NLkabel reacted recently to the Dutch province of Overijssel’s plan to stimulate the development of an open, next-generation broadband network. The cable industry association sees two roles for the government: encouraging the development of new services (e-health, e-learning, e-government, etc.) and financing support for broadband deployment in remote areas. Meanwhile Belgian cable operator Telenet, part of UPC’s parent company Liberty Global, came with a user survey from July-August that showed its heaviest internet user generated 2.7TB of data traffic in just one month. Another seven customers had more than 1 TB of traffic. The top 25 heaviest users averaged 1 TB of data use each month, per line.
One can ask whether Overijssel will give any thought to NLkabel’s call to work together to connect remote areas, as cable is not an open network. This is a condition for the provincial government, which means local cable operator Ziggo is disqualified from the start. One can also ask why network operators repeatedly describe their best customers as ‘bandwidth hogs’. On the one hand, Telenet looks to be doing well, showing off everything it can do with the Belgian HFC network. On the other hand, Telenet has a fair use policy that allows the operator to cut the broadband speed to 512Kbps after heavy use, defined as double what the average customers with the same package use. Telenet’s aim is to stimulate heavy users to upgrade to more expensive packages.
There’s more to this. On a certain level, the stories about NLkabel and Telenet are connected: both are cases of cherry picking. Ziggo refuses to connect unprofitable areas without government support and apparently prefers to concentrate on built-up areas. ISPs such as Telent would rather serve the average user, who comes nowhere near the amount of data traffic generated by ‘bandwidth hogs’. In both cases it’s about customers who are good for a gross margin of at least 80 percent. If Ziggo on its own initiative connected the last farm in Overijssel and Telenet tried to attract heavy users, their gross margins would quickly come under pressure.
On its own, the behaviour of Ziggo and Telenet is completely rational, given that we’ve left the telecom market to private and publicly listed companies (Ziggo is planning to list next year) which have to deal with the short-term perspective of the stock market. On a superficial level, there’s nothing wrong with that either – it’s just how the market works. With a few clicks of the mouse, the Liberty Global shareholder can easily swap his shares for stock in KPN, Vodafone, Deutsche Telekom, or whatever other company. This effect is reinforced with awards of shares and options to executives, prompting them to act like shareholders and focus on short-term strategy. It’s only human – a CEO is more likely to be driven by maximizing his own salary than getting the maximum value out of the company.
The question remains, should the government do something about this ‘cherry-picking’ behaviour? In practive, the answer is yes, and in many places there are universal service funds to support operators providing services in remote areas. To date, the universal service obligation has only applied to the incumbent operator, the former PTT. However, the above suggests that the universal service obligation may need to be extended to the TV market, where cable is the incumbent, and to the broadband market, where both the former PTTs and cable could be considered established, incumbent operators - especially given all the recent calls for super-faster broadband to stimulate the ‘knowledge economy’ and economic growth and help slow climate change. As noted above, it’s completely rational for operators not to do this out of their own initiative, but for governments and politicians, it’s a reason to intervene in the market. The question is whether local politicans can do anything about it – they also suffer from short-term vision, due to election cycles. The real long-term vision will need to come from institutions such as the EC, OECD, ITU and UNESCO. The last two are currently working on global broadband goals and may be the ones to help broadband get the status of universal service.
