A briefing produced for Connect [click here]
PART 1: THE BASIC CHALLENGE
So what's the problem?
The problem is that the U K appears to be adopting to the world of fast broadband access – that is, much faster connection speeds to the Internet than we have today - very slowly and much more slowly than many other countries. This could delay the availability of exciting new services to homes and businesses and make Britain less productive and competitive than other countries.
What do we mean by broadband?
Essentially what we are talking about is the speed of access to the Internet.
In technical terms, this is measured in terms of bits per second (bit/s), where a bit is a binary digit which is the 0/1 or on/off digital language of the computer
In the narrowband world, we used to talk of kilobits per second (kbit/s) where a kilobit is 1,024 bits.
In the broadband world, we talk of megabits per second (Mbit/s) where a Megabit is 1,024 kilobits - or even of gigabits per second (Gbit/s) where a Gigabit is 1,024 megabits.
So what do we mean then by fast broadband?
There is no standard set of definitions, but commonly:
The common industry term for such fast broadband is Next Generation Access (NGA).
But why does speed of access matter?
Speed matters because it is a measure of how much information can be carried and richer services involve much greater amounts of information.
As a simple guide:
Surely everyone in the UK now has access to broadband?
Over the last five years, competition between Internet service providers (ISPs) has done a great job in encouraging ISPs to roll out broadband networks across the UK. According to Ofcom, 80 per cent of households can choose between two or more broadband providers with their own networks. Many businesses – including small businesses – have actively embraced broadband.
BT itself has done a good job in putting into its local exchanges the technology called ADSL (Asymmetric Digital Subscriber Line) that is necessary to provide broadband access to the Internet. Indeed the company states that 99.6 per cent of customers are connected to an ADSL-enabled exchange. BT provides a service to other ISPs which allows them to offer services to end users without rolling out their own network with the result that consumers have the choice of dozens of ISPs.
But there are several problems.
First, not everyone has taken up the opportunity to connect to the Internet. Currently around 65 per cent of UK homes are connected to the Net which means that about a third – especially households with older or poorer consumers – are not connected. This is an issue commonly called the digital divide.
Second, even those who have take up the opportunity of broadband – either from BT or many competitors – are not obtaining the speeds that they want. There are several reasons for this: some relate to physics (the state of the copper cable varies around the country, some of it is decades old, and the further one lives from the exchange, the worse the speed) and some related to the network design of ISPs (the more people using the service at any given time - known as the contention ratio - the worse the speed).
Third, even those who are obtaining the speeds advertised by the Internet service providers (ISPs) are increasingly looking for faster speeds that would sustain new services which the network cannot provide without investment in new technologies that either still use copper cable or use optical fibre.
Fourth, the issue of speed works both ways: down to the customer and up from the customer. The technologies currently used provide much slower uploading speeds than downloading speeds which is why they are called asymmetric. Many new services - such as peer-to-peer - require fast upload speeds as well as fast download speeds.
But wouldn't ASDL2+ solve these problems?
ADSL2+ is a development of the technology that currently delivers broadband from BT's exchanges. It promises to deliver up to 24 Mbit/s downstream and 1 Mbit/s upstream to residential customers, so one can understand some people thinking that this might well solve our problems. A number of ISPs already offer ADSL2+ services using their own equipment in BT’s exchanges. Any ISP offering services faster than 8Mbit/s will be using ADSL2+ technology (except the cable company Virgin Media which uses a different technology in their network areas).
However, there are a number of reasons why ADSL2+ will not deliver such high speeds to all households and businesses : The speeds that customers really receive from all ADSL services depends heavily on location of the user in relation to the exchange and the time the user is accessing the service. Much of the time many customers are not actually receiving the speeds they expect.
So it will be with ADSL2+ : there will be patchwork availability across the UK with only 40 per cent of homes expected to get more than 8 Mbit/s and only 10 per cent achieving 20 Mbit/s or more. Starting in April 2008, BT began rolling out ADSL2+ on a national basis but, due to the scale and complexity of the exercise, it is unlikely to be available nationwide until around 2012.
It is possible that demand for bandwidth will in fact exceed even the headline capabilities of ADSL2+ in the medium term. There will still be the problem of asymmetry with upload speeds being much slower than download speeds, although upload speeds should be higher than what is available today.
Could cable be the answer?
What were originally built as cable television networks have come to play an important part in the communications infrastructure of the UK. First they were used to provide a rival telephony service to BT and then they were used to provide Internet access independent of BT's network.
However, cable – now owned by Virgin Media - has failed to meet the promise of many of its advocates. First, the roll-out of cable has never gone beyond around half the homes in Britain, essentially those in the metropolitan and urban areas. Second, the take-up of cable services has not been as extensive as investors hoped. Third, cable has lost considerable market share in the broadband business: at the end of 2006, it accounted for 23.5% of all UK residential and SME broadband connections, a considerable drop from its 57.4% market share in 2002.
Nevertheless cable has real potential to promote fast broadband: it has over 3 million current generation broadband customers; cable broadband is available to just over half of all households; and Virgin Media has now announced an upgrade to its local networks that will enable the launch of a 50 Mbit/s broadband service.
