Current State and Problems of Finnish National Broadband Policy

Current State and Problems of Finnish National Broadband Policy Dr. Matti Koivisto Electronics and Information technology Mikkeli University of Applied Sciences PO. Box 181, 50101 Mikkeli FINLAND matti,koivisto@mamk.fi Abstract: - In 2008 Finnish communications policy reached a turning point. Ministry of Transport and Communications stated then that the public sector should take more active role in ensuring equal opportunities to broadband access both in urban and rural areas. In new broadband action plan government set two goals: first to introduce a narrowband internet access as universal right to all citizens and second to guarantee a nationwide access to the next generation broadband services no later than 2015. Although there have been some challenges to implement the universal service obligation, the results have been encouraging. However, this paper indicates problems and challenges related to the roll out of the next generation 100 Mbps networks in Finland. Although further studies are still needed the results suggest that original estimates about operators activity to invest optical access networks were too optimistic. Therefore corrective actions are needed in order to implement the next generation access networks and guarantee the development of the telecommunication infrastructure for the future needs. Key-Words: - Broadband, Telecom Policy, Optical Networks 1 Introduction In Finland the State has trusted that free markets and competition are the best way to supply comprehensive and reasonably priced communications services to customers. This reliance has created quite liberal communication policy with limited intervention by the state. However, on September 2008 Ministry of Transport and Communications published a memo in which it pointed out that it is time for the public sector to take more decisive action to ensure a regionally equitable communications infrastructure [1]. The change in the policy was justified with two major changes in Finnish telecommunication markets. First, the ministry considered that access to telecommunication services has evolved from a luxury into a necessity. And second two leading telecom operators announced their intention of cutting back services in the fixed telecommunications network across sparsely populated areas of the country. [1] On December 2008 the memo was followed by a new governmental action plan for strengthening the infrastructure for information society [2]. The action plan pointed out service levels for narrow and broadband services. The narrow band Internet access was considered as a universal right and by the end of 2010 all Finns should have access to basic broadband services with a minimum download rate of 1 Mbps in their permanent place of residence. Although there have been some challenges to implement this decision (see [3] for details) the 1 Mbps connection is available today all over the country. For the next generation broadband service the plan stated that in 2015 nearly all Finns (99 % of the households) shall have a possibility to connect to very high speed service with a minimum download rate of 100 Mbps. The broadband market was further divided into commercial and publicly supported segments. The Ministry estimated that the commercial operators will achieve coverage of about 95 % of Finns primarily in build-up areas. But to reach the aim of 99 %, public funding will be needed to reach the remaining 130 000 rural households. [2] In 2011 the ministry reviewed the outcomes of the action and on May 2012 government released an updated action plan [4]. Although the action plan introduced some modifications to current regulatory framework it did not introduce any immediate changes to universal service obligations or division of the broadband markets. In this paper the development of Finnish next generation access networks is analyzed both in the ISBN: 978-1-61804-118-0 127

commercial and publicly supported areas as stated in the action plan. Special attention is paid to the telecom operators role and action in fostering the services. The main research questions of the study are: How has the availability of the next generation Internet access networks developed on so called commercial areas in Finland during the last few years and how has the public support affected to the telecom operators interest to build optical access networks to the rural areas? The structure of the paper is as follows. Chapter 2 introduces the current statistics of Finnish Internet access markets. Chapters 3 and 4 concentrate on the development of commercial and publicly supported high speed Internet access markets. Here the analyses are based on service availability data and actual costs of implementing a next generation networks. In both cases the study concentrates on one region of the country. Final conclusions are made in Chapter 5. 2 Development of Finnish Broadband Access Networks 2.1 Broadband penetration in Finland Finland is a sparsely populated country with around 5.4 million people. It is the eighth largest country in Europe in terms of area and the most sparsely populated country in the European Union. The population is not equally distributed but the majority of the population is concentrated in southern part of the country. Finland has had one of the highest broadband penetration rates in Europe but during the last few years the development has been slowing down as can be seen in Fig. 1. Fig. 1 Broadband penetration rates [5] Fig. 2 Mobile broadband penetration rates [6] 2.2 Broadband Access Technologies in Finland In Finland DSL is the dominant fixed broadband access technology. In addition to that real estate or housing company and cable modem connections are commonly used. Other access technologies like fixed wireless and optical access networks have on a very small market share as shown in Fig. 3. One of the main reasons for the slow or even negative growth rate on fixed internet access has been the fast acceptance of mobile broadband access. In Finland like in other Nordic countries mobile broadband is extremely popular as can be seen in Fig. 2. Fig. 3 Access technologies in Finland [7] Although about 45 per cent of the Finnish households could have a 100 Mbps connection [8] typical access speeds are much lower as shown in Table 1. Table 1 also points out the access speed development during the last few years. ISBN: 978-1-61804-118-0 128

