Traffic off-load and the broadband objectives of the DAE

The Commission has asked us to consider the relevance of off-load to the achievement of the broadband objectives of the Digital Agenda for Europe. As previously noted, these goals are:

 by 2013, to bring basic broadband to all Europeans;

 by 2020, to ensure that all Europeans have access to much higher Internet speeds of above 30 Mbps, and

 by 2020, to ensure that 50% or more of European households subscribe to Internet connections above 100 Mbps.⁹⁰

We focus here on the first two of these objectives. We assume that 100 Mbps objectives will generally be met using fixed telecommunications and cable networks.

8.1 Coverage objectives for basic broadband

Traffic off-load plays only a minimal role in achieving basic broadband coverage.

Analysis conducted for the European Commission by Point Topic demonstrates that there are significant gaps in broadband coverage today (see Figure 3-2). These are most noteworthy in newer Member States to the east of the former Iron Curtain, where the fixed telephone network never reached very far outside of large cities.

Mobile (and fixed wireless) networks can be expected to play a large role in achieving coverage in these areas.

Off-load techniques, however, are of limited benefit in expanding coverage into these rural or remote areas. Off-load, as we have seen in Chapter 3, is heavily dependent on the availability of back-haul. Where the fixed network does not reach, there is little scope for traffic off-load.

The areas where the fixed network does not already reach will also tend to be areas where the intensity of data traffic is low; consequently, the mobile network is unlikely to be over-loaded. Thus, there is limited scope for off-load as regards achievement of basic broadband coverage, the first of the DAE broadband objectives.

90 DAE, page 19.

8.2 Coverage and adoption of 30 Mbps broadband

Traffic off-load plays a complex role relative to the deployment and adoption of 30 Mbps broadband. In understanding the role of off-load, it is important to consider first the firms that are employing, and their motivations.

As we have seen in Section 5, the motivations of commercial parties are diverse.

 Firms such as Virgin and BT that have existing networks that can be used for back-haul, but little or no mobile network capability today, see off-load technology as a relatively inexpensive and synergistic means of entering a different market segment. Virgin does not view Wi-Fi as a viable business in its own right.

 Hot spot networks such as The Cloud (BskyB) and O2 Wi-Fi view off-load as distinct business, but the business objective may have more to do with acquiring customer data (in the case of O2) than with direct revenue generation.

 Firms such as FON view themselves as enablers for a new and synergistic business opportunity.

 Existing large MNOs such as Deutsche Telekom appear to view the use of off-load (e.g. by FON) as a means of reducing deployment cost, and increasing customer satisfaction and retention, but not necessarily as a revenue opportunity⁹¹ nor as a strategic direction. Free Mobile apparently benefits from the use of off-load to reduce its need for expensive domestic roaming.

Taken together, these examples strongly suggest that off-load is unlikely to result in the deployment of a network in an area where coverage is not already available.⁹²

In urban and semi-urban areas that are already served by the fixed network, however, the effects are likely to be substantial, but complex.

 Off-load facilitates competitive entry on the part of firms such as Virgin and BT.

 Off-load reduces expense for existing MNOs. This does not necessarily increase revenues; however, it probably increases profits. The net effect on MNO profits is difficult to predict, since the downward effect of load on costs is partly

91 The increased traffic from consumers who permit others to use their broadband connections for FON traffic will tend to generate little or no fixed network revenue because most subscribers are on flat rate plans, and the volume of traffic is unlikely to be large enough to change the flat rate price. Per the Eurobarometer e-communications Household Survey of June 2012, 60% of European households purchase Internet service through a bundle (EBS-381, page 89).

92 None of our case studies, none of our interviews, and none of our analysis suggests a significant tendency for off-load or for associated back-haul requirements to substantially increase broadband coverage.

set by the downward pressure that increased competitive entry places on revenues.

 Consumers receive more service, and better service, at no net increase in price (see also Sections 4.2 and 7.2.3).

 Consumers can be expected to consume more data than would otherwise be the case as a normal demand elasticity response to the effectively lower unit price of data transmission.

 More consumers are likely to take up mobile data services, again as a demand elasticity effect.

The broad implications of these assessments would appear to be that traffic off-load is unlikely to have much impact on the coverage of 30 Mbps services, but can be expected to generate substantially greater traffic from mobile devices than would otherwise be the case, and also a somewhat greater number of subscriptions than would otherwise be the case.⁹³

In other words, traffic off-load is likely to promote increased adoption of 30 Mbps services, but will not necessarily have much impact on coverage. Coverage of 30 Mbps broadband services is an explicit DAE objective; adoption is not. Nonetheless, increased adoption must be seen in a positive light. Coverage would be meaningless in the absence of adoption.

Off-load helps more, then, in delivering benefits once the DAE goals are achieved than in initially achieving them. The substantial increase in consumer welfare (more service at lower cost), together with a likely increase in producer welfare (increased profits), represents a substantial welfare gain overall.

93 The magnitudes of these effects cannot be predicted without a detailed understanding of consumer price elasticity of demand, differentiated between usage elasticity and subscription elasticity.