Connected Research

Union policy research in the 21st century

Hunting a policy on broadband

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Jeremy Hunt, Shadow Secretary of State for Culture, Media and Sport, gave a speech last Thursday on the Digital Economy Bill. The audience seems to have been largely concerned with regional broadcasting media, given the title of the document under which the speech is filed, but he spent some of his time on Ofcom and on the landline duty aspects and it is these that I want to turn to here.

So, what doesn’t he like?

– the new requirement on Ofcom to promote investment: it’s another layer of regulation which doesn’t deal with the fundamental issue of how to stimulate private sector investment in next generation broadband.

– the landline duty: it’s another barrier to investment and is ‘ill-conceived, deeply unfair, and simply won’t do what the Government hopes it will’. (Nice use of the rule of three, there.)

On the first, the difficulty is that the existing sole statutory duty on Ofcom to promote competition has led to the situation we now have, in which an over-reliance on competition as the sole policy lever in regulatory terms has led to a distinct lack of investment: with a market dominated by competition and price, and consumer market sentiment as a result demanding more and more bandwidth at cheaper and cheaper prices, it’s no surprise that wholesale providers have been somewhat wary of being able to make a return on high-cost investments in new access infrastructure. Ofcom does indeed already have a responsibility to bear in mind the impact on investment of its decisions; promoting this to a formal statutory duty does provide it with another tool in its regulatory kitbag.

Its duty to report on the state of the infrastructure every two years will also help promote an infrastructure which is fit for purpose; Hunt didn’t mention this specifically, though he seems to be against reporting requirements in general on the grounds that they conform to over-regulation, so is probably opposed.

Secondly, the landline duty is a modest levy on all landlines which is intended to generate pump-priming finance from which to develop investment projects, on this sort of scale. It won’t raise enough to deliver next generation broadband by itself – that’s not what it’s designed to do – and neither will it ‘crowd out’ (if you believe this sort of economic doggerel) private investment – not least as a result of its lack of scale. Raising around £150m-£175m per year, it should, instead, act as an encouragement to tease out (and thus bring forward) private sector investment finance. You might disagree with the way it is being raised, but the seedcorn role of the duty in generating public-private investment schemes ought to be plain.

I’ll ignore the nonsense about households paying the levy three times (via phone, fax and broadband) as someone’s (im)practical joke (how many households really have different providers for these things? And do households get their broadband and their phones from different companies? No, not many, in these days of bundled, triple play services).

And what should DEB have done instead, in Hunt’s view?

– reformed the regulatory structure

– dealt with the chronically slow progress being made in investment in next generation broadband.

In principle, and put so succinctly, it’s hard to disagree with either. But Hunt is looking for regulatory reform which encompasses ‘light touch’ regulation (a somewhat discredited phrase, these days) and less of a micro-management role for Ofcom. This latter, by the way, is something of a straw figure since – at least in the telecoms arena – Ofcom’s role is far from capable of being described as micro-management. In short, he’s looking for deregulation, and it is this which is intended to deal with the slow progress in instituting next generation broadband.

Here, Hunt specifically refers to access to BT’s ducts as a means of delivering competitive investment via new market entrants. His problem here, however, is that Ofcom has already examined this issue and concluded that, while there is a role for duct access as a means of supporting competition to deliver high-speed broadband services,

At this time, access to BT ducts on its own does not appear to be an effective immediate solution to competition issues in fixed access networks. [para 1.30]

Apart from ducts then – what else does Hunt think will help encourage investment in high speed broadband? Er, nothing else, m’lud. That’s it (according to the speech). Rien. Nada. Oh – apart from optimism which, in the conclusion to the speech he refers to as being ‘the basis of our approach’.

So, that’s a policy based on duct access which Ofcom has already ruled out as a solution on its own – and a blind faith and crossed fingers that a deregulated market and ‘light touch’ regulation will provide. Nothing more specific in terms of speeding up investment – and certainly nothing about ensuring a cohesive deployment on an equitable basis, both to the nations and regions of the UK and socio-economically. (By the way, Mr. Hunt, (South) Korea is so much further ahead of the UK on these issues not because of private sector competition but largely because, as you’ll know from your visit, the Korean housing experience is dominated by densely populated residential apartment blocks as opposed to private houses. (Actually, it was planned that way – but that takes us on to a slightly different track). It is this style of housing that lends itself particularly well to generating decent investment returns).

We know to where the market will deliver if left to its own devices and it will have little to do with equity. It will focus investment on delivering on a multi-player basis to already well-catered for areas – and hang the rest (and hang BT too, as a supplier of last resort). That’s not a policy with a future, either for the nations and regions of the UK, or for those responsible for providing landlines. In comparison, DEB does provide some hopes that investment will be encouraged, both as a result of regulatory certainty, to which a statutory duty to promote investment will provide some further assistance; and as a result of the landline duty being used to provide seedcorn finance for local development projects. Knocking out these rational measures, and replacing them only with a discredited policy of deregulation, is a recipe for failure on broadband infrastructure which this country can’t afford.

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Written by Calvin

29/01/2010 at 7:00 pm

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