authors' employers. n Corresponding author. E-mail address: [email protected] (J. Rendon Schneir).

http://dx.doi.org/10.1016/j.telpol.2016.04.002 0308-5961/& 2016 Elsevier Ltd. All rights reserved.

Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

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citizens by 2020; c) 50% of all the European households should have a broadband subscription of at least 100 Mbps by 2020 (European Commission, 2014a). Whereas basic broadband has been provided for all since 2013, the coverage of Next Generation Access (NGA) networks, which can provide at least 30 Mbps downstream, was 68% in all of Europe in 2014, compared to 62% in 2013. In rural areas, there was NGA coverage of 25% in 2014, compared to 18% in 2013 (European Commission, 2015). Overall, urban and suburban areas have better broadband coverage than rural areas (European Commission, 2015). Operators are usually motivated to deploy broadband networks in urban and suburban areas rather than in rural areas, because of the high density of users willing to pay for high-speed broadband services and the relatively low network rollout costs in urban and suburban areas. Broadband diffusion begins in general in urban areas, before being expanded to suburban areas and finally reaching rural areas. One public policy tool that can be employed to facilitate the rollout of a high-speed broadband infrastructure in rural areas is the use of state aid or subsidy (FSR, 2011). The European Commission has defined the conditions that should be met in order to receive state aid for broadband rollout and has classified areas that could potentially receive it (European Commission, 2013). According to the presence of operators that have or intend to have NGA infrastructures in a specific region in Europe, the following three types of areas were defined: white areas are those where there is no NGA provider and where there is unlikely to be any NGA provider in the near future; grey areas are those where there is only one NGA network and where there will not be another in the near future; black areas are those that have at least two NGA networks. Under certain conditions, white and grey areas may be eligible for state aid. The majority of rural areas can be classified as white areas, due to the low NGA coverage in these regions. Different strategic, regulatory, economic, technical and cost aspects need to be studied in order to understand the motivation of operators to invest in broadband networks in rural areas. One research topic is therefore the analysis of suitable high-speed broadband access networks that can be deployed in rural areas and the quantification of the costs of the corresponding network deployment. This is a subject that has drawn the attention of operators, policymakers, researchers and analysts. A few studies have analysed the cost of broadband networks in different regions. Elixmann, Ilic, Neumann, and Plückebaum (2008) described the cost of the deployment of fibre to the curb (FTTC) and fibre to the home (FTTH) networks in various urban, suburban and rural areas for different countries in Europe. Analysys Mason (2008) studied the cost of FTTC and FTTH networks in different geotypes in the United Kingdom (UK). A study made by the European Investment Bank found that 41.1% of the total investment needed to provide high-speed broadband services in Europe would be allocated to rural areas (EIB, 2011). The FTTH Council Europe (2012) analysed the total cost of deploying FTTH networks in all of Europe. Point Topic (2013) showed that 63.4% of the entire investment required for deploying NGA networks in Europe should be allocated to rural areas. Caio, Marcus and Pogorel (2014) analysed how FTTC/very high speed digital subscriber line 2 (VDSL2) networks could be employed to meet the targets of the European Digital Agenda in Italy. In the wireless arena, Frias, Gonzales-Valderrama and Perez Martinez (2015) compared the costs of providing 30 Mbps downstream through FTTH and wireless Long Term Evolution (LTE) networks in rural Spain. Hallahan and Peha (2010) conducted a cost assessment of a nationwide public safety wireless network in the United States. Prieger (2013) described the differences in broadband availability between urban and rural areas in the United States. The above mentioned studies did not, however, address in detail the issue pertaining to the cost of different fixed networks that can be used to meet the targets of the European Digital Agenda in rural areas by 2020. It is likely that, when some of the above-mentioned studies had been prepared, the only NGA fixed networks available were FTTC, FTTH and fibre to the building (FTTB). The development of transmission speed over copper lines has since evolved and additional networks that comprise hybrid fibre- and copper-based networks, such as fibre to the remote node (FTTRN) and fibre to the distribution point (FTTdp), can now be employed in rural areas. The objective of this article is to explain the costs of the different fixed access networks that can be employed in rural areas to provide high-speed broadband services according to the targets of the European Digital Agenda. The research questions that are addressed in this article are as follows: 1) What are the fibre- and copper-based access networks that can be used in rural areas to provide at least the 30 Mbps or 100 Mbps defined in the European Digital Agenda? 2) What is the cost of the rollout of such networks? For the analysis of this matter, a cost model was employed to obtain the cost of the different networks. The following six networks, which are being considered by different operators for a possible network rollout in different regions in Europe, were analysed: central office VDSL (CO-VDSL), FTTC, FTTRN, fibre to the distribution point – Street (FTTdp-Street), fibre to the distribution point – Building (FTTdp-Building) and FTTH. The input values employed for the cost model are based on fibre and copper deployments in different regions in Europe. For the characterization of the rural area, we have employed six geotypes that differ according to subscriber density and segment lengths. We have considered that there is only one operator in charge of the rollout of the network, i.e., there is no competition between two or more operators that intend to deploy the same type of network in the same area. The metrics derived were the cost of a home passed and the cost of a home connected. The rest of the article is structured as follows. A literature review of scholarly articles and studies about broadband in rural areas is presented in Section 2. Section 3 describes the geotypes, network architectures and cost model employed for the analysis. Section 4 presents the results obtained: the investment per home passed, the investment per home connected, a sensitivity analysis and the total cost for all the geotypes considered. A discussion of the results and policy implications are presented in Section 5. Finally, Section 6 presents a conclusion. Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

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2. Literature review A number of different studies have analysed various aspects of the problem of broadband provisioning and usage in rural areas; further studies, while not addressing rural areas in particular, have drawn conclusions in their analyses about broadband that are also relevant for rural areas. From an economic perspective, a useful classification can be made by differentiating between supply- and demand-side studies. In this section, we will follow this classification in order to present the studies. Moreover, we will present additional articles that are not exclusively or directly related to supply- or demand-side aspects. 2.1. Supply-side aspects of broadband Various articles have explored the supply-side aspects of broadband. Regarding the calculation of costs few studies have analysed in detail the cost of broadband networks in rural areas. Frias et al. (2015) compare the costs of providing 30 Mbps through FTTH and LTE networks to rural areas in Spain. The analysis made for different areas of Spain shows that in municipalities with between 10,000 and 100,000 inhabitants, it is economically feasible to deploy FTTH networks, whereas in municipalities with between 1000 and 10,000 inhabitants, it is more feasible in the majority of cases to deploy LTE networks. For the majority of municipalities with fewer than 1000 inhabitants, it is not feasible to deploy either FTTH or LTE networks. Tahon et al. (2014) explore the cost reduction that can be achieved for the rollout of an FTTH network infrastructure by employing a cooperation model between different utility operators. They show that a synergetic deployment of new infrastructures can provide a cost reduction of up to 21%. However, the study was not conducted on rural areas. Rendon Schneir and Xiong (2013) describe the cost reductions that one operator can achieve when employing a co-investment scheme for FTTH deployments in urban, suburban and rural areas. It is shown that important cost reductions can be achieved when a network sharing scheme is employed. Various studies have analysed the regulatory and governmental strategies aimed at promoting broadband deployment. Some of the different supply- and demand-side aspects that affect NGA deployment in the Netherlands, Sweden and the United Kingdom are discussed by Ragoobar, Whalley and Harle (2011). The authors find that markets with geographical constraints will need public support. In the Netherlands, there are no major differences in terms of broadband take up and coverage between the urban, suburban and rural areas. In Sweden, the government established an information technology (IT) infrastructure programme at an early stage (in 2001), to promote the deployment of broadband infrastructure in rural areas, which has helped to mitigate the digital divide. In the United Kingdom, broadband availability in rural areas is quite limited, due to geographical constraints among other issues. The authors argue that a universal service obligation (USO) could boost NGA deployment in rural areas in the United Kingdom. The authors consider that demand-side public policies could be effective after the NGA development has been made. Briglauer and Gugler (2013) discuss whether the European Union (EU) regulatory framework provides enough incentives for NGA deployment. By making an international cross-sectional comparison using data relating to FTTH/FTTB networks, they find that the existing cost-based EU mandatory access regime will not help to achieve the targets of the Digital Agenda. The authors identify three ways to motivate FTTH/FTTB rollout: a) market-based incentives, similar to the deregulation strategies employed in the United States, together with an infrastructure competition approach; b) state subsidies, similar to the ones used by East Asian countries and Australia and New Zealand, which can complement private investments and would be beneficial for white areas (in many cases, rural areas); and c) favourable country-specific conditions that can motivate fibre rollout, such as the massive public government initiatives and demand and supply characteristics of East Asian nations, or the lower consumer migration costs in a few of the Eastern European economies. Reggi and Scicchitano (2014) explore the European regional digital strategies by examining the allocation of the structural funds provided by the European Union. The results show that less-developed regions have a tendency to invest their financial resources in those aspects in which they already demonstrate good relative performance. This unbalanced strategic approach implies that regions try to improve their strengths, instead of addressing the weaknesses of their overall digital strategy. Götz (2013) examines the impact of different regulatory regimes on telecommunications operators' incentives to provide broadband access in areas with different population densities. It is concluded that for reasons of regional policy supply-side subsidies can contribute to total welfare. Sundquist and Markendahl (2015) present the results of a cost model of regulatory solutions aimed at addressing the lack of sufficient mobile broadband provisioning in rural areas. It is shown that the build-out cost can be reduced by employing any or a combination of the following options: state subsidy of the coverage licence, participation of the end-user in the cost, and network-sharing schemes between the operators. Nucciarelli, Castaldo, Conte, and Sadowski (2013) examine three regional initiatives to promote broadband deployment in Italy. It is mentioned that one of the regions studied is a rural area. They show that the main threats to local broadband initiatives are the following: the geographical extension of projects and low incentives for private investors; an unclear governance structure; a fast transition from copper to fibre, which does not consider different business strategies; and the risk of a cannibalization of fixed-mobile services. Ruhle, Brusic, Kittl, and Ehrler (2011) explain various elements of the nationwide broadband strategies that have been employed in different developed countries: tax reliefs, overall approach to the ICT industry, public expenditure for network expansion, structures of functional separation, the regulation of network access, and the introduction of universal service obligations for broadband. The article does not include a quantification of the effectiveness of each policy instrument. Balmer (2015a) presents a review of the literature related to cooperative Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

