Stranded assets--capital deployed in infrastructure that does not produce revenue--now have become a key business issue for internet service providers upgrading their networks.
As a rule, policymakers tend to overstate customer demand for high-speed internet access. “Everyone” laments slow speeds or non-existent service. But even when service availability is high, and speeds similarly are at gigabit levels, actual customer demand is relatively low for those headline speed services.
In a capital-intensive business such as access networks, it is dangerous to deploy capital to create facilities that are too far ahead of expected demand. Some of you might remember the overspending on spectrum that happened in Europe around 3G spectrum, for example. Others will remember the vast overspending on wide area optical networks that happened around the turn of the century.
That is not to say policymakers are wrong to push for ubiquitous availability and quality speeds. It is to note that policies can push beyond actual customer demand, and endanger the sustainability of the internet service providers charged with delivering the services.
Note, for example, the share of home broadband accounts now supplied by upstarts and attackers, compared to incumbent “telcos.” In a variety of markets, attackers hold close to 40 percent share on the low end, and nearly 90 percent share on the high end.
The United States and India have the greatest amount of share held by attackers. The point is that capital investment has to lead demand, but not by too much. Among the reasons are stranded asset dangers. Where share is less than 40 percent, 60 percent of invested assets are stranded (do not produce revenue). In markets where share is 10 percent of less, 90 percent of investment might be stranded.
According to Ofcom, giagbit per second home broadband now is available to 70 percent of U.K. residences. The issue now is what percentage of homes actually buy service at gigabit speeds. Not all that many, it appears. According to Ofcom data, uptake at gigabit speeds might be as low as one percent to two percent.
About 42 percent of U.K. homes are passed by fiber-to-home facilities. Where fiber-to-home service is available, about 25 percent of homes buy the service. Only nine percent of those customers buy service at the fastest-available speed, however.
That relatively-small percentage of customers buying the fastest home broadband service is not unusual. Across a range of nations, uptake of gigabit services tends to be in single digits to low-double digits.
All of which should remind us that there is a big difference between making a product available and demand for those products. Broadband policy success might be defined as supplying X amount of bandwidth to Y homes.
It is less clear that “success” can be measured by the degree of uptake of services at any given level. Customers still have the right to buy the products they believe represent the best overall value proposition. In most cases, that means buying a level of service someplace between the lowest and highest speed tiers.
For policymakers, making service available is what matters. Uptake is a matter for customers to decide. Take rates for the fastest speed access services always have been lowish. So the risk of ISPs over-investing is quite significant.
Policymakers who are unrealistic about customer demand can jeopardize the sustainability of their ISPs. ISPs who over-invest can put themselves out of business.
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