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Broadband Infrastructure in Broadband Infrastructure in North Asia and Central AsiaNorth Asia and Central Asia

Markets, Infrastructure, and Policy Options for Markets, Infrastructure, and Policy Options for Enhancing CrossEnhancing Cross‐‐Border ConnectivityBorder Connectivity

Michael RuddyDirector of International Research

Terabit Consulting


Part 1: Background and MethodologyPart 1: Background and Methodology


Project ScopeProject Scope

Between June and November 2013, Terabit Consulting performed a detailed analysis of broadband infrastructure and markets in 7 strategic markets in No. & Central Asia:

– Azerbaijan

– Kazakhstan

– Kyrgyz Rep.

– Russian Fed.

– Tajikistan

– Turkmenistan

– Uzbekistan


Scope (contScope (cont’’d.)d.)• The data and analysis for each country included: Telecommunications market overview and analysis of

competitiveness Regulation and government intervention Fixed‐line telephony marketMobile telephony market Internet and broadband market Consumer broadband pricing Evaluation of domestic network connectivity International Internet bandwidth International capacity pricing Historical and forecasted total international bandwidth Evaluation of international network connectivity including

terrestrial fiber, undersea fiber, and satellite Evaluation of trans‐border network development and

identification of missing links Identification of key highway and rail projects


Sources of DataSources of Data• Terabit Consulting has completed dozens of demand studies for submarine and terrestrial fiber networks worldwide– Constant contact with operators, ISPs, and other stakeholders

• Terabit Consulting’s published reports include:– The Undersea Cable Report(1,500+ pages)

– International Telecommunications Infrastructure Analysis (1,000+ pages)

• Terabit Consulting’s data and intelligence covers infrastructure, demand, traffic flows, pricing, and market share


Part 2: State of North and Central Asia Part 2: State of North and Central Asia Bandwidth and Broadband MarketsBandwidth and Broadband Markets


Overview of Broadband StatusOverview of Broadband Status

GDP per Capita, YE

2012 (PPP, USD)

Int’l.Band‐

width per Capita (Kbps)

Int’l. Connect‐ivity

Domestic Connect‐ivity

IP Transit Price

Competitive‐ness of Telecom Market

Fixed and Mobile

Broadband Infra‐

structure

Annual 1 Mbps Broadband

Subscription + Installation as % of Nominal GDP

per Capita

Azerbaijan $10,800 22.4 Moderate AdequateReasonably

PricedSomewhat Competitive

Relatively Strong

Reasonable

Kazakhstan $14,000 16.5 ModerateRelatively Strong

Reasonably Priced

Somewhat Competitive

Relatively Strong

Reasonable

Kyrgyz Republic

$2,400 0.893 Weak LimitedVery

ExpensiveSomewhat Competitive

Limited Very Expensive

Russian Federation

$20,900 17.4 ModerateRelatively Strong

Inexpensive Competitive StrongExtremely Affordable

Tajikistan $2,300 0.313 Weak LimitedVery


Very Limited Very Expensive

Turkmenistan

$9,600 0.125 Weak LimitedVery

ExpensiveNot

CompetitiveVery Limited Very Expensive

Uzbekistan $3,500 0.259 Weak LimitedVery


Limited Very Expensive


International Internet Bandwidth, YE12International Internet Bandwidth, YE12

Turkmenistan: >1 Gbps

Tajikistan: 2.5 Gbps

Kyrgyz Republic: 5 Gbps

Uzbekistan: 7.8 Gbps

Azerbaijan: 205 GbpsKazakhstan: 275 Gbps

Russian Federation: 2.5 Tbps


IntInt’’l. Internet Bandwidth per Capital. Internet Bandwidth per Capita (Kbps)(Kbps)

