Me and my shadow

I don’t often write about the negative impacts of ‘the wired world’ but I’ve recently been prompted to do so by my preparations for Christmas.  As is well known, Britain is the biggest online shopping nation in the developed world, with almost two-thirds of adults using the internet to buy goods or services.  I have followed that fine tradition by doing all my Christmas shopping on-line, and I’ve been very happy with my purchases, but what has made me less happy is the visible ‘audit trail’ that these transactions have left.  Every time I log on to a well-known electronic retailer, I am presented with pictorial information on the items I have purchased, the items I might have purchased - and the items my wife bought.  So much for surprises! 

Now, I realize that the audit trails should probably be seen as a benign and inevitable part of the on-line experience, and I’m told that there are ways to disguise buying information, but the experience got me thinking about other ways an on-line presence could easily become intrusive.  The hazards of social media are well understood but what about the prospective ‘internet of things?  Do I really want someone (or something) else to know where I go with my smartphone or what time I go to bed…? 

This is essentially a network security and surveillance problem.  I don’t have the technical expertise to suggest its resolution but I’m glad to see that better-equipped people – such as Glyn Moody – are starting to worry about the same issue.  I wonder if he could advise on Santa’s Dilemma…?  

‘Tis the season for giving

Whoa, can this be true?  Yet more money for broadband infrastructure?  OK, the latest (Autumn Statement) gift from the government - £10m for a ‘competitive fund’ to address coverage in remote rural areas – was really pretty modest, but just consider the investment already made: £530m for the original BDUK endowment; a further £250 allocated from the 2013 spending round; £150m for ‘Super-connected Cities’ (still- born but the subsequent voucher scheme is valuable nonetheless); £150m for improved mobile coverage etc. etc.  It all adds up to a tidy sum, and one nicely garnished with the latest upbeat opinions of research firm Point Topic: 

“95% [superfast coverage] by 2017 should certainly be achievable and is also desirable…In fact, with the inclusion of FWA, mobile and satellite in the metrics, the targets can in some senses said to have already been achieved” 

So, notwithstanding some recurring criticism of BT’s commercial tactics, the UK broadband outlook appears remarkably encouraging - and showing signs that the government’s drip-feed of subsidies is beginning to pay off. Enjoy the moment!  

It’s a pity, therefore, that some new research from the US shows Europe’s broadband investment is actually falling well behind.  Based on detailed CAPEX data compiled by Infonetics, Roslyn Layton of Aalborg University in Copenhagen has compared recent broadband investment levels in the US with that of the aggregate spend by the 27 EU states. Her results are summarized below.

	2011 CAPEX billions	2012 CAPEX billions	YoY Change	2011 Population millions	2011 $/pers	2012 Population millions	2012 $/pers
US	$72.4	$77.6	7%	311.6	$232	313.9	$247
EU27	$63.4	$50.3	-21%	501.9	$126	500.0	$100

As the table shows, Europe’s per capita investment in 2011 was already little more than half that of the US; worse, the 7% downturn in the EU’s spending last year meant that it was spending only 40 cents on broadband equipment for every dollar invested in the US.   

Now, there is clearly a ‘political’ agenda behind this research, and one might question whether the apparently superior US investment has resulted in such a vibrant broadband market, but it seems fair to conclude that any “best in Europe” claim by the UK might actually amount to a rather hollow victory.

 

 

 

 

 

 

 

 

Too important to fail

Writing quite recently about demand in the US for ‘gigabit networks’, I reported one very credible view that the phenomenon reflects recognition of our growing reliance on the internet for all manner of infrastructure and services.  The proponent in question went on to explain: “that reliance is only going to increase and people will continue to want faster and faster broadband speeds for peace of mind.”  That begins to sound like an unhealthy spiral of addiction but is our growing dependence on communication networks (perversely) a ‘good thing’?  Well, it might be…

Earlier this month, a US court ruled that the Department of Homeland Security must make a plan to shut off the internet and mobile communications available to the American public. While President Obama quickly condemned former Egyptian President Hosni Mubarak for turning off the internet in his country to quell widespread civil disobedience in 2011, the US government apparently has the authority to do much the same thing - under a plan devised during the Bush administration. Details of the controversial "kill switch" authority have been classified but thanks to a Freedom of Information Act lawsuit filed by the Electronic Privacy Information Center (EPIC), DHS is obliged to reveal these within the next few months. 