Even cable, though, as currently configured would have the problem of asymmetry with upload speeds being lower than download speeds.
Why is asymmetry a problem?
Until recently, customers were seen as passive consumers of services and content on the Internet, downloading material to their computer, so that what really mattered was the download speed which would determine for instance how long it would take to obtain a programme or film. The upload speed was very much a secondary consideration, since most of the material up-loaded to the Net was very low bandwidth, such as e-mail or text for a web site or weblog.
This picture is changing fast. Increasingly users are active producers or creators of content, uploading photographs, video clips and even short films to the Net, and they are using peer-to-peer and interactive services which require high up-load speeds. In this environment, up-load speeds matter as well and the difference or asymmetry between down-load and up-load speeds becomes a real factor for customers.
In practice, most domestic consumers will not necessarily need upload speeds as fast as their download speeds, but they will certainly want much faster upload speeds than is currently available. So arguably for such consumers what is really important is faster upload speeds in absolute terms, rather than relative to the download speed. However, symmetric services are definitely important for businesses.
PART 2: THE TECHNICAL OPTIONS
So what is wrong with current telecommunications networks?
Some people argue that today’s networks are quite simply too old, too slow, too inflexible and in some cases too costly to deliver the sort of services now increasingly wanted by businesses and consumers.
ADSL and ADSL2+ technologies (as used in current broadband networks) attempt to extract the maximum speeds possible from the existing copper network in a cost efficient way. Also cable is going to provide faster speeds to some parts of the country.
But the issue arises of how long it makes sense to keep developing such old networks when much faster and more efficient (but, of course, much costlier) alternatives are available and increasingly in use in other countries.
What are the options for overcoming these problems?
One approach is to reduce the speed or bandwidth necessary to deliver various services. This can be done by the use of various compression techniques. But there are problems with how quickly and efficiently such techniques can be delivered. Also it may increasingly be the case that user demand is accelerating faster than the compression technology is reducing the bandwidth needed, so overall people will still end up needing more bandwidth.
Another approach is to use new technologies to increase the speeds that can be carried by current (mainly copper) networks. This is what we have been doing - but again there are limits to how far this can take us (although some people are talking about 100Mbit/s replacements for ADSL technology in the not too distant future).
The most effective – but also the most expensive - solution is to replace the current networks.
How would we replace the current networks?
They will be replaced in two ways.
First, the backbone or core networks will be replaced by new networks which use the Internet Protocol (IP) that is at the heart of the Internet. Such a new core network is called a Next Generation Network (NGN). Many British operators with smaller operations than BT have already upgraded their core networks and the one currently being developed by BT is called the 21st Century Network (21CN). The public face of this programme is a web site called “Switched On”. Investments in core networks – both in the UK and elsewhere - will be vital to keep up with the explosive demands of Internet users here and around the world.
Second, the section of the operator's network which links end customers into the operator's backbone network will see the up-grading of copper or metallic connections or the replacement of these with connections using optical fibre or other technologies like radio. This new local network is known in the industry as Next Generation Access (NGA) but, in this briefing, we are using more often the simpler term fast broadband.
By contrast with traditional copper lines which carry signals in the form of electric current, optical fibre systems use very thin fibres - essentially threads of special glass – to carry light signals. At various points in the system, electrical signals need to be converted to light signals and vice versa and this is done using appropriate opto-electronic devices.
What are the options for deploying fibre in the local network?
There are many options which are collectively known as FTTx where FTT stands for 'fibre to the ..' But, in the context of residential customers, two options are especially likely:
1) Fibre to the cabinet (FTTC)
In this model, fibre runs from the local exchange to the street cabinet and the active electronics are installed in the cabinet. The link from the cabinet to the customer's home remains the existing copper loop. Depending on the deployment option used, this model could deliver speeds of up to 100Mbit/s in both downstream and upstream directions, although more likely is up to 50 Mbit/s on an asymmetric basis. This is the topology being introduced in places like the Netherlands, Denmark, Italy and Germany and by AT&T(SBC) in the USA.
2) Fibre to the home (FTTH)
In this model, fibre runs all the way from the local exchange to the customer's home. There are two main types of FTTH model:
a) In a passive optical network (PON), a single fibre from the exchange serves multiple customers by having its capacity divided or split. Typically this would provide each customer with around 80 Mbit/s.
b) In a point to point (P2P) fibre network, each customer has a dedicated fibre connection to their premises. This allows virtually limitless access speeds to be offered. This is the topology being used in countries like Hong Kong, Korea, and Japan and by Verizon in the United States.
These different options involved different costs and operational factors to the providers and different access speeds to the customers. FTTH is regarded as more secure than FTTC as it does not require active street cabinets, while the long-term operating costs would be lower than for other technology solutions. However, the up-front costs of deploying fibre all the way to the home would be significantly higher than for FTTC.
Also different options raise different issues for the regulator. Typically, around the world, incumbent operators tend to opt for passive optical network (PON)-based architectures, while new entrants are likely to favour active infrastructure solutions.
In a business context, we often talk of fibre to the premise (FTTP).
Will other technologies be used to deliver fast broadband?
A number of wireless technologies – such as WiMax (Worldwide Interoperability for Microwave Access) and WiBro (Wireless Broadband) – might play a role in delivering next generation access in specific (typically rural) locations, if sufficient appropriate spectrum can be made available to support such services.
Also, satellite will be a fill-in solution for locations that terrestrial solutions cannot serve, but this will be a rare solution in view of the costs involved and the relatively high delay in signal transmission.
PART 3: THE REGULATORY ISSUES
Why are there regulatory issues involved in the provision of new networks delivered fast broadband?
In short, the regulator has to strike a balance between encouraging efficient investment in next generation access (NGA) networks and ensuring effective and sustainable competition in the provision of services using these NGA networks. Given the high capital cost of these networks and the high degree of commercial risk involved, the current regulatory framework for the present BT network would not work.
Those companies thinking of the large, high risk investments in NGA want to know how they will be allowed to use those networks and how other companies will be allowed to access those networks. Also those with existing networks may want to be clear that, having invested in new networks, they do not have to continue running the old networks in the same locations, although some will be content to run certain parts in parallel. In the absence of regulatory clarity on these issues, the investments will quite simply be too risky.
Similarly companies that are not planning to build such new networks, but will want to use them to provide new services, want to know the terms on which they will be allowed to access the new networks, especially how much such access will cost. Again, in the absence of regulatory clarity, they cannot plan for innovation.
From the point of view of the regulator Ofcom, there are two major concerns:
It does not plan actively to encourage or incentivise next generation access in any way. Instead it intends to put in place a regulatory framework that will provide sufficient regulatory certainty so that, when the markets judge that it is timely and efficient to make these investments, private investors will provide the necessary finance and so that, when these networks are created, there is plenty of competition in the provision of services .
To do this, it has proposed five principles:
How will these regulatory principles work out in practice?
This is where it gets complicated, but of course general principles are not much use on their own; investors and competitors want to know what actual measures or, to use the regulatory jargon, “remedies” Ofcom is proposing.
It will depend on the technologies used to build the network, but the most relevant measures are likely to be as follows:
a) Sub-loop unbundling – This is what is called in regulatory language a 'passive access' remedy. Whereas current local loop unbundling or LLU (providing access to BT's infrastructure for its competitors) takes place at the level of the local exchange, in the world of next generation access unbundling would have to take place at the level of the cabinet in the street. Since many fewer customers are connected to a cabinet than an exchange, this makes such unbundling less attractive to competitors, although it has proved successful in some other countries and may prove useful in bringing higher speed access to people in some parts of the country. So far, there seems to be little interest in sub-loop unbundling in the UK.
b) Active line access – This is what is called in regulatory jargon an 'active access' remedy. It would involve BT offering a wholesale product to its competitors that is based on both the active electronics and the physical elements of the access network. One of the problems with this type of remedy is that it may not enable competitors to innovate as easily as in the unbundling scenario. However, Ofcom believes that technological developments suggest that in the future the difference in innovation potential between a carefully constructed active line product and and an unbundled remedy may be less than today. It looks likely that ALA will be main remedy in the UK.
Is access all about technology?
No – the price of access is a key factor too. Even now, BT and Ofcom are in dialogue about the price which BT can charge its competitors for access to its network through local loop unbundling (LLU). The company claims that the regulator is not allowing it to charges prices that would give it an acceptable rate of return on capital. This debate is likely to be even more vigorous in the world of next generation access since the scale and risk of the investments would be so great.
Are there implications for the current regulatory settlement between BT and Ofcom on Openreach?
Yes, there are. A major regulatory issue which will have to be addressed, if NGA is to move forward, is how that settlement will need to be revisited and revised..
The Openreach/rest of BT (particularly Wholesale) split makes some sort of sense for existing copper networks but will make much less sense in an NGA world. This is because the split between Openreach and Wholesale currently is based around Openreach doing the passive network bits and Wholesale adding the 'active' bits, that is the electronics such as switches and transmission equipment which bring the network to life.
For NGA, it is much harder to draw that boundary between Openreach and the rest of the world (including the rest of BT). For example, Openreach would need to become heavily into electronics if there is going to be fibre to the premises (FTTP) or fibre to the home (FTTH). So the existing regulatory settlement is likely to need to be reviewed.
What have other countries done on regulation?
Countries like the USA, Canada and Hong Kong have adopted a deregulatory approach with minimum requirements on the owners of NGA networks which has encouraged investment in such networks. However, in all these countries, there is competition from another fixed access platform (cable).
In Germany, a regulatory 'holiday' has been given to the incumbent Deutsche Telekom through time limited forbearance of unbundling obligations. However, Germany does not have significant platform competition from cable in respect of fast broadband, so the German decision is currently being challenged by the European Commission on the grounds that it contravenes the EU Telecommunications Framework.
PART 4: THE FUNDING ISSUES
How much would it cost to give the UK nation-wide next generation access?