Differe

nce be

tween

Turkm

enista

n and

Azerba

ijan: 17

9x

1 Kbps per Capita or Less:SERIOUS OBSTACLE TO DEVELOPMENT


International Fiber ConnectivityInternational Fiber Connectivity• The Study identified and analyzed 30 trans‐border fiber optic links in the region– Across borders within the region and at the edge of the region (e.g. to China, Iran, and Afghanistan)

• Some transborder links form segments of multinational networks– Trans Asia‐Europe (TAE)– Proprietary limited‐participation networks such as

• Transit Europe Asia (Rostelecom), TTK Eurasia Highway• Europe‐Kazakhstan‐Asia• Europe‐Russia‐Mongolia‐China (via Mongolia Railway)

– Europe‐Persia Express Gateway (EPEG)• Only one border without connectivity

– Armenia‐Azerbaijan


International Bandwidth InfrastructureInternational Bandwidth Infrastructure

AZERBAIJAN, RUSSIA, KAZAKHSTAN: INTERNATIONAL INFRASTRUCTURE SUFFICIENT BUT NOT OPTIMAL

KYRGYZ REPUBLIC, TAJIKISTAN,

TURKMENISTAN, UZBEKISTAN:

INTERNATIONAL INFRASTRUCTURE

IN CRITICAL NEED OF EXPANSION


Russian Federation: Russian Federation: IntInt’’l. Infrastructurel. Infrastructure• 7 international submarine fiber optic cables

– reach is limited to adjoining regions (Scandinavia, Black

Sea/Eastern Mediterranean, Sea of Japan/East Sea)

• Europe‐Asia transit networks operated by

Rostelecom, VimpelCom, and TTK; new transit

networks recently activated by MTS and MegaFon

– ‘Big Four’ + TTK = 750,000+ route km of fiber

• Trans‐border links within the study region:

Azerbaijan/EPEG (4), Kazakhstan (at least 3

crossings, multiple interconnections)


Kazakhstan:Kazakhstan: IntInt’’l. Infrastructurel. Infrastructure• TAE (to China, Kyrgyz Republic, Uzbekistan)

• Kazakhstan benefits from at least 10 trans‐border fiber crossings within the study region

• Kazakhtelecom international connectivity = 290 Gbps as of mid‐2013:– Russian Federation: Rostelecom, VimpelCom, MegaFon, TTK

– Kyrgyz Republic: Kyrgyztelecom, ElCat, Saima Telecom

– China: China Telecom, China TieTong, China Unicom

– Turkmenistan: Turkmentelecom

– Uzbekistan: Uzbektelecom

• Kazsat‐2 (2011), Kazsat‐3 (2015)


Azerbaijan:Azerbaijan: IntInt’’l. Infrastructurel. Infrastructure

• TAE (to China, Kyrgyz Republic, Uzbekistan)

• Russian links to Rostelecom, MegaFon, TTK

• Link to Turkey via Nakhchivan Autonomous Republic

• TIC Iran link forms primary connection to Nakhchivan

• EPEG: Delta Telecom = transit operator

• Instrumental in spearheading TASIM initiative– Will include Trans Caspian Link

• AzerSat‐1 (launched February 2013), LEO satellite (2015), 2nd

telecom satellite (2016)


Uzbekistan: Uzbekistan: IntInt’’l. Infrastructurel. Infrastructure

• TAE (to Kazakhstan, Turkmenistan)

• Additional crossings to Kazakhstan (2), Kyrgyz

Republic, Tajikistan

• Afghanistan (used as part of Rostelecom’s ‘Europe‐

Afghanistan’ network)

• Uzbekistan is ‘doubly landlocked’ – making its

continued reliance on trans‐border links impractical

– Places country at mercy of at least two transit operators

• IP Transit: $1,510 in 2010; $347 in mid‐2013


Kyrgyz Republic: Kyrgyz Republic: IntInt’’l. Infrastructurel. Infrastructure

• TAE (loop to Kazakhstan completed in 2000;

redundant segment added in 2007)

• Kyrgyztelecom links to Tajikistan, Uzbekistan

• Kyrgyztelecom link to China intended to reduce

reliance on Kazakhstan and Uzbekistan transit, but

China Telecom reported interconnection issues

• ISP ELCat aggressively implementing fiber to

China, Kazakhstan, Tajikistan


Tajikistan & Turkmenistan: Tajikistan & Turkmenistan: IntInt’’l. Linksl. Links

• Tajikistan: Trans‐border links to Kyrgyz Republic,

Uzbekistan, Afghanistan, China (unconfirmed)

• Turkmenistan: TAE to Iran and Uzbekistan, links to

Kazakhstan and Afghanistan

– restrained network development due to ISP license

revocations in 2000, shutdown of MTS in 2010 (only

competitor to Turkmentelecom/Altyn Asyr/

Turkemenistan Online)


Part 3: Why a Coherent, Part 3: Why a Coherent, OpenOpen‐‐Access, CostAccess, Cost‐‐Effective Effective PanPan‐‐Asian Fiber Infrastructure Asian Fiber Infrastructure Would Benefit the RegionWould Benefit the Region


In Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan, the development of telecommunications and Internet services, as well as each country’s overall economy, has greatly suffered as a result of weak international infrastructure.

Reason #1Reason #1

Why a Coherent PanWhy a Coherent Pan‐‐Asian Infrastructure Would Benefit the RegionAsian Infrastructure Would Benefit the Region


The Impact of Low International Bandwidth & The Impact of Low International Bandwidth & Weak International InfrastructureWeak International Infrastructure

• At the macro level: a major obstacle to economic and human development– Detachment from digital economy– Continued economic inefficiencies and restrained growth– Lack of access to critical social development tools including telemedicine, distance learning, scientific/research networks

• More specifically within the telecom environment: higher wholesale and consumer prices, and lower broadband adoption rates– Kyrgyz Republic, Tajikistan, Turkmenistan, Uzbekistan:IP Transit >$100 per Mbps per month

• Compared to Singapore: $10 per Mbps• Compared to Russia: $4 per Mbps• Compared to USA: $1 per Mbps


Weak IntWeak Int’’l. Bandwidth Impacts Consumer Pricingl. Bandwidth Impacts Consumer Pricing

1 Mbps Broadband Connection: Annual Subscription + Installation as a % of Per‐Capita GDP

Higher Int’l. Bandwidth and/or Better Int’l. Infrastructure

Yields Lower Consumer Broadband Prices


Despite their developed international connectivity, the three wealthiest markets in the study (Azerbaijan, Kazakhstan, and Russia) would greatly benefit from improved pan‐regional terrestrial fiber.

Reason #2Reason #2



PanPan‐‐Regional Fiber Would Also Benefit Wealthy Markets Regional Fiber Would Also Benefit Wealthy Markets

• Pan‐regional fiber would compensate for existing shortcomings of the countries’ international networks and help to place them on a par more connected markets in Western Europe, Southeast Asia, and North America– Russia’s submarine connectivity is limited to adjoining regions

– Existing Europe‐to‐Asia transit infrastructure can’t compete• Stimulating demand in Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan would benefit entire region– By creating larger addressable opportunities for neighboring markets, in telecom as well as other sectors of the economy

– Increased demand for Russian content• 96% of Uzbek users visit Russian‐language websites• 90% of downloaded content in Kyrgyz Republic is Russian language


Coherent pan‐Asian terrestrial fiber optic infrastructure would benefit markets across the continent and beyond, and help address one of the international bandwidth industry’s most pressing concerns, namely the lack of reliable, cost‐effective Europe‐to‐Asia bandwidth.

In financial terms, the viability of constructing coherent pan‐Asian terrestrial fiber optic connectivity can likely be guaranteed by capturing even a small portion of bandwidth demand between East Asia and Western Europe.

Reason #3Reason #3



Strong EuropeStrong Europe‐‐toto‐‐Asia Bandwidth DemandAsia Bandwidth Demand

2007 2008 2009 2010 2011 2012

FLAG Europe‐Asia (FEA) (formerly FLAG ) 20 50 50 50 110 140

Sea‐Me‐We‐3 (SMW3) 150 150 200 200 200 200

i2i (ISCN) 160 160 310 640 640 640

TGN‐TIC (Tata Indicom India‐Singapore (TIIS)) 320 320 480 480 480 960

Sea‐Me‐We‐4 (SMW4) 640 640 1,500 1,500 1,700 2,000

Falcon 500 500 1,390 1,390 2,590 2,590

Seacom / TGN Eurasia 80 100 110 240

India‐Middle East‐Western Europe (I‐ME‐WE) 260 640 2,560

Europe‐India Gateway (EIG) 240 240

Gulf Bridge International Cable System (GBI) /MENA 480TOTAL ACTIVATED EUROPE‐TO‐ASIA SUBMARINE CAPACITY (Gbps) 1,790 1,820 4,010 4,620 6,710 10,050

CAGR (2007‐2012) 41.2%Source: The Undersea Cable Report 2013by Terabit Consulting


Terrestrial as a Solution for SubmarineTerrestrial as a Solution for Submarine

Source: The Undersea Cable Report 2013by Terabit Consulting

The global telecommunications industry is desperate for a cost‐effective solution that would avoid undersea choke points.


A PanA Pan‐‐Asian Terrestrial Network Would Be More Asian Terrestrial Network Would Be More Competitive than EuropeCompetitive than Europe‐‐Asia SubmarineAsia Submarine

Submarine Terrestrial

Connectivity Cable station to cable station, with expensive backhaul

POP‐to‐POP

Repair Faults take weeks to repair; ships running costs $50,000+ per day

Networks accessible by highway can be quickly repaired at low cost

Capacity and Upgrades

Long‐haul limited to 8 fiber pairs; submerged electronics poses limitation

Unlimited capacity with proper duct installation and maintenance

Costs Unrepeatered 3‐fiber pair cable: $12,500 per km, marine services $20k‐$40k / km

$1,250 per km with marginal fiber costs of as low as $60 per km

Risk and Reliability

No viable alternative to Egyptian bottleneck

Mesh configuration could offer “five nines” if properly designed


Part 4: The Case for Installing a Terrestrial Part 4: The Case for Installing a Terrestrial PanPan‐‐Asian Fiber Optic Network Asian Fiber Optic Network Along Highway RightsAlong Highway Rights‐‐ofof‐‐WayWay


International Highway InfrastructureInternational Highway Infrastructure

• In the near‐term, many of the countries in the region will be upgrading existing highway infrastructure and installing new links

• Simultaneous installation of high‐capacity fiber and ducts would be a negligible marginal cost in most projects


Major Investments in Transport InfrastructureMajor Investments in Transport InfrastructureCountry Major Upcoming Transport Investments

Azerbaijan ‐ Modernization of all major highways by 2015.‐ Baku‐Tbilisi‐Kars railway (with access to Europe).

Kazakhstan ‐ USD$19 billion in new highways by 2014, focusing on China‐to‐Asia. ‐ New China‐Europe rail link.

Kyrgyz Republic

‐ Bishkek‐Osh‐Sary Tash North‐South highway will undergo a USD$800 million reconstruction over the next five years.

Russian Federation

‐ By 2020, Russian Federation expects to build or reconstruct 7,400 kilometers of federal highways and 6,700 kilometers of regional and municipal roads.

Tajikistan ‐ Construction and improvement of several hundred kilometers of roads, especially linkages with China, has been undertaken with funding from the ADB and the Chinese government.

Turkmen‐istan

‐ Improvement of highway links to Turkmenbashi is anticipated as part of EU’s TRACECA program.

Uzbekistan ‐ May, 2013: Uzbekistan and the ADB signed a loan agreement for USD$220 in financing for the country’s national highway project.

‐ Nov., 2013: Uzbekistan and China signed an agreement for a USD$400 million loan to include construction of rail linkages to China.


Installing Fiber within a Road ProjectInstalling Fiber within a Road Project• In the US (high labor‐cost market), conduit+fiber installation during open road construction costs between USD$6,000 and USD$18,000 per kilometer

• Road installation costs at least USD$1.8 million per lane, per kilometer

• Cost of fiber network installation during open road construction: much less than 1% of project total

Photos: Terabit Consulting


Part 5: The Case for Intervention to Part 5: The Case for Intervention to Ensure Network DevelopmentEnsure Network Development


Market Failure: Broadband DivideMarket Failure: Broadband Divide• The analysis showed that the growing chasm between the broadband “have” and “have‐not”markets results in vast differences in:– international fiber connectivity– domestic connectivity– the pricing of IP transit capacity– the competitiveness of telecommunications and Internet market

– fixed and mobile broadband infrastructure– the affordability of consumer broadband services

• This impacts overall economic growth and development.

• Landlocked markets can’t compete using the existing trans‐border (bilateral) infrastructure.


The Need for InterventionThe Need for Intervention

Intervention (by government or int’l. organizations) is required to ensure the implementation of a pan‐Asian terrestrial fiber optic network for 5 reasons:1.To overcome the region’s vast broadband inequality and assist landlocked nations.2.To ensure that the region receives broadband services on a par with more developed markets.3.To finance or assist in financing a major capital project that is unlikely to be fully financed by the private sector.4.To pool and leverage private‐sector resources which are disparately insufficient.5.To stimulate and facilitate future private investment through market development and maturation.


Options for Government/UN ParticipationOptions for Government/UN Participation


Available PublicAvailable Public‐‐Private Partnership OptionsPrivate Partnership OptionsSpecial Purpose Vehicle (SPV) Model with Government/Organizational Shareholding

•Network operators form a special purpose vehicle to assume full responsibility for the development, operation, and maintenance of the pan‐Asian terrestrial network. •Government, organizational, and/or developmental entities make capital contributions to the SPV and receive equity stakes and/orcapacity on the network. •The contributor(s) receive a seat on the board of the SPV, thereby ensuring that policy goals are achieved.•A regulatory framework is adapted to ensure that the SPV’s outcome fulfills policy goals and improves the overall welfare of the region. •The contributor’s equity stake may be divested once certain milestones are achieved, or alternatively may be held until the winding‐down of the SPV.

Special Purpose Vehicle (SPV) Model with Government/Organizational Contribution•Network operators form a special purpose vehicle with full responsibility for the pan‐Asian terrestrial fiber optic network.•The government, organizational, and/or developmental entities make capital contributions to the SPV.•The contributor(s) do not receive equity or capacity on the network.•However, the contributor(s) do participate in the creation of the SPV’s governance framework, and receive a seat on the board of the SPV.•Mechanisms are instituted to ensure that policy goals are met.

Build‐Operate‐Transfer (BOT)•Following an open tender process, a concession is granted to one or more network operators for a fixed long‐term duration (typically 20 years).•The network operators are assigned full responsibility for financing, operating, and maintaining the cable.•Certain market privileges may be accorded to the network operators.•The operators are allowed to retain all revenues during the period of its concession.•Once the concession agreement expires, ownership of the network is assigned to the government(s) at no cost.

Awarding of Project Management Contract•A tender is issued to select one or more network operators responsible for the construction, operation, maintenance, and commercialization of the pan‐Asian terrestrial fiber optic network.•The contract recipient is paid to manage the cable and assume these responsibilities, including the sales of capacity to operators. The contract recipient’s management fees may be fixed or based on a percentage of revenue.•The network remains the property of the Government(s), which collect all profits (less management fees).


Part 6: Principles to Guide Part 6: Principles to Guide Network DevelopmentNetwork Development


Principles to Guide Future Network DevelopmentPrinciples to Guide Future Network Development

1. Fully integrated and coherent– Mesh configuration to allow for in‐network healing in the event of

physical cable outages or political instability affecting connectivity in specific countries.

2. Functioning and monitored as single, uniform network– Existing multi‐national terrestrial networks cannot offer uniform quality‐

of‐service guarantees between endpoints (as good as “weakest link” or “weakest operator”).

3. Leveraging existing infrastructure– Right‐of‐way procurement and uniform construction techniques would be

enabled through the use of the Asian Highway network, Pan‐Asian Railway project, or power transmission networks.


Principles to Guide Future Network DevelopmentPrinciples to Guide Future Network Development(Continued)(Continued)

4. Cost‐effective– With suitable transmission capacity and fiber count, a pan‐regional

terrestrial fiber network could compete effectively with submarine cable on both a regional and intercontinental basis.

5. Open access and non‐discriminatory pricing– In order to achieve development and policy goals, as well as to serve the

region’s consumers, all purchasers of capacity must be able to access the network on an equal, non‐discriminatory basis.

6. Developed and managed by a Special Purpose Vehicle (SPV)– SPV shareholding would ensure the neutrality and efficiency of the

network

– Allows participation by all stakeholders while still maintaining arm’s‐length terms over all capacity sales and leases.


Part 7: Part 7: Gaining Support for the ProjectGaining Support for the Project


Stakeholder Participation is KeyStakeholder Participation is Key

• The Study (pp. 34‐38) identifies more than 100 potential stakeholders in North and Central Asia that should be involved in the project, including:– National Regulatory Authorities

– Incumbent Operators and Major International Gateway Operators

– Competitive Telecommunications Operators and ISPs

– Road and Railway Authorities/Operators

• Suppliers and contractors should also be consulted in the development stage.


Convincing Governments of the ProjectConvincing Governments of the Project’’s Advantagess Advantages

1. Benefits to consumers– Better, more cost‐effective connectivity in the region will greatly

reduce consumer prices in less developed markets and improve broadband reliability throughout the region.

2. Economic growth– Improvement in ICT infrastructure yields:

• Increased demand for the output of other industries (demand multiplier)

• New opportunities for production in other industries (supply multiplier)

• New goods and services for consumers (final demand)

– It also increases firms’ innovation capabilities and increases the probability of new products, innovations, and organizations


Convincing Governments of the ProjectConvincing Governments of the Project’’s Advantagess Advantages(Continued)(Continued)

3. Increased government revenue– Growth in economic output from ICT investment results in

greater tax revenue

– Increased employment in the telecommunications sector

– Greater collections from telecom licenses and excise

4. Regional stability through better international and intercultural relations– More efficient routing of trans‐border traffic would encourage

trans‐border initiatives in the education, healthcare, and research sectors that would not otherwise be possible.


Road Map / Next StepsRoad Map / Next Steps

• Critical international connectivity weaknesses throughout Asia are being identified by Terabit Consulting

• As more market analyses are completed, the viability of a coherent pan‐Asian network is becoming clearer

• Detailed Feasibility Study (DFS) should be undertaken

• Rough Order of Magnitude (ROM) costing exploration should be initiated

• Determination of support among stakeholders

• Identification of financing options


Terabit ConsultingTerabit Consulting’’s Overall Thoughtss Overall Thoughts• Terabit Consulting has worked on dozens of key fiber

infrastructure projects in every region of the globe• The Pan‐Asian network opportunity is among the strongest

it has seen• Commercially viable; initial evaluation of business case

inputs are very positive• The network would be critical to ensure broadband equality

and promote regional economic/social development• Urgently needed by global telecommunications operators

who must compensate for submarine cable choke‐points• Urgently needed by governments and communications‐

critical industries that are compromised by submarine cable choke‐points and network isolation in landlocked countries

• However, the project can only be achieved with persuasive intervention by UNESCAP and governments


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