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investments in broadband networks. The author analyses different types of cooperative investment, such as joint ventures and long-term access agreements, and proposes that regulators could employ regulated co-investment agreements to complement current regulation. Balmer (2015b) presents a literature review that addresses the effect of the geographic regulation of next-generation access networks on competition, investment and welfare in Europe. It concludes that, in many cases, by the end of 2013, European regulators were not clear as to how to handle geographic regulation. Amendola (2015) describes how the access obligations for FTTC networks that are imposed in subsidized areas, which in many cases correspond to rural areas, could affect the state aid funding of ultra broadband. According to the author, the wholesale access conditions and prices in subsidized areas may increase the necessary volume of state aid funding. Dauvin and Grzybowski (2014) evaluate broadband diffusion in the European Union by employing data for 96 NUTS 1 regions, in order to analyse the effects of regulation and competition on broadband penetration. Even though the data employed are much more detailed than those employed in other country-based analyses, they still do not have the level of granularity that would allow a detailed analysis of rural areas. Prieger (2013) conducted an empirical study of the digital divide and broadband provision and usage in the United States. Regarding fixed broadband, the author found that there is a higher availability and number of fast broadband providers in urban areas than in rural areas, and there is a substantial difference in usage rates between urban and rural areas. With respect to mobile broadband, it was found that rural areas have fewer broadband providers than urban areas, and mobile broadband covers broadband gaps that are not covered by fixed broadband. For fixed and mobile broadband, the urban and digital divide is greater among low-income households. Furthermore, the article includes a literature review on the topic of broadband as a driver of rural economic development. Very few governments have published a techno-economic analysis of different broadband networks that can be used to meet the targets of a National Broadband Plan (NBP). In 2010, the Australian Government prepared a plan for the rollout of its National Broadband Network. As part of this plan, an analysis of the economic resources needed to provide broadband to all households was prepared. The results of the implementation study gave the following conclusions: 93% of the premises were going to be served with FTTP (fibre to the premises) networks, the premises located in the range 93–97% were going to be served with wireless networks, and the remaining 3% of the premises were going to be served with satellite networks (Australian Government, 2010). 2.2. Demand-side aspects of broadband In comparison with the studies relating to supply-side topics, there are not so many articles that have analysed the demand-side aspects of broadband in rural areas in detail. Peronard and Flemming (2011) conducted an empirical study concerning user motivation to adopt broadband in rural Denmark. The study is based on a set of interviews conducted in a small village—with only 325 inhabitants—which has the typical features of a Danish parish village, in terms of population type, employment type, presence of local institutions, and proximity to other nearby villages. Different motivational patterns of rural users with regard to adopting broadband were found. Firstly, broadband helps to improve information exchange with other people. Secondly, a broadband connection leads to a better level of local activity—for example, more people would attend local activities and meetings. Thirdly, a stable broadband connection gives the user a good level of satisfaction—for example, users can enjoy the new applications and have the feeling of being at the forefront of innovation. Fourthly, broadband helps to improve the level of transparency and convenience, and saves time—for instance, users can buy products online. Finally, broadband can have various financial consequences—for example, broadband provides a cheaper way of doing business. Based on these findings, the authors derive a number of policy implications and propose the following four types of strategy, which can be employed to motivate the adoption of broadband in rural areas: informative strategies, affective strategies, habitual strategies, and satisfaction strategies. Belloc, Nicita and Rossi (2012) study the effect of different supply- and demand-side public policies on wireline broadband penetration in 30 Organization for Economic Co-operation and Development (OECD) countries. The supply-side policy variables considered in the empirical study are fiscal incentive programmes and subsidies, long-term loan programmes for broadband suppliers and national financing programmes, public-private partnership, territorial mapping programmes, and administrative simplifications. The demand-side public policies analysed are public demand for specific services, incentives for business demand, incentives for private demand, demand subsidies, and demand aggregation policies. The results show that demand-side policies have a greater impact on broadband penetration than supply-side public policies. Moreover, the study emphasized the importance of developing a broadband strategy that carefully combines demand- and supply-side public policies for each individual country. However, the study does not make any particular differentiation for rural areas; instead, it is based on country-based input data. Ovando, Perez and Moral (2015) present a techno-economic study considering the feasibility of LTE providing 30 Mbps to rural areas of Spain. The analysis was performed for areas that cover from 75.3% to 99.3% of the Spanish population, while the last 0.7%, which corresponds to the inhabitants of extreme rural areas, was not considered. The authors show that demand is sensitive to price, and that the ARPU should therefore be lowered in order to compete with other broadband products. It is not clear in the study if the 30 Mbps provided are allocated to every user all of the time, or if there is some sort of statistical multiplexing involved. Usually with statistical multiplexing, operators provide users with an average throughput; however, if there are more users in the cell, the transmission speed is reduced. Puschita et al. (2014) describe the proper end-user rural profile necessary to plan an appropriate broadband strategy from a marketing and technical Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