The honest answer is that we do not know precisely. It depends on so many variables - crucially whether we are talking about fibre to the cabinet (FTTC) or fibre to the home (FTTH), whether the cost of laying the fibre can be reduced from current procedures, and whether we are thinking of roll-out only to urban conurbations, to most of the country, or to the whole country.
In September 2008, the Broadband Stakeholder Group (BSG) published a report commissioned from Analysys Mason entitled "The costs of deploying fibre-based next-generation broadband infrastructure". The authors of the report explain very clearly their assumptions and how the costs would alter in accordance with different variables. Also they are frank about what the report does not address including the options for using radio technologies and the source and scale of new revenue streams.
However, the headline figures were for three different options are as follows:
Clearly all these are very substantial figures, but it helps to put therm in some kind of context. Although BT will not be the only investor in next generation networks, it will be a major investor and one could perhaps look at the cost estimate in terms of the company's current investment expenditure. In the last financial year, BT's capital expenditure was £3.247 billion. So, in a sense, building a next generation access network could be seen as representing between two and eight years of the company's investment.
Of course, it is not that straightforward. BT could not simply switch all its current investment into next generation access (NGA); it still needs to invest in many other areas, most notably in a Next Generation Network (NGN) which is taking around £10 billion over the period 2007-2011 and probably beyond. Also all investments are made after a careful consideration of risk and the likely pay back period; NGA is a high risk investment with a long pay-back time.
Nevertheless, as a nation, we are not unaccustomed to projects of this scale. For instance, the Crossway railway scheme – which will 'only' benefit London and the South-East – will cost £16 billion. However, the funding of this investment is profoundly different from anything envisaged for a fibre optic network: the Government is providing a third of the money with the rest made up from borrowing against future fares and a levy on London business rates.
Why would the deployment of fast broadband cost so much?
The principal cost of an optical fibre network is not the fibre itself (basically silica or sand) or even the active electronics (the devices that convert electrical signals into optical signal and vice versa). The main cost comes from the actual physical infrastructure, commonly referred to as the 'civils'.
UK planning laws mean that the overwhelming majority of lines from the telegraph pole to the exchange are provided through underground access. This means that by far the largest element of the cost of a fibre network is the civil engineering involved in digging up ducts or laying new ducts and pulling fibre through those ducts.
Overall these civil engineering costs might account for some 70 per cent of the total. Obviously this would vary from location to location – for urban areas, it might be around 50 per cent of the cost; in rural areas, it would be more like 80 per cent of the costs.
One option – at least for linking businesses to fibre – is to use the sewer network, since fibre (unlike copper) is immune to interference from water. This substantially reduces the costs and deployment timescales.
A company called H20 Networks, based in North Wales, began rolling out its fibre-via-sewers network - known as Focus (Fibre Optical Cable Underground Sewer) in 2003. Universities in Aberdeen, Edinburgh and Bournemouth have fibre connections with speeds of up to 20Gbit/s (gigabits per second), while council offices around the UK are also benefiting from this fast broadband delivery option. However, there is doubt that sewers can be used to deliver fibre to the home in most situations.
Who will make these investments?
Overwhelmingly these investments will be made by private companies, although the public sector will have a role (as we shall discuss shortly). No doubt, over time, the major investors will be those companies which are currently providing communications networks, led by BT as the only operator of a truly ubiquitous network reaching all parts of the UK.
However, one of the problems about funding next generation access is that this is a disruptive technology that challenges current networks and current business models. Therefore those companies with significant stakes in those networks and business models may not be the first movers, since they have low incentive to invest in new networks and use new business models.
Obviously BT has an enormous stake in the current copper network and wishes to 'sweat its assets' by making maximum use of technologies that use its copper network such as ADSL2+. Similarly many of BT's competitors have business models – typically those based on local loop unbundling (LLU) – which rest on use of BT's current copper infrastructure.
Therefore a major challenge is to find ways of encouraging innovative investment and business models that do not rely on current operators but hopefully will stimulate them in turn to make their own investments.
Should there be public sector investment?
Almost everyone accepts that there will have to be some public sector investment if fast broadband is to reach most parts of the country on a politically realistic timescale. The issues are around where, when and how such public sector investments should be made.
Taking fibre to even 90-95 per cent of homes is going to be a much tougher proposition economically than taking a copper line to such homes or taking ADSL to exchanges connected to those homes. Yet the UK (and the EU) has a strong sense of universal service, meaning literally that every home and every business should be connected to the network.
On the one hand, Ofcom and Government – as made clear in the issue of joint guidelines on such investments – are anxious that premature investments from the public sector could 'crowd out' private sector investment. In this analysis, if (for instance) Regional Development Agencies move too quickly to put public money into such networks, this could slow down private investments and make it harder for there to be 'contestable' investments (that is, more than one network provider in any given locality).
On the other hand, many Regional Development Agencies and some local authorities are very frustrated at the slow progress being made by the UK in this field. They see this lack of investment as weakening their position not just in the UK but globally, since even small businesses now compete in an international marketplace and can only compete on equal terms if they have a communications infrastructure which is as modern as the regions and the companies with which they are competing.
