Infrastructure investment incentives are a tricky business. Policymakers must balance social objectives such as universal service and quality of service with incentives for service providers, and that sometimes is not easy. Consider the issue of coverage.
In nearly all cases, there are some places within any country where mobile service is not available (complete not-spots), or available only from some of the providers (partial not-spots).
Partial not-spots affect three percent of U.K. premises and 21 percent of land mass, as well as significant coverage gaps on major roads (10 percent to 16 percent).
A partial “not-spot” is any area where mobile phone service is provided by one or two of the four leading U.K. mobile operators. The U.K. government estimates that as much as 21 percent of the U.K. land mass is affected by partial not-spots.
Such coverage issues affect a greater proportion of the country than complete not-spots, where no mobile service is available from any carrier. The problems arguably are more difficult the bigger the country.
Providing 4G Long Term Evolution coverage to an extra 17 percent of the population would require nearly tripling the land mass covered by the network, AT&T has estimated.
An original AT&T plan reached 80 percent of the United States potential user base by covering just 20 percent of the country's land mass.
Providing LTE to 97 percent of Americans would require covering 55 percent of the U.S. land mass, for example.
The point is that inability to earn a market rate financial return is a good reason for not making an investment. And mobile operators argue that is precisely the problem with a proposed national roaming plan that would mandate network access by any mobile customer in any area where mobile not-spots exist, no matter which firm operates the infrastructure in such areas.
An EE-funded study by Capital Economics estimates that national roaming as proposed by the U.K. government could lead to a reduction in industry capital expenditure of £360 to £440 million each year, delay the rollout of 4G by 18 months to 24 months, and reduce GDP by 0.1 to 0.2 per cent.
The report finds that national roaming would only increase coverage by two percent to four percent of the U.K. geography. Furthermore, any benefit would be wiped out by “signal locking” that would negatively impact a much larger number of people than would benefit from coverage.
Signal locking occurs when mobile devices unnecessarily connect to another network for voice and cannot access data services.
Contrary to the government’s intentions, thinly-covered rural areas could see significant reductions in investment, since mobile operators now compete, in part, on coverage.
That provides an incentive for mobile operators to build new towers in rural areas, sometimes even when the incremental revenue earned from such installations is not necessarily commensurate with investment. The value comes from the ability to provide service at all, in rural areas. That is why mobile operators tout their degree of coverage.
The proposed national roaming plan actually eliminates the ability to differentiate on coverage, since all mobile services could claim the same degree of coverage.
That illustrates the policy challenge. Universal access goals conflict with investment goals. Ironically, mobile operators argue, widespread mandatory roaming actually reduces incentives for any specific mobile operator to make additional investments in not-spot areas, as no marketing advantage results.