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perspective in Romania. The empirical study is based on a survey conducted in rural areas in northwestern Romania. The study shows that Internet access is based mainly on wired broadband networks. Furthermore, the majority of users are lowincome, medium- and low-educated adults. The analysis reveals low overall satisfaction with product service and maintenance. Moreover, the rural customer prefers data services to voice and video services. The broadband demand situation in rural areas in South Korea is described in Park and Kim (2015). South Korea is a leading country worldwide in terms of broadband penetration; over the last few decades, it has implemented a number of policies that have helped narrow the broadband infrastructure difference between urban and rural areas. The study analyses the broadband demand differences between urban and rural users. The data was obtained from a nationally representative survey of South Koreans (N ¼3641). It was found that the frequency of online activity and the time spent online were similar in both groups. Rural users take part more frequently in online participatory activities relating to political and social issues. However, levels of trust and perceptions of the benefits of broadband connection are higher in the urban users' group. The study suggests that a new type of digital divide exists, since rural users have a relatively low perception of the benefits of broadband connection. 2.3. Additional studies on broadband A number of other articles have highlighted various aspects of broadband in rural areas that are not strictly related to supply- or demand-side matters. Gruber, Hätönen and Koutroumpis (2014) address the economic benefits of implementing broadband infrastructure that meets the targets of the European Digital Agenda in the European Union. Each EU member state was split into three regions: urban, suburban and rural areas. For this study, the rural areas are those that have fewer than 100 inhabitants per km2. The following four levels of service, which were defined in Hätönen (2011), were employed: “minimum” (theoretical speed, with Internet centres serving rural areas); “base” (theoretical speed, coverage to household); “advanced” (actual speed, coverage to the household); and “maximum” (actual symmetric speed, coverage to the household). For the Digital Agenda target of 30 Mbps, it was assumed that in rural areas the VDSL2 and Data over Cable Service Interface Specification (DOCSIS) 3.0 technologies were able to provide advanced service, whereas FTTH was able to provide maximum service. For the target of 100 Mbps, it was considered that FTTB and DOCSIS 3.0 were able to provide advanced service, whereas maximum service could only be provided by FTTH. The cost results presented in Gruber et al. (2014) refer to the costs of the four above-mentioned service scenarios in every country, i.e., the average values of the urban, suburban and rural regions are presented, but the individual costs for the rural areas are not shown. A cost benefit analysis of the Digital Agenda for all of Europe is provided, but there is no specific section that analyses the case of rural areas exclusively. Kongaut and Bohlin (2014) discuss the following two strategies employed by policymakers in OECD countries to promote NGA deployment: local loop unbundling (LLU) and infrastructure competition. Their analysis shows the conditions in which the application of both strategies can be effective. However, as this is an inter-country study, the analysis does not differentiate between urban, suburban and rural areas in a country. Bourreau, Cambini and Hoernig (2012) make a review of the literature concerning differentiated wholesale remedies that could be implemented in different geographical areas in a country, as part of an NGA network deployment. The topics that are addressed include the type of regulation that should be employed in rural areas and what the corresponding access charges could be. The authors conclude that traditional costbased access methods might not be the best regulatory tool when promoting infrastructure investment in NGA networks. Cave (2014) reviews the application of the ladder of investment in Europe as a means to promote the deployment of fixedaccess infrastructure. The interaction of copper pricings with measures to promote fibre deployment in different European countries is described. In addition, different regulatory measures aimed to promote NGA deployment are criticized. The article does not contain a specific analysis for rural areas; therefore, a matter for further study might be how the ladder of investment could be effectively applied in rural areas. The effect of broadband on productivity in Irish firms is studied by Haller and Lyons (2015). Two types of NUTS 2 region were analysed: the Border, Midland and Western (BMW) region, and the more affluent South-Eastern (SE) region, which includes Dublin. The authors found that, in both regions, broadband adoption does not increase firm productivity per se; instead, industrial productivity is affected by specific applications that require access to the Internet. PricewaterhouseCoopers (2015a) explores the benefits of a national broadband network (NBN) for areas in Ireland that are able to receive public funding; many of these areas are rural areas. The following benefits are described: residential benefits, enterprise benefits and eHealth benefits. Moreover, the study describes additional benefits in the following areas: jobs and entrepreneurship, education benefits, environmental benefits, social inclusion, balanced regional development, and public service reform. Grzybowski (2014) considers fixed-to-mobile substitution (FMS) in 27 European Union countries. The author concludes that the increase in quality and speed of mobile broadband could lead to a decrease in copper fixed-line connections. However, by bundling fixed and mobile lines, this decline in copper-line connections could be slowed down. Flacher and Jennequin (2014) have studied regulatory policies aimed at promoting investment in next-generation access infrastructure. It was found that, if a regulator intends to increase the geographic coverage of Next Generation Networks (NGNs) beyond a situation where there is no regulation, the regulator will need to use other regulatory tools than just uniform access regulation. Whitacre, Gallardo and Strover (2014) evaluate the contribution of broadband to economic growth in rural areas in the United States. They find positive effects of broadband adoption in income growth and employment. However, as opposed to adoption, broadband availability shows limited impact, which leads to the conclusion that broadband policies should put Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

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more emphasis on demand stimulation. Brown, Browning and Clements (2015) examine the effect on economic performance of the United States Department of Agriculture's programmes to provide funding for broadband infrastructure in rural America. They find that there is a modest but significant statistical liaison between the funding programmes and county employment and payroll. However, there is no relationship between the programmes and the number of total business establishments in a community. Stenberg (2010) presents an analysis of the impact of broadband Internet on rural America. The results show that investment in broadband Internet has a positive effect on the economy of rural communities. Holt and Galligan (2013) review the United States' federal universal service programmes. Regarding the inclusion of broadband service as part of the universal service provisioning, it is remarked that the Federal Communications Commission (FCC) has not been able to address relevant questions relating to the rollout of broadband networks in rural areas. A few authors have developed a few indexes related to broadband and telecommunications infrastructure. A broadband achievement index for the United States was developed by Badasyan, Shideler and Silva (2011). The indicators employed for this composite index are broadband availability, broadband adoption, broadband competition, broadband speed and digital inclusion. All fixed broadband technologies that provide more than 200 kbps were included in the study, while mobile wireless broadband was excluded from the paper. One outcome of the study is that the states with good positions in the broadband index do well in all the indicators, while low-performing states have a below-average or low performance in the indicators. Gerpott and Ahmadi (2015) have developed a nation's index, which assesses the availability, adoption and usage of telecommunications networks and services. The index included 111 countries, and the main input data employed were supply, adoption and usage. However, this study does not focus on rural areas. The National Broadband Plans of Australia and New Zealand are analysed in Beltran (2014). As was explained before, the aim of this publicly funded infrastructure project from the Australian Government was to deploy an FTTH network that could cover 93% of Australian households; the rest of the households would be covered by wireless and satellite networks. In New Zealand, the Ultra-Fast Broadband (UFB) network is a private-public partnership (PPP) initiative controlled by the Crown Fibre Holdings (CFH), a state-owned company. The UFB network should be able to reach 75% of the population with fibre-based networks, while the remaining population would have broadband access through wireless or satellite-based networks, financially supported by the Rural Broadband Initiative (RBI). The analysis of the supply-side policies reveals that Australia's NBN Co has had difficulties in meeting the construction targets, but it has a fibre uptake of around 16%. New Zealand has exceeded its targets, but the uptake of the FTTH network has reached only 3%. Clarke (2014) describes several methods that can be employed to increase the capability of 4G wireless technologies, such as the allocation of additional spectrum and the usage of more spectrally efficient wireless technologies. The author concludes that, in the United States, it is necessary to allocate additional spectrum to meet the demand of the wireless market. Ling and Wu (2013) address broadband diffusion in OECD countries by identifying the five categories of broadband adoption defined by Rogers (2003): innovators, early adopters, early majority, late majority, and laggards. The authors conclude that, to promote broadband deployment, policymakers ought to implement appropriate strategies suited to the main potential adopters in each broadband adoption stage, instead of applying one-size-fits-all strategies. 2.4. Summary of the literature review In summary, the literature review shows that there is a lack of cost studies related to broadband networks in rural areas. Several authors have addressed the topic of regulatory and governmental strategies for broadband rollout in rural areas. Moreover, there are very few studies regarding broadband demand in rural areas. Different authors have worked on the effect of broadband on economic growth.