Bodies like the ONE-Manchester Digital Challenge Partnership, the Digital Challenge 10 (DC-10) Network, and the Community Broadband Network (CBN) have all made it clear that they wish to see local initiatives that would involve public sector bodies.
Wouldn't public sector investment 'crowd out' private sector investment?
This is certainly the fear of the Government and the regulator Ofcom. However, others – especially in the regions - argue that private investment is so slow in coming, that even when it comes it will not be truly nation-wide, and that one can construct initiatives which will complement rather than challenge private investment.
Such public sector investment would need to be well-targeted, innovative, based on well-produced local development plans, and open and transparent as to how it would aid rather than distort competition and how it would incentivise private sector investment to come forward to add value to the public sector intervention.
In June 2008, the Broadband Stakeholder Group (NGA) published a report commissioned from Analysys Mason entitled "Models For Efficient And Effective Public Sector Interventions In Next Generation Broadband Access Networks". This looked at 15 case studies from around the world and made seven recommendations for public sector interventions.
Who should pay for the cost of this investment?
In the first instance, the cost will clearly be borne by investors providing the money and companies deploying the networks.
However, the question arises as to whether those wishing to provide the services running on these networks should contribute in some way to the costs of the network (in the USA, this concept has led to a major debate on “net neutrality”). It could be argued that those providing services that are particularly bandwidth-hungry should contribute to the costs of building and running the networks that carry those services. While this might seem to be an equitable proposition, this is not the case today and would prove both controversial and complex.
Of course, ultimately it is consumers who pay, but there are issues about how much costs are spread between current and future users of the new networks and between users in locations where the networks are available and locations where they are still planned.
One of the problems in the UK is that competition in broadband provision has been substantially around price – rather than other factors like actual speeds or quality of service – and this has driven down the cost to the consumer.
Typically five years ago, a customer would pay around £25 a month for a broadband speed of 512 Kbit/s; today typically the same customer would expect to pay only around £10-15 a month for anything between 2-8 Mbit/s. Furthermore most pricing plans are flat-rate or 'all you can eat' models. Some service providers are even offering 'free' broadband by bundling it with paid-for telephony or television packages.
Key issues in the debate on next generation broadband are whether the customer would be willing to pay significantly higher prices than today for much faster broadband even if - in the short term – the customer was using relatively little of the extra available bandwidth – and/or whether the customer would be prepared to pay through variable use models tiered by peak rates or traffic volume or quality.
Are other countries using funding models that might be interesting for us?
In the Netherlands, there is a scheme called Ons Net (Our Net) where a local community has managed to obtain funds to create its own broadband network through a co-operative. The 8,000 households of Nuenen have created a fibre to the home scheme in which 85 per cent of the citizens have signed up. Indeed the scheme has proved so successful that it is to be rolled out in nearby Eindhoven.
In the United States, there is a project called the Utah Telecommunication Open Infrastructure Agency (UTOPIA). This is an inter-local agency whose mission is to build and maintain a fibre to the premises open infrastructure network, giving every home and business access to a variety of ultra high-tech telecommunications services provided by private-sector businesses.
Link: video on Ons Net and UTOPIA click here
How does Ons Net operate?
The small Dutch market town of Nuenen.(near Eindhoven) consists of 8,000 homes housing some 20,000 inhabitants (many of whom are elderly). The contract to fibre the town was signed in June 2004 and the actual build was completed in just three months with completion by the end of 2004. The provision of the fibre itself was by the Scottish-based company Emtelle using a blown-fibre system. The civil engineering was done by the Dutch company Volker Wessels. The network is currently running at 10 Mbit/s but it is capable of delivering speeds of up to 100 Mbit/s.
The Dutch Ministry of Economic Affairs agreed to subsidise the project to the amount of 800 Euros per home, so the total subsidy equates to around £4.5 million. The money was paid direct to the local housing association and ensured that each home obtains free service for the first year.
After that, residents make their own monthly payments. Users pay just 15 Euros per month. In order to secure the necessary funds, Ons Net – the operator of the system - was looking for an initial 35 per cent sign-up rate. In fact it obtained closer to 85 per cent and posted a £1m profit in its first year.
How does UTOPIA operate?
UTOPIA is governed by an Inter-local Agreement between 14 Utah municipalities located along the east of the Great Salt Lake (except for Cedar City which is some way to the south). The consortium owns what it calls a Community MetroNet. This has been financed through municipally-backed bonds which UTOPIA has insured. The total loan requirement for the initial construction of the network is approximately $340 million.
UTOPIA has outsourced the operation of the network to Dynamic City of Lindon, Utah. The Community MetroNet acts as a wholesale operator, setting fixed access fees and granting access to all service providers wishing to use the network. Indeed it is prohibited by state legislation from itself offering any retail services. Currently five companies – including AT&T (but excluding the local incumbent Qwest) are providing services on the network. As a minimum, the UTOPIA network will deliver 100 Mbit/s to every connected home and 1 Gbit/s to every connected business. The data services are symmetrical, so residents receive 100 Mbit/s in both directions.
