More news out of the British rural broadband market about a
business model I wanted to write about anyway, with implications for Latin
American markets. At least one reader I know will be happy the parade of farm
animals continues. Come together. Right now. For network sharing (if you are in
favor); national roaming (or the destruction of shareholder value if you are
The news this week there was a war of words – and business
models – between BT (which we used to call British Telecom), its mobile
subsidiary EE (which used to stand for something but I forget what) and the
rest of the UK mobile industry.
BT’s competitors O2, Hutchinson 3 (Three?) and Vodafone
advocate a shared network solution to solve the rural
broadband deployment conundrum I discussed last week. Vodafone CTO Scott
Perry is reported to have told a forum that sheep
don’t pay phone bills, a point I have also mentioned a few times.
(However, to be fair to our ovine friends, neither do cows
pay phone bills nor chickens nor thoroughbred horses nor pigs. Funny. All of
these have been mentioned as candidates for Agro-tech / IoT solutions where the
animals themselves might not pay the bills – hard get a bank account or a
credit card without a national ID card – but their owners might on their
behalf. Guess that business has been either slow to develop, not profitable
enough to justify network deployment or both, even in advanced economies like
The same Telecom.com article linked above quotes BT as
“BT has already invested heavily to create the widest 4G
coverage in the UK, and we are keen to collaborate with Government and industry
to extend rural coverage into areas where there is none today… To this end, we
have recently proposed a new model for consideration over the coming weeks.”
I remember, but cannot find, a cartoon showing a street
person speaking to a bank teller saying “I wanna open a joint account with
someone who has a lot of dough”. This is what BT – and America Movil in Latin
America – accuse regulators of wanting to do: take undue advantage of strong
competitors’ financial capability (their ‘bank accounts’ if you will) so that
weak competitors can expand on-net services to places where they do not have
The prospect makes AMX almost apoplectic. I am on the
organizing committee for the Colombian Telecom and Electronics Engineers’
Association’s conference. We annually have an operator debate and, inevitably,
AMX’s Juan Carlos Archila will bring up having to provide national roaming (a
variation on the network sharing theme) for Avantel, the fourth-place operator.
The measure was supposed to be temporary, so that Avantel could build out its
network, but has become essentially permanent (as most temporary measures
AMX accuses those unwilling or unable to invest in their own
networks of freeloading on those who have the financial wherewithal to build.
Avantel accuses AMX of having earned ‘monopoly profits’ that
it should share with its competitors. ‘Monopoly’ is incorrect although there
would be a lively debate over ‘dominant competitor’ that would take us far from
BT –having been the government monopoly and then dominant
provider since 1912 – will likely be accused by its competitors of having a
similar obligation to provide its infrastructure to the ‘greater good’ of the
nation. (Hence OpenReach.)
According to the Telecom.com article, BT’s proposal is that
the operators would build joint infrastructure – come together – in those zones
where there is clearly no business case, but those who have already chosen to
build in a particular zone should not be required to share.
We have got at least part way to a solution, one that maybe
even AMX could agree to. (Maybe not.) Build a single infrastructure and share
it in those zones where no one wants to build but if infrastructure exists, no
It is possible that the industry could come to an agreement
about this model but regulators will likely be looking for more. Let’s think
about two adjacent zones, one which has BT/EE service and one which is without
any service. Presumably the zone with BT/EE service is denser or richer or
otherwise more attractive economically than the zone without service. After
implementation of this solution, those in the zone previously without service
would have their choice of four operators; the richer/more populous zone would
still only have BT/EE service.
Worse, a, let’s say, Vodafone customer from the poorer/less
dense zone travelling to the adjacent zone (which presumably would be a natural
economic pole of attraction – stores, medical services etc.) would find
themselves without coverage.
A regulator would want, at a minimum, full coverage for
Voda/3/O2 clients who are ‘roaming’ into exclusively BT/EE territory.