3. Costing methodology This section describes the procedure employed for the cost analysis, the features of the geotypes, the network architectures employed and the cost model. 3.1. Cost analysis procedure The cost study was conducted by taking into account different sources of information. The general procedure employed for the analysis is depicted in Fig. 1. The information about the geotypes is provided in Section 3.2 of the article. Several features of the geotypes—i.e., the size of the geotype, the length of the different segments in the access network, the number of subscribers, the number of street cabinets per central office, etc.—is derived from a study by Analysys Mason (2008), concerning the deployment of fixed broadband access infrastructure in the United Kingdom. Based on the values of the parameters of each geotype, it was possible to prepare a network design and define a network topology. Section 3.3 explains the network architecture employed. With the market share value and the number of total subscribers per geotype, the number of homes passed and homes connected could be derived. The calculation of the number of network elements was performed using information about the network topology, and the number of homes passed and homes connected. As is shown in Fig. 1, the cost per home passed is based on capital expenditures (CAPEX) values, whereas the cost per home connected is based on CAPEX and operational expenditures (OPEX). Section 3.4 describes the cost model and different Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

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Fig. 1. Flow chart with the procedure for the cost analysis.

input parameters employed, such as the unitary costs of network elements, as well as the financial and OPEX parameters. The input values for the cost model were obtained over the period 2013–2014 by interviewing some of the manufacturers and network deployment companies in charge of deploying and maintaining fixed access network infrastructure in Europe. 3.2. Geotype approach For the definition of geotypes, we employed values taken from a study prepared for the case of the United Kingdom (Analysys Mason, 2008). Compared with some of the other cost studies that present information about rural areas in Europe (EIB, 2011; Elixmann et al., 2008; Point Topic, 2013), the information about the rural geotypes is much more exhaustive in Analysys Mason's report (2008). However, since our study is not a study specifically aimed at the UK, for our analysis input, we consider parameters that correspond to different countries in Europe (France, Germany and the UK). These values—i.e., the unitary costs of the network elements, the OPEX and financial parameters—were derived from sources different to the study of Analysys Mason (2008). Section 3.4 provides further information on the input parameters employed. According to Analysys Mason (2008), a rural area is characterized by having two geotypes: a and b (see Fig. 2). The central office is located in geotype a. For both geotypes, the street cabinet is connected to the central office through the feeder segment, whereas the premises are connected to the street cabinet through the distribution and drop segments. Geotype a corresponds to the households located in a town or village. Geotype b refers to an area located outside the town or village, and far away from the central office. Geotype b can also correspond to the households that are located along a road that leads to the town or village. Both geotypes differ in terms of the lengths of the feeder, distribution and drop segments, as well as in the number of street cabinets and premises per central office. Analysys Mason (2008) defines 13 geotypes that characterize all of the UK. For our study, we have employed the last six geotypes from the Analysys Mason study, which we have named Rural1a, Rural1b, Rural2a, Rural2b, Rural3a and Rural3b. Table 1a and b shows the parameters employed for the definition of the six geotypes. For example, in Analysys Mason study, it was defined that geotype Rural1a is a rural area, whereas geotype Rural1b is a remote area. In general, different administrations do not share a single definition for what does and does not count as a rural area. The OECD assumes that a rural area has a population density below 150 inhabitants per km2 (OECD, 2010). The Broadband Report prepared by the European Commission defined “rural areas” as “those with less than 100 people per km2” (European Commission, 2015). The Directorate-General for Regional and Urban Policy of the European Commission has prepared a working paper with a harmonized definition of cities and rural areas (European Commission, 2014b). This paper defined rural areas as those in which more than 50% of the population lives in rural grid cells. Rural grid cells exist outside urban clusters, whereas urban clusters are “clusters of contiguous grid cells of 1 km2 with a density of at least 300 inhabitants per km2 and a minimum population of 5000” (European Commission, 2014b). Moreover, the Government of the United Kingdom has made its own Rural Urban Classification; according to this classification, areas are rural “if they fall outside of settlements with [a] more than 10,000 resident population” (Department for Environment, Food & Rural Affairs, 2013). The following different types of rural areas were considered: town and fringe, town and fringe in a sparse setting, village, village in a sparse setting, hamlets and isolated dwellings, and hamlets and isolated dwellings in a sparse setting. Moreover, in some countries, there have been discussions about how broadband can reach the final 5% or 10% of the households (Carnegie UK Trust, 2013). Table 1a shows that the sum of the premises of the six geotypes considered in our study added up to 34.28% of households. However, if analysing only the four geotypes that correspond to Rural 2 and Rural 3, the percentage of households will only be 12.45%.

Fig. 2. Main network elements of geotypes a and b (source: based on Analysys Mason, 2008).

Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

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8

Table 1 Parameters employed for the definition of geotypes (information taken from the UK): a) classification criteria and densities; b) number of components and segment lengths (source: based on Analysys Mason, 2008). *Parameters added in order to consider the rollout of street cabinets. a) Geotype

Rural 1

Rural 2

Rural 3

Classification criteria (distances are straight lines) 43000 lines

o3000 lines and 41000 lines o1000 lines

Total b)

43000 lines o 1 km from Central Office b) 43000 lines 41 km from Central Office a) 41000 lines o 1 km from Central Office b) 41000 lines 41 km from Central Office a) o 1000 lines o 1 km from Central Office b) o 1000 lines 4 1 km from Central Office –

a)

% of total number of premises (27.256.460 in the UK)

% of total area (UK)

Premises density (per sq.km)

Fraction of homes in flats

Average homes per block of flats

10.12%

1.3%

876

8%

4.9

11.70%

14.2%

93

4%

4.7

4.04%

1.6%

285

4%

4.6

4.21%

20.8%

23

2%

5.1

1.60%

3.0%

61

2%

3.8

2.57%

48.9%

6

1%

4.4

34.28%

89.8%

–

–

–

Geotype Average lines per No. of street cabiCentral Office nets per Central Office

Average lines per Average feeder street cabinet segment (m)

Average distribution segment (m)

Average drop segment (m)

Total average length (m)

Rural1a Rural1b Rural2a Rural2b Rural3a Rural3b

205 144 185 123 0 (95)* 0 (102)*

246 705 414 1316 422 1318

9 37 16 70 32 126

732 2825 622 2090 518 2264

2751 3181 897 935 190 305

13.4 22.2 4.9 7.6 0.0 (2.0)* 0.0 (3.0)*

477 2083 192 704 64 820

3.3. Network architectures There are three types of fixed broadband access networks: copper, fibre and cable-based networks. For this study, we considered copper- and fibre-based access networks. Fig. 3 shows the network elements of the different network architectures. The networks differ, among other things, in the extent that they reuse the existing copper network. CO-VDSL is a network that reuses all existing copper-based access network located between the central office and the customer premises equipment (CPE). With FTTC, the fibre should be deployed up to the street cabinet. With fibre to the remote node, a Minidigital subscriber line access multiplexer (DSLAM) is located in the distribution segment. There are typically two possibilities for powering the Mini-DSLAM. In the first option, it can be powered from the street cabinet, which means that a remote power unit (RPU) is deployed directly in the street cabinet. In the second option, the Mini-DSLAM is powered from the central office, which means that there is a remote powering system in both the central office and the street cabinet. The system in the central office transmits electricity to the street cabinet, which in turn transmits it to the Mini-DSLAM. For this study, we considered local power from the street cabinet. For FTTdp-Street, a single-port distribution point unit (DPU) cabinet is located in an area located between the distribution and drop segments. The DPU can use VDSL2/vectoring over the copper line to provide 100 Mbps when the distance is at most 300 m, or G.fast to provide several hundred Mbps if the distance is less than 100 m (ITU-T, 2014). For FTTdp-Building, a single-port DPU is located at the entrance of, or inside the building. VDSL2/vectoring or G.fast can be employed over a copper line. FTTdp-Building has a similar network architecture as an FTTB network. For FTTdp-Street and FTTdp-Building, a reverse power feeding (RPF), located on the user's premises, is used to provide energy to the DPU. A gigabit passive optical network (GPON) is used for the FTTH network. For FTTRN, FTTdp-Street and FTTdp-Building, GPON is employed for transmission over the fibre line. For FTTC, it was assumed that the existing main distribution frame (MDF), which is located in the street cabinet, could be reused. However, a new cabinet with a DSLAM should be deployed. FTTC employs gigabit Ethernet (GE) in the feeder segment. In the central office, the optical line terminal (OLT) contains the GPON and upstream Ethernet ports used for the FTTH, FTTRN and FTTdp network architectures. The optical network terminal (ONT) is employed in the FTTH network architecture. The design of the network architectures and network components was created so that every user could receive, whenever possible, a transmission speed of at least 30 Mbps or 100 Mbps. For network architectures that have copper-based segments, there is a broadband capacity limitation that depends on the length of the copper cable. It was assumed that for a copper line length of at most 300 m, a downstream transmission capacity of 100 Mbps was possible, whereas for a copper line length of at most 1 km, a downstream transmission capacity of 30 Mbps was possible. These broadband capacity values Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