Even assuming President Obama (or David Cameron) wanted to invoke such a measure, would it actually work?  Happily, the expert view seems to be that activating any kind of kill switch would do more harm than good.  According to Harold Feld, Vice President at Public Knowledge, a US lobby group focused on communications and technology policy, "I find it hard to imagine why an internet kill switch would ever be a good idea, short of some science fiction scenario wherein the network comes alive à la Terminator/Skynet.  At this point, so much of our critical infrastructure runs on the internet that a 'kill switch' would do more harm than anything short of a nuclear strike.  It would be like cutting off our own head to escape someone pulling our hair”.  A very similar argument is thought to apply to disabling mobile phones. The benefit of people being able to communicate on their cellphones in times of crisis is enormous, and cutting that off would potentially be very dangerous.  

At a time of growing concern about government security and surveillance issues, it’s heartening to find that the ubiquity of modern communications networks might actually be proof against ‘big brother’ measures.

Hail, the new economic wonder drug!

Well aware of the sundry benefits of faster broadband (not least the vastly improved performance of i-player!) I was fascinated to read recently that it’s also just the thing to supercharge economic growth.  According to analysis commissioned by DCMS from a consortium led by SQW (with Cambridge Econometrics and Dr Pantelis Koutroumpis), government interventions to upgrade broadband connectivity are projected to return approximately ‘£20 in net economic impact for every £1 of public investment’.  Wow!    

Unsurprisingly, I was not alone in feeling a tad sceptical about this conclusion: 

“Basically, BDUK has been getting a lot of flak and bad press…so the DCMS thought they best pay someone to write a nice report bigging up how much its broadband investment is going to bolster the economy”. (Computer Weekly) 

“The government, perhaps keen to cut through all the negative press, commissioned its UK Broadband Impact Study  in what appears to be a vain attempt to search for some good news about BDUK”. (The Register)

Within the Report itself, however, SQW appear to be refreshingly honest about its findings: 

“While recognising that there are still gaps in the empirical evidence base, and that the future is inherently uncertain, the study’s projections are the outputs from a rigorous and detailed analysis which draws on the best data currently available”. 

I was intrigued by that phrase, the ‘gaps in the empirical evidence base’, but it seems to stem largely from the Report’s later admission that: “The productivity impacts of increased speeds are, as yet, highly uncertain.” In fact, given the relatively recent introduction of high-speed broadband, SQW have had to invoke a labyrinth of tortuous logic and heroic assumptions to arrive at their central conclusion that: ‘an increase of 100% in the used speed in a year will lead to a 0.3% uplift in productivity  over the following three year period’. 

This sounds like a risky finding but, guess what…?

 “It also aligns…with research by Chalmers University of Technology, which found that a doubling of speed in OECD countries is associated with a 0.3 percentage point increase in GDP growth”.  What a coincidence!   

It turns out that the ‘research’ in question by Chalmers University (who??) consists of an econometric analysis of the past relationship between broadband speed and GDP growth in a sample of OECD countries.  A closer look at that analysis reveals this cautionary note from the authors: 

“This study concludes that the hypothetical impact of broadband speed on economic growth is statistically significant…. As the impact is modelled as linear, it needs to be judiciously applied when hypothetical country growth is far away from the sample means. The hypothetical impact is based on an elasticity measurement and any forward-looking simulation should be applied with care “. 

In other words, the past relationship established for this data set may not apply in the future for a different group…. As expected, therefore, take the ‘good news’ from DCMS with a pinch of salt.

Of broadband cats and pigeons

My goodness, what a flurry of feathers.… The Broadband Stakeholder Group (BSG) set out to conduct a perfectly sensible exercise, looking at the key statistical determinants of bandwidth requirement and how these determinants might change over the next ten years. Quite properly, they described this as “a model for forecasting bandwidth demand” but that choice of words may have been responsible for the subsequent furore and howls of protest when the ‘average demand’ turned out to be surprisingly low (19 Mbps).  For example, the FT reported that:

“A key government advisory group will raise questions over whether most homes in the UK are likely to need superfast broadband in 10 years’ time”.

Similarly, Sean Royce of Kingston Communications (KC) is reported as describing the BSG result as a 'red herring' that the Government might use as a ‘yard stick’ to help lower the bar for its own superfast broadband targets. 

