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The politics of fibre

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Alongside its annual results, BT announced its plans for an expansion of its investment in fibre earlier today. The clear link between the two is that the cost reductions and greater efficiencies identified in the company’s financial reporting have freed sufficient resources for an acceleration of the investment programme so as to allow a further £1bn to be put into fibre projects, extending the reach to two-thirds of UK homes by 2015.

Current investment plans had envisaged 40% of UK homes being fibred up by 2012: thus, an expansion of 67% in the investment budget brings about the same percentage expansion in the number of homes within the reach of a fibre network at the local level. This is interesting in itself, since cost models predict that fibre investment should become more expensive on a per home basis the further investment travels, although this seems to apply largely only once fibre roll-out has been extended into rural areas, i.e. above about 58% of homes (Figure 1.5).

(Incidentally, the Analysys Mason model looks to remain fairly accurate at this point: it seems to predict that, with an investment of £1.5bn in fibre to the cabinet solutions, BT ought to reach about 46% of homes (compared to the 40% in the company’s plans); while a total investment of £2.5bn ought to see it through to about 72% (compared to ‘around two-thirds’). Either the model is slightly out, and the costs associated with roll-out to particular stages are slightly higher than envisaged; or else BT’s mix of fibre to the cabinet and fibre to the home solutions has raised the cost slightly, since the model is based only on the former. The BBC news report of today’s story identifies that around one in four of all homes envisaged as being covered by fibre by 2015 will have fibre to the home – and, therefore, much faster connection speeds. This would seem to suggest that the Analysys Mason model actually slightly under-estimates the cost of fibre roll-out.)

The announcement of BT’s roll-out plans has clearly been well-timed, given the events of the last seven days; and appears to put BT on the front foot.

Firstly, this takes BT to what we might call the ‘Digital Britain’ point – i.e. the two-thirds of homes that ‘the market’ would identify as being suitable for fibre investment. Taking fibre installation beyond this was intended to be the purpose of the ‘Final Third’ fund, raised by the landline duty, which of course has now been scrapped – and without actual plans for its replacement which are more than mere suggestions.

Secondly, the plans will achieve download speeds of (up to) 40 Mbps. The Tories’ manifesto commitment was to getting ‘a majority’ of UK homes wired to (up to) 100 Mbps connections by 2017. BT’s current plans seem to indicate that, by 2015, only around 17% of UK homes will have download speeds at this level. If the manifesto commitment is to be realisable – though today’s reporting seems to indicate that Digital Britain may well not be a priority for the new government – then plans need to be made for how this is going to be achieved. This is not the same as what also needs to be done to roll-out broadband in rural areas (into the ‘final third’) – which mission also needs to be accomplished – since this 17% seems to leave plenty more homes in urban areas with download speeds of much less than 100 Mbps.

Thirdly, Ian Livingston’s announcement contains a strong caveat: that the plans assume ‘an acceptable environment for investment’. This is clearly critical and is an evident acknowledgement not only that the regulatory environment plays an important role in investment decisions, but also that the change in government brings uncertainties in this area which will need to be settled. Inevitably so. But what matters here is that the announcement of the plans now indicates that the existing environment, both known and in the pipeline, is acceptable in terms of the plans – what is unknown is whether that will change and, if so, what impact that will have on the investment. The caveat is a clear indication that the plans are predicated on at least the continuation of the current regulatory environment (if not its further improvement) and that any deterioration may well lead to a reconsideration of them.

How the government responds will be interesting.

In terms of BT – well, it’s clear that more needs to be done to get Britain faster online so as to realise the benefits of Digital Britain, though the importance in this of a healthy, financially strong BT needs not to be forgotten (as well as that the company is still rebuilding its profitability). It should also be remembered that the expansion of the investment in fibre will be ‘managed within current levels of capital expenditure’ – something which implies cut-backs in expenditure on investment in other areas.

A new statutory duty for Ofcom to promote investment in the communications infrastructure in its approach to regulatory decisions would help enormously right now…

Written by Calvin

13/05/2010 at 5:02 pm

Monti report proposes more centralised regulation

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In an announcement somewhat overshadowed by EU finance ministers’ agreement on a €500bn package for member states with solvency problems and to provide support to the euro as a currency, as well as in the UK by the will they-won’t they tea dance going on in Whitehall as I write, former European Commissioner Mario Monti has presented a report to current EU President, Jose Manual Barroso, on a new strategy and direction for the EU’s single market.

