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Broadband: value chain, actors & business models

Different business models are available to public authorities and other market actors in broadband development.

Rede Aberta: The first CEBF-funded project in Galicia, Spain
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A business model defines the roles and responsibilities of different actors in the broadband value chain with a specific focus on the public authority.

The broadband value chain

A broadband network consists of 3 layers: passive infrastructure, active equipment technology and delivery of services. The three layers are characterised by different technical and economical features. These layers are:

  • Layer 1: Building and operating of the passive infrastructure (network set-up).
  • Layer 2: Building and operating of the active infrastructure (network operation).
  • Layer 3: Offer and distribution of services (services).

The three layers depend on each other, meaning that layer 2 can only be realized upon completion of layer 1, and layer 3 requires the infrastructure from layer 2.

Business roles and actors

For the three layers, 3 main broadband business roles can be identified:

  1. The physical infrastructure provider (PIP), which owns and maintains the passive infrastructure.
  2. The network provider (NP), which operates (and typically owns) the active equipment such as incumbent operators, new independent operators, broadband companies.
  3. The service provider (SP), which delivers the digital services. For example: for e-health, elderly care, TV, Internet, phone, video-conferencing, entertainment, teleworking, smart monitoring and so on.

Depending on the business model, it is necessary to clarify on which level of the value chain municipalities, municipal enterprises, special purpose associations and/or private companies take over tasks.

Besides the 3 provider groups, end users and wholesale customers complete the list of actors and their roles typically involved in broadband projects.

Basic business models

The actors can take over different roles, thus defining the broadband business model which applies for the respective broadband project. The difference between the two broadband business models is that a vertically integrated model has one market actor taking all three roles and for open networks the roles are separated.

3 open network broadband business models can be identified:

  1. Passive-layer open model (PLOM), where one entity deploys the passive infrastructure, the other layers are open for other providers;
  2. Active-layer open model (ALOM), where one entity provides the passive and active infrastructures in layers 1 and 2, the service is provided by other entities;
  3. Three-layer open model (3LOM), where all three layers are provided by different actors.

Carrier model options

In addition, there are more carrier model options that go beyond the basic business models and serve as an alternative solution for regions where neither public or private actors are active:

  • Public carrier (public DBO model)
  • Private carrier (private DBO model)
  • Bottom-up approach (NGA bottom-up model)
  • Public-private-partnership (PPP)

Choosing the business model

Depending on its level of involvement, a public authority will have more or less say in the definition of the business model. Demographic, commercial and cultural conditions also play a role in the selection of the model. In general, a business model that allows for a win-win situation for all stakeholders will increase a project’s chance of success. Some of the questions that should be answered in the process are:

  • How densely populated is the region? How is the population distributed?
  • Is the physical infrastructure allowing for easy end-user access at physical layer for a number of operators? Is the market big enough to make this business case (PLOM)?
  • Is significant amount of infrastructure owned by an operator already active as a service provider? What business model is it operating?
  • Is there enough technical competence within the public authority to take up the NP role? Are there sufficient economies of scale?
  • Are there market actors interested in taking up the NP role?

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