The BSG has rightly defended its statistical results, and neither of the above policy claims would be justified, but I’m bound to agree with a further aspect of the criticism from Sean Royce, i.e.

“The second concern I have with the study is need versus desire. From our experience, there is a clear distinction between the broadband capacity that households need and the speed levels that consumers want. This isn’t simply about keeping up with the Jones’. It’s a recognition that…we [already] rely on the internet. That reliance is only going to increase and people will continue to want faster and faster broadband speeds for peace of mind.” 

Anyone in any doubt about the importance of broadband ‘aspiration’ need only consider the eruption in US demand for Gigabit capacity – probably sparked off by the pioneering deployment of Google fibre networks.  There is no shortage of editorial advice that ‘nobody needs gigabit capacity (yet!)’ but that hasn’t stopped the emergence of so-called gigabit envy.  The latest metropolitan examples are in Los Angeles and Las Vegas but there are now dozens of US cities planning Gigabit networks.  And the rhetoric isn’t confined to city mayors: earlier this year,

Julius Genachowski, then Chairman of the Federal Communications Commission, wrote an article entitled, ‘Why the U.S. Needs Gigabit Communities’.  It argued:

“We’re in a global bandwidth race, and we need to ensure the U.S. has a strategic bandwidth advantage. Without it, we risk losing our global lead on innovation, and we risk watching jobs and investment flow elsewhere….”

So much for the determinants of demand…

Hold the Champagne, boys…

Great news this month that every EU household now has access to basic broadband!  Well, that is if you include satellite coverage - which we didn’t before.  As Neelie Kroes says: 

“The EU is technology neutral, but for those in the most isolated areas, satellite is a good option to stay connected; and it's likely to remain so… Thanks to the extra coverage provided by satellite broadband, we have achieved our 2013 target of broadband for all. That's a great result for European citizens” 

As a reminder, ‘basic broadband for all’ was the first leg of the Digital Agenda for Europe (DAE) targets, i.e. 

·        Basic broadband (0.5-4Mbps) for all by 2013;

·        Next Generation Networks (30 Mbps or more) for all by 2020;

·        50% of households having 100 Mbps subscriptions or higher 

In the absence of satellite coverage, however, there is still some way to go before fixed networks of acceptable quality reach 100% of the population (the Universal Service Commitment in other words)..  At an EU level the same Press Release claims that fewer than 4% of citizens are denied access to fixed broadband but data released by Ofcom last week show that the equivalent UK figure is now hovering around 8%, i.e. 

Percentage of connections receiving

less than 2Mbit/s (June 2013) 

England                            8%

 

Scotland                            8%

Northern Ireland                12%

Wales                                12%

Total UK                          8% 

The good news is that these percentages have been falling pretty steadily over the past two years: the less positive story is that getting the figures down to zero may be more challenging than expected. We tend to assume that ‘citizens’ who have access to even relatively modest broadband improvement will grab it with both hands but the Ofcom Infrastructure Report suggests otherwise: 

“There are consumers on these slow lines who are in postcodes where NGA networks are available and, by upgrading their service, could receive much higher speeds.  When slow lines in postcodes where NGA is available are excluded, the percentage of connections operating at below 2Mbit/s reduces from 8% to just 3%”.  

Who are these people?  Why put up with an inadequate broadband service when a much better alternative is readily available?  Or is the real problem one of in-home wiring?  Whatever the reason, it’s evident that upgrading the infrastructure is only part of the battle.  Going back to Neelie’s Press Release, she was clearly wise to frame her celebration in terms of digital potential, i.e. 

“My motto is Every European Digital – now every European genuinely has the opportunity. We have more to do to improve networks and equalise the opportunity, but the opportunity is there.”

The levers of competition

In the classic debate about the most efficacious form of competition, infrastructure versus services, there was new evidence of support for both camps this week… 

First, for believers in service competition, who better to champion that cause than Dido Harding, CEO of TalkTalk?  Giving evidence to the PAC inquiry into the performance of BDUK (on 17th July), she said this: 

“I think that the infrastructure build is a natural monopoly…It’s the retail competition that really matters in this market” 

To be fair, Dido was speaking mostly about the copper broadband market but her emphasis on retail competition was borne out by the latest ITU rankings for Information Society performance. Helped largely by its intense retail competition, and correspondingly affordable internet access, the UK moved up from 12^th to 8^th in the ITU’s international league table.  

Speaking at the same PAC meeting in July, Nick James, CEO of UK Broadband, outlined why his own company had decided not to participate in the initial round of BDUK funding.   He cited the familiar explanations that the original BDUK funding areas had been too small and that BT had failed to identify the residual 10% for potential altnet coverage.  But what he had to say about infrastructure options was perhaps more enlightening.  The initial rules of the ‘competition had disallowed fixed wireless technology, thus excluding two potential bidders.  He went on to explain that, more significantly perhaps, the BDUK decision to reduce target superfast coverage from 100% to 90% had effectively played into BT’s hands: by allowing the feasibility of a single technology option, BT’s FTTC network, BDUK effectively removed the technology advantages an investment consortium could offer.  As he said: 

“Bidders planning to supply 100% [coverage] were disadvantaged against BT; the advantage a consortium could bring disappears…We were going to use a mix of technologies in order to get 100%: if you deploy multiple technologies, you can do more for less money…” 

This week’s hastily convened meeting by BDUK to discuss possible approaches for tackling the ‘final 10%’ may have proved to be something of a non-event but it did set out with the appearance of an open mind on the technology options – and the meeting’s invitation was extended to various wireless operators.  It remains to be seen whether these different technologies play any part in government-supported deployment of superfast broadband but there must be a realistic chance that the task will involve some kind of consortia – possibly including BT.  But in response to the Dido Harding camp, at least one thing is certain: the challenge of the final 10% cannot be met by retail competition.

Credit where it’s due

Hats off to Ed Vaizey and his colleagues for their notable triumph in media management… It was potentially such a juicy story: Margaret Hodge, still flushed with success from her attacks on tax evasion by major media corporates, was about to sink her teeth into both the government (DCMS) and BT for ‘ripping off Britain’.  Her conclusion as Chair of the PAC and its investigation into the BDUK fiasco had been scathing: 

“The programme to extend superfast broadband to rural areas has been mismanaged by the Department for Culture, Media and Sport. The sole provider BT has been placed in a quasi-monopolistic position which it is exploiting by restricting access to cost and roll-out information. The consumer is failing to get the benefits of healthy competition and BT will end up owning assets created from £1.2 billion of public money” 

The story did not receive universal coverage; The Times, for example, restricted it to a small paragraph on page 4. But the BBC decided to bill it as a major news item and lined up Ms Hodge against Ed Vaizey for the headline 'Today' interview on Radio 4 with John Humphrys at 8.10.  Hodge duly launched her rehearsed attacks on BT and government, and the scene was set for a ritual execution.  But the response strategy by Vaizey (and BT), a nice mixture of blunt denial and data obfuscation, was perfectly judged to kill the story stone dead.  Humphrys floundered.  The DCMS minister was therefore able to rebuff this and later BBC questioning with his head held high: 

“Well, we don’t agree with the report at all.  We think the broadband programme is fantastic; it’s very good value for money and it’s going to deliver broadband to millions of people living in rural areas who wouldn’t otherwise t get it” 

Give that man a coconut.

Beware blind alleys on the Superhighway

The European Commission issued a short 'memo' late last week that was admirable in a number of ways, i.e.

• Its straightforward aim is to promote European investment in superfast networks.
• Its language is clear and non-technical, as evidenced by the blunt title: “Regulatory mess hurting broadband investment”
• Its policy prescriptions are correspondingly simple:
• To create consistent copper unbundling opportunities – and prices – across the EU.
• To harmonise the regulation of fibre networks (while maintaining flexibility in charging models) 

The mantra throughout the document is ‘predictability and consistency’.  In Neelie Kroes’ words, “It’s vital that all companies have a stable and consistent system. That is how we can maximise investment and the infrastructure competition that encourages investment.”  

Well, up to a point.  I can see that levelling unbundling prices – currently ranging across the EU from €4 to €14 per month – might just persuade the likes of Sky or TalkTalk to venture into Europe, and more consistency in fibre regulation would certainly do no harm, but where I slightly part company with Neelie is the presumption that the two broadband markets can be structurally linked, i.e. 

“If the [copper unbundling] price is too low this…reduces the incentive for ‘alternative operators’ to move from renting a network to building their own Next Generation network. This is a frequent problem today”. 

