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Broadband-Provision in Rural Areas without Subsidies A Study from Rural Germany

Axel Schulz, Bernd Carsten Stahl, Simon Rogerson Centre for Computing and Social Responsibility (CCSR), Faculty of Computing Sciences and Engineering, De Montfort University, The Gateway, Leicester, LE1 9BH, United Kingdom {aschulz,bstahl,srog}@dmu.ac.uk Abstract: Many regions in rural Europe are still not equipped with broadband Internet facilities. This is commonly referred to as the digital divide or digital gap. Often it is reported that subsidies on a national or regional level is required to overcome this digital gap. However, European and national broadband-provision-strategies sometimes turned out not be as successful as hoped for. This paper will present empirical data of a successful case study which will suggest a way in which rural areas can be provided with broadband Internet access when certain preconditions are met. Introduction Many regions in rural Europe are still not equipped with broadband Internet facilities. This paper will present a success story from a rural area in East-Germany. The results will provide empirical evidence from a project initiated by a grassroots-movement in northern Saxony-Anhalt, Germany, called AltmarkDSL. The results were acquired by using Action Research as the empirical research method. Action Research is social research carried out by a team encompassing a professional action researcher and members of an organization or community seeking to improve their situation. (Greenwood/Levin, 1998, p. 4). The key feature of Action Research in comparison to other research methods is the heavy involvement of the researcher in the research project. This challenges the established paradigm of valuefree and impartial social sciences research. As we will see, that was a very fruitful approach for this kind of research area. However, the research methodology will not be discussed in detail here. The structure of the paper is as follows: First, the timeline and the background of the project will be presented. Then, the status of broadband as infrastructure will be clarified. Finally, the findings will be analysed and discussed. Time-line and Background of the Project Before we will present the relevant analysis of the project for this research paper, we will briefly say something about the time-line and the background of the project. In September 2004 some enthusiastic people started a grass root project AltmarkDSL. The goal of AltmarkDSL was to bring broadband Internet services to the rural area Altmark. The Altmark is situated in the northern part of Saxony-Anhalt, Germany. The region has a population of approximately 230.000 inhabitants and size of 4700 m2 . The name AltmarkDSL refers to the region Altmark and to the broadband technology DSL (Digital Subscriber Line). Since DSL is the most common broadband-access technology in Germany the term DSL is often also used synonymously for broadband as such. The movement decided to use the abbreviation DSL in the name of the project in order to advance the recognition of the project goal broadband in the Altmark for all. Even though DSL is the most common broadbandaccess technology in Germany1, it is not available everywhere. This has purely economical reasons. The largest operator of DSL-infrastructures in Germany is the German Telekom. The German Telekom provided 10.3 million DSL-accesses either as direct (to customers) or resale (to competitors) products at the end of 20062. The German Telekom uses mainly copper lines for the delivery of DSL-broadband Internet. Technically it is also possible to deliver DSL-broadband via optical fiber (further referred to as fiber). The fiber technology was used as state-of-theart technology for the rebuild of the telecommunication infrastructure in east Germany after the reunification during the 1990s. However, sometimes copper and fibers are used in a mixture for the DSL-infrastructure. This causes the main obstacles: the DSL-signal can be delivered by fiber and copper, however, transmitting the DSL-signal from copper to fiber or vice versa will require further advanced technologies. These technologies are the most expensive part of the whole DSL-infrastructure (Fijnvandraat & Bouwman 2006; Davey et al. 2006, Hffler 2007). Thus, investment in DSL-infrastructure will first of all take place in regions were a fast return of investments is expected. Rural areas are not considered as fast return of investment-regions. We return to this point at the end of the paper. What can be said so far is that this circumstance seems to be the main reason for the lack of broadband provision in many parts of rural Germany. In order to overcome this situation the nongovernmental grassroots project AltmarkDSL communicated via their homepage and press-releases in May 2005 the goal to provide the whole rural area Altmark with a commercial wireless broadband-network. Wireless because it seemed to be the least expensive approach. Experiences, e.g., in Sweden, Denmark, the UK and other parts of Germany proved that such an approach is successcapable for rural areas3. It is important to note, that AltmarkDSL explicitly emphasized as a project not to invest real money in such a network, nor to become the Internet Service Provider (ISP) of such a network. AltmarkDSL had