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a)

DSLAM

b)

Street Cabinet

MDF

ODF

Central Office

Distribution Segment

Drop Segment

In-building Segment

Drop Segment

In-building Segment

MDF

Feeder Segment

Central Office OLT

c)

Feeder Segment

Central Office

9

Street Cabinet DSLAM

Feeder Segment

Distribution Segment

MDF

Street Cabinet

Drop Distribution Segment Segment

In-building Segment

-

Feeder Segment

Street Cabinet

Distribution Segment

Drop Segment

d)

Central Office

e)

Central Office

Feeder Segment

Street Cabinet

Distribution Segment

Drop Segment

In-building Segment

f)

Central Office

Feeder Segment

Street Cabinet

Drop Distribution Segment Segment

In-building Segment

In-building Segment

Fig. 3. Network architectures: (a) CO-VDSL; (b) FTTC; (c) FTTRN; (d) FTTdp-Street; (e) FTTdp-Building; (f) FTTH.

can be reached when using VDSL2/vectoring. For this study, we assumed that VDSL2/vectoring was being used in the COVDSL, FTTC and FTTRN architectures. VDSL2/vectoring or G.fast could be employed for FTTdp-Street and FTTdp-Building, We focused on these two values (30 Mbps and 100 Mbps downstream), because they have been defined as broadband targets by the European Commission, as was mentioned in Section 1 of this paper. Given the limitation that the maximum distance of the copper line segment needed to be at most 1 km to provide all the households with 30 Mbps, in a few geotypes there are a few networks that will not able to entirely meet the targets of the European Digital Agenda. Table 2 shows the minimum capacity that can be provided by every type of network for the different geotypes. Table 2 provides the answer to the research question 1 posed in Section 1: what are the fibre- and copper-based access networks Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

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Table 2 Minimum broadband capacity downstream that can be provided according to the broadband targets of the European Digital Agenda (30 Mbps or 100 Mbps). The term ‘distance’ refers to the copper line segment length. Network type

Geotype “a”

Geotype “b”

CO-VDSL

Rural 1a, 2a and 3a: 30 Mbps (300 mo distanceo 1 km)

FTTC

Rural 1a: 100 Mbps (distance o 300 m) Rural 2a and 3a: 30 Mbps (distance o 1 km)

FTTRN

100 Mbps (distance o 300 m)

FTTdp-Street

100 Mbps (distance o 300 m)

FTTdp-Building

100 Mbps (distance o 300 m)

FTTH

100 Mbps

Rural 1b, 2b and 3b: 30 Mbps not possible for all households (distance 41 km)) Rural 1b: 30 Mbps (distance o1 km) Rural 2b and 3b: 30 Mbps not possible for all households (distance 41 km) 100 Mbps (distance o300 m) 100 Mbps (distance o300 m) 100 Mbps (distance o300 m) 100 Mbps

that can be used in rural areas to provide at least the 30 Mbps or 100 Mbps defined in the European Digital Agenda? Given the maximum total length of 1 km, it is possible for CO-VDSL to provide 30 Mbps in geotypes a, i.e., Rural1a, Rural2a and Rural3a. Information regarding the total average segment lengths is shown in Table 1b. In the case of geotypes b, it was not possible for CO-VDSL to provide all households with 30 Mbps; consequently, we did not consider CO-VDSL for geotypes b in the cost analysis. FTTC could provide 100Mbps for geotype Rural1a, given the maximum distance of 300 m, but only 30 Mbps for geotypes Rural2a and Rural3a. For geotype Rural1b, FTTC could provide 30 Mbps, but could not provide all households with 30 Mbps for geotypes Rural2b and Rural3b, because the total segment length was longer than 1 km. Therefore, we did not consider FTTC for geotypes Rural2b and Rural3b in the cost analysis. The network design for FTTRN was created so that the Mini-DSLAM could be placed at a point where the maximum copper line length was 300 m from the subscriber's premises, which enabled a downstream transmission capacity of 100 Mbps. The Mini-DSLAM supports up to 48 VDSL2 ports; however, this maximum value of ports was not reached in our network design, because the number of Mini-DSLAMs depends on the maximum distance up to the customer's premises, as well as on the minimum bandwidth that should be provided. One splitting level of 1:4 was employed in the street cabinet for the FTTRN network architecture, which provided on average a transmission speed of 625 Mbps per Mini-DSLAM. For FTTdp-Street, FTTdp-Building and FTTH, a splitting ratio of 1:32 was employed in the street cabinet, which provided each household on average a downstream transmission capacity of 78 Mbps. For the design of the networks that could provide 100 Mbps downstream, we used a statistical multiplexing factor of 20%, a value that is similar to the ones employed in fibre-based networks in Europe. This implies that on average every user should have at least 20 Mbps downstream at all times. Table 1a shows the percentage of households in flats; this value ranged from 8% for Rural1a to 1% for Rural3b. Given the low number of households in multiple dwelling units (MDUs), we have assumed for our cost calculation that all the households in all the geotypes were located in single dwelling units (SDUs). For the feeder and distribution segments, the deployment was terrestrial, i.e., it was necessary to invest in digging in order to lay out the fibre. For the drop segment, it was assumed that 45% of the drop segment would consist of aerial deployment, which implies that the existing poles would be reused. It was assumed that two distribution segments were connected to a street cabinet. In all cases, there was only one network operator in charge of deploying the network; for this study, we did not analyse the case where different operators intended to reuse the same access network infrastructure. 3.4. Cost model The cost per home passed and the cost per home connected were the two metrics used in this study. Whereas the cost of a home passed did not involve all the network elements needed to connect a user, nor did it consider the effect of market share value, the cost of a home connected considered all the network elements for an end-to-end connection in the access network and the effect of market share value. For the cost of a home passed, a broadband coverage of 100% was assumed, whereas for the cost of a home connected a broadband coverage of 100% and a broadband penetration equivalent to the market share value was assumed. For FTTH, it was assumed that the cost of a home passed involved all the costs necessary to deploy the fibre up to the basement of the building. For the calculation of the cost of an FTTH-connected home, it was considered that a technician would need to go to the house to rollout the in-building fibre cable. Furthermore, the cost of the CPE should be taken into account for the cost of a home connected for FTTH. For the FTTdp network architectures, the cost of a home passed considered the rollout of the fibre up to the location of the DPU cabinet. The cost of a home connected Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

Network

Cost per home passed All networks

CO-VDSL FTTC

FTTRN

FTTdp-Street

FTTdpBuilding FTTH

Cost per home connected Network-specific

– Deployment in the central office – CAPEX – Deployment of equipment in the central office and – 100% of homes are passed street cabinet up to the street cabinet. – Four years of initial investment are considered. – Deployment of Mini-DSLAM in the distribution – No customer equipment segment. – Deployment of fibre up to the Mini-DSLAM – Deployment of fibre up to the place where the DPU will be located between the distribution and drop segments – Deployment of fibre up to the building

– Deployment of fibre up to the building

All networks

Network-specific

– Maintenance of all copper infrastructures. – CAPEX and OPEX – 100% of homes are passed and the number – Maintenance of the copper infrastructure located between the street cabinet and the customer's of homes connected depends on the marpremises ket share – Maintenance of the copper line located between – 15 years are taken into account the street cabinet and the customer's premises – CPE and customer equipment provided – Deployment of the DPU – Maintenance of the copper line located between the DPU and the customer's premises – Deployment of the DPU – Maintenance of the copper line located between the DPU and the customer's premises – Deployment of in-building fibre

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Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

Table 3 Assumptions used to calculate the cost per home passed and the cost per home connected.

