Stimulating competition through open access networks

MARCH 5, 2013

Click to download the report

Today’s post is written by Agustin Diaz-Pines of the OECD’s Science, Technology and Industry Directorate

Even though the term “open access” is widely used in policy discussions surrounding broadband networks, there is little universal agreement as to what it means. A new OECD report entitledBroadband Networks and Open Access helps to shed some light on this important concept by examining how and why open access policies have been implemented in communication markets around the world.

Let’s start by providing a working definition. “Open access” is an arrangement that provides effective, wholesale access to network infrastructure or services at fair and reasonable prices, and on transparent and non-discriminatory terms. Open access arrangements are currently used in a variety of situations, including in fixed access networks, mobile networks, Internet exchange points (IXPs), undersea cables, etc.

So why are they so important? Open access arrangements are crucial for promoting competition, greater consumer choice and lower prices in markets where it would otherwise be extremely challenging. Permitting new businesses to connect to existing communications networks, for example, is more affordable and less risky than building networks from scratch.

Open access policies have played a major role in promoting competition in broadband markets, especially in countries with little infrastructure competition. “Unbundled access” policies, whereby new entrants of the telecommunications market are offered access to facilities of the incumbent, have helped increase the number of unbundled broadband lines in the United Kingdom from 123,000 in 2005 to more than 8 million in 2012.

The Internet has developed an efficient, open access system for data transfer. A recent OECD report found that Internet service providers leverage Internet exchange points (IXPs) to send and receive data at 100,000 times lower than typical voice rates. These arrangements for infrastructure-sharing have been reached without the need of public intervention.

Regional and municipal networks in Northern Europe have succeeded in extending fibre deployment. For example, Stokab, owned by the city of Stockholm, runs a dark-fibre network and grants access to all operators on equal terms. Overall an estimated 95% of municipality networks and 42% of housing companies’ broadband networks in Sweden follow an open access model.

Wireless open access policies have contributed to the emergence of mobile virtual network operators (MVNOs), which in turn can drive innovation and increase infrastructure competition. French regulations, for example, compel incumbent mobile operators to offer national roaming to new entrants via a commercially-negotiated price. As a result, the French company Free entered the telecommunications market in January 2012, and three months later opened up its 4 million Wi-Fi hotspots to its smartphone customers, in turn creating the world’s largest carrier-run mobile data offload network.

It should be noted that open access agreements have rarely been reached voluntarily, as firms prefer to reach commercial arrangements that are not necessarily non-discriminatory or transparent. Put another way, most open access policies have been the result of direct or indirect public intervention.

However, regulators need to balance the benefits of open access policies against the incentives for different actors to invest in infrastructure and services.  Too often this is presented as a trade-off between increasing competition and a potential negative effect on investment.  For example, if open access prices are too low it may discourage investment in new networks by both incumbent firms and new entrants.

The goal is to introduce open access polices in a way that facilitates new investments and drives incumbents to respond in kind, thus producing benefits for the overall market. For example, in the case of the French company Free, the incumbent operator, Orange, expects to earn more than $2.5 billion over the next few years from selling its access to Free. It stands to argue that Orange could then use this extra income to re-invest in its own network in order to stay ahead of its new competition. French regulation also specified that Free needed to meet certain targets, like investing in its own network to reach a minimum of 27% of national coverage, before it could benefit from Orange’s roaming prices. In this way, regulators were able to carefully ensure that incentives to invest in infrastructure didn’t suffer as a result of open access polices.

Moving forward, it is clear that broadband adoption – especially in wireless and fibre – remains crucial for overall economic development.  The Internet is now established as a key infrastructure that supports every sector of the economy and is a fundamental driver of innovation, productivity gains and economic growth. Open access broadband policies therefore need to be considered by governments where there is insufficient competition, so that the entire economy can continue to fully leverage its potential.