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the solely task to document and explain the broadbandsituation in the Altmark and to promote possible solutions. Form September 2004 until May 2005 the project discussed the prospects for such a network with different stakeholders: administration, potential customers, potential ISPs. In most cases the stakeholders considered the approach of AltmarkDSL ill-conceived. However, in spring 2005 a potential ISP decided to take advantage of the AltmarkDSLinitiative and developed a business plan for the broadbandprovision in seven rural villages via a wireless broadband technology. Up to March 2005 the ISP was totally unknown to all other stakeholders(administration, potential customers). In August 2005 a first public meeting with approximately 80 potential customers was held. Axel Schulz, as a member of AltmarkDSL, explained to the potential customers and the ordinary public the national and local situation on the broadband sector (especially on DSL) in Germany, and the potential ISP the requirements for a successful project rollout as well the technological patterns and prices etc. One major requirement of the ISP was to receive a certain number of signed contracts before in order to be able to perform the investment. This requirement caused uncertainty and suspicious about the ISP among the potential customers. This is a very interesting step in the adoption process which will be object of analysis later on. However, most of the potential customers did not sign a contract at this point in time. In the following months AltmarkDSL continued to promote this project. At the same time a lively discussion in the forum of AltmarkDSL started. Due to the project-homepage, AltmarkDSL was available and approachable day and night and represented a vital point of reference, which developed a potential which was totally underestimated before. That is why in November 2005 another meeting was held. This time only 40 people attended the meeting. However, the requirements settled by the ISP had been now specified (e.g., monthly fee, two years contract etc.). Again, not enough potential customers signed a contract for the product and delivered it to the potential ISP. In order to be able to present the intended broadband-product to the public, the ISP did set up a exemplary wireless network in a village of 80 inhabitants. The network was conceptualized as a show case. This means, the network would be removed if not enough people would sign up for the service. On a Saturday in late December 2005 AltmarkDSL invited people from all over the region and especially from the seven villages at stake to get to know the product of the potential ISP. Approximately 120 people attended this exhibition. After watching with their own eyes that this product actually works, more and more people signed a contract for the broadband product. In early March 2006 the required number of contracts had been reached. The ISP started to build the network. In April 2006 the first customers could enjoy the broadband-product, where normally no broadband (=no DSL) is available. Since this project was exclusively financed by private investments, it is an ultimate argument for the possibility of commercial broadband provision in rural areas without subsidies. Of course, the processes which led to the final result were much more complicated than expressed here. The full

description of the project is beyond the scope of this paper and will be provided elsewhere. This paper aims only to make a point. However, the brief analysis of the project reveals interesting theoretical interdependencies which were crucial for the success of the project. Broadband is Infrastructure Before we finally turn our attention to the analysis of the project we would like to provide some arguments for the thesis that broadband shall be considered as Infrastructure. Gas-, water-, telefon, energy-supply all these services are commonly considered as important infrastructures. It is widely accepted that infrastructure is an important means for other services which require and rely on these infrastructures. The literature on broadband-diffusion (Lindskog & Johansson, 2005; Bandia & Vemuri 2005, Umino 2002) does suggest that broadband should also be considered infrastructure. If so, which implication does this have? There are mainly two strong arguments for broadband as infrastructure. The first argument relies on the unique qualities of broadband. Broadband is a technology which has the capacity to provide services which other infrastructures could not provide, e.g., like water supply will provide water and not electricity. Accordingly, dial-up telephone-lines have the capacity for enabling ordinary phone-calls or dial-up Internet access but not broadband. Today, e.g., and even more in the very near future, the ordinary telephone lines will be outdated and replaced by the modern Voice-over-IP technology which relies on broadband. The increasing amount of data-transmission, almost required by public and the private sector, will also require faster Internet access for every home. Thus, broadband becomes an enormous importance due to the overall technological development. The second argument relies on the first. Because of the overall technological development and the emerging requirement of broadband for the effective use of other services, broadband has practically to be available on supply4. Generally spoken: things which are considered to be available on supply are commonly referred to as infrastructure. In the case of broadband it does not matter by which technological means and conditions the infrastructure is build. This is the difference to other infrastructures: water cannot be supplied via the energy-system. Broadband can. However, in most industrialized countries broadband is provided via ordinary phone lines or cabel TV. Further access technologies might be wireless networks, the power line or satellite5. However, the crucial point we want to emphasize here is, that if broadband is infrastructure which can be delivered by different carrier technologies, then every project heading towards establishing a broadband infrastructure should get an equal attention. Additionally, administration should evaluate the feasibility of every single broadband project. The reason for this kind of argumentation will be presented, again, in the analysis.

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Analysis As we have seen the provision of broadband in rural areas without subsidies is possible. What distinguishes this study from other research approaches in the filed of broadband provision and adoption is the qualitative action research approach to the field. This study did not try to research at which price people will adopt broadband instead of dial up. Instead, this studied focused on the research question how broadband provision in non-provided areas can succeed. Thus, the main goal of the research project was to investigate which preconditions have to be met and which obstacles have to be overcome on a local level in order to raise the disposition of the feasibility of alternative rural-area-broadband projects. At the beginning of this paper we introduced the situation of broadband provision in Germany. As we said earlier, because of the overall market power and the omnipresence of DSL as the major broadband technology in Germany, broadband is often used synonymously and substituted with the term DSL. This, very often, results in the common perception that broadband can (and should?) only be provided by German Telekom. This perception is supported by the fact, that every household has access to a dial-up Internet of the German Telekom since ordinary telephone lines are by law ensured as an Universal Service Obligation (USO). This is the common explanation for the omnipresence-argument. However, the USO does not hold for broadband in Germany. Thus, the access to telephonelines does not equal access to broadband. However, if one considers broadband as infrastructure, than administration should evaluate different carrier technologies equally and not be guided by the most used one. Main criteria for such an evaluation should be the prompt feasibility under the onsite conditions and the actual costs. These are quite important criteria because when comparing different access technologies the administration would also have to compare at which price and under which period the access technology can be put in place. Here we face another obstacle: the German Telekom will not reveal such information. The reason is simple. Potential customers can be hopeful to be provided with DSL soon or later. From the perspective of the company this is a better choice than giving the customer a reason to sign up for services offered by competitors. It is obvious that such a corporate-behavior is a powerful marketing instrument. People were not stop debating and arguing about the date when they will be provided with broadband access. Herein is also the demandsupply-problem in rural areas in Germany. Alternative ISPs have to face the hope-for-DSL-culture of people, which leads to no investments in rural areas. This is commonly captured as the demand-problem of broadbandinfrastructures in rural areas (Lindskog & Johansson 2005). On the other hand, if under ordinary circumstances no subsidies are provided, it is unlikely that ISPs will make investments in such areas. This refers to the supplyproblem. However, these are the simple forces of a free market. Special attention and instruments are required to overcome such a situation by using ordinary market forces.

As we saw, commonly DSL is considered as the standard broadband technology. Herein is the main reason for the lack of feasibility-perception of alternative broadband-projects. Or the other way around: this misconception is the main obstacle. Further obstacles for the broadband-provision in rural Germany can be derived from the main. The other obstacles for a positive broadband provision project can be identified on a technological and psychological level. Furthermore, these obstacles can be applied to different stakeholder groups with different implications. In order not to exceed the space given for this research paper but still to give a coherent picture of the research project, we will introduce only three major stakeholder groups: the administration, the potential customers, and the potential investors. Some of the preconditions for a successful broadband-provision project are provided in table 1: rather technological dependent - awareness of technological alternatives for broadband provision - declaration of assuring support for an infrastructure project - considering broadband as infrastructure rather psychological dependent - preparedness to advertise a certain alternative technology - willingness to act beyond duty (political dimension) - assuming that a provision of broadband without subsidies might be successful - accepting and trusting unknown ISPs - signing contracts before provision is ensured

administration pot. customer

- accepting new/uncommon technologies for broadband provision

Investor (ISP)

- licensing of technologies, e.g. frequency spectrums, has to be fix (political dimension)

- fear of the market power and omnipresence of big and established ISPs

Tab. 1: preconditions for relevant stakeholder groups of broadband provision projects in rural areas The research results suggested that every stakeholder perceived the conditions of the other involved stakeholders as external to its own. Generally speaking, this is the major threat for the failure of broadband-infrastructure-projects. Another obstacle is the absence of hierarchy or authority in such projects. There is simply no authority which could force or tell the involved stakeholders what to do. However, all stakeholders were heavily depended on each other. A theoretical explanation to these findings might be the system-dependence. Every stakeholder is member of a certain sociological system. These systems follow their

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own, mostly quite simple, laws. Administration, e.g., has to be impartial. Impartiality means that the administration should argue in favor of a particular competitor/investor. In this case, however, an investment by a big ISP would surely differently be considered than an investment by an unknown small ISP. The potential customer is not a homogeneous mass. Potential broadband customers in rural areas in Germany face the problem to be decisive for the broadband supply. This has several implications. As a matter of fact, people try to avoid uncertainty and risks. However, this became a highly contradictory matter during the broadband-provisionproject. On the one hand there was a big telecommunication services provider which so far did not offer broadband but by chance could make an offer within the next months. On the other hand, there was an unknown ISP which will serve broadband for sure within the next month when enough people will sign up for its services. Both option offer uncertainty. The first option leaves the customer in uncertainty about the point in time of the broadband provision. The second option is risky in the sense that services as well as ISP are totally unknown to the potential customer. Should one really sign up for a service offered by an total unknown provider for a two years contract? Watched from a neutral perspective the overall risk is that neither this nor that will happen. The third stakeholder is the potential ISP with its product. The ISP acts also under a particular uncertainty. It is by no means clear that the money which had to be invested to develop a proper business plan will return to the ISP. As we can see, the situation is quite fragile. The glue for the project was the initiative AltmarkDSL. First of all, AltmarkDSL promoted certain ideas which turned out to be successful. In order for the region to become attractive AltmarkDSL announced that six to seven villages should be provided with broadband at the same time. This was very much supported from the local administration but not from the district administration. The first aim of this announcement was to frame a bigger market for potential alternative investors. The other aim was to make the situation for the German Telekom to act upon the threatening competition more uneasy. The idea behind was to prevent the possibility for the German Telekom to set a case study. The fear was that if one village would be declared to provide with broadband from an alternative competitor that German Telekom will also aiming at providing broadband in this village. In such a case no one could expect that alternative ISPs will even think about investing in rural areas. The second major achievement of AltmarkDSL was the constant communication of the project in the public and the website. While people were quite skeptical and uncertain about AltmarkDSL in the beginning of the project, this uncertainty changed in the course of time. The reasons for this are manifold. Due to the constant public relation work and the always updated website, AltmarkDSL became somehow reliable. Two major tasks had to be resolved in the course of time. First, the hope that the big ISP German Telekom will invest in rural areas was doubted continuously. To give evidences for these doubts

projects and national as well as international market developments were cited and presented on the project website. When time passed the by AltmarkDSL predicted developments turned out to be true. What AltmarkDSL implicitly did was to argue for broadband as infrastructure. Further more AltmarkDSL provided arguments for the special situation on broadband in rural areas in Germany. This refers to the major obstacles which had to be addressed in order to overcome the unsatisfying situation. Unfortunately, the district administration did not accept this line of argument. For the district administration the provision of broadband was a solely commercial business which should be resolved by market forces. It is obvious from the things said above that there is no common broadband market. As such in rural areas. Hence, market forces will note resolve the situation in a reasonable time. That is why the perception of the district administration is unjustified. Logically, the provision of broadband depends on the prices which the German Telekom has to pay for the copper-fibre-technology. This price will decide when and how small villages will get access to the broadband network via DSL or any other technology. Taking into account what we said about the reasons for broadband as infrastructure and, again, highlighting the importance of broadband, the misapprehension by the district administration seems to be proven. Conclusions It seems that broadband-provision projects fail due to the wrongful assessment of the local market situation. The study presented in this paper, the local initiative AltmarkDSL considered the market situation differently and promoted this view over and over again. The potential ISP took advantage of this initiative. More and more potential customers did also accept the argumentation of AltmarkDSL not to trust only in one provider. What is important to note is that successful broadband provision projects heavily depend on the right analysis and assessment of the stakeholders and the local and contemporary (market) situation. The paper provided an insight how difficult and complex the assessment and adoption processes are.

References: Bandias, S., & Vemuri, S. (2005). Telecommunications infrastructure facilitating sustainable development of rural and remote communities in Northern Australia. Telecommunications Policy, 29(2-3 SPEC.ISS.), 237 249 Choudrie, J., & Papazafeiropoulou, A. (2007). Assessing the UK policies for broadband adoption. Information Systems Frontiers, 9(2-3), 297308 Davey, R., Payne, D., Barker, P., Smith, K., Wilkinson, M., & Gunning, P. (2006). Designing a 21st and 22nd

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century fibre broadband access network. BT Technology Journal, 24(2), 5764 Fijnvandraat, M., & Bouwman, H. (2006/0). Flexibility and broadband evolution. Telecommunications Policy, 30(89), 424444 Greenwood, D., & Levin, M. (1998). Introduction to Action Research: Social Research for Social Change. London: SAGE Publications. Hffler, F. (2007). Cost and benefits from infrastructure competition. Estimating welfare effects from broadband access competition. Telecommunications Policy, 31(67), 401418 Lindskog, H., & Johansson, M. (2005). Broadband: A municipal information platform: Swedish experience. International Journal of Technology Management, 31(12), 4763 Ohata, K., Kobayashi, K., Nakahira, K., & Ueba, M. (2005). Broadband and scalable mobile satellite communication system for future access networks. Acta Astronautica, 57(2-8), 239249 Umino, A. (2002). Broadband Infrastructure Deployment: The Role of Government Assistance. OECD Science, Technology and Industry Working Papers, (15).

Comparison of developments of broadband-access technologies in Germany. Source: German Federal Network Agency (GFNA), at http://www.bundesnetzagentur.de/media/archive/9506.p df, last accessed 13 Aug 2007. These numbers were taken from another chart provided by the German Federal Network Agency, at http://www.bundesnetzagentur.de/media/archive/9507.p df, last accessed 13 Aug 2007 For a recent and comprehensive overview of successful and innovative broadband-project across Europe, please visit http://ec.europa.eu/information_society/istevent/broadba nd_gap_2007/cf/itemlist.cfm?type=Exhib, last accessed 28 Aug 2007 The demand/supply-issue is beyond the scope of this paper. It also refers to the discussion about the digital divide in industrialized countries (Warschauer 2003, Lindskog & Johansson 2005, Choudrie & Papazafeiropoulou 2007, Hffler 2007) Even though there are promising foresights of future satellite broadband (Ohata et al., 2005) the contemporary market situation is different. There is very low acceptance of broadband via satillite in Germany (see GFNA at http://www.bundesnetzagentur.de/media/archive/9507.p df,). Another obstacle for the succesfull penetraton of broadband via satellite are the constance developments on the wireless and teresstrial broadband market.

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