Connected Research

Union policy research in the 21st century

Posts Tagged ‘Virgin Media

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.

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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

Virgin Media in fibre trial

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Virgin Media, the UK’s consolidated cable operator, has announced that it will commence a trial in which glass fibre, used to deliver next generation, high-speed broadband services, is strung overground over telegraph poles (company press release; news media story [registration required; limited viewing time]. Households connected locally in this way can then be linked to the rest of the Virgin Media network.

The trial, which is taking place in the small rural Berkshire village of Woolhampton and which will last for six months, is significant in policy-making terms for a number of reasons:

1. it will test the viability of using telegraph poles to deliver fibre. Such a solution has been suggested in previous Ofcom statements on NGA (see Section 7) and could essentially provide a short-cut to the civil works required to deliver fibre technology. Typically, fibre optic cables are passed through underground ducts, but this accounts for the most significant investment costs in delivering next generation access, particularly the farther we get from urban areas. Fibre strung over poles is, however, much more common in the US, Canada and in Japan – from where, it would thus seem, that interesting deployment lessons may also be learned.

2. Virgin Media is a cable operator and is used to working with a different technology standard (DOCSIS 3.0 and its earlier variants) to glass fibre. The trial will thus test not only Virgin Media’s ability to work with a different standard, but also, given that the local fibre connections will plug into Virgin Media’s core cable network further up the line, how well the two different technologies communicate with each other.

3. If the trial is successful, it may provide a way in which the Virgin Media network, which has been stuck at around 12.5m homes passed (about 52% of UK households) for a considerable amount of time, can be extended beyond its current reach. Virgin Media’s lack of cash for investment in cable, given the history of the development of the sector in the UK, loaded as it was with debt and bankruptcy of the US parent operators, has completed inhibited it from extending its network beyond the core which is, inevitably, focused on urban, more densely-populated areas. This, in turn, would provide a greater capacity for Virgin Media to compete with BT, whose network is, of course, universal. At the same time, it opens up the question as to the point at which the Virgin Media network, which is currently protected from the wholesale regulatory requirements imposed on BT, might be opened up to similar obligations.

Virgin Media is being quite conservative in its press release about the number of homes that may be connected in this way: it has identified one million homes that stand to benefit from the deployment of fibre over telegraph poles – although, at the same time, it is apparently:

Keen to ensure that all communities, in towns, cities and villages right across the UK, stand to benefit.

Clearly, there is an unresolved tension there. It might be that there are technological reasons why such a deployment is suited to so few additional homes – which the trial could well help to iron out – if, for example, glass fibre, which tends not to lend itself to corners, proves not particularly amenable to this sort of deployment. Or it may well be, for instance, that existing capacity on telegraph poles is limited. Of course, it could also reflect the company’s own lack of investment cash, or indeed a fear that widespread deployment would result in regulatory intervention imposing a wholesale obligation.

Nevertheless, the trial is a welcome test bed opportunity and could well act to extend the reach of the market of the number of homes connected to next generation access technologies outside urban areas. It is also an interesting test of the extent to which the growth of ‘market’ based approaches to the deployment of next generation access is reliant on, or fearful of, the regulation required to deliver both extended levels of access and effective competition.

Written by Calvin

12/03/2010 at 12:21 pm