Wacky Racers

As this year ticks by, and 2015 looms ever closer, the race to equip the UK with ‘the best broadband network in Europe’ becomes ever more intense.  BT, as usual, appears to have played it’s cards rather well in the country’s adopted form of public-private partnership;  the company announced last week that its overlay, FTTC network will now reach two-thirds of the country - 19 million homes and businesses - by spring 2014, rather than the former objective of end-2015. In reality, and notwithstanding the efficiency claims of Openreach, the repeated announcements of acceleration in FTTC deployment increasingly suggest that the original commitment was something of a soft target.  Nonetheless, BT can clearly claim to have done its bit to honour the government’s broadband ambition. 

Spare a thought, then for Maria Miller.  She got off to a flying start with her announced sweeping away of the ‘swathe of red tape’ that frustrates broadband planning but her feet were barely under the DCMS table when she was landed with the BBC nightmares resulting from the Jimmy Savile scandal.  So it was perhaps understandable that the Culture Secretary would focus outside Westminster for the causes of any slippage in the public sector’s contribution to broadband goals… Yes, you guessed it: the answer is yet more infuriating red tape, but this time in Brussels.  According to The Telegraph last week, the Culture Secretary “has demanded an urgent meeting with Europe’s Competition Commissioner over EU delays that have seen schemes worth more than £530million held up since January”.  (This diatribe against Brussels mandarins draws a convenient veil over the earlier  ‘evidence of failure’ and ‘sclerotic progress’ within Miller’s own team at BDUK). 

​ Anyone inclined to place bets on the broadband contest should probably wait until the end of the year when, according to the Government response to the House of Lords ‘alternative vision’ Report, Ofcom will publish the first European scorecard.  Exciting times!…

And it came to pass….

More evidence has emerged recently to vindicate critics of the government’s broadband investment strategy. First and as widely predicted, BT looks set to achieve a clean sweep of the funds made available through the BDUK procurement process.  As the House of Lords anticipated in its 'alternative vision' Report:

“There are clear competitive advantages in the market for infrastructure provision which accrue to those able to draw on economies of scale and scope. If unchallenged, these may result in the dominance of a single provider”. 

However, it appears that BT’s dominance in this process has now been both accepted and enshrined. According to a report in ISP Review, the Director of a major media research firm has warned that any UK cities which win government backing to boost their superfast broadband availability must pick “safe bet” BT to do the job or risk being left with “networks based on technologies that failed to keep pace with the wider market or devoid of popular service providers “. 

The related fear expressed by the House of Lords was that government dependence on BT’s own investment strategy, in particular its choice of FTTC as the principal superfast technology, could restrict service competition.  Again, ISP Review has picked up on this issue and reports that the same fears are now being voiced more widely:

‘At present the dominant form of superfast broadband delivery on BT’s national UK telecoms network is FTTC, which at best only offers a somewhat restrictive form of virtual unbundling known as VULA. Sadly this doesn’t provide the same level of price, direct control or flexibility as copper LLU services, which is technically difficult to achieve on fibre’. 

ISP Review goes on to record that ‘the CEO of budget ISP TalkTalk, Dido Harding, has warned a Westminster panel session that the UK government should “start to worry” about the lack of competition in the new market for fibre optic based superfast broadband services…Harding added that she had no idea whether TalkTalk was paying a good price for superfast broadband from BT.

"I simply don't know, but there's also no alternative," she said. "Over time, as we consume more of it, I should know and so should Ofcom."

 
So far, full marks to BT!

Perfect storm in the midlands

You couldn’t make it up!  I had to smile – laugh, even – at the confluence of topical commercial and regulatory issues that recently played out in Birmingham.  It’s a complicated story of broadband development, and some facts are difficult to establish, but here’s how it appeared to me… 

1.    Birmingham City Council wanted to provide ‘ultrafast’ broadband connectivity to businesses in some previously un-served areas of the city - Digