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A business model for municipal FTTH/B networks: The case of rural Greece

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DOI: 10.1108/14636691011040495

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A business model for municipal FTTH/B
networks: the case of rural Greece
Costas Troulos, Vasilis Merekoulias and Vasilis Maglaris
Costas Troulos,
Vasilis Merekoulias and
Vasilis Maglaris are all
based at the School of
Electrical and Computer
Engineering, National
Technical University of
Athens, Athens, Greece.
This work was partially
supported by the Operational
Programme for Information
Society (OPIS, see www.
infosoc.gr) of the Greek Ministry
of Economy & Finance. The
opinions expressed in this
paper do not necessarily reflect
views of the OPIS or Municipal
authorities.
Received: 1 July 2009
Accepted: 9 October 2009
DOI 10.1108/14636691011040495
Abstract
Purpose – In recent years, many municipalities have made investments in fiber to the home/building
(FTTH/B) infrastructures to enhance the digital future of their local communities. This paper aims to
propose a business model for managing these municipal FTTH/B networks. The paper also seeks to
form a part of the discussion on the business, social and policy implications of municipal involvement in
physical broadband infrastructures.
Design/methodology/approach – The paper reviews the international experience in municipal FTTH
projects and identifies the best practices. Greece is then used as a case study due to the country’s
strategic plans to create efficient broadband infrastructures in the periphery of the country. Finally, the
municipal business model is examined on three premises: the extent of horizontal integration; the
degree of vertical integration; and the appropriate form of ownership.
Findings – The passive infrastructure model applied within the model presented has strong potentials
to ensure fair and open competition. The proposed business model exhibits substantial benefits for the
telecommunications industry, the local communities and the managing company. It could become an
effective policy tool for future regulation, broadband universal service framework, socially optimal
investments and social inclusion.
Originality/value – The paper contributes to the international debates regarding the adoption of the
‘‘highway’’ model (‘‘open access’’) versus ‘‘vertical integration’’ and the suitability of public-private
partnership (PPP) as a method for developing and operating FTTH/B networks. It also contributes to the
discussion about the implications of the public sector’s involvement in broadband infrastructure
development.
Keywords Broadband networks, Case studies, Rural areas, Public policy
Paper type Case study
1. Introduction
Since the late 1990s, fiber technologies have grown in popularity to serve customers by
providing optical local loops, due to their well established advantages over copper and
wireless alternatives and their low construction cost compared to previous deployment
practices (Technology Task Group, 2000). Depending on the depth that fiber extends
towards the end user, these access networks are referred as FTTC (fiber to the curb) or FTTN
(fiber to the node), with existing copper extending service to the end-user, or FTTH (fiber to
the home) and FTTB (fiber to the building), with fiber reaching the end-user’s premises. A
significant body of literature acknowledges that high-speed broadband access (delivered
efficiently by fiber access loops) holds great potential for the social and economic
development of local communities, regions and nations (OVUM, 2007; D’Costa and Kelly,
2008; Information Technology and Innovation Foundation, 2009).
However, the social benefits and greater economic impact of broadband do not align with
network provider requirements for significant evidence of profitability and adoption before
investing. Also, FTTH build-ups are susceptible to the hold-up problem. Network providers
would prefer to pre-subscribe FTTH users before investing while users would prefer to
VOL. 12 NO. 3 2010, pp. 73-89, Q Emerald Group Publishing Limited, ISSN 1463-6697 j j
info PAGE 73
 commit to purchasing only after the infrastructure is built. This motivates central and local
government authorities to invest in physical broadband infrastructure, especially in areas
outside prime residential and business centers that exhibit significant profitability risk but at
the same time hold the potential for long-term social and economic development for the
area. According to Lee et al. (2005), broadband infrastructure initiatives by public authorities
are driven by:
B the belief that broadband will contribute to economic and social development by
enhancing productivity and introducing new services; and
B the frustration of local communities with the reluctance of market actors to invest.
Empirical evidence on FTTH developments in Europe (IDATE, 2009) shows that a significant
number (58.5 percent) of the total FTTx projects in Europe are initiated by municipalities and
public utilities. Many high-ranking countries in FTTH deployment – for example South Korea,
Japan, Sweden, Norway, Denmark, The Netherlands, Singapore and China – have a strong
record of Government commitment in to broadband development, directly correlated to their
FTTH penetration (see Figure 1; FTTH Council, 2009). These observations are aligned with
the assertion by Frieden (2005) that ‘‘broadband development thrives when it becomes a
national priority’’.

Public investments in physical infrastructure aim at expanding broadband coverage and

availability, eventually positively impacting broadband penetration. Souter (1999) notes that
the affordability and geographic availability of the communications infrastructure is of
fundamental importance to national economies and to the ability of citizens to participate
fully in society. However, in analyzing the supply-side factors influencing broadband
adoption, Duffy-Deno (2003) suggests that although infrastructure availability alone does not
lead unconditionally to adoption, it is a key factor for FTTH/B penetration. Finally, Grimes
(2005) identifies high charges paid by competing companies for access to the national
backbone network to the incumbent who controls the network as a significant parameter for
low broadband coverage in rural areas.
According to Falch (2007), the complexity of the factors influencing adoption and the
diversity of qualitative and quantitative impact of broadband in local communities (based on
the structure of the local economy, geographical characteristics, institutional environment)
suggest that there is no one-strategy-fits-all solution. It is expected that deployment
strategies will vary by locale. Thus, ‘‘it is reasonable to expect local policy makers to play a
critical role in influencing how access infrastructures evolve’’ (Gillett et al., 2004).
In this paper we evaluate the supply-side intervention options of municipal authorities to
encourage market entry for service providers (SPs) and promote broadband access to their
local communities. Our approach fits within the framework of the international debates
regarding:
B the adoption of the ‘‘highway’’ model (‘‘open access’’) versus ‘‘vertical integration’’; and
B the suitability of public private partnership (PPP) as a method for developing and
operating FTTH/B networks.

To that end, we assess the international practice in municipal broadband projects to identify
norms in municipal involvement in the broadband market. We subsequently use Greece as a
case study to propose an appropriate business model for local municipalities. Our work
provides insight to the Greek municipal broadband developments and it can be useful to
local and international decision makers that are faced with analogous strategic options.
The rest of the paper is organized as follows: In section 2, we present three general
municipal involvement models, and their benefits and limitations. Best practices of
international municipal involvement are also discussed and categorized accordingly. In
section 3 we present the Greek broadband market and related developments. In sections 4
and 5 we present the proposed business model for managing an FTTH/B network and
discuss its benefits and related risks for the telecommunications industry, the citizens and

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Figure 1 FTTH Council global rankings, year-end 2008

the company operating the network. Subsequently, in section 6 we discuss the model’s
social and policy implications. Finally, conclusions are summarized in section 7.

2. Vertical integration models for municipal involvement and international municipal

broadband projects
In this section we present three generic models of municipal involvement in FTTH/B
investments (Chlamtac et al., 2005) as in Figure 2, together with complementary supply-side
municipal intervention. We then categorize international best practices of municipal
involvement to these models.

2.1 The three basic vertical integration models

All three models in Figure 2 implicitly assume setting-up a firm responsible for managing the
municipal fiber network, which may be partially or fully owned by the municipality. We will

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 Figure 2 Municipal involvement models

refer to this firm as the network company, or NetCo. The NetCo may operate in one or more
different layers of the network market.
Passive infrastructure model. Business activities are concentrated in the unbundling of
network elements (e.g. dark fibers, ducts) to competing access providers and the NetCo
does not exhibit any form of vertical integration. The primary benefit of the model is that
competing providers are not required to invest in physical infrastructure to enter the market.
The strongest disadvantage of the model is that due to the absence of retail offerings, the
NetCo is entirely dependent on the service providers’ coverage plans and retail success.
Carrier’s carrier model. The NetCo installs active equipment, lights up the fiber and offers
bandwidth services to network providers. The greatest benefit of the model is that it allows
service providers to market areas that otherwise would be uneconomical due to fiber
deployment and network equipment costs. However, NetCos are still dependent on the
access providers’ coverage plans and business success.
Single provider model. The NetCo integrates in all layers and offers a full range of broadband
services and content. This approach could be socially attractive when dealing with isolated
areas or with large residential and business dispersion (which are mostly unlikely to attract
market attention). The model requires significant efforts in retail sales and also substantial
commercial, technical and management skills.
Note that wholesale services in model A (passive infrastructure) and model B (carrier’s
carrier) are usually offered on equal terms and under open access principles to service
providers (SPs). This fits low-cost entry for competing providers and enables multiple
choices for the end-customers.

2.2 Complementary strategies of supply-side municipal intervention

Selecting a suitable degree of vertical integration is not sufficient for the successful
promotion of broadband in small and remote municipalities. City authorities can complement
their investments in infrastructure with other coordinated strategies to promote the supply of
next-generation access services:
Demand aggregation. To further encourage market entry, municipal authorities may
aggregate traffic from various sources (e.g. local administration, public services, and health
institutions) and negotiate contracts with SPs for the accumulated demand. However,

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awarding a large part of demand in the area to a SP may limit business opportunities for the
rest of the competition.
Utility business expansion. Municipalities can leverage on network infrastructures and
business models of municipal public utilities (e.g. power distribution grids or water and
sewage networks) to expedite the rollout of an FTTH/B network. Through this scenario public
utilities have the opportunity to extend their business scope to fiber offerings and also
enhance operational efficiencies through the use of advanced communications networks.
Fiber condominium. With respect to this option, the NetCo coordinates efforts to identify
residential and business users that are interested in sharing the construction cost and use of
a fiber connection from their premises to an intermediate network access point (St Arnaud,
2007). The Fiber Condominium owns the access fiber and end-users can subscribe to any
access provider and (collectively or individually) to any service available via the network.
Fiber Condominium increases public acceptance of the fiber project as it introduces citizens
to network ownership and enables collective educational and health care services to local
communities.
Coordination with property developers. In FTTH/B networks, the largest portion of capital
expenses is related to digging the city streets and entering buildings. Coordinated efforts
with city development and street maintenance departments can save significant amount of
capital and can also make network deployment less disruptive for city life. Moreover, fiber
take-up can be facilitated, if new buildings have the infrastructure required to connect with
the FTTH/B network.

2.3 International examples of municipal/regional FTTH/B deployments

We now introduce a series of municipal FTTH/B projects drawn from international practice.
Our assessment is primarily based on information found in Analysys Mason (2008) and
Kramer (2006).
Stokab, Stockholm, Sweden[1]. Stokab, founded in 1994 and owned by Stadhus AC, is
considered the pioneer of municipal broadband in Europe. Stadshus AC is a former
construction company and is regulated by the Swedish government. Stokab grants open
access to network resources (i.e. ducts and dark fiber) throughout the city, thus avoiding
having operators digging and deploying fiber independently. The company is also a service
provider for all municipal services.
Wilhelm.net, Norderstedt, Germany[2]. This is a municipal hybrid fiber copper (HFC)
network owned entirely by the power utility company of the city of Norderstedt. The network
covers 100,000 households with market shares ranging from 60 to 90 percent, depending on
the type of service. Wilhelm.net offers only retail triple-play services to business and
residential users. Its backhaul installation enables neighboring villages to apply for service,
provided that a threshold of 40 percent households interested in connecting with the network
is exceeded.
CityNet, Amsterdam, The Netherlands[3]. CityNet is a citywide FTTH project run by the city
of Amsterdam. The network is owned by Glasvezelnet Amsterdam BV, a company shared by
the municipality of Amsterdam, housing corporations and the investment bank ING. CityNet
currently covers 10 percent of the city (approximately 40,000 households). It is leased to
bbnet (98.8 percent owned by Telecom Italia), which manages and operates the network on
open access principles and offers wholesale dark fiber and other transmission services.
Fiber Owned Connections Project, Ottawa, Canada. The city of Ottawa runs a unique pilot
FTTH project which allows end-customer to own their fiber connection (Slater and Wu, 2008)
up to a common interconnection point where all interested access operators will place their
active equipment. Its business plan is based on a 10 percent minimum homeowner take-up
rate. The network aims at providing dark fiber to end-customers enabling them to choose
among active providers in the interconnection point.
UTOPIA, Utah, USA. UTOPIA is a regional network owned by 16 municipalities in Utah
(Cherry, 2006). It currently covers 22 percent, Utah, USA of residents and businesses in the

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 area. The network is leased to DynamicCity, an access operator that manages and maintains
the network on open access principles. Currently, DynamicCity offers wholesale services to
four service providers.
Burlington Telecom, Burlington, USA. Burlington Telecom (BT) is a municipal fiber network
operated by the city’s local electric utility. Starting from a limited deployment to serve
government and school buildings, BT currently serves 21 percent of all homes passed. It
offers triple-play retail services and open access wholesale services, although no
commercial operator is currently taking advantage of BT’s wholesale offerings. BT reached
positive operating cash flow in less than two years after launching residential service, well
before the completion of network construction. Currently, the management of BT attempts to
replicate the business model in 23 small Vermont towns (Chaffee and Shapiro, 2008).
Pau Broadband Country (PBC), Pau, France[4]. PBC is a regional FTTH network covering
the city of Pau and 14 neighboring villages, a total population of 140,000 citizens. The
network was funded through municipal and private funds and through the EU Regional
Development Framework (RDF). The network is leased to Axione, a private operator that
offers wholesale services to Internet Service Providers (ISPs) on an open-access basis.
Currently there is only one ISP offering retail services to the end-customers.
Red ASTURCON, Asturias, Spain[5]. It is a regional project covering 21 cities of Asturias
(Acero, 2006), based on a mix of GPON (gigabit passive optical network) and point-to-point
technologies[6]. The project is financed at 60 percent through EU funding. The network is
leased to an access operator, who in turn offers wholesale services to ISPs in the region. It
focuses in areas where there is limited competition (none or one operator) and low
commercial interest for high-speed broadband services (i.e. outside populated areas).
OnsNet, Nuenen, The Netherlands[7]. The city of Nuenen planned to build OnsNet, a
city-wide open access fiber network, expecting to cover its costs from ISPs offering services
over its optical infrastructure. The lack of interest for the commercial use of OnsNet forced
the city to create its own service provider, together with private investors and housing
corporations. Presently, the municipal ISP offers retail triple-play services and has
penetration rate of approximately 80 percent. Several public and private service providers
use OnsNet as a testing ground for advanced local community services such as e-health
and banking.
As an initial observation, cities running FTTH/B networks select a combination of the
involvement models depicted in Figure 2, depending on the needs of the local communities,
the local broadband market and the interests of their stockholders. While municipalities build
FTTH/B networks to invite competing SPs to the market, often, the lack of commercial interest
for the municipal infrastructure forces local authorities to create a municipal access/service
provider and engage in retail. However, they still abide by the open access principles and
operate on a combination of single-provider and carrier’s carrier models.
The combination of the passive infrastructure with the carrier’s carrier model seems an
attractive option for many cities since their mix provides a full wholesale portfolio of capacity
and unbundling services to competing SPs. Stokab is a notable case of this model mix,
especially because it serves as a SP for the public sector too. When electric public utilities
participate in FTTH/B projects the single-provider model is usually selected. These networks
offer retail triple-play services to the end-customers while not necessarily conforming to the
open access rules.
Also, international municipal FTTH/B projects are not necessarily confined within city limits.
In several cases (e.g. Pau, Red Asturcon, UTOPIA) the business models target a wider
region covering several cities and villages. In other cases (e.g. Burlington Telecom,
Wilhelm.net) a successful city project is replicated to neighboring cities to scale operations
and increase regional broadband penetration.
Finally, we should highlight the role of the private sector as an integral partner of the
municipal FTTH/B projects. Private enterprises facilitate municipal efforts in many respects:
demand stimulation (housing corporations), financing (investment houses), technical

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expertise (construction firms) etc. Network providers do not usually contribute in the
construction phase but can (and often do) undertake operations as contractors.

3. Broadband market and infrastructure investments in Greece

Notwithstanding its rapidly increasing broadband penetration[8], Greece is well below
expectations suggested by the overall status of the country’s economy. According to EU
data[9], Greece is ranked nineteenth among EU state members[10] with 86 percent
broadband population coverage at the end of 2008, while the EU average at the time was 92
percent. Urban centers in Greece enjoy full broadband coverage (100 percent), while
broadband coverage in suburban and rural areas is 85 percent and 50 percent,
respectively. The EU respective figures are 98 percent, 92 percent and 80 percent. In the
newly constructed Broadband Performance Index[11] Greece is ranked 23rd in the EU27
(see Figure 3).
Recent data reported in the Official Greek Observatory for the Information Society (2009)
indicate that broadband penetration in Greece reached 13.43 percent at the end of the
second quarter of 2008, while the EU average for the same period was 22.9 percent.
Copper-based xDSL is the major technology for broadband access in Greece. No cable
operators are present in the country and wireless alternatives (e.g. 3G) so far have limited
coverage[12]. Significant investments in optical backbone infrastructures have been made
by competing network operators to leverage on the local loop unbundling (LLU) regulation
for broadband (xDSL) provisioning. Currently, 36 percent of broadband connections are
based on LLU over the incumbent copper infrastructure; the remaining 64 percent build on
top of incumbent wholesale bitstream services and retail offerings.
Market players in the country are reluctant to initiate large-scale FTTH/B networks as they still
try to capitalize on their existing investments in DSL and wireless access networks.
Moreover, most of the Greek network providers are confronted with major financial burdens
as a result of fierce market competition since the liberalization of the sector[13].
In recent years, Greek governments, with the support of the European Union (EU), have
followed a series of initiatives to improve broadband infrastructures in the country’s
periphery. At a municipal level, the principal effort was concentrated in subsequent calls for
tender (Call 93, Call 145 and Call 195[14]), to fund the construction and the first years of
operation of 75 municipal metropolitan area networks (MANs), excluding the major cities of
Athens and Thessaloniki. The tenders resulted in fiber metro networks rollout, provision of
fiber access services to all public buildings and the construction of neutral interconnection
facilities (tele-houses) to appropriately selected areas in the cities.

Figure 3 EU member states ranked in Broadband Performance Index

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 More recently, the Greek Ministry of Communications and Transportation announced an
ambitious FTTH plan to reach 2,000,000 households – 60 percent of the households in
Greece (Kanellos, 2009). With a budget of e2.1bn and a seven-years time-frame, the project
will cover the 54 largest cities of the country (including Athens and Thessaloniki). The project
increases the importance of municipal involvement as cities can further leverage the
development of the national FTTH infrastructure, while in areas and regions that the project
will not reach, municipal authorities will have to play an active role to improve their regions’
digital future.
Despite the significant activity in fiber infrastructure (municipal MANs, the Ministry’s FTTH
project, telcos’ optical infrastructure deployment) EETT, the Greek national regulatory
authority (NRA) has not yet presented a relevant regulatory framework to accelerate FTTH/B
developments. Major issues requiring immediate regulatory attention are:
B rights of way;
B acknowledgment and support of municipal role;
B share of public utilities infrastructure; and
B in-building wiring (Troulos et al., 2008b).
Realizing the socioeconomic significance of fiber access availability, neighboring cities
throughout the country are quickly forming into groups to evaluate collective ways to offer
fiber access and services to their citizens by leveraging on the already constructed
municipal fiber MANs. So far, three regional groups have formed:
1. Digital Cities of Central Greece led by Trikala, an active member of the International
Network of Electronic Communities (I-NEC);
2. Broadband Network of Southwest Greece, led by the city of Patras, the third largest city of
Greece; and
3. Ikaros Network, led by the city of Heraklion and municipalities of the Aegean Islands and
Crete.
It should be noted that most Greek cities are densely populated, a fact that can significantly
improve the business case for municipal FTTH/B networks.

4. The proposed business model

In this section we present the proposed business model for the Greek case with municipal
network companies (NetCos) operating FTTH/B networks[15] (Troulos et al., 2007, 2008a).
Their ultimate goal is to create and maintain an adequate infrastructure that will invite market
entry in the upper layers of the market. Since the NetCo is managing municipal
infrastructure, it considers not only business criteria but social priorities as well. In fact it can
be a key tool of local governments to promote broadband in less developed regions, attract
businesses and enhance public welfare. The NetCo challenge is to establish a suitable firm
structure, reduce operational expenditures and enhance competition without distorting the
market. We analyze below the essential strategies for the realization of these goals.