Are there any other public sector interventions?
The Australian experience is interesting, although this involves the provision of a current generation broadband network rather than a next generation network. Prior to the recent General Election in that country, the Australian Labor Party published a policy document proposing a fibre to the node (FTTN) network that would provide broadband of up to 12 Mbit/s for 98 per cent of the nation's citizens.
The proposal featured in the election campaign which the Australian Labor Party won. The project is a public/private partnership with the Government promising a public equity investment of up to Australian $4.7 billion.
PART 5: INTERNATIONAL COMPARISONS
Where does the UK stand internationally on the roll-out of fast broadband?
At the time this essay was first drafted (January 2008), there had already been announcements – if not always actual deployments - in at least 14 other countries putting the UK behind all of those nations at that time.
These countries include France, Germany, Italy, Belgium, Switzerland, Sweden, Denmark, Norway, Finland, the Netherlands, Hong Kong, South Korea, Japan and the United States. In three cases – Korea, Japan and the USA – a significant number of broadband customers already use next generation access. In Korea, over a quarter of broadband users have fibre connections, while in Japan over a third of broadband connections are fibre.
Looking to the (near) future, four nations – the Netherlands, Denmark, Korea and Japan – have plans to bring between 90-100 per cent of homes on to next generation access technologies by 2010.
As well as activity at the level of the nation state, very significantly we are seeing cities or regions acting to ensure that they are internationally competitive by deploying the very latest technologies including fibre to the business (FTTB), fibre to the cabinet (FTTC) or fibre to the home (FTTH). Examples include Amsterdam, Cologne, Milan, Paris and Vienna and regions of France, Spain and Sweden.
Why are other countries moving so much faster than the UK?
There are many reasons, most of which revolve around different factors in those countries compared to the UK:
We have been here before. Five years ago, the UK was seriously behind other countries in the deployment of basic broadband, but we caught up and are now in a relatively strong position here. We need to be very careful of finding ourselves in the same position, not least since the investment levels and the lead times for such investments in NGA are much greater than for the situation when we were behind on basic broadband. Catching up this time may not be an easy process.
Are things really that much better outside the UK?
In terms of availability and take-up of current broadband, the UK is doing very well. Almost all homes in the country have access to an ADSL-enabled exchange and more than 50 per cent of homes in this country have taken up broadband.
Over in the United States, which many assume is a market leader in broadband usage, there is in fact sufficient concern over the slow speeds available to many Net users that there is a national campaign called Speed Matters which is seeking “affordable high speed Internet for America” and Barack Obama promised in his presidential election campaign to roll out broadband to all parts of the USA.
In a sense, however, it is this relative success of the UK in the current broadband picture that has made the debate about next generation broadband more muted than it should be. It is part of the aim of this briefing to raise the profile of that debate and to improve the understanding of the issues involved.
PART 6: THE UK SCENE
Are there any plans to introduce fast broadband in parts of the UK?
Virgin Media – which owns the cable networks passing around half of UK homes - was first off the block and in early 2008 announced an upgrade to its local networks that will enable the launch of a 50 Mbit/s broadband service (plus an upstream speed of around 1.5 Mbit/s). This service uses a technology called DOCSIS 3.0 (DOCSIS stands for Data Over Cable Service Interface Specification which is an international standard). In December 2008, Virgin Media announced that 1.5 million of its customers would be able to receive its new 50Mbit/s service with plans to rollout the service across its entire network of 12.6 million households by the summer of 2009.
Then, in July 2008, BT announced that it will spend £1.5 billion to bring next generation broadband to up to 10 million households by 2012 using a combination of fibre to the premise (FTTP) and fibre to the cabinet (FTTC). FTTP will deliver headline speeds of up to 100 Mbit/s whilst FTTC will initially deliver speeds of up to 40 Mbit/s although BT is investigating technologies that can increase those speeds to more than 60 Mbit/s. The company has said it will work with local and regional bodies to decide where and when the deployment should occur and has called on Ofcom to provide regulatory certainty in order to facilitate this investment.
Besides these 'national' initiative , but there are a growing number of local initiatives. In a Januray 2009 review by the Communications Consumer Panel, some 40 such schemes were identified
What local private sector initiatives are there?
Virgin Media has been trialling its 50 Mbit/s service which is a version of what in effect is fibre to the cabinet. This has happened in three South-East towns: Dover, Andover and Folkestone.
So far, all that has been announced in terms of fibre all the way to the home is that BT has stated that from 2008 it will deploy optical fibre in all new greenfield sites and new build homes where it is selected by the site developers to be the communications network provider.
The immediate prospect therefore is for such deployment in the Ebbsfleet Valley part of the Thames Gateway project in Kent. BT Openreach will supply the infrastructure, but BT Retail and its competitors will be offered access to the high speed lines on a wholesale basis. The top available speed will be 100 Mbit/s. However, it will initially be limited to around 600 new houses. The development will eventually have some 10,000 homes but the project could take until 2020 to complete.