Table 1. Access speeds in Finland [9] 12/2009 12/2010 12/2011 Less than 2 Mbps 39% 24% 12% 2 Mbps 4 Mbps 26% 17% 18% 4 Mbps 10 Mbps 19% 26% 28% 10 Mbps 25 Mbps 14% 26% 32% 25 Mbps 100 Mbps <1% 3% 4% 100 Mbps or more 2% 4% 6% 3 100 Mbps Access Networks in Commercial Areas 3.1 Need for new network infrastructure Like stated earlier in Finland the State has trusted that free markets and competition are the best way to supply comprehensive and reasonably priced communications services to customers. Therefore also in the current action plan the telecom operators have the main responsibility for providing next generation access technologies to the public. The Ministry stated in 2008 that by the year 2015 95 percent of the people will have a possibility to a 100 Mbps broadband connection. Statistics in Chapter 2 pointed out two important findings. First, the typical access speed has increased in two years from less than 2 Mbps to more than 10 Mbps. Second, to fulfill the further customer needs and governmental aim new network infrastructure is needed. The currently dominant DSL lines are not adequate to support access speeds required in the future. Therefore new mainly optical cable based infrastructure is needed. 3.2 Current supply and demand Like all markets also Internet access markets consist of two dominant forces demand and supply. Currently in Finland the demand for 100 Mbps internet access is still quite limited as shown in Fig 4. Fig. 4 also points out that 100 Mbps connections are today available for 49 per cent of the households [8]. This means that there is still 46 per cents gap to the aimed 95 per cent level. Fig. 4 Demand and supply of the access speeds [8] 3.3 Expanding service areas There is no direct source of information how telecom operators have extended their 100 Mbps service offerings. However, it is possible to use the Ficora s public hearing data to find out the development in certain areas [10, 11]. Table 2 points out the development of 100 Mbps service offerings in all nine municipalities in Soutern Savonia where public hearing data was available both on 31.5.2009 and on 28.10.2010. According to Table 2 within this 17 months period the service has not been introduced to any new areas. Actually the results are indicating that the service was offered in 2010 in fewer areas than 17 months earlier. Even more important finding is that none of the telecom operators has any plans to invest to these areas during the next three years in order to offer next generation access services to customers. Table 2. Availability of 100 Mbps access service Municipality 31.5.2009 28.10.2010 Areas with service Areas with service Investment plans Enonkoski 1 1 0 Heinävesi 3 3 0 Kangasniemi 1 1 0 Mäntyharju 2 1 0 Pieksämäki 4 3 0 Puumala 1 0 0 Rantasalmi 1 1 0 Ristiina 2 1 0 Sulkava 1 1 0 TOTAL 16 12 ISBN: 978-1-61804-118-0 129

