Connected Research

Union policy research in the 21st century

Posts Tagged ‘NGA

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

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

Landline duty dropped

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The BBC is reporting that the proposed landline duty – the 50p/month levy on fixed lines to contribute towards building out high-speed broadband services beyond where the market would deliver – has been dropped.

The dropping of the proposal, on which a BIS consultation closed only last week, is not because the government is suddenly unconvinced of the need for the Next Generation Fund which the duty would have established; it has been dropped since the political controversy over it would potentially have held up the Finance Bill, which has to include the duty since it is a fiscal measure. This is one of a series of three measures – including also the rise in cider duty – which the government has dropped from the Finance Bill so as to ensure that it can complete its passage through Parliament before Parliament is dissolved later this week. Consequently, the landline duty is very much a victim of the election.

Should Labour win the election, it is likely to be re-instated – the government’s policy has not changed – perhaps in a second Finance Bill after the election. However, it is disappointing that the landline duty has been dropped since the policy which lay behind it – that of extending high-speed broadband on a socio-economically equitable basis right across the nations and regions of the UK – was both sound in principle and, actually, far more important than the levy itself. Without the levy, and the Fund, the UK has no practical, resource-based response to the need to spread high-speed broadband equally across the UK other than where the market – i.e. the major network operators – decide where it can be done profitably. That is likely to lead to the over-provision of networks in large urban areas and the under-provision of networks in less populated, more rural areas and, in turn, to a widening of the digital divide. It is also likely to contribute to the further economic overheating of the large urban centres.

For its part, the Tory policy on extending high-speed broadband beyond the market is ill-thought: based as it is on a reliance on the regulated opening up of BT’s ducts – a policy with which BT is happy to comply but which, as Ofcom has previously pointed out, is likely only ever to be a partial solution – backed by some money from the BBC licence fee otherwise earmarked for the digital switchover. The digital switchover is due to be complete by 2012 and the underspend in this budget is £200m, which Digital Britain had intended to use to meet its universal broadband service commitment by 2012. Any continuation of this budget beyond 2012 essentially takes money away from BBC programming – thus, for the Tories, killing two birds with one stone but which is likely to mean further cuts in the production of quality media content.

The landline duty was fair in the context in which it was originally put by Digital Britain – that households had received a benefit from falling telecoms prices in recent years and that it was thus reasonable to ask them to share some of that benefit. The Connect Sector of Prospect had always argued that it was a moderate, affordable and specific contribution from consumers towards the cost of roll-out of NGA infrastructure beyond the market, and we also supported it as a welcome sign of the government’s commitment to a policy of ‘industrial activism’.

The decline in consumer telephony bills has been well documented by Ofcom:

Source: Figure 4.55, Ofcom Communications Market Report 2009

The chart shows clearly the falling nature of household telecoms bills, which declined from 3.4% of monthly expenditure in 2005 to 3.2% in 2008 – the same proportion as in 2003. If we focus on the decline in the amount of expenditure on fixed voice and on internet and broadband – i.e. the sums going to the operators charged with responsibility for rolling out high-speed broadband services – we can see that these have fallen by £5.68 per month – at standard prices – since 2003 (a drop of 14.7%). In this context, a 50p/month levy was, and remains, fair.

This decline in return is not a rational basis on which to found an expectation that operators will roll out costly investment in fibre networks in areas where it is even partly speculative. They will, instead, concentrate only on the clearly most profitable areas. That will inhibit the roll out of fibre networks, putting the extension of fibre roll-out some twenty points lower than it otherwise would have been by 2017, and it will exacerbate the divides within the UK.

That would be a disaster for the UK both socially and economically.

Written by Calvin

07/04/2010 at 12:16 pm

Ofcom consults on opening up BT fibre investment

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Ofcom has today launched a consultation on opening up the fibre-based networks of both BT and KCom to competitors (Ofcom news story; direct link to consultation). The intention is to ensure that BT and KCom (in Hull) provide a wholesale access product so that retail competitors can deliver their own services over the ‘pipes’ which the two network providers have laid down.

The consultation is not a surprise – Ofcom has been working on it for some time – and, indeed, BT has recognised that it will need to open its fibre network to rival service suppliers (see, for instance, its announcement on the award of the Next Generation Broadband project in Northern Ireland; and also an interview with Ian Livingston in the Financial Times). Added political spice is given by the reference to rivals renting not just network capacity on a wholesale basis but also space in BT’s ducts although, as I have blogged previously, there is nothing new about this in terms of regulatory discussions and such a solution is likely only to be a partial one anyway.

