Incentives matter: Winning the race for ultra-fast broadband

As Canada seeks to develop an innovation agenda, a new report [pdf, 6MB] from the MacDonald Laurier Institute warns Canada to avoid Europe’s state-imposed mandates and top-down regulations that have contributed to underinvestment and poor network quality.

The report, “Winners and Losers in the Global Race for Ultra-Fast Broadband: A cautionary tale from Europe,” was authored by Andrea Renda, who is Senior Research Fellow and Head of the Regulatory Policy Unit at CEPS, the Centre for European Policy Studies. He is also a Senior Fellow at Duke University‚Äôs Rethinking Regulation Program, based at the Kenan Institute for Ethics.

MacDonald Laurier Institute says the report “demonstrates Europe‚Äôs policy of mandatory network sharing has discouraged investment in the continent‚Äôs networks and diminished the positive economic benefits that high-quality networks can enable.”

For example, fibre to the premises coverage is approximately double in the US compared to Europe (23 percent versus 12 percent); and overall next generation access coverage reaches 82 percent in the United States versus 54 percent in Europe. Furthermore, telecommunications revenues are dramatically higher in Australia, the US, Switzerland, Japan, Canada, Iceland, and Norway than in EU nations, which all fall below the OECD average.

It warns that “continuing down the European path could lead to a substantial price to pay in terms of growth and jobs.”

As indicated by Renda’s report, the development of broadband communications creates both challenges and opportunities for policy-makers.

  • How does public policy create the conditions for high-quality broadband¬†infrastructure?
  • How does it ensure market competition and protect consumer interests?
  • And to what¬†extent are these objectives in conflict?

Renda says the tension of these conflicting objectives resulted in many governments mandating “network sharing” where the owners of broadband infrastructure are required to grant access to competitors, particularly in the “narrowband” era of lower capacity networks.

But today‚Äôs ultra-fast broadband has become an information superhighway on which users can find all sorts of products and services that run “on top of” the network (so-called “over-the-top” services such as Netflix). These services are what users want when they connect to the broadband network; having 10 alternative identical ways to reach the same slow Internet is not going to add a lot of value to end users, especially if competition stifles incentives to deploy better networks, or to ultimately create products or services that highly depend on network speed.

The study investigates the policies most likely to create conditions for a jurisdiction to win the race for leadership in global ultra-broadband connectivity, with significant economic implications. It observes that the experience from Japan and South Korea suggests “a light regulatory touch can create the conditions for private investment in broadband networks and in turn help to produce the digital networks that can serve as the foundation for innovation, digital adoption, and economic growth.”

On the other hand, the study observes that the European Union has largely applied heavier-handed regulation (originally crafted for the age of legacy copper networks), with very different results. “The main takeaway is that Europe‚Äôs policy of mandatory network sharing has discouraged investment in the continent‚Äôs networks and diminished the positive economic benefits that high-quality networks can enable.”

While the report discusses the impact of the EU regulatory approach on competition, innovation, and investment with exclusive reference to wireline telecommunications, the author states “many of the findings apply also to wireless.”

“The lesson for the Trudeau government is that heavy-handed telecommunications regulations such as mandatory network sharing can lead to underinvestment in digital networks and in turn undermine its broader goals with regard to innovation and entrepreneurship.”

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