‘Frequent’?  Really?  How likely is it that a broadband operator will migrate from renting copper to building fibre?  No examples spring to mind and, intuitively, it’s hard to imagine a developer of FTTP having much interest in a copper solution (other than the incumbent, of course).  Even at the theoretical level, arguments that might link the two markets – such as the ‘ladder of investment hypothesis’ -have largely been discredited by economists in recent years.  For example: 

“The “ladder of investment” theory argues that it is good to promote intra-platform competition as a stepping stone for new entrants to induce them to invest. Our study shows there is no support for this theory, and that to the contrary intra-platform competition may even give adverse investment incentives. (Bouckaert et al). 

“Academics have not been very gentle with the ladder of investment approach, not only because the theory itself lacks logical fundamentals but also because empirical evidences tend not to support it” (Jund et al). 

Overall, there’s a lot to be welcomed in the memo’s intentions and regulatory objectives, particularly the recognition that the long pay-back times of broadband investment call for predictable prices and revenue streams.  But it would be a pity if the Commission came to rely too heavily on copper pricing as a determinant of new network investment.

The case for smarter pipes

There’s been wide coverage lately of the spate of system failures affecting major internet companies.  For example, in last week's Guardian: 

“A series of system crashes affecting Google, Amazon, Apple and Microsoft in the past fortnight has brought warnings that governments, banks and big business are over-reliant on computer networks that have become too complex”.

The reporting has conveyed an unmistakable feeling that ‘the sky is falling’ on these complex internet traders. 

"The complexity of the systems created to support big data is beyond the understanding of a single person and they also fail in ways that are beyond the comprehension of a single person."

The idea that we may have created Frankenstein systems that are more complex than we know how to deal with is, indeed, a little scary.  But human frailty explains only a limited part of the recent malfunctions. Again, from The Guardian:

“While a malicious attack [on the New York Times] was initially suspected, the problem was caused simply by a scheduled system maintenance… On the same day, Microsoft customers began to report email failures. The outage was traced to problems with the Exchange ActiveSync service which serves email to many of the world's smartphones…”. 

The problem of man’s inability to manage the complexity of his own data constructs, such as high volume securities trading, is ultimately a matter for mathematicians - and maybe even philosophers.  But the robustness of data networks, the so-called ‘dumb pipes’ of internet commerce, is a matter that ordinary mortals can and should address.  Sadly, however, both government and industry have paid insufficient attention to the issue of communications infrastructure policy. Establishing a suitable policy for the UK is not only important for economic growth but, equally, to guard against the economic harm that can be – and now is being - caused by disruptions to that infrastructure.

All aboard for the Ministry of Truth

I return from holiday unsure whether I’ve really been in deepest Sussex or whether I’ve emerged into a regulatory time warp.  I dimly remember headlines in 2006 announcing Viviane Reding’s ambitions for a single EU telecoms regulator to replace the (then) 25 NRAs.  Seven years on, I see that the same European ambition has been advocated, this time by Joaquín Almunia, the EU's antitrust commissioner.  Apparently, he has been critical of the plans put forward by Neelie Kroes earlier this summer for a single market in EU telecoms.  She said then that a new EU telecoms package would be put forward in early September in a bid to ‘make it easier to run a network across borders, with better interconnections and new access products’.  However, Almunia is said to have described these plans as “suboptimal”, that they “lack ambition" and that creating a true pan-EU regulator would be the most effective way of harmonizing national differences in telecoms markets. The latter would clearly bolster the current intent to eradicate high roaming charges but the immediate objections to a single EU regulator are much the same as those voiced in 2006.  James Robinson, telecoms regulation analyst at Ovum, cited two obvious candidates:

"Firstly, spectrum that is currently auctioned on a national basis could fall under the jurisdiction of this new, super-regulator. Governments would certainly be reluctant to let this happen as such auctions have provided valuable revenue in recent years… A single regulator would also face issues with the inherent differences of national markets.  For example, EU member states are at varying stages with the rollout of next-generation broadband networks. The regulation of these networks also varies considerably: fibre unbundling has been mandated in Denmark whereas this obligation does not exist in France where next-generation broadband rollout has been relatively slow”.

As I’ve said, all of this is pretty familiar territory: a single EU regulator does indeed represent a ‘logical proposal’ on economic grounds but what surprises me a little is that I’ve seen no mention yet of the daunting scope of governance such a body might enjoy.  In an age of converged media, I assume that the Ofcom model of regulating telecoms, (postal services?); broadcasting and online media by a single body would persist.  But at a pan-European level, that implies an awesome sphere of influence!