Monti was commissioned to write the report back in October 2009, and its aim is to motivate a renewed political determination around the concepts of the EU’s single market and to provide a fresh impetus for the principles which underpin it. What seems to be high up in the Commission’s thinking is the need to assess the state of play in the single market in time for the 20th anniversary of its establishment, in 1992, while the context is also clearly rooted in fears for the direction and commercial success of the EU associated with any retreat into economic nationalism arising from national-level responses to the economic and financial crisis. The report will be the basis for a Commission initiative to relaunch the Single Market as a key strategic objective and, following internal discussion, the Commission will emerge with a ‘balanced, broad and fair’ vision of what the single market should look like in the future some time in July.

This is a hugely significant report and the timing of the announcement of the publication could not be worse (though this is unlikely to inhibit a serious discussion in time of the report’s focus). The thrust of the Monti report is that a system of national regulators sees to it that the EU ‘falls short of its commercial promise‘ in the communications and e-commerce areas, and that the response should be for the EU to have stronger powers over national regulators. Some of the conclusions – for example on an EU-wide spectrum licencing regime – look somewhat behind the play given the round of advanced spectrum auctions which have been concluded in the Netherlands and in the Nordic countries, and are currently well underway in Germany. But what looks inescapable is Monti’s views on the need for a revision of regulation in the communications sector so as to create an EU-wide market for electronic and communications and to drive the growth of Europe’s digital economy.

Given the recent conclusion (in 2009) to the last round of revision of telecoms regulation at EU level, the sigh of ‘here we go again’ is equally inescapable. Nevertheless, this is a report that will need serious consideration, both in terms of its political significance as well as in terms of the impact of the measures that it proposes will have on workers in the sector.

Written by Calvin

10/05/2010 at 5:41 pm

Posted in Telecoms regulation

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OK, on with the show

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Though before we do, some interesting reaction to the overnight events picked up via TIGMOO by Anna Rose at Unison Active, as well as by Tom over at labour and capital.

In what is otherwise, given its timing, likely to be one of my more immediately unread posts in the one year (next week!) that this blog has been functioning, I did find this week that there were some interesting things happening in the world of regulatory broadband policy, both in Australia and in Italy, and in the world of net neutrality, in the US, which reflect some aspects of why the blog exists.

In Australia, the centre-left government has published a A$25m (£15m) report commissioned by McKinsey and KPMG that says, essentially, even if Telstra, the former incumbent, doesn’t decide to throw in its lot with the government’s plans for an initially publicly-owned national broadband network company, NBN Co can still go ahead on its own as a viable commercial entity (see here [registration required; limited viewing time] and, when that runs out, here for the basic news story].

Such a conclusion is really no great surprise, and perhaps its most important function is the practical assistance it will provide the government in its continuing negotiations with Telstra on the folding of its assets into NBN Co (although whether that’s a suitable use of public money is a different matter) – both that and the re-starting of structural separation discussions in the Australian parliament, scheduled for next week. The government’s intention to create a ‘Telstra 2’, having not so long ago sold the last one off to a lot of individual (‘mum and dad’) shareholders, with a long-term intent to do the same thing with NBN Co, is the subject of a lively debate, as the comments in The Australian show.

Meanwhile, a proposal for a super-fast broadband network in Italy was made by Vodafone, Wind and Fastweb (the latter two being existing Italian network operators) in Milan today. La Repubblica originally broke the story on Tuesday (you’ll need to speak Italian or else have a good translator – or else, if you’re quick, see either here and/or here for an English language version). The consortium of three want to spend €2.5bn on building a 100Mbps fibre network in Italy over the next five years – but che sorpresa, they want to build it only in the 15 major towns and cities. At the launch, it was also made clear that, over 5-10 years, the network could be extended in an €8.5bn investment to all towns with more than 20,000 inhabitants (representing around half the Italian population). Former incumbent Telecom Italia, which was invited into the project and which has always welcomed the notion of joint partnerships (provided that it keeps its finger on its existing network), has its own €7bn investment plans over three years but deployment so far has been somewhat relaxed.

Cynicism aside, any investment in high-speed broadband is welcome – but it does need to be part of a nationally- planned advance in fibre installation, and one that extends high speed broadband provision on an equitable basis right throughout the country: to rich and to poor; to urban and to rural; to young and to old. Where the market is allowed to dictate investment in nationally-important infrastructure, the end result can only be inequity, exclusion and a widening of the social and digital divides as a result of the inevitable cherry picking that will occur. Leaving the poor old incumbent to pick up the pieces for the rest is hardly reflective of a level playing field, while the concept of social justice – as well as that of evenly-spread economic development – deserves better treatment.