Fibre firm H20, which provides fast broadband via the sewers, has announced that it can provide a service faster and cheaper than traditional delivery methods. Bournemouth has been selected as the first such exercise. This will be the largest Fibrecity project in Europe and the company will be funding and providing the network at a cost of around £30 million. The fibre will provide ultra high bandwidth to all Bournemouth's businesses and more than 88,000 homes at speeds far exceeding current DSL or cable modem speeds. The next so-called Fibrecity will be Dundee where H2O will connect some 55,000 homes.
What local public sector initiatives are there?
There is an ambitious project in South Yorkshire called Digital Region. This project is supported by a partnership of Objective 1 (European Commission funding), Yorkshire Forward (the Regional Development Agency), Barnsley Metropolitan Borough Council, Doncaster Metropolitan Borough Council, Rotherham Metropolitan Borough Council and Sheffield City Council.
Following a European Union procurement process, Thales Communication Services Ltd has been selected as the provider for the project which will use fibre to the cabinet (FTTC) to offer 25 Mbit/s+ to all households (around 500,000) and businesses in the region.
The Welsh Assembly Government is to invest £30m in a fibre-optic network which will provide businesses in North Wales with high-speed broadband access. The FibreSpeed project will link 14 business parks across the region with advanced broadband services. Part of the financing for the project will come from European Structural Funds managed by the Assembly Government’s Wales European Funding Office and part will come from Geo (a member of the Hutchison Whampoa Group), the supplier chosen to build and operate the network.
This investment from the Welsh Assembly Government is the first phase of a long-term programme to transform high bandwidth availability and pricing across Wales and is the first Government-supported network of its kind to be delivered anywhere in the UK.
The Scottish Executive is considering its position in relation to assisting roll-out of NGA. In January 2007, it published “Next Generation Broadband In Scotland”, a SQW Limited report commissioned by the Executive.
The Community Broadband Network – which was involved in the Ons Net scheme in the Netherlands - is planning to replicate that radical approach in Walsall near Birmingham.
PART 7: PUBLIC POLICY ISSUES
What would the roll out of NGA look like if it is left solely to the private sector?
The Broadband Stakeholder Group (BSG) commissioned Analysys Mason to produce a report entitled “The Cost Of Deploying Fibre-based Next Generation Broadband Infrastructure”. This has lots of assumptions and a mass of detail but the headline figures are as follows:
Now it must be noted that these are figures for population. The Analysys Mason report has colour-coded maps for the various options. If one looks at Figure 5.4, the red areas are those most unlikely to get NGA under market conditions - this is almost all the land area of Scotland, most of the area of Wales, a lot of Northern Ireland, huge parts of the south-west and north-east of England, and rural areas throughout the length and breadth of England.
Does such a limited roll out of fast broadband really matter?
It matters enormously at both a technical level and at the social level.
At a technical level, overlooking for the moment that some people simply cannot get broadband at any speed, today's headline debates are around whether one is getting the 8Mbit/s a second that one is paying for. Many customers are not getting anything like this – even in urban areas. I live in north-west London, an urban area, but my home is located at the top of a hill some way from the exchange and I pay for 8 megs but never get 3.
Today's debate about missing out on 5 megs will in the NGA world be debates about losing out on 25, 50 or even 100 megs. If roll out of NGA simply predicated on market forces, today's digital divide could become for many a digital chasm.
At the social level, the debate will not be about loss of a particular speed but about lack of access to a plethora of services – the ability to run a business outside the urban conurbations, access to tele-medicine and on-line learning, new relationships with local and national government, involvement with peer-to-peer services that need high upstream speeds, and access to services which we cannot envisage now because there is simply not the infrastructure to make their development commercially viable.
As a hint of what such a digital chasm would mean for individual consumers, watch this short video from the Communications Consumer Panel - formerly the Ofcom Consumer Panel - comparing today's broadband experience of UK consumers with those with NGA access in Utah in USA and Nuenen in Netherlands.
Is the issue of fast broadband simply one for providers, investors and the regulator?
Certainly not – there are major public policy considerations embracing both consumers and citizens.
As far as the residential consumer interest is concerned, this is a subject to be debated by the likes of the Ofcom Consumer Panel and Consumer Focus plus those consumer groups that specifically address the needs of more vulnerable consumers such as the elderly, those with disabilities and those in rural or remoter communities.
As far as small and medium enterprises are concerned, there are major competitive benefits to be derived from the availability of fast broadband and this is why bodies like the Communication Managers Association has been so active in putting the case for NGA and why so many Regional Development Agencies are exploring the potential for local investments.
As far the citizen interest is concerned, this is a subject to be discussed by Government Departments, the devolved administrations, Regional Development Agencies and local authorities.
All these organisations will want to ensure that the benefits of fast broadband are enjoyed fully and quickly by all sections of society and all parts of the UK. Since there is unlikely to be any kind of nation-wide delivery programme and since the new networks are so expensive, there is a real risk of a new and deeper digital divide opening up. Put simply, if the wrong decisions are made, the digital divide could become a digital gulf.
What will users do with fast broadband?
