Next generation access networks: the post- investment conundrum

Next Generation Access networks (NGA) entail significant investments but bring with it promises of a ―brand new world‖ in telecommunications. In this paper, we provide an overview of some of its implications. In particular, we argue that it is not clear whether the ―old‖ vertical integration model, where network operators provide end-to-end services, is likely to be maintained. But we also argue that, irrespective of that, network operators must look with increased interest at their wholesale revenue stream, i.e. at the possibility that, even if vertically integrated, profits can be reaped from providing access to (potentially rival) retail operators. Moreover, content providers will significantly increase their relevance in the future value chain. Therefore, we argue that revenue-sharing mechanisms between content, infrastructure and service providers are likely to (re)emerge. The purpose of this paper is to discuss alternative business models that can be envisioned in the telecommunications industry following the significant investments made in Next Generation Access networks (NGAs). Such business models will ―shape‖ regulation and the future industry structure. Until recently, largely due to historical and technological reasons, telecommunications services were provided by vertically integrated operators. The sector's liberalisation in Europe allowed new entrants to provide telecommunications services, but their business model was different from that of (vertically integrated) incumbents. With the deployment of NGAs, an important question which arises is whether the ―old‖ vertical integration model is likely to be ―revived‖. This is still unclear. But we argue that even for operators who are, at present, vertically integrated, the provision of wholesale access to (potentially rival) retail operators is likely to be seen as an opportunity (generating wholesale revenues) rather than a threat (foregone retail profits). Therefore, irrespective of whether the vertical integration model is kept, the current business model is likely to be challenged, with a greater emphasis placed on the recoupment of investments made in NGAs through the provision of wholesale access to other operators. In addition, a new and important player is likely to emerge: content providers. Therefore, firms along the value chain are likely to reposition themselves in order to accommodate for this. Again, rather than viewing this as a threat, infrastructure operators who have invested in NGAs may view this as an opportunity to recover the investments made. In particular, we conjecture that revenue-sharing mechanisms are likely to emerge between content, infrastructure and service providers. Such mechanisms are more likely to be successful at …