Broadband ROI: Calculating the Payback in Sweden
By Howard Baldwin, Contributing Columnist
When most of us were in school, our teachers instructed us to “show our work.” It wasn’t enough that we came to a conclusion; we had to demonstrate how we had arrived at that conclusion.
That’s why this October 2011 report on the socioeconomic effect of fiber to the home (FTTH), sponsored by the Swedish government’s broadband council, Bredbandsforum, is so interesting: the authors, Marco Forzati and Crister Mattsson, show exactly how they arrived at their numbers — achieving a positive payback of 1.5:1 in five years.
The aim of what the authors called a “pre-study” was to put a figure on the return of every krona invested in FTTH. The study estimates the need for investment to achieve 100% fiber penetration, identifies and quantifies a number of significant effects of fiber deployment, and then calculates the return of investment (ROI).
While the conclusion was that more data was needed for an exact estimate, the study showed that even considering a limited number of factors, Sweden could reach a socio-economic break-even point after three to four years. Within five years, it could get 50 percent returns, with much larger returns expected in the longer run.
Total Economic Impact Assessment
Unlike most forecasts, the authors include their formulas and calculations in the report. Even better, the authors noted, “We expect that the returns to be greater than that, due to other effects that are difficult to quantify.”
Forzati and Mattsson wanted to calculate the benefit of FTTH with a different spin. They believed that “the business case for broadband access and FTTH is often evaluated from a traditional telecom perspective, in which investment decisions are made based on what the average consumer is willing to pay for a specific set of services.”
But in reality, they argued, it is important to look at a wider spectrum (pardon the expression) of ancillary benefits, those that accrue to citizens, businesses, and society in general. “[Those benefits] may be more difficult to evaluate, and yet should be considered in the cost/benefit calculation when making the investment decision.”
To determine the one-, two-, and five-year payback of one euro invested in FTTH, they set up three criterions:
- the cost of FTTH deployment
- the investment effects over different time periods
- the return in monetary terms
The goal was to combine real numbers — installation process and costs, based current and previous fibre penetration — and potential socio-economic indicators. To determine their results, they calculated the direct, indirect, and induced effects of FTTH. These include:
- significantly higher access capacity,
- access to a new future-proof infrastructure and
- economic value generated by the network build up, construction, fibre cables, and equipment
- higher access capacity allows better service quality and new services
- a future-proof infrastructure that provides higher bandwidth and lower signal loss compared with radio and micro wavelength, therefore leading to higher housing value
- evolution to new business models enabled by a new infrastructure
Direct and indirect effects in turn impact what the authors call induced effects:
- Productivity-enhancing services such as cloud computing, video-conferencing and telepresence; e-learning and telecommuting; which in turn reduces the cost of doing business
- Reliable and high-quality e-health service, which reduce the need for expensive hospitalization and home visits
- E-government services that increase efficiency and transparency in public administration
- Increased ICT maturity of the population, which creates both new potential customers of, and new human capital for the production of new services and products;
- Creation of new ICT companies, which in turn increases the level of entrepreneurship
Advancing both Short-Term and Long-Term Outcomes
Among these induced effects are subsequent benefits for broadband service providers and the ICT sector, assuming the government makes the initial investment: “if network and service providers are freed from the heavy upfront investments required to deploy the passive infrastructure, they can scale investments with the number of users served, and therefore achieve profitability in the short-medium term.”
In the long term, such entities may be able to offer services to the home that either represent a low percentage of usage now or tend to be restricted to businesses, such as video-on-demand and videoconferencing.
The authors were lucky in that Sweden is more advanced than most European countries, giving them “rich and updated databases on key economic figures on the municipal level, which allows for quality statistical analysis.”
A five-year ROI of 150 percent for broadband development is enticing — but the numbers won’t do any good until governments and carriers start working together to get them translated into real construction and real results. As frequently happens in technology, the actions of people is just as important, if not more so, than the advancements.
Learn more about progress in Sweden, view the following video “The BAS Network” story. Bredband för alla i Skåne (BAS) is a project to bring broadband to everyone in Skåne, the southernmost county in Sweden. With a population of roughly 1.2 million, Skåne County covers around 3 percent of Sweden’s total area.