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J. Rendon Schneir, Y. Xiong / Telecommunications Policy ∎ (∎∎∎∎) ∎∎∎–∎∎∎

included the cost of the DPU cabinet, the cost of the installation of the DPU cabinet by a technician and the RPF and CPE. The cost of a home passed for FTTRN included the cost of the Mini-DSLAM and the cost of the rollout of fibre up to the MiniDSLAM. For FTTC, the cost of the equipment in the street cabinet and the cost of the fibre rollout up to the street cabinet were assigned to the cost per home passed. For the CO-VDSL network architecture, the cost of a home passed included the cost of the VDSL2 equipment in the central office. Table 3 summarizes the assumptions employed when calculating the cost per home passed and the cost per home connected. The cost per home connected included all the costs of the cost per home passed, as well as additional costs. A greenfield approach was considered for the deployment of the fibre-based infrastructure, i.e., it was assumed that there was no existing fibre infrastructure available and that all ducts needed to be deployed. CAPEX and OPEX were considered in the cost analysis. For the calculation of the majority of the CAPEX, a simplified bottom-up analysis was conducted. For the calculation of the OPEX, a top-down analysis was conducted. To obtain the present value of the investments made, a cumulative present value (CPV) with a discount rate (DR) of 10.5% was used. The discount rate consisted of a weighted average cost of capital (WACC) of 8.5% and a risk premium of 2%. These numbers were similar to values employed by fixed operators that deploy fibre-based access networks in Europe. For the calculation of the cost per home passed, the CPV of the CAPEX employed for rolling out the network over the first four years was taken into account. To derive the cost per home connected, the CPV of the CAPEX and the OPEX required to rollout the network and maintain it over 15 years was considered. For this study, we assumed that the term cost of an individual network element referred to the purchase price. To derive the annual CAPEX, all values of the cost of the individual network elements were added. Subsequently, the OPEX was derived. Finally, the discount rate was employed to calculate the cumulative present value of the total investment. The individual costs of the network elements were derived by obtaining information from eight of the companies in charge of deploying fixed access infrastructure in France, Germany and the UK over the period 2013–2014. Thereafter, average values were derived. These average values were in the order of magnitude for fibre- and copper-based access networks in some regions in Europe. Some of these values had previously been used by the authors for a research study on FTTdp and FTTH networks (Rendon Schneir and Xiong, 2015). The cost of trenching and duct deployment in the feeder and distribution segments was €65 per metre; the cost of this item was €50 in the drop segment. The cost of the aerial deployment of fibre in the drop segment was €12 per metre. The connection works for fibre deployment inside the building for a new FTTH user was €220. The connection works for a new DPU cabinet for the FTTdp-Building and FTTdp-Street network architectures was €90 and €140, respectively. The CAPEX involves the investment needed to rollout the active and passive infrastructure. For fibre rollout in the feeder, distribution and drop segments, the CAPEX consisted of the following items: the cost of digging, deployment of ducts and the rollout of fibre and manholes. The OPEX included the cost of maintaining the active and passive infrastructure. The following mark-up values were applied to the CAPEX in order to obtain the annual OPEX: 7.5% for the active network elements and 1% for the passive infrastructure. In the central office, the OPEX also included the cost of floor space rental and energy consumption. For the calculation of the energy consumption, a value of €0.16/kW h was employed. The OPEX included the cost of the maintenance of the copper line. Several companies were asked to obtain costs for the maintenance of the copper lines. The following average values were employed in the analysis for the monthly maintenance of a copper line: €0.8, €0.3, €1.1 and €0.8 for the in-building, drop, distribution and feeder segments, respectively. Regarding the asset lifetimes, the following values were employed: six years for the active network elements located inside the customer's premises (CPE, ONT and RPF); eight years for the rest of the active network elements (DSLAM, DPU and OLT equipment); 25 years for the cables and fibre; 45 years for the ducts. The renewal of the active equipment was taken into account in this study, as it has a lifetime of less than 15 years, as considered in the cost analysis. With regard to the time needed to deploy the network, it was considered that the network be deployed over the first four years. The percentage of premises passed was 25%, 50%, 75% and 100% in years one, two, three and four, respectively. To derive the cost of a home connected, the value of broadband penetration, which we labelled the target market share for our analysis, was used. It was assumed than an operator would reach 22.5%, 45%, 67.5% and 90% of the target market share in years one, two, three and four, respectively. Following on, the cost model considered an annual take-up rate of 0.9625%, which would permit the operator to reach 100% of the target market share in year 15. Furthermore, the cost model used an annual churn rate of 10% as of year two. The following items were not considered in the cost analysis: the cost of aggregation, core and backhaul networks; the cost of the provisioning of telephony, video or broadband services; marketing and sales costs; common costs, e.g., those related to the management and administration tasks that are not allocated to individual services such as strategy, human resources, research or regulatory departments (WIK-Consult, 2013); the cost of permits for deploying the needed infrastructure; the cost of engineering drawings.

4. Results This section provides the answer to the research question 2 posed in Section 1: What is the cost of fibre- and copperbased access networks that can be employed in rural areas to provide at least the 30 Mbps or 100 Mbps defined in the European Digital Agenda? Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

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Table 4 Investment per home passed, CAPEX.

CO-VDSL FTTC FTTRN FTTdp-Street FTTdp-Building FTTH

Rural1a

Rural1b

Rural2a

Rural2b

Rural3a

Rural3b

€17 €230 €384 €394 €615 €615

– €697 €1.131 €1.195 €2.104 €2.104

€19 €176 €349 €405 €798 €798

– – €1.241 €1.329 €3.049 €3.049

€52 €260 €552 €706 €1.492 €1.492

– – €1.257 €1.302 €4.397 €4.397

4.1. Investment per home passed Table 4 shows the results related to the investment per home passed, which were obtained by calculating CAPEX values. The cost for FTTH and FTTdp-Building were the same, as it was assumed that the cost per home passed considered all the network elements from the central office up to the basement of the building. As there was no drop segment when calculating the cost of a home passed for FTTdp-Street, the cost of FTTdp-Street was lower than that of FTTdp-Building and FTTH. The cost of FTTRN was slightly lower than the cost of FTTdp-Street, because for FTTRN, the cost of the Mini-DSLAM was included and the Mini-DSLAM was deployed in an area located no more than 300 m from the customers' premises. For every rural scenario, the cost per home passed for geotype b was higher than for geotype a. This was the case because the feeder, distribution and drop segments were longer in all cases for geotype b compared to geotype a. The cost for FTTC also included the installation of the street cabinet with the DSLAM, whereas the cost for CO-VDSL included the cost of the VDSL2 ports. The cost composition of the cost per home passed for geotypes Rural2a and Rural2b is shown in Table 5. The cost percentage for the feeder segment ranged from 4% for FTTdp-Building and FTTH to 18% for FTTC for the Rural2a geotype. The cost percentage of the distribution segment ranged from 36% for FTTdp-Building and FTTH in the case of geotype Rural2b to 84% for FTTRN in the case of geotype Rural2a. For FTTdp-Building and FTTH, the cost percentage of the drop segment was 48% and 56% for geotypes Rural2a and Rural2b, respectively. 4.2. Investment per home connected To derive the cost of a home connected, the CAPEX and OPEX were considered over a period of 15 years with a market share of 50%. Fig. 4 shows that in all cases, the cost per home connected indicated the following descending order: FTTH, FTTdp-Building, FTTdp-Street, FTTRN, FTTC and CO-VDSL. For geotypes b, the cost of FTTdp-Building and FTTH was markedly higher than the costs of the other network architectures. This was the case because of the investment needed to rollout the fibre in the drop segment for both network architectures. For the three rural scenarios, Rural1, Rural2 and Rural3, the cost per home connected for geotype b was higher than the cost for geotype a. The cost composition for geotypes Rural2a and Rural2b is shown in Table 6. For CO-VDSL in geotype Rural2a, the cost percentage of the central office was 62%, whereas for FTTC the cost percentage of the street cabinet was 54%. For geotype Rural2b, the cost percentage of the distribution segment, which contains the Mini-DSLAMs and the fibre rollout up to the Mini-DSLAMs, was 69% for geotype Rural2a and 75% for geotype Rural2b. For FTTdp-Street, the cost percentage of the distribution segment was 39% and 62% for geotypes Rural2a and Rural2b, respectively. For FTTdp-Building and FTTH, the major cost contribution was the distribution segment, with 34% and 43% for geotypes Rural2a and Rural2b, respectively. 4.3. Sensitivity analysis: effect of the market share on the cost In order to understand the impact of the market share value on the cost per home connected, a sensitivity analysis was conducted (see Fig. 5). As was explained in Section 2, there is a lack of sufficient studies concerning the demand for broadband in rural areas of Europe. Therefore, for our study, we decided to assess the effect of different levels of market share value on the cost. The market share values ranged from 20% to 80% and the geotype employed was Rural2a. Table 5 Cost composition, investment per home passed. Rural2a