An interesting parallel between Italy and Australia is also that Agcom, the Italian regulator, has been looking at the creation of a separate, new company responsible for the country’s next generation broadband infrastructure.

Finally, in the US the Federal Communications Commission has made progress with its response to last month’s legal ruling against its sanctioning of Comcast for traffic management policies. I blogged about this here. The danger of the ruling was that an inability of the FCC to take action in this way, because broadband internet access is classed under US regulation law not as a telecoms service but as an information service (and thus subject to a different, lighter regulatory regime), left it unable to guarantee net neutrality – i.e. the freedom of internet users not to be subject to the ‘management’ of their surfing by their ISP. This impasse in turn seemed to threaten the FCC’s ambitious National Broadband Plan.

What the FCC has done, according to the BBC – a bit of a lighter read than the FCC’s own statement – is to develop a ‘third way’ (just like 1997 all over again!) which classifies the ‘transmission component’ of broadband access as a telecommunications service while taking a principled non-intervention approach to much of the rest of broadband access. The Chair of the FCC was at pains to point to the ‘narrow and tailored… cautious’ approach, and the need to overcome the difficulties posed to the National Broadband Plan by the legal decision, but even this limited compromise appears to have left the two Republicans on the FCC behind. Here, the Chair’s view is likely to be supported by the two Democrats, indicating it will thus prevail, but ISPs themselves already appear (according to the BBC report) rather unhappy.

These three highly separate, but highly linked, stories highlight the problems of regulating broadband access both in an environment of seeking control of the technology so that it serves the interest of the people, and in free market situations in which competition is supposed to prevail but which doesn’t necessarily always support the interests of the consumer, both taking place in the context of a neo-liberal dominated world view. You might wonder – just as bond markets opening in the middle of election night, as results are starting to come in, and subsequently with its intermittent results, was thought to be newsworthy as part of the BBC’s online internet coverage – just how we’ve got into this mess.

A lack of strategic thinking is one reason – and it’s clear that only strategic thinking can get us out of it.

Britain’s Digital Future II

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I’ve now had a chance to listen to The Guardian‘s Tech Weekly podcast I blogged about last week. Unlike some of the comments on the podcast page, which mostly seem to reflect continuing disappointment over the copyright and file sharing aspects of the Digital Economy Act, I thought this was an interesting and reasonably open discussion on the policies of the three main parties towards Digital Britain, underpinned by some thoughtful and articulate comments on the issues and the policies.

The bits on broadband, specifically on how to fund broadband access in rural areas, occur from the 39.17-minute mark and wrap up around 48.50. I learned the following:

– an acknowledgment from Jeremy Hunt, shadow secretary for culture, media and sport, that the market won’t provide for all and that an element of subsidy would be necessary to extend broadband to rural areas. This is not new by itself, but the Tories’ vehicle for this, i.e. using the £200m surplus in the digital switchover portion of the BBC licence fee, was, according to Hunt, supported by the BBC on the grounds that the hungriest consumers of bandwidth were iPlayer users and that the BBC wanted to extend access to iPlayer further. This BBC support for the use in this way of the digital switchover surplus was news to me.

– Stephen Timms, minister for Digital Britain, argued that the switchover money would not be available until 2013 and that doing nothing until then was simply not good enough, while making progress in rural areas demanded investment of £150m per year (i.e. the sums being spoken as being raised by the landline duty). At the same time, conceding the switchover surplus for rural broadband would leave little left for the universal service commitment. Hunt’s reply was that he would rather use the sums which Labour had spoken of to subsidise regional news programmes from ITV for rural broadband instead. So, here we have a Tory spokesman unsympathetic to the notion of the need to subsidise independent sources of regional news – while I also remain unconvinced that the Tories in office would do much towards a universal broadband service at all: having a policy for rural broadband is not the same thing as ensuring that all households in the UK can get access to a minimum broadband service.

