Chun LiuProfessor

School of Economics and ManagementSouthwest Jiaotong University, China

Meheroo Jussawalla Research Prize Award

Introduction� There is now strong interest among governments in

promoting the development of a next generation

broadband network, and some 134 national

broadband plans are now in place around the world.

� China is of no exception.

2

Literature Review� Is there a role of the government in broadband development?

� Public policy involvement is worthwhile because it provides a clear and significant stimulus for broadband penetration (Belloc et al., 2012; Falch, 2007).

� ITU estimates the introduction or adoption of a national broadband plan was associated with 2.5% higher fixed broadband penetration, and 7.4% higher mobile broadband penetration on average (The Broadband Commission for Digital Development, 2013).

� On the other hand, Montolia and Trillas (2013) found that indicators of national industrial policy were a weakly positive determinant of broadband deployment and that different measures of centralization were either irrelevant or had a negative impact on broadband deployment.

Literature Review cont.� How deep should the government involve in broadband development?

� The government can play the role of an “enabler” or a “rule maker” in broadband development (Picot & Wernick, 2007);

� soft-intervention strategies, medium-intervention strategies and hard-intervention strategies (Cava-Ferreruela & Alabau-Muñoz, 2006).

� It must be noted that Broadband Forerunners, such as Sweden, Finland, Japan, Korea and etc., were found to take a proactive interventionist approach when they started their broadband rollout, which features a specific mission, achievable goals and policies designed to achieve success (Eskelinen, Frank, & Hirvonen, 2008; Frieden, 2005; Lau, Kim, & Atkin, 2005).

Literature Review cont.� What should the government do?

� Generally two types of policy measures: supply-side and demand-side.

� It has also been found that although both supply-side and demand-side policies had a positive effect on broadband diffusion at the initial stage of broadband take-up, only demand-side policies appeared to generate a positive and increasing effect when a certain degree of broadband penetration was reached (Belloc et al., 2012).

Development of the Analytical

Framework � Kim, Kelly and Raja (2013)

conceptualized broadband as an interconnected, multilayered ecosystem of high-capacity communications networks, services, applications, and usage/users.

� Implications: Governments should design various policies and programs to address different components of the ecosystem, a holistic approach.

Development of the Analytical

Framework cont.� Stages of Broadband Development

� Existing studies have generally agreed that the effectiveness of government policy varies across different stages of broadband development;

� Most researchers did not define the term “stage” and often used words, such as “early” and “later,” to refer to the different levels of broadband development.

� Others segmentations include: � innovators and early adopters, early majority, and late majority and laggards. (Lin and

Wu, 2013);� promotion, oversight, and universalization (Kim et al. ,2013) ;

� A three-stage model is also adopted in our analytical framework, namely startup, expansion, and saturation.

Development of the Analytical

Framework cont.

A simple two-dimensional analytical framework, with the different stages of broadband development represented by columns and the four components of broadband ecosystem represented by rows, is proposed.

Development of the Analytical

Framework cont.� Notions of the proposed analytical framework

� Considering the different economic, political, and social conditions of each country, a one-size-fits-all segmentation approach according to the numerical penetration rate may not be appropriate.

� The market structure factor is included in our segmentation.

� Networks, services, applications, and users are hierarchized in a layered manner, as an analogy to the architecture of the Internet

Development of the Analytical

Framework cont.� Each box in the grid represents a set of possible policy instruments that

may be adopted to address particular components. � It is possible that some policy tools have impact across layers.� For illustration purposes, the color depth in each box represents the

priority of these policy tools. The darker the background color is, the more important it is to adopt the policy tools in this box.

� Although it is ideal to tackle all four layers, prioritization may provide a practical guideline for developing countries, which usually have limited resources available.

� Instead, the purpose is to provide policy makers a parsimonious analytical tool to evaluate the appropriateness of the available policy tools in different market conditions.

Case of China

Early Development: Lack of a

National Strategy and Policy� The strong determination of the government to make the telecommunications a national

priority, the Chinese ability to execute by administrative decree rather than consensus building followed by legislative and regulatory reform and the Chinese tendency to introduce internal competition among government–owned organizations were identified as the key factors to the early quick diffusion of China’s Internet (dial-up)(Press, Foster, Wolcott, & McHenry, 2002; Tan, Foster, & Goodman, 1999).

� However, generally speaking, in the 1990s, the Chinese government had “love-hate” feelings toward the Internet and adopted an individual-policy-for-individual-issue approach (Xue, 2005).

� The lack of a comprehensive national strategy and policy has caused China to miss a window of opportunity to leapfrog over the broadband Internet development stages (Xue, 2005). The first generation of broadband service, the Integrated Services Digital Network (ISDN), was introduced in China in only 1998, almost ten years after it became commercially available internationally.

Broadband Climbing Up the

National Agenda� In 2001, the term “broadband” was officially written into

Tenth Five-Year Plan (2001-2005) of China and the Key and Specialized Planning of Tenth Five-Year Informatization Plan was promulgated (NDRC, 2013).

� Generally speaking, China has chosen market competition, rather than monopoly, as the rule for Internet service provision. � Several rounds of industrial restructuring;� Joining the WTO;� Etc.

Three Network-Convergence Plan:

the first national broadband plan� With the advancements made in cable modem

technology an intra-platform competition became possible between the telecommunications carriers and the digitalized cable network operators.

� In 2010, as one of China’s strategic policies in response to the global financial crisis, the Chinese government turned the convergence of telecommunication, television and Internet into a national strategy called “The Overall Plan for Convergence,” according to which the Chinese government aimed to achieve a competitive converged information industry and an accompanying clear, scientific and efficient regulatory regime by 2015

Broadband China Plan

� On August 1, 2013, the State Council officially announced the Broadband China Plan (hereinafter referred to as the Plan), in which quantified goals, a technology roadmap, development timetable, key tasks and specific projects were set, aiming to build a ubiquitous, fast and advanced national broadband network before 2020.

Broadband China Plan� One week after the release of the Plan, the State Council released

another policy guideline entitled "Several Opinions of the State Council on Promoting Information Consumption to Expand Domestic Demand” (Guo Fa [2013]. No 32) (hereinafter referred to as the Opinions), which focused on boosting domestic information consumption.

� In 2015, the State Council issued the third directive policy on broadband development, entitled “Guiding Opinions of the General Office of the State Council on Accelerating the Construction of High-speed Broadband Networks, Boosting Internet Speed and Lowering Internet Charges”

Three Stages� Stage 1 Market Startup (in 1990s)

� No National-Level Broadband Policy.

� Stage 2Market Expansion (2010-2015)� The Overall Plan for Three Network Convergence

� Stage 3 Market Saturation� The Plan� The Options on Information Consumption� The Options on Boosting Internet Speed and Lowering

Internet Charges

Shift to upper levels

Issues� Who is going to pay for it?

� Neither the national strategic plans nor the subsequent ministerial level policies have systematically and explicitly addressed the issue of the funding mechanism for this ambitious project.

� Because state carriers control almost the entire commercial broadband backbone and the overwhelming majority of the access lines, it is primarily their responsibility to execute the government’s broadband programs.

� The Chinese government also encourages private capital to participate in the Broadband China Plan.

� The state also encourages lower-level government bodies to invest in broadband development.

Issues cont.� A facility-based competition?

� Internal restructurings in the telecommunications sector;

� Introduce external players to compete with state carriers;

� In June 2015, the MIIT issued the first three licenses to private companies to offer broadband access service;

� Another prominent feature of China’s recent broadband policy is the classification of broadband as a type of public utility instead of a value-added telecommunications service.

Issues cont.

� Regulatory Model (SASAC, MIIT, NDRC)� China has not established a specialized institutional arrangement

for broadband development;� Power is distributed among the MIIT, the SARFT, the SASAC and

the NDRC;� It must be noted that it is not uncommon that the leadership often

organizes a super-ministry working group, usually called a Leading Group, to address complex inter-ministry issues.

� The Chinese government often takes a pragmatic and flexible position in dealing with economic affairs, which results in a highly dynamic but arguably unpredictable policy and regulatory environment.

Issues cont.� Shifting of the Policy Emphasis

� There is a clear inclination that the emphasis of China’s broadband policy has, to some extent, moved upward from the lower level of infrastructure and service levels, which focuses on adding supply, to the upper application and user levels by stimulating demand.

� The State Council even issued an unusual guideline that directly calls for carriers to lower charges on broadband access for end users.

� Universal service policy, which can hardly be categorized as a demand- or supply-side policy, is a missing part in China’s broadband policy.

Conclusion� The Chinese government generally plays the role of a “rule

maker” in broadband development;

� A major strategy of the Chinese government is to create a competitive market structure by restructuring the telecommunications sector, introducing cable operators, launching anti-trust investigations, and requiring mandatory fair access of access lines to all service providers;

� The Chinese government still refrains from investing in broadband infrastructure directly.

Conclusion cont.� It was observed that there is a shift of emphasis in China’s

broadband policy, moving upward from the lower levels of infrastructure and service to the upper levels of application and user levels;

� The Chinese government appears to prefer indirect demand-side policy instruments, common direct demand-side policies, such as subsidy to low-income and other disadvantaged sections of the population, digital literacy training and other programs are missing.

Conclusion cont.� China's broadband future is uncertain due to unsettled but

important institutional and financial issues;� China still primarily relies on state carriers to fund the

broadband rollout;

� Fail to assure a level playing field for potential new entrants, private investors may be reluctant to enter the market;

� Except for the reiteration of some general principles, China’s broadband policy has not articulated a detailed and actionable universal service mechanism.