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!

The joys of summer

As widely tipped, the inexorable 2-year Communications Review by DCMS has not produced a White Paper, as originally intended.  Instead, the Department squeezed out a so-called Strategy Paper today, only just in time for the summer recess.  The overwhelming feeling of anticlimax was heightened by the way DCMS trumpeted the publication:

“Putting consumers at the heart of communications policy: Maria Miller announces new strategy, including a nuisance calls crackdown, ending ‘bill shock’ and protecting children online”.

Two years of widespread consultation and a series of silly seminars for that…??!

Happily, there’s actually quite a lot more to the Strategy Paper than those headlines suggest.  In particular, the government finally appears to have taken on board that a broadband objective of ‘the best superfast network in Europe by 2015’ is seriously misjudged, not least because of its narrow focus and its shortsightedness.  At last, there is some prospect of the government aiming to develop the ’all-encompassing vision of pervasive broadband connectivity’ that the House of Lords said was missing from current policy:

“We need to plan long-term now if we are to have the digital infrastructure to support the technological advances that will be the platform for growth and opportunity in the UK… We will work in partnership with industry experts to develop a UK strategy for our digital communications infrastructure from 2015 to 2025... It will be underpinned by a technology-neutral approach, since fixed, fixed-wireless, mobile and satellite communications networks all have a part to play in achieving world-class connectivity”.

Heaven be praised!