– Hunt commented that next generation investment could cost £29bn [apparently, for fibre to the premises solutions right across the UK] and that this was not something that one company [BT] could afford on its own.  He lamented the failure of the Digital Economy Act to do more about encouraging other private sector operators to step forward and said that he wanted ‘Virgin Media to do more; Sky to do more; Carphone Warehouse to use our pilons, telegraph poles, ducts and sewers’ as a way of stimulating a lot more investment in fibre. Of course, there’s nothing to stop any other operator from building out a fibre network and then connecting that with the networks of others to extend coverage. (Except, of course, the need for investment finance and then the obligation to offer that network on a wholesale basis, just like BT has to do. That ‘our’ is an interesting and revealing word, too!)

– Hunt’s reference to Virgin Media having a fibre network which reaches the major towns and cities, and half UK households, whereas BT was the only operator which had the infrastructure to reach rural areas, and that it was ‘madness’ to wait for BT to make that investment as it simply could not afford to do it, seems to me symptomatic of a Tory desire to see BT only as a provider of last resort – that competition will provide in the major areas and that, where it doesn’t, BT will have to provide. So, other operators would be allowed to cherry pick the best areas for their investment, i.e. those which offer the best returns, while leaving to BT alone the prospect of investing in low return areas (and then having to do so on a wholesale basis). I’m extremely unconvinced that this is a sensible, rational approach to getting fibre rolled out across the UK: it leaves far too little in terms of returns for the operator relied upon to undertake the most costly investments (and the only one with sufficient scale to generate the necessary finance). In a situation in which the costs of fibre investment have already been identified as too high for one operator to deal with, it seems completely contrary then to ask that same operator to fund all the unattractive, low return investments. The UK deserves much better joined-up thinking than that.

– ‘Anyone who laid fibre would have an obligation to wholesale the fibre they laid to anyone who wants it’. I’m quoting here because I was quite astounded by what I heard and replayed several times to make sure I got it right. This goes well beyond BT, for which wholesaling obligations as regards fibre investment will inevitably be mandated by Ofcom, while that ‘anyone’ seems on the face of it to encompass, for example, Virgin Media, as well as any other operator which currently does not have SMP (significant market power – only BT and Kingston Communications currently have SMP). On the other hand, it might be argued that there is a strong whiff of ‘in future’ to the quote and, bearing in mind that Virgin Media is expecting to have completed its delivery of superfast broadband right across its network by next year, it may well on this basis be held not to have been caught by the need to respond to such wholesale obligations.

By the way, the programme ended with a comment on the impact on fibre investment of valuation office decisions. This has been well summarised by Computer Weekly and is based on a court case brought by Vtesse, and lost, earlier this year. It had been Tory policy to ‘realign’ business rates charged on fibre networks, although this seemed to lead to a bit of a spat with the Valuation Office Agency and this policy seemed eventually not to make it into the Tories’ Technology Manifesto. Making the cost of fibre essentially cheaper is likely to have some impact on investment decisions since it will increase returns: but, where that investment wouldn’t otherwise be made at all – i.e. in the rural areas – it’s unlikely to have any impact.

[5 May edit: Today’s The Guardian has a summary of all the manifesto commitments to technology, broadband and digital issues.]

Written by Calvin

04/05/2010 at 5:51 pm

Britain’s digital future

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The Guardian‘s Tech Weekly podcast this week focuses on the parties’ views and attitudes towards Britain’s digital future, featuring discussion and comment from the three leading parties’ main representatives (Stephen Timms, Jeremy Hunt and Lord Razzall) on the following issues:

– curbing piracy and file sharing

– intellectual property copyright reforms

– how to fund rural broadband penetration

– dealing with the library of government data.

I haven’t yet listened to this in full but will be doing so with some interest, blogging any issues that arise. In the meantime, you can pick up the podcast, or listen online, here.

Written by Calvin

29/04/2010 at 11:55 am

The ‘Google tax’ and net neutrality

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It is being reported that Vodafone is to ask the European Union to take action so as to ‘facilitate bilateral agreements between telecom operators and online content providers like Google’ – essentially, to allow network operators to charge content providers, such as Google, YouTube and, probably, the BBC’s iPlayer, additional fees in relation to the network demands placed by the users of such services.

Operators would rather charge content providers than consumers, but it would seem that some network operators have started to realise that the ‘all you can eat’ model – under which bandwidth comes at a flat rate (except, perhaps, for usage caps on really high users) – is not a viable economic model in a scenario of the rapid growth in bandwidth consumption we are experiencing. More and more for less and less is never a particular sound economic model. Clearly, in such a situation of heavy retail competition, essentially preventing operators from starting to raise prices, or to alter pricing structures in accordance with consumers’ capacity usage, operators need to look for alternative sources of revenue – and content providers represent it. (How we’ve got into this mess in the first place is a different blog post altogether.)