Ofcom has spent a little time in its documents dismissing the idea that other operators than BT and KCom – for instance, Virgin Media – might be compelled to open up networks to rivals. This is on the grounds that only BT and KCom (within Hull) have what regulators term ‘significant market power’ (that is, a share of more than 25% of the market in which it is allowed to operate); Virgin Media’s share is, according to today’s Ofcom statements, just 19% (around one-third of homes passed by cable take the Virgin Media service and Virgin Media’s percentage of homes passed is just over 50%). BT has recently gone quite public in debating whether Virgin Media might also be compelled to open up its network to rivals.

The predominance of the significant market power argument is about to be tested, since the BIS consultation on the Next Generation Fund proposes that open access should be a condition of all projects supported by the Fund: that is, should Virgin Media be a network partner in any successsful bids to the Fund, it would have to open its network to rivals regardless of whether or not it has SMP. In principle, this is a supportable position to take on the use of public money. Whether this represents a ‘thin end of the wedge’-type argument (if here, why not there?) is an interesting conundrum that Virgin Media will have to resolve should it desire to participate in Next Generation Fund projects.

At the same time, it is clear that the reference to SMP in telecoms regulation effectively creates a barrier to investment. As I pointed out recently, Virgin Media has little money to invest in extending its cable network farther than the 12.5m homes passed where it has been stuck for quite some time, while its approach to network expansion has depended more on what it calls its ‘off-net’ strategy (i.e. partnering with other network providers). But, should it extend its own network much further, i.e. by a further six percentage points, and that is quite easy to imagine if it is an active participant in Next Generation Fund projects, then it is likely to be caught by the SMP requirements and that raises a very interesting set of questions.

It’s worth making the point that other network providers much smaller than Virgin Media – such as H2O Networks – are building out their fibre installations on an open access basis (but then, this is a pure network provider, not one with a range of content to sell to customers).

Operators being unwilling to subject themselves to the constraints of providing wholesale access to rivals would be an indicator not only that the playing field is really not level but also that the requirement to do so is burdensome. That is something that needs to be recognised a little more openly than is currently the case. A discussion over whether there is a need to have a little more flexibility in the definitions of what constitutes SMP, as well as in the identification of which networks are sizable enough to be required to open up to rivals, may not be too far around the corner.

Written by Calvin

23/03/2010 at 1:07 pm

Gordon Brown on high-speed broadband

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Prime Minister Gordon Brown has today made a powerful speech promising universal access to high speed broadband services by 2020. The No. 10 website today also has the story as its lead item, containing a full transcript).

The reason for the universal aspect of the promise is simple social justice – that high speed broadband ‘must be for all – not just for some’, in contrast to alternative plans reliant on the market alone which would see access determined ‘not even by need or social justice, or by the national interest, but by profitability alone’, ensuring the creation of ‘a lasting, pervasive and damaging new digital divide’. Under such a reliance, the Prime Minister continued, the UK would be ‘split between a fast-track and a slow-track to the future, between those fortunate to live in densely-populated areas and those not’.

The Connect Sector of Prospect has been arguing on precisely these lines for some time (and will be doing so again to the continuing BIS consultation on the Next Generation Fund. NB: I’ve reported the broken link; you can also find the consultation document here). Consequently, it is very pleasing that the Prime Minister is making the same points.

The commitment to a 2020 vision for high-speed universal broadband access builds on the government’s existing commitment to high-speed broadband to cover 90% of the population by 2017, towards which goal the Next Generation Fund is designed to assist and which the Prime Minister justified by saying that ‘if every household is to benefit, then it is fair that every household contributes’.

Interestingly, the aim to have universal access by a decade matches the timeframe for the Federal Communications Commission’s plans in the US (about which I blogged last week), though the approaches are otherwise quite different, based around the two headline issues of coverage and speed – which are clearly linked together in terms of investment (I would not go as far as saying that there is a trade-off between the two, but there may well be in terms of the ability to provide investment which meets required rates of return). The US approach builds on universal service at a minimum speed, but is otherwise dominated more by a high speed, ‘big bang’ (or should that be ‘big bucks’?) type of model; while the UK is more inclined to one based on universal coverage and a more incremental pace to speed.

Ensuring that the digital divide does not widen is the right approach – access to a high-speed broadband service is indeed an essential service (the Prime Minister repeated in his speech that superfast broadband is ‘the electricity of the digital age’). It should therefore be delivered on a universal, equitable basis across the nations and regions of the UK and it should be the preserve of every household. But the speed of the service is important, too, not least from the point of view of securing the economic benefits to the UK as a whole of high-speed services, and we must therefore ensure that we see the existing plans for high-speed access as part of a continuous approach to investment in the industry which does deliver guaranteed high speeds, and in both directions.

Written by Calvin

22/03/2010 at 10:50 am