4.1 Horizontal integration

There are two fringe cases related to horizontal integration strategies (geographical market
coverage). The first option is a NetCo running the network within the municipal limits. This
approach can easily handle local peculiarities and respond to city employment needs. The
second option is the establishment of a centrally managed NetCo to run all municipal
networks at a national level. The main advantage of this approach is the benefit of scale
economies in terms of operational efficiency and the market aggregation potential leading to
significant bargaining power.
Both approaches exhibit some limitations. The city-wide FTTH network reaches a small
market size making the effort financially risky; thus inhibiting private investments. Also, most
municipalities do not have the human resources or experience for such endeavors, nor can

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they afford the management and operational overhead. On the other extreme, the case of
the countrywide NetCo is marked by increased complexity to coordinate municipal efforts
(especially in view of conflicting local priorities), and may result into increasing agency
costs[16] and bureaucracy. The efficiency of a centralized NetCo may be affected by the
distance between its rigid planning center and the local communities’ needs. Finally, this
approach may be in conflict with European Union’s and EETT’s policies that aim to reduce
the national monopoly bottlenecks in electronic communications, i.e. the access networks.
Our proposed model suggests a balanced approach to horizontal integration through the
voluntary establishment of regional broadband companies (RBCs). By voluntary
establishment we imply that RBCs will be owned by municipalities that choose to
participate in the company. RBCs are expected to be formed by neighboring municipalities
due to techno-economic imperatives and other commercial, operational and social priorities.
In this respect, the operation of the RBCs will be further supported by a considerable
integration and homogeneity amongst their members. Each municipality will contribute to
RBC’s revenues and to the broadband development of the region according to its size and
capabilities.
Due to the regional nature of operation, RBCs have the incentives to develop backhaul
networks within their area and towards the prime urban centers of Athens and Thessaloniki.
Interconnecting the regional municipal FTTH/B networks can increase available choices for
the citizens and help RBCs exploit increased economies of scale. An RBC can employ
several options for intercity FTTH/B interconnection:
B deploy its own fiber under regional and national roads networks (current regulation
obliges the relinquishing of respective rights-of-way);
B lease existing fiber backhauling infrastructures; and
B interconnect in neutral tele-houses within their municipal MANs.
Our approach exhibits substantial benefits in terms of operational efficiency and municipal
strategic objectives. Some of these are discussed below.
Direct availability of local information to and by local communities. Due to their regional
nature, RBCs are better informed about local broadband needs than a remote centralized
utility.
Cost reduction (economies of scale). By exploiting scale economies, the cost of services is
reduced. However, countrywide operation does not necessarily provide clear scale
advantages over a carefully segmented regional market. Due to the nature of the network
operation (e.g. labor intensive construction, requirements for fast response and reliable
operation), dispersion of redundant assets across the country (e.g. human resources,
offices, and equipment) cannot be avoided, especially on a national level.
Increased bargaining power. The aggregation of the socio-economically fragmented
markets of rural Greece increases the bargaining power of the RBCs towards suppliers. This
enables municipal and regional authorities to negotiate better business deals for the benefits
of their local communities.
Indirect competition at the physical layer. RBCs do not assume monopoly powers over the
entire country. The regional segmentation introduces indirect competition in the physical
layer. RBCs will compete to attract investments, service providers, businesses and residents
in their locale, positively impacting regional growth.
Development of new broadband markets. The dark fiber back-haul interconnection market
may as well develop in the future, extending the business scope of the RBCs and further
facilitating the national broadband market.

4.2 Vertical integration

The degree of vertical integration will have a direct impact to the type of services provided by
the RBCs and to their firm structure. Municipalities in Greece do not have a strong
engagement record in innovative high-tech projects. Traditionally, structural investments

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 and funding are orchestrated by the central government, leaving only the administration to
municipalities. Also, it must be noted that in Greece there are no municipal power utility
companies to lead FTTH/B infrastructure developments, contrary to the experience of other
countries such as Denmark and the USA. However, Greek municipalities have long
experience in the financing, construction and operation of civil works and low-tech physical
infrastructures such as roads, water supply and sewage, public transport, waste
management, etc. Municipalities have access to know-how, experienced workforce and
technical equipment for civil works. Therefore, in practical terms, the passive infrastructure
stands out as the most attractive model for municipal engagement in FTTH/B development
because it allows municipalities to deal with activities that they traditionally master (i.e.
construction and low-tech infrastructures).
With this model RBCs initiate a whole new market for the country, leasing of intra-city dark
fiber and other passive facilities, such as ducts, tubes and collocation space. The network
must be open access and offer competitive prices to boost market entry and penetration
rates. The adoption of the passive infrastructure model (see Figure 3) by the RBCs is
recommended since it provides a series of advantages:
Low technology risk. In operational and management terms, the technical expertise required
by the RBC is relatively small compared to other options, i.e. carrier’s carrier and single
provider models.
Low retail risk. By focusing solely on the infrastructure provisioning and maintaining a low
business profile (i.e. wholesaling) RBCs avoid costs related to retail customer acquisition
and retention. Moreover, it is more likely that RBCs’ economic performance will stay
unaffected by service providers’ churn rates, if the municipal infrastructure is widely used by
competing SPs.
Competition invited and encouraged. By keeping business activities in the lower end of the
broadband market, competition is encouraged in the upper layers. Open access practices
and cost-based pricing further enhance the market landscape and provide entry incentives
for access operators.
Technology flexibility to service providers. Competing SPs lease resources from a rich
ubiquitous pool of technology-agnostic municipal fibers. As a result, they maintain the
flexibility to design their network overlays according to technology trends, customer needs,
and technical requirements.
Low operational expenses. Operating a passive distribution infrastructure entails low
operational costs (OpEx) for the RBC. Higher costs, related to retail customer support and
active network infrastructure planning and maintenance, will be the responsibility of
competing SPs.
There is a crucial business implication that needs highlighting with respect to the passive
infrastructure model. International practice suggests that in some cases, municipal dark
fiber offerings eventually attracted insufficient or no market entry. Municipal response was to
extend their service portfolio to wholesale capacity offerings or engage in retail services. Our
model may confront an analogous situation; thus, RBCs should be prepared to vertically
integrate to upper market layers.

