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Monday, 14 December 2009 04:37

OECD makes the case for a better-than-the-NBN FTTP rollout

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In what is perhaps the most detailed cost-benefit analysis of a national FTTH network yet attempted the OECD has concluded that cost savings of between 0.5 and 1.5 percent over 10 years across the four key sectors of an economy: electricity, health, transportation and education could justify the cost of such a network, but it says each house should have a dedicated fibre connection, or possibly two!

A new report - Network Developments In Support Of Innovation And User Needs, from the OECD Working Party on Communication Infrastructures and Services Policy -  says: "While the calculations in the paper are rough estimations they clearly highlight the fact that investments in fibre networks can be justified relatively easily through minimal cost savings in other sectors even when the savings are often discounted in investment calculations by private firms."

The report examines potential cost-saving applications of an FTTH network across the four key sectors of the economy and then goes on to compare the costs of rolling out a new point-to-point fibre network with the amount of cost savings in electricity, health, transportation and education directly resulting from having a new network.

However its conclusions are based on a network even more costly than Australia's proposed gigabit passive optical network in which a single fibre would carry the traffic to and from about 32 homes with a passive optical splitter being used to deliver signals to the fibres connecting each home.

The OECD modelling assumes homes will be upgraded to point-to-point fibre-to-the-home which it says "promises the most flexibility to competitors, allowing them more potential to innovate since they can take over the physical line and attach the equipment of their choice." It even contemplates the need for a second fibre to the home!

It says that: "The analysis modifies a general cost estimate model for deploying a national point-to-point fibre-to-the-home network based on earlier OECD work. Rollout costs vary significantly between areas in practice but setting national coverage as the target allows us to focus on an 'average' cost across the economy."

It says that Governments "should promote network technologies and topologies which are the most flexible, create the most opportunities for competition, offer the highest potential for innovation and those which can provide the most bandwidth in the future...Health applications, in particular, will require very low latency and high quality of service guarantees in order for tele-health applications to work safely and efficiently.

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"New next-generation network rollouts will need to consider these requirements in the design phase in order to capture the benefits of certain services. Certain applications could potentially require a dedicated second fibre to the household in order to function optimally.

"Symmetric bandwidth will also be increasingly important...The bandwidth dedicated to downloading is often 10 to 16 times higher than the bandwidth set aside for uploads. This creates an unfortunate dilemma for users, in that their ability to acquire content is vastly enhanced, while their ability to submit content back to the network does not grow proportionally."

The report points out that a national fibre-to-the-home network would also create an infrastructure to support future upgrades to new, high-speed wireless technology. However wireless networks have not been modelled "because rollout costs for new technologies such as LTE have yet to be determined."

For its analysis the report uses three "average” installation costs of $US1,500, $US2,000 and $US2,500 - the report provides background justification for these choices These three levels are used to model lower and higher-cost installations due to differences in geography, density and access to existing passive infrastructure.

The report adds that: "Policy and regulatory measures to promote competition in a next generation environment should be based on a sound economic assessment of specific market conditions and local factors. Proposals for government investment in FTTH networks should include a thorough cost-benefit-analysis which considers any potential deployments of next-generation networks by the private sector and any public funding of networks must be evaluated and targeted to avoid market distortions and crowding-out of private investment.

"There could be cases where the social returns of broadband connectivity are potentially much larger than the costs of building the network but the operators do not invest because their private returns would not justify the investment. The inability of markets to take into account network externalities can lead to non-optimal provisioning of services and potentially limit innovation."

In addition to the four key sectors the report examines three others in some detail: grid computing, cloud computing and content distribution. However its discussion of the potential impact of a ubiquitous FTTH network on these sectors is largely qualitative rather than quantitative.

The report is an outcome of the June 2008 Seoul Ministerial Declaration and which OECD ministers expressed their desire promote the Internet economy and stimulate sustainable economic growth and prosperity by means of policy and regulatory environments that support innovation, investment and competition in the ICT sector.

The paper, says the OECD, is intended to support two key elements of that declaration – stimulating investment and competition in broadband networks and developing policies which maintain an open environment which supports innovation, and serving as an input to the OECD's innovation strategy by examining the relationship between investment in physical networks and potential impacts in other large sectors of the economy.

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