Central office Feeder segment Street cabinet Distribution segment Drop segment

Rural2b

CO-VDSL

FTTC

FTTRN

FTTdp-Street

FTTdp-Building

FTTH

FTTRN

FTTdp-Street

FTTdp-Building

FTTH

100% – – – –

8% 18% 74% – –

4% 9% 3% 84% –

8% 7% 5% 80% –

4% 4% 3% 41% 48%

4% 4% 3% 41% 48%

2% 15% 1% 82% –

3% 14% 2% 81% –

1% 6% 1% 36% 56%

1% 6% 1% 36% 56%

Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

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Fig. 4. Investment per home connected, CAPEX and OPEX, 50% market share. Table 6 Cost composition, investment per home connected, CAPEX and OPEX, 50% market share. Rural2a

Central office Feeder segment Street cabinet Distribution segment Drop segment In-building segment DPU elements (ONT/RPF)þ CPE

Rural2b

CO-VDSL

FTTC

FTTRN

FTTdp-Street

FTTdp-Building

FTTH

FTTRN

FTTdp-Street

FTTdp-Building

FTTH

62% 6% 1% 8% 2% 6% – 15%

12% 7% 54% 7% 2% 5% – 13%

9% 5% 3% 69% 1% 4% – 9%

11% 4% 3% 39% 1% 3% 29% 10%

9% 3% 2% 34% 20% 3% 20% 9%

9% 3% 2% 34% 19% 21% – 12%

4% 12% 2% 75% 1% 2% – 4%

5% 11% 2% 62% 1% 1% 13% 5%

4% 7% 1% 43% 33% 1% 8% 3%

4% 7% 1% 43% 33% 8% – 4%

In Section 3.2, the baseline value of the market share employed for the analysis was 50%. Fig. 5 shows that for all market share values, the cost values had the following descending order: FTTH, FTTdp-Building, FTTdp-Street, FTTRN, FTTC and COVDSL. This order was also observed for the rest of the geotypes. For the lowest values of the market share, the cost of the FTTRN, FTTdp-Street, FTTdp-Building and FTTH was much higher than those of CO-VDSL and FTTC, because of the investment needed to deploy the fibre in the distribution segment.

Fig. 5. Effect of the market share on the investment per home connected, CAPEX and OPEX, 50% market share, geotype Rural2a.

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Fig. 6. Cumulative value of investment per home connected, CAPEX and OPEX, 50% market share. Previous cost values up to 66% of the population were not considered.

4.4. Total costs The costs necessary for rolling out a network at the national level have been calculated. This was done by multiplying the number of households located in a geotype by the cost per home connected in the geotype. Fig. 6 shows the total costs for the six geotypes analysed in the study. The previous cost values up to 66% of the population were not considered because this study focused exclusively on the six geotypes that covered around 34% of all the households (see Table 1a). If all the six geotypes were to be covered with FTTH, the total cost would be €33.6 billion, whereas the total cost would be €25.7 billion if the six geotypes were to be covered with FTTdp-Street. For the initial three geotypes, Rural1a, Rural1b and Rural2a, the FTTC cost will be €10.3 billion. The cost of CO-VDSL for the Rural1a geotype was €2.2 billion.

5. Assessment of the results and policy implications 5.1. Assessment of the results Various characteristics were detected from the results presented in the article. Firstly, the cost of rolling out a network in geotype b was in all cases higher than in geotype a. The average cost of all the networks in geotype b was 97%, 98% and 44% higher than the average cost of all the networks in geotype a for the Rural1, Rural2 and Rural3 areas, respectively. These values lead to a total average cost increase of 80%. Analysys Mason (2008) found that the costs per home connected through an FTTH/GPON deployment for networks in b geotypes are around 240% higher than the equivalent costs in a geotypes. This is basically due to the longer lengths of the distribution and drop segments required in b geotypes. Secondly, in terms of the cost of a home connected, the cost of FTTdp-Building was on average 1.4% lower than the cost of FTTH. In both cases, the majority of the costs—at least 68%, as shown in Table 6—were allocated to network elements located between the central office and the basement of the building. Given this relatively low difference between the costs of FTTH and FTTdp-Building, it is understandable that in some cases operators prefer to continue reusing the copper line inside the house, in order to avoid the management overheads and efforts incurred by in-house fibre deployment. Thirdly, four network architectures were able to provide 100 Mbps downstream for all geotypes: FTTRN, FTTdp-Building, FTTdp-Street and FTTH. The mean costs of FTTdp-Building and FTTH were on average 30% and 58% higher than the mean costs of FTTRN and FTTdp-Street in geotypes a and b, respectively. Therefore, if the aim is to provide 100 Mbps downstream, FTTRN and FTTdp-Street would be able to achieve this at a lower cost. The cost of FTTdp-Street was on average 18% higher than the cost of FTTRN. Some of the different studies mentioned in Sections 1 and 2 of the present article—such as Analysys Mason (2008), EIB (2011), Elixmann et al. (2008), FTTH Council Europe (2012), Frias et al. (2015) and Tahon et al. (2014)—are based on cost calculations made for FTTH and/or FTTC networks. In the future, other types of networks, such as FTTRN and FTTdp-Street, could also be employed to calculate the deployment costs of high-speed access networks in rural areas. Fourthly, CO-VDSL had the lowest cost and was able to provide 30 Mbps in geotype a. FTTC had the lowest cost and was able to provide 30 Mbps in geotype Rural1b. For geotype Rural1b, the cost of a home connected with FTTC was 36% lower than the cost of FTTRN. Therefore, from the cost perspective, the CO-VDSL solution is the most economic one. However, it would only be effective in a geotypes, leaving many of the premises located in b geotypes without a proper NGA connection. Finally, it was found that for all the market share values, the cost values had the following descending order: FTTH, FTTdp-Building, FTTdp-Street, FTTRN, FTTC and CO-VDSL. It is not surprising to find that the FTTH network is the most expensive one. Moreover, given the limited amount of investment needed to deploy the CO-VDSL infrastructure, it was expected to derive low values for the cost of CO-VDSL networks. However, the descending order of costs, based on CAPEX and OPEX over a period of 15 years, leads to the following conclusion: the more fibre is deployed, the more expensive the Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