4.3 Ownership of the RBC

FTTH/B projects are capital and labor intensive and detailed design and accurate planning
is important to keep FTTH/B projects within budget. Experience in similar works and
know-how is a must-have when deploying FTTH/B networks. Furthermore, operational
efficiency, in terms of cost and customer satisfaction can make the difference between
success and failure. Hence, there is a need for an experienced partner with previous similar
engagements and related expertise.
Domestic best practices designate a cooperation of public and private sector in a form of
public-private-partnership (PPP)[17] as the preferred choice for public capital-intensive
projects with huge sunk costs and long payback periods. Moreover, as shown previously,

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international best practice in FTTH/B projects proves that private participation in municipal
projects can add significant value to the municipal endeavors. As PPPs are criticized in
many respects (Greve and Ejersbo, 2002), terms and conditions of collaboration
agreements need scrutinized handling by the public sector. A complex PPP must address
viable business cases within a transparent governance framework while the participating
private sector must provide adequate resources and expertise available in order for the
partnership to be successful.
The participation of market actors to the municipal projects can add distinct value to the
municipal networks. For example:
B housing corporations can help increase demand and lower construction costs, especially
in greenfield areas (by delivering fiber-enabled buildings);
B investment firms can help with financing issues;
B construction companies can bring efficiency in design and planning; and
B network operators can influence demand for the municipal wholesale services.
The natural gas deployment in Greece is a commonly cited success story of the role of PPPs
in leapfrogging of capital-intensive public infrastructures. Natural gas distribution climbed
from virtually non-existence to a decent deployment stage over the last five years, based on
three regional PPPs. This is often used as a paradigm for the capital-intensive development
of broadband infrastructure and services, giving a chance to the Greek broadband market
to move away from the tail of the list of OECD countries. However, natural gas investment in
Greece is protected by regulations permitting vertically integrated regional markets until
2011. In contrast, electronic communications is already a liberalized and competitive
market, following the European Regulatory Framework. A publicly funded vertically
integrated monopoly in the area of FTTH/B networks will most likely distort the market and
jeopardize private investments in the sector. Therefore, the natural gas use-case cannot be
copied in the broadband access market; nevertheless it provides an indication of successful
regional PPPs in building from scratch vast, complex public infrastructures reaching millions
of households.

5. Benefits and risks

5.1 Benefits
The contribution of the proposed business model to the public authorities’ strategic
objectives depends on how effectively it addresses:
B the network operators business concerns related to currently underserved markets;
B the interests of the citizens; and
B RBC’s sustainability.
Below we discuss the benefits of the proposed model for each of these stakeholders.
Benefits for network operators. An important implication of our proposal is that it addresses
the broadband hold-up problem. Broadband infrastructure investments are delayed due to
the lack of trust between service/network providers and users. Users are not willing to
commit in advance to the purchase of fiber access and consequently SPs lack the financial
incentives to invest. SPs prefer a wait-and-see strategy to observe how user demand and
broadband services (that stimulate demand) develop before committing resources. RBCs
resolve this dilemma by making the investment in anticipation of the long-term
socio-economic benefits which are expected to compensate the public sector’s
investment risk.
By the same token, the proposed model provides significant incentives for market entry. Our
business model promotes a business framework that encourages investments and
considers access providers’ capital limitations and business incentives. Key to the
encouragement of private investments is the adherence of the access infrastructure to open

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 standards and cost-based pricing. Finally, the potential involvement of RBCs as enablers of
the national backhaul fiber market may untangle the significant power of the incumbent in
this market and further promote market entry in remote areas.
Benefits for citizens. By considering social priorities, the municipal infrastructure makes
broadband available to the entire society irrespective of where they live or their income level.
Also, cost-based access provisioning and other potential demand-side public subsidies
may further decrease installation costs. This should be reflected to lower priced retail
offerings by SPs, increasing demand and resulting in wider social inclusion, thus facilitating
citizens’ participation in the information society.
Another benefit for the citizens is that public infrastructure lowers significantly end-user’s
switching costs, i.e. lowering switching delays and service outage times while changing
SPs. In our business model, there are no incentives for the infrastructure owner to delay or
stall switching, thus sustaining market and competition dynamics.
Finally, the availability of broadband infrastructure can attract ICT-literate professionals to the
area and help reduce or even reverse the immigration of the local population to the prime
business centers. Reversing this trend can facilitate the economic growth of regions by
encouraging the relocation of larger businesses, thus changing the nature of local markets
(comprised primarily of small retail businesses and stores) to islands of wider economic
prosperity.
Benefits for the RBC. Our model aims to establish RBCs as the primary – if not the only –
provider of fiber access to the area of responsibility. Historically, Greek municipal authorities
avoid high-tech initiatives due to the associated high risk and the lack of quality expertise
and know-how. In our model RBCs’ activities are limited to low-level physical infrastructure
wholesale provisioning and not in top-notch technologies with short life cycles. Our
approach aims to leverage on economies of scale without jeopardizing the local/regional
focus of the RBC. Also, with the proposed ownership (PPP) the risk and opportunities of
broadband are fairly balanced between the private and the public sector. Finally, efficient
operations and the successful match-up with SP business models will most likely make
unattractive any future investment plans in the physical layer. International experience shows
that outside prime markets no infrastructure duplication took place in cities where municipal
fiber was initially deployed.

