Creating a Fiber Future: The Regulatory Challenge

SERGIO SANDOVAL, McKinsey & Company Inc., Belgium Policymakers across the telecommunications industry want a regulatory framework that will stimulate competition in the industry while maintaining individual players’ incentives to invest in network and service improvements. Industry regulators aim for a regulatory balance between competition and investment that maximizes consumer and social benefits. But as technologies and investment costs change, that point of balance moves. Broadband technologies and investment costs are a case in point. For as long as broadband services have run largely on existing copper-based networks, regulators have focused on encouraging competition to spread those benefits as widely as possible by requiring incumbent operators to share their networks with new service providers. Now, however, fiber technologies with higher bandwidth speeds can potentially offer broadband services with far greater economic, consumer, and social benefits. Governments want fiber networks with national coverage so that all their citizens can enjoy high-speed broadband services. Operators want to build fiber networks, too, because revenues and profits from their existing networks are declining and fiber networks could potentially be a source of new income streams and lower costs. Yet fiber networks are hugely expensive to build and will be difficult to afford on a nationwide scale without some kind of regulatory concessions or subsidies from government. So, in order to maximize consumer and social benefits from highspeed broadband services, telecommunications policymakers may need, temporarily, to shift their focus from stimulating competition to facilitating the massive investment required to roll out fiber networks with national coverage. This chapter explains the pressures on operators to build fiber networks, the related economic and regulatory obstacles standing in their way, and what those countries with widespread fiber networks have done to overcome those obstacles.