Wholesale provision of broadband services: alternative pricing strategies and associated policies

Abstract

PurposeThe paper aims to explore the “build or lease” dilemma that a new operator faces when it plans to enter a liberalized telecom market. The “build” decision requires the operator to invest in new network infrastructure. The “lease” part involves obtaining access to the subscriber by leasing the access part of the network via local loop unbundling (LLU) and/or by implementing wholesale broadband access (WBA) (also known as bitstream access). Which are the factors that an operator should take into account when it designs a broadband strategy based on LLU and/or WBA? Are there regulatory measures that can affect the outcome of such a strategy? The paper aims to provide specific answers to both questions.Design/methodology/approachInitially the paper establishes the case that LLU as well as WBA can indeed be considered as a useful instrument during the initial stages of broadband development. Consequently, the paper explores the “build or lease” dilemma by using a cost model created from actual market data that, first, identifies the most crucial parameters for the provision of broadband services via LLU, and, second, analyzes the relation between the operators' cost for full/shared LLU and the relevant cost for WBA deployment. The model is used in several scenarios that examine physical vs distant collocation, number of customers, bandwidth, backhaul links and full/shared unbundling access versus WBA, among other factors.FindingsThe cost model shows that there are several factors that should be examined when new entrants design their broadband deployment strategy. In such a case, as an operator establishes market presence, LLU becomes progressively more and more attractive. The paper also discusses how this process can be further accelerated if governments, regulators and operators adopt several additional guidelines with respect to broadband deployment based on LLU and WBA.Practical implicationsThe results of the paper guide an operator in the design of a successful broadband strategy based on LLU and WBA.Originality/valueAs far as the authors know, such a cost model is not publicly available in the form of a research paper or otherwise.