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network will be. 5.2. Policy implications The analysis undertaken in the previous sections highlights a series of issues that need to be addressed by policymakers. The topics mentioned in the following deserve further research and consideration; the first of these is the risk of a digital divide within a single rural community. From a cost perspective, this study has shown that, in rural areas, the cost of providing a high-speed broadband service is on average 80% higher for geotype b than for geotype a. This could lead to a situation in which operators are more interested in rolling out high-speed broadband networks in geotype a than in geotype b. Some authors have already identified this situation in other regions; for example, Gijon, Whalley and Anderson (2015) have identified broadband speed differences between different areas in the city of Glasgow. Grubesic (2010) describes a process for collecting data concerning broadband provisioning in the United States, and identifies “issues of equity and [the] availability of broadband for all residents within a community”. Policymakers should be aware of the differences in transmission speeds that can be produced within a rural community when a particular type of technical solution is chosen. For example, for the case of rural Ireland, it was found that the technical solution chosen can result in an internal digital divide. One report on the broadband strategy for Ireland states that a telecom network consists of two parts: a) a core and backhaul network, where the fibre is deployed up to the street cabinet or central office, and which would therefore imply an FTTC or a CO-VDSL solution, respectively; and b) an access network—the section known as “the last mile”—which connects the premises to the point where the backhaul network is available (PricewaterhouseCoopers, 2015b). Given the current technical limitations, a downstream capacity of 30 Mbps can only be provided if the premises are located less than 1 km away from the street cabinet or central office. Five villages in rural Ireland were analysed as case studies and it was found that, on average, 45% of the premises were located at a distance of less than 1 km from a street cabinet or central office. As a consequence, they would be able to receive a minimum transmission speed of 30 Mbps by using FTTC or CO-VDSL. The remaining 55% of the premises fell outside of the 1 km range and would therefore need a different type of technical solution. The second topic concerns a proper National Broadband Plan. Several jurisdictions have already defined (or are in the process of preparing) the National Broadband Plan that will be implemented. OECD (2011) compares the National Broadband Plans of different developed countries and concludes that, with the exception of heavily urbanised countries such as Singapore and Luxembourg, in the majority of cases NBPs have not made commitments to provide every home with a very high-speed broadband service. A National Broadband Plan should specify, among other things, what type of broadband transmission capacity will be provided in rural areas, who is going to bear the rollout costs of different broadband networks so that the targets of the European Digital Agenda are met, and when these targets should be achieved. However, what is currently not clear enough is the overall strategy of each country or region in Europe for meeting the broadband targets in rural areas, in terms of NGA provisioning, in 2020. With an NGA coverage of only 25% in rural areas in Europe (European Commission, 2015), it would be desirable for the National Broadband Plans to make a much more detailed analysis of the expected broadband diffusion in rural areas over the next years. The third topic for policymakers is the question of funding and the allocation of subsidies. The cost of network rollout in rural areas is higher than in urban or suburban areas (Analysys Mason, 2008; Elixmann et al., 2008), which implies that some sort of state aid might be needed to provide broadband services to the grey and white areas. Policymakers should address the following question: what type of broadband transmission capacity should be provided by networks that receive state aid—30 Mbps, 100 Mbps, or a different value? As we have seen in this study, there are important cost differences between the different types of network. Briglauer and Gugler (2013) explain that state subsidies can be beneficial for white areas (i.e., rural areas). Moreover, the principle of universal service has been extensively applied to telephony services and the provisioning of basic broadband in several regions across the world. With regard to high-speed broadband transmission capacity, it should be considered whether this principle should be applied, and if so, how (Alleman, Rappoport and Banerjee, 2010; Bohlin and Teppayayon, 2010; OECD, 2012). Ragoobar et al. (2011) have stated that a universal service obligation would help to promote NGA rollout. Fourthly is the issue of technology neutrality and the combination of different networks. In Europe, the principle of technology neutrality is applied, which ensures that no particular type of technology or network is promoted or discriminated. The application of this principle, together with the fact that access networks have different costs, might lead to a situation where different types of access networks might be used in the same EU Member State. For example, for broadband provisioning of 30Mbp in geotype Rural1a, the least expensive technology type to use is CO-VDSL. In geotype Rural1b, FTTC has the lowest cost. Meanwhile, for broadband provisioning of 100 Mbps in geotype Rural2b, FTTRN would be the least expensive network. The evolution of copper-based technologies could provide an extension to the lifespan of copper lines and complement the deployment of fibre-based networks to provide NGA rollouts in some rural environments. The fifth area on which policymakers should focus is studies on broadband demand in rural areas. The present article has focused on the cost of the rollout of broadband networks. In order to construct a business case, detailed studies of the demand for high-speed broadband services in rural areas should be conducted. Furthermore, an affordability analysis of broadband services in rural areas should also be made; Analysys Mason and Tech4i2 (2013) includes a 30 Mbps broadband demand study for Europe, but they do not distinguish between rural and other areas. Elsewhere, Peronard and Flemming (2011) explain broadband demand in rural Denmark, and Park and Kim (2015) explain the situation of broadband demand in Please cite this article as: Rendon Schneir, J., & Xiong, Y. A cost study of fixed broadband access networks for rural areas. Telecommunications Policy (2016), http://dx.doi.org/10.1016/j.telpol.2016.04.002i

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rural South Korea. Updated studies about broadband demand in rural regions should be conducted in different European countries. The sixth topic concerns the costs when a co-investment or network sharing scheme is employed in rural areas. The analysis conducted for this article considers only one operator in charge of deploying the infrastructure. It is possible that innovative business models may emerge that change the underlying assumptions regarding the provision of infrastructure in rural areas. Rendon Schneir and Xiong (2013) show how the costs are allocated when a co-investment scheme is employed for FTTH deployments. Further studies are needed in order to understand better the cost implications of network sharing schemes for broadband rollout in rural areas. Finally, the cost of other broadband networks should be studied. The current study has presented the results for the rollout of fibre- and copper-based access networks in rural areas. In general, it is believed that wireless networks are capable of providing an appropriate broadband service in rural areas. Certain features of wireless networks such as long-term evolution (LTE), LTE-Advanced and small cells should be addressed. For example, what is the cost of a wireless network if it has to provide 30 Mbps or 100 Mbps downstream for all households in a rural area? In this sense, Frias et al. (2015) describe the cost of an LTE network that provides 30 Mbps in rural Spain. The cost results for wireless networks should be compared with the results for the rollout of a fixed access network, which would help us to better understand the cost advantages and drawbacks of fixed and wireless networks. Moreover, the cost of cable-based access networks should also be analysed. It is not clear whether the cost of satellite-based networks should be considered as part of an NGA network rollout study, since the downstream transmission speed of these networks nowadays is lower than 30 Mbps.

6. Conclusions The rollout of high-speed broadband access networks in rural areas in Europe lags behind the rollout of broadband networks in urban and suburban areas. In order to understand the cost implications of the rollout of broadband networks that meet the broadband targets of 30 Mbps or 100 Mbps as defined in the European Digital Agenda, this article addresses the following questions: 1) What are the fixed access networks that can meet the targets of the European Digital Agenda in rural areas? And 2) What is the cost of these networks? Different fibre- and copper-based networks were analysed. In the cost model employed, we differentiated between a geotype labelled a, which included households located in a town or village close to the central office and a geotype labelled b, which included households located outside the town or village. It was found that the cost of broadband deployment for geotype b was on average 80% higher than for geotype a. This situation can lead to the creation of a digital divide within a rural area. For all the geotypes analysed, the following order of costs (in descending order) was identified: FTTH, FTTdp-Building, FTTdp-Street, FTTRN, FTTC and CO-VDSL. Given the extended lengths of the distribution, feeder and drop segments, some network architectures will not able to provide all households with the minimum bandwidth of 30 Mbps as defined in the European Digital Agenda. Overall, the study showed that operators will likely use a combination of different broadband access networks due to the significant differences in costs for implementing different networks in different regions. The article has highlighted the following topics that should be addressed in detail by policymakers in order to provide a solution to the low deployment of high-speed broadband networks in rural areas: the risk of a digital divide within a rural area; the definition of how broadband deployment in rural areas will be addressed as part of a National Broadband Plan; and the allocation of subsidies to support the rollout of networks capable of providing 30 Mbps or 100 Mbps. Further research is also needed to understand the demand of broadband networks in rural areas, a cost-benefit analysis for rural areas, the network costs when a co-investment scheme is employed, and the broadband capacity and deployment costs of wireless networks such as LTE, LTE-Advanced and small cells.

Acknowledgements The authors would like to express their gratitude to the reviewers and editors of the Telecommunications Policy journal as well as the participants of the European Regional ITS Conference 2014 held in Brussels, Belgium, for the useful remarks provided.

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