When broadband was first introduced, many of the uses were the same as those for narrowband (although there was the significant advantage that the connection was always on). No doubt something similar will initially be the case with faster broadband – although web pages will load faster and downloads of files will also be faster.
Increasingly though those consumers will use services which require or at least benefit from faster connection speeds. Likely applications are video on demand, including high definition television (HDTV) programmes and films, multi-player on-line gaming and virtual reality simulations, and peer-to-peer sharing and file hosting.
Businesses are likely to make innovative use of supply chain management systems.
In the public sector, services such as distance learning, tele-health, and e-government may well be important.
However, it is simply not possible to anticipate in advance exactly how homes, business and the public sector will use these new networks because, by definition, services which require such speeds or bandwidth are not going to be developed until there is an effective distribution mechanism and a sizable customer base for them in the form of these new networks.
What are the employment implications?
The Broadband Stakeholder Group (BSG) report “Pipe Dreams?” devotes a whole chapter to the theme “Why broadband matters” focusing particularly on innovation and growth.
It points out that: “A number of studies examine the impact of broadband at the macro-level, most specifically focusing on GDP and employment effects” and explains that the findings have shown that “broadband has a positive effect on GDP”. It asserts: “The underlying assumption in this document is that just as progressing from narrowband to broadband has substantial economic and other benefits, the progression to next generation broadband will have equal, if not greater, economic implications”.
Investment in NGA will have immediate employments effects in designing and building the networks with considerable civil infrastructure work. The availability of the new networks and the greater bandwidth will undoubtedly stimulate a plethora of new network services and products.
However, as with current generation broadband, we can reasonably expect next generation broadband to accelerate the wider adoption of other information and communication technologies and stimulate new business models which perhaps initially will have most impact on the telecommunications, media and technology sectors but over time will have implications for innovation and productivity across the whole economy. This would stimulate the need for improvement of skills and (re)training.
Will there be economic and social value from fast broadband?
Most people believe that, over and above the benefit to individual consumers and businesses, there will be an economic and social value to the nation from investment in new access networks. The problem is that this is exceptionally hard to demonstrate in advance of actual deployment of such networks.
Of course, this was the case with current generation broadband. Before BT committed to a nationwide roll-out of basic broadband, there was no hard evidence that it would benefit the nation, but many studies in many countries now show genuine increases in productivity and competitiveness from the availability and use of broadband.
One could reasonably expect the same from fast broadband – but this is impossible to demonstrate in advance. A further difficulty will be in identifying the additional benefits which come from moving to higher speed broadband, as some of the efficiencies achieved with the initial roll-out of broadband (such as the benefit of always on connections) have been obtained already.
Can we demonstrate such economic and social value?
In June 2008, the Broadband Stakeholder Group (BSG) published a report commissioned from Plum Consulting entitled "A Framework for Evaluating the Value of Next Generation Broadband". This report has brought some rigour to thinking on this matter and proposed a useful framework. Crucially the framework distinguishes between private value, wider economic value and wider social value and between scenarios based on progressive upgrades to existing technologies (with some deployment of fibre in greenfield sites) and 80% availability and take-up of next generation broadband.
Are there environmental factors in the provision of fast broadband?
There are two major environmental factors involved in the availability of next generation access and these factors will become more prominent as the green debate becomes stronger and stronger.
First, the replacement of copper by fibre will produce a much more reliable and future-proof network that would reduce the need for continuous upgrading and street digging.
Second, fast broadband – even more than current broadband – will permit and encourage more home working as well as intelligent energy management systems.
What is the role of Government in all this?
So far, the Government – and indeed the opposition parties – have failed to articulate a policy position on the case for fast broadband. This is a real contrast to say Korea or Japan where the active deployment of fibre is a matter of clear public policy (supported by public finance) or even Australia where the main parties put forward their visions in the context of the recent election campaign.
The Broadband Stakeholder Group report “Pipe Dreams?” had some specific messages for Government:
How long have we got to sort out a policy on fast broadband?
A cautious answer to this question came from the Broadband Stakeholder Group (BSG) in its April 2007 report “Pipe Dreams?”: “we believe that there is a limited window of opportunity over the next 12-24 months to develop and implement a concerted and innovative approach to regulation and policy making to create the right balance of investment incentives and competition that will enable a market led transition to next generation broadband.” This would suggest that we ought to be clear on the UK approach somewhere between April 2008 and April 2009.
A much more urgent assessment came in a submission to Ofcom in December 2007: “There is wide-ranging consensus from the partners and stakeholders of the ONE-Manchester partnership, the DC [Digital Challenge] -10 Network and CBN [Community Broadband Network] that the time to start the deployment of Next Generation Access (NGA) is now and that any further delays will cause detrimental impacts on local, regional and national competitiveness resulting in adverse effects on growth, employment and inward investment, especially in key sectors such as the creative and digital sectors.”
GLOSSARY OF TECHNICAL TERMS
Documents listed in order of publication:
Organisations listed alphabetically by name
Last modified on 20 March 2009
If you would like to comment on this essay e-mail me