Were they to succeed, then this is likely to lead to a further commercialisation of the internet, in terms of how the content that you read, or view, is paid for (though, to be fair, such a commercialisation is proceeding apace anyway via new advertising models), with network operators essentially wanting their own slice of this action.

On the face of it, the reference to the need for EU action looks a little odd – there is nothing to stop operators coming to such bilateral agreements amongst themselves and, in a free market, that’s probably the more preferable response (where, of course, content providers are prepared to play ball, which they may well not be).

The other difficulty, of course, is the reference to the principle of net neutrality, according to which network operators should carry net traffic on an open, non-discriminatory basis. (Roger Darlington reviews the issues of net neutrality very well in his monthly column for Connected, the magazine of the Connect Sector of Prospect, which you can also read online here.) Starting to charge content providers for network quality, or levels of consumption (as measured by capacity usage), starts to affect how the net operates since content providers, under the commercial pressures of such agreements, are likely to want to see ‘their’ traffic prioritised by those with whom they have reached such agreements. Indeed, such prioritisation is likely to be included within any such agreements on charging. The upshot will be changes to how the net operates, and is experienced, some of which may well be invisible to the naked eye – a problem for those supporting a liberal internet and likely to lead to such principles being heavily compromised.

The original source for this post reports that Vodafone is making its push via a shortly-to-be-finalised submission to an EU consultation on net neutrality. This is a bit strange, since the last I saw from the EU on this issue was this (part of last year’s EU telecoms package) which, in Annexe 2, does talk of the importance of preserving ‘the open and neutral character of the net’ and seeking to enshrine net neutrality as a policy objective for member states. I can’t find a reference to an open consultation on this on the appropriate pages of the EU portal, although we know from Ofcom’s annual plan for 2010/2011 that some activity will be taking place (A1.77) – while Roger’s piece also refers to a UK discussion and consultation on net neutrality taking place ‘later this year’ (and, evidently, within the context of EU action).

Such confusion aside, it is clear that operators (the original source cites also Telefonica) are starting to gird their loins for an attack on net neutrality so as to allow them to seek to charge content providers for access (in this context, Project Canvas takes on a new light since it would seem to allow project partners to side-step any such charges). Equally, the EU looks set against such a model, so it could be quite a battle. Consumers will end up paying the price somewhere, although whether that’s a cash-based or a principles-based price (or both) is an interesting question.

Written by Calvin

27/04/2010 at 4:28 pm

New powers for Ofcom also dropped

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The government is also proposing to drop Clause 1 of the Digital Economy Bill (see also The Guardian). This would have given Ofcom new powers to have ‘particular regard’ in carrying out its statutory duties on behalf of consumers to the need ‘to promote investment in electronic communications networks’. The dead hand of the Tories on the tiller is all too visible here, too.

The Connect Sector had supported this Clause right from the publication of the final report of the Digital Britain initiative since it would have commanded Ofcom to focus in its promotion of the interests of consumers on the need for investment, alongside the existing duty to promote competition. It would have overturned a singular reliance on promoting competition, which had been how both Ofcom and Oftel before it had interpreted the interests of consumers. It is the promotion of competition, to the exclusion of all other concerns, that has allowed us to reach the stage of falling real prices for telecoms services to the point where it is likely to endanger investment. In an intensely competitive situation, falling prices can only inhibit levels of investment since it both undermines and makes more uncertain the rates of return that can be made. When investment is expensive – not least given the need to boost investment in fibre towards fibre to the premises solutions, rather than just fibre to the cabinet – such levels of uncertainty will simply lead to it not being made. And that’s not in the interests of consumers either.

Yet we’re now back in the situation of Ofcom interpreting its regulatory remit on looking at the interests of consumers solely through the telescope of competition. A one-club, narrowly focused and ultimately irrational approach to regulatory policy.

The new duties for Ofcom, by recognising the central role of investment in developing the UK’s communications infrastructure and in insisting that Ofcom supported that in its approach to regulatory decision-making, would have helped to support the case for that investment. Their likely withdrawal – voting on the Digital Economy Bill is tonight – only undermines that case and, in the process, undermines a significant portion of the Digital Britain initiative.

Written by Calvin

07/04/2010 at 3:51 pm