4 Development of Publicly Funded Optical Access Networks 4.1 Funding of the rural networks As stated earlier the Ministry of Transport and Communications estimated that the commercial operators will achieve coverage of about 95 % of Finns primarily in build-up areas. But to reach the aim of 99 % of the networked households, public funding will be needed. [2] Therefore Ministry developed a public-private partnership model in which end users, operators and public organizations together fund the broadband networks to areas with a very low population density. The policy divides the network to two parts: the core and the subscriber networks. The telecom operators and public organizations together are responsible for implementing the required core network. End users instead are responsible for the costs of the subscriber network or the last mile. The telecom operator share of the core network costs is at least 34 per cent. The remaining 66 per cent is public funding and it comes from the following sources: the government, European Union, cities and municipalities [2]. 4.2 Telecom operators low interest on rural projects By the end of the March 2013 regional councils had requested offers for 315 publicly funded networks and for about 50 per cent of the cases they have received some kind of an offer [12]. One of the major problems in the tendering process has been that major telcom operators with most investment power have shown very little if any interest towards these projects. There are probably many reasons for the lack of interest but the main reason seems to be purely economical. Although the original funding model pointed out that the telecom operator s share is 34 per cent of the total costs, first finished projects have pointed out that the operator s share is remarkably higher. For example in one case implemented in Pertunmaa the total cost of the project was 2402544 and the public funding was limited to 1318706 [13]. These figures gave an operator s share of 54.9 percent instead of original 34 percent. Similar results are also reported by TeliaSonera for their pilot project in which the share of the telecom operator was 55.5 per cent [14]. 5 Conclusion As a result of the national broadband action plan the narrow band internet access is universal right in Finland. Even though there have been some challenges in the implementation of the service, all in all this new policy had proved to be very successful and it has received also a lot of international interest. Unfortunately the implementation of the second aim of the action plan, the roll out of the 100 Mbps access networks, has not been a similar success story. The original estimate that operators will implement the 100 Mbps access network by the end of 2015 for 95 per cent of the households has been far too optimistic. Currently the service is available for 49 per cent and the findings of the paper are suggesting that the availability of these services is spreading currently very slowly if at all. Similarily the operators interest on public funded projects has been lower than expected. So far the government and the regulator have focused on the most sparsely populated areas and believed that market forces will take care of the other parts of the country. Unfortunately the results of the paper clearly point out that estimates about operators activity to invest optical access networks were too optimistic. Therefore corrective actions and shift of focus are needed in Finnish broadband policy if the country wants to be among the forerunners of networked societies also in the future. References: [1] H. Pursiainen, Making broadband available to everyone - The national plan of action to improve the infrastructure of the information society, Ministry of Transport and Communications, Rapporteur s Proposal 15 September 2008 [2] Government (2008). National action plan for strengthening the infrastructure for information society, in Finnish Valtioneuvoston periaatepäätös kansallisesta toimintasuunnitelmasta tietoyhteiskunnan infrastruktuurin parantamiseksi 4. December.2008 [3] M. Koivisto, Finnish national broadband action plan and its current implementation, Proceedings of the European conference of communications, Teneriffe, Spain 2010 ISBN: 978-1-61804-118-0 130

[4] Government (2012). Government s statement on the development of the broadband connections, in Finnish Valtioneuvoston periaatepäätös laajakaistayhteyksien parantamisesta 3. May, 2012 [5] Eurostat, Broadband penetration rate, URL: http://epp.eurostat.ec.europa.eu/tgm/table.do?ta b=table&init=1&language=en&pcode=tsiir150 &plugin=1 [6] European Commision, Broadband access in the EU: situation at 1 July 2011, Working document, 19 December 2011 [7] Ficora, Communication markets in Finland year 2011, in Finnish Viestintämarkkinat Suomessa, vuosikatsaus 2011 [8] J. Parantainen, Memo on Government s statement on the development of the broadband connections, in Finnish Perustelumuistio Valtioneuvoston periaatepäätöksestä laajakaistayhteyksien kehittämisestä 26. April, 2012. [9] Ficora, Statistic review on broadband and telephone services, June December, 2011 [10] Ficora, Documents on public hearing of broadband services in municipalities of Southern Savonia 31.5.2010 [11] Ficora, Documents on public hearing of broadband services in municipalities of Southern Savonia 28.10.2011 [12] J. Parantainen, Presentation on Regional Councils broadband co-ordinators, 20 March, 2012 [13] Mikkeli Telephone Company (MPY), Investment calculation of the Pertunmaa Pilot case, 2012. [14] O. Ruuska, Presentation on Broadband to Everyone Conference, June 7., 2011 [15] C. Cambini and Y. Jiang, Broadband investment and regulation: A literature review, Telecommunications Policy, Vol. 33, No. 10-11, 2009. [16] Ofcom Consultion document available http://stakeholders.ofcom.org.uk/binaries/consu ltations/823069/summary/condoc.pdf ISBN: 978-1-61804-118-0 131