CityFibre Holdings (CityFibre) and Oxera have published a report that assesses the feasibility of a shared fibre access model in UK towns and cities, and undertakes an economic review of CityFibre’s ‘anchor tenant’ model in comparison to the co-investment concept previously developed by Oxera.
Oxera has already assessed the economic feasibility, and articulated the ‘blueprint’, for an alternative broadband investment model in the ‘NetCo’ paper it published for Vodafone in 2011. The NetCo concept envisages a co-ownership structure which aims to lower demand-side risks, and vertical separation which reduces incentives to discriminate in the provision of wholesale inputs. The CityFibre model represents a variant of a risk-sharing model, and builds on principles consistent with the NetCo model.
The CityFibre anchor tenant model seeks to address many of the issues associated with the UK’s incremental roll-out of NGA, by providing an alternative, yet complementary approach to incumbent telecoms networks. CityFibre builds, owns and operates shared fibre networks without the need for ownership participation by the incumbent or service providers. Instead, commitments to use CityFibre networks are obtained through contractual arrangements between CityFibre and anchor tenants, facilitating private investment.
Oxera’s analysis compares the economic characteristics of the CityFibre model to the NetCo model. If appropriately implemented, the same risk-reducing, pro-competitive features envisaged in the NetCo model can be present under the CityFibre model. The design of contracts is key to replicating NetCo’s equity-led model, while reducing the threshold of participation of service providers with limited resources for large-scale CAPEX commitments. Oxera also assessed the features of the CityFibre model in terms of the incentives for stakeholders, the economic risks of the model and the implications it has for state aid considerations.
Felipe Flórez Duncan, Oxera Managing Consultant, added: ‘There has been overwhelming interest in the co-investment idea since our “NetCo” report was published. As companies such as CityFibre demonstrate, variants of risk-sharing business models are emerging, building on economic features similar to those of the NetCo concept. Policy-makers can play a role in encouraging these innovative investment models, given EU and national objectives for the deployment of future-proof broadband infrastructure.’
The report can be downloaded here