5.2 Risks
Investments in FTTH/B networks are subject to increased uncertainty and risks. Below we
summarize the major risks associated with the operation of RBC within the proposed
business model
Deployment and operational cost. The majority of FTTH/B deployments worldwide endure
great financial pressures from higher than initially anticipated capital expenditures, partially
due to inefficiencies in planning. FTTH/B deployment costs can be abated by synchronizing
construction with other civil works (e.g. streets construction, maintenance and upgrades of
public utility networks, etc.). Also, although operation of fiber networks is anticipated to be
more efficient than that of copper access networks, there is limited empirical verification to
justify this conjecture.
Competitive reaction from the private sector. International practice (e.g. Amsterdam in The
Netherlands and Monticello in the USA) has shown that public infrastructure developers are
likely to engage in legal battles with private market players. Municipal networks have been
sued over funding rules and market distortions; therefore, funding sources, ownership and
retail/wholesale offerings must be structured very carefully. We must underline the fact that
legal disputes are not always won by municipalities (e.g. The Netherlands – Appingedam)
and that telcos (incumbent and alternate network providers) are suspected to have strong
political power and influence to public policy decision makers.
Commercial success. By choosing the passive infrastructure model, RBCs’ commercial
success is directly linked to the successful market entry. The financial success of a RBC is a

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direct function of the broadband penetration which in turn is closely linked to the commercial
competence of the SPs leasing the infrastructure.
Competency of the public sector. The lack of historical record of Greek municipalities’
involvement in ICT projects provides little evidence regarding the success of the RBC. This
fact, coupled with public mistrust of local government competence to undertake complex
capital-intensive initiatives, is a risk for municipal RBCs in gaining popular support. In
addition, the regional character of the initiatives will require the coordination and mix of
intra-regional priorities, which may affect the smooth operation and decision taking. Finally,
the RBC is essentially acting as a facilitating intermediate amongst end-users and service
providers. Thus, the public need for social inclusion and the profit orientation of SPs must be
appropriately balanced by the RBC.

6. Social and policy implications

Open access in the physical layer and the reduction of switching costs stimulate innovation
in services that allows society and industry to leverage on innovation dynamics instead of
physical infrastructure investments[18]. Due to the inter-sector role of broadband in the
economic development, FTTH/B availability is expected to increase investments in a
multitude of business sectors, including but not limited to ICT. This will inevitably push new
jobs creation and business opportunities for the local communities, increase the regional
GDP and encourage the relocation of residents and businesses.
Our proposal aims at long-term socioeconomic benefits for the local communities.
According to Hoffler (2007), infrastructure-based competition increases penetration rates in
the short-term, at the expense of the (Marshallian) social surplus. In this respect, initial high
take-up rates stemming from low prices (as a result of infrastructure-based competition) may
not necessarily enhance social welfare in the long-run, due to the significant negative impact
of price competition and increased investments on producer’s surplus. Over-investment in
the local loop may lead to price competition that will drive prices down to below the rate that
allows investors to recuperate their investment (Organization for Economic Cooperation and
Development, 2008). Our proposal recognizes the need to avoid socially suboptimal
overspending in infrastructure and facilitates service competition without impairing
immediate cost benefits by selecting cost-based pricing and allowing open access. Also,
our model holds the potential to transform the fixed electronic communications market by
effectively resulting in a structural separation of the access and service elements, which
could substantially simplify regulation (Xavier and Ypsilanti, 2004).
Universal access to communications technology is the primary policy tool for enabling
citizens to participate in the economic, political, and social activities fundamental to a
democratic society (Schement and Forbes, 2000). Universal service obligation (USO) plans
ensure that citizens of all income levels and in all regions of the country have access to
good-quality, reliable telecommunications services at affordable and reasonable prices
(Blackman, 2007). However, in the current market context, the inclusion of broadband in a
universal service framework may inhibit service innovation and competitive entry in regional
and remote areas due to that it could further strengthen the incumbent’s position[19] in these
areas (Xavier, 2008). The proposed passive infrastructure model underpins the success of a
socially optimal broadband universal service framework, by separating access from
services and by operating on open access principles.
Our proposed business model promotes the reasonable use of subsoil capacity, leaving
underground public space available for other utility networks (e.g. water distribution, gas,
sewage, etc.), thus reducing the risk of depletion. In the international literature the
unconditional exploitation or use of a public good resulting in its depletion or deterioration is
referred to as ‘‘tragedy of the commons’’ (Hardin, 1968). In our case the public good is the
subsoil space and our proposal provides incentives to service providers (SPs) to avoid
investing in redundant underground fiber infrastructures that would jeopardize the limited
street underground capacity.

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 It should be noted that, by becoming an infrastructure owner that at the same time owns the
rights-of-way within their city limits, municipalities may have the incentive to foreclose
access to the streets’ underground capacity. In general, EU state aid (which was used as
seed money to build the municipal MANs) rules that beneficiary municipalities offer open
access, cost-based services, prohibiting them from exercising monopoly powers over their
infrastructures. However, further ex ante regulation will be required to make sure that in no
circumstances should RBCs’ actions distort the telecommunications market.
As a final remark, the market structure that will emerge by the institution of RBCs fares
resemblance to the situation faced in the USA after the antitrust agreement and the
divestiture of the Bell System (AT&T) in 1982[20]. Over the years competitive practices
among players could not be avoided and horizontal and vertical integration strategies (e.g.
via buyouts, mergers, acquisitions or additional investments) resulted in the current
concentration of the US market. Similar phenomena may be expected to a certain degree for
municipal RBCs, and thus regulatory measures should address vertical integration issues
and control excessive horizontal integration via ex ante regulation and ex post remedies.

7. Conclusions
The international telecommunications landscape, the globalized nature of today’s economy
and the expected impact of broadband to local socioeconomic growth puts significant
pressure to local and national policy makers to develop effective broadband development
strategies (Troulos, 2008). At the same time, international experience shows that there is no
one strategy that fits all. National and local strategies will take different shapes and forms
depending on national objectives, market conditions and local particularities. In the special
case of Greece the introduction of a municipal FTTH/B infrastructure is recommended given
the current national broadband industry slowdown and the ill-fated fragmented attempts of
public and private initiatives.
Our model addresses the municipal involvement in FTTH/B infrastructures to underserved
regions. The success of physical infrastructure investments depends primarily on the
appropriate form of regional broadband companies, which will assume management and
operation of the municipal fiber access networks. The proposed business model builds on
the passive infrastructure model and offers unbundling services on open access principles
to protect against future monopolistic behaviors. It also resolves the hold-up problem
between service providers and end-users that surrounds large scale FTTH/B investments.
Underpinned by appropriate public intervention, our business model can support universal
service objectives with increased consumer choice while avoiding a tragedy of the
commons related to the depletion of underground soil capacity. The underlying policy is
expected to enable competitive entry of multiple SPs, spur innovation dynamics in the ICT
industry, stimulate social inclusion and attract technology intensive operations from the
business centers to the periphery of the country.

Notes
1. For more information see www.stokab.se/templates/StandardPage.aspx?id ¼ 306
2. For more information see www.wilhelm-tel.de/
3. For more information see www.citynet.nl/
4. For more information see http://eco.agglo-pau.fr/Initiatives/PBC/pbc.asp
5. For more information see www.localret.net
6. Note that GPON is an architecture preferred by incumbents while point-to-point architectures are
best fitted for unbundled services, thus preferred by public authorities wishing to encourage SPs for
competitive entry.
7. For more information see www.onsnetnuenen.nl/

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 8. Greece achieved 48.1 percent yearly increase in broadband penetration and ranked third among all
EU member states in 2008.
9. Data are available at: http://europa.eu/rapid/pressReleasesAction.do?reference ¼ IP/09/343
(accessed March 27, 2009)
10. EU figures do not include Romania and Bulgaria due to the unavailability of relevant data.
11. For more information visit the European Commission for Information Society website at: http://ec.
europa.eu/information_society/eeurope/i2010/bpi/index_en.htm
12. The lack of alternate access technologies might be a factor in explaining the low broadband
penetration in Greece, as pointed out by Distaso et al. (2006).
13. National telecommunications industry faced strong consolidation tendencies over the last few
years. While 19 competitive telecommunications providers were active at the beginning of the
liberalization, today only a handful continue to be effectively active in the market.
14. These calls were issued within the Operational Programme for Information Society (OPIS; see www.
infosoc.gr) of the Greek Ministry of Economy & Finance. Funding is secured by European
Commission structural funds (75 percent EU and 25 percent national funds).
15. These networks build upon the fiber MAN constructed in Calls 93, 145 and 195.
16. These refer to conflicts of interest within the management hierarchy and towards the political
superstructure (central government, municipalities) resulting in moral hazard and general distress.

17. In general the term refers to forms of cooperation between public authorities (municipalities in our
case) and the world of business which aim to ensure the funding, construction, renovation,
management or maintenance of an infrastructure or the provision of a service (NGA infrastructure
networks and access in our case) (European Commission, 2005).
18. Open access and switching costs reduction is the primary tools for inclusion and innovation and it
has been considered through out the evolution of information and communications technologies in
many respects: net neutrality for internet services, number portability for telephony, DNS and
protocol transparency for internet connectivity, API standardization for software applications, etc.
19. The incumbent may be the only firm capable of providing broadband coverage on a national basis.

20. Then, telephony access was kept as a monopoly within 192 local access and transport areas
(LATAs), operated by seven independent regional Bell operating companies (RBOCs). Inter-LATA
calls were carried by competing long-distance carriers (e.g. AT&T, MCI, and Sprint).

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Corresponding author
Costas Troulos can be contacted at: ktroulos@netmode.ntua.gr

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