The purpose of this post is to put a few observations regarding the services options available to public planners of NGA infrastructures; for future reference. This is only a draft on benefits and risks for public offerings on Layer 1 and Layer 2 services.
National broadband plans (i.e. nationwide NGA infrastructures) concentrate primarily in building an access infrastructure and serving the wholesale markets. This is a business option widely adopted to allow private innovation and competition in the services layer (which carries the greatest value for broadband). Responsibilities, services and prices are regulated and usually contractually agreed.
The fundamental drawback of similar national plans is that the success of the wholesaler (the operator who runs the network for the Government) depends on the success of the retailers market, and provided the current development level of high-speed broadband market, interest by access operators in the infrastructure is not guaranteed. This is a major risk.
State interventions aim usually at Layer 1 products (i.e. dark fiber & unbundled fiber) for access providers as a base model. Luckily, L1 services offer the widest possibilities for telecoms operators for business flexibility and innovation potential.
However, L1 offerings are not immediately connected with retail, thus ISPs have to invest in Layer 2, something that may delay access sales and penetration rates. This is a crucial point for business sustainability. The infrastructure operator needs buyers for his products and the buyers are mainly interested in Layer 3. So there is a gap in L2 that needs closing. There are two options for that:
- Contract a Communications operator: Communications Operators offer L2 products (capacity / connection services) across the infrastructure. The prices of L2 offerings are also regulated. Communications operators are provided with the option to offer L3 services (retail) as well, however with a form of functional separation between layers 2 and 3.
- Integrate to L2: The infrastructure operator sells L2 products along with its L1 offerings. The infrastructure operator is structurally separated between L2 and L3 and functionally separated between L1 and L2. L2 is more attractive profit-wise for the infrastructure operator and a price relation between L1 unbundling and L2 wholesaling has to be put in place.
Simultaneously, passive infrastructure can be made available to other businesses (not only telecoms operators), e.g. large organizations, public services, education and health institutions, mobile carriers. Dark fiber is offered to this type of customers as a point-to-point connection between two premises (looped at the CO), and generally require sufficient IT staff for using the dark fiber connection. This however, is not well received by incumbents since it directly competes with their wholesale products.