Presumably BT/EE would complain that their own infrastructure was being used
against them, giving their competitors complete UK coverage at BT’s
Voda/3/O2 would say BT’s proposal forces them to build
wherever BT decides to build; whether or not it makes business sense for them.
As always, this comes down to setting appropriate prices.
The problem arises when regulators not only mandate national roaming but set
prices too low to provide the right incentives.
BT or AMX would, presumably, still be upset about their
rival’s ability to claim universal coverage ‘on their backs’ but that pain
would be mitigated if the national roaming price was high, say as high as a
prepaid minute. Strictly looking at revenues, they would be indifferent if a
minute carried on this part of the network was a direct customer of their own
or the customer of a roaming rival. (Alliteration. Yes, a deliberate choice.)
The rival would likewise be confronted with either paying a
high cost for their customers’ calling but on a pay-as-you-go basis or biting
the bullet and building their own infrastructure. The high cost would even
encourage investment, generally considered a good thing by governments.
I know it is old-fashioned to talk about ‘calling’ and
‘minutes’ but I am, in fact, old and the same argument would apply to data
traffic and MBs.
The remaining issue would be looking at whether there would
be an inappropriate incentive to leap-frog the shared infrastructure and build
your own, uneconomically, with a business case powered by unusually high prices.
I don’t think there is. If the shared infrastructure was already built, the
shared tariff would be cheaper than the high tariff for ‘national roaming’ I
propose here. If the shared infrastructure had not been built, things get more
complicated but the answer is likely to require regulatory approval to build
your own when an area has been designated for shared infrastructure.
Alternatively, since I assume that the shared infrastructure
would be subsidized by the national government in some, perhaps many, perhaps
most cases, another mechanism would be to pay the subsidy to the operator which
has already built something before the program began. This operator would have enjoyed
a substantial first-mover advantage and, with this mechanism, a rebate on its
As I said previously, I doubt that this proposal would be
enthusiastically embraced by either BT or AMX. They believe – with some
justification – that their superior financial capability gives them a
sustainable advantage that this idea would simply hand to their competitors.
The compensation would ease the sting but not completely balance the loss of
Here, I believe, is there the ‘greater good’ argument is
relevant. A country like the UK or Colombia that chooses to go this route has
decided that subsidizing broadband for its rural areas is either an economic
benefit that all citizens will enjoy, a moral imperative (fairness) or both.
Spectrum is a State-owned asset for which operators have received a concession
or right-to-use. The State has the right to determine the conditions and, where
legally permitted, change those conditions to achieve common goals.
Finally, I do not see this as a means to perpetually give
new operators a ‘helping hand’. Rather, the process would start with policy
makers (let’s say a Ministry of Communications) selecting areas at the fringes
of the existing network where most operators would not build on their own. It
is a process for ‘dead zones’ that would forever lack effective
infrastructure-based competition without a shared, subsidized network.
It is not for secondary or tertiary cities or fringe urban
situations that have already demonstrated their economic viability for existing
operators, even if a new operator finds it harder to meet its license-mandated
coverage or roll-out obligations than it originally thought.
Too bad. Business is difficult sometimes.
And while I am on this point, Latin America already has too
many operators in many countries. It does not need more. Nor should existing
operators subsidize directly or indirectly some bureaucrat’s mistaken idea
about how many carriers would be ‘nice to have’.
That has nothing to do with extending rural coverage and is,
frankly, a topic for another day.
Title Reference: Come together was the first track
and the first single off the Beatles last-recorded album, Abbey Road, even though this was the penultimate disc released.
The single went to number 1 in the US as did Something which was the flipside of
the 45. Unusually, the single had two “A-sides”. It is a John Lennon-penned
Lennon-McCartney song and Lennon once described the lyrics as “gobbledygook” so not
surprising I did not get much mileage out of the words for this article. Not
even any farm animal references. Maybe if Paul had written it…
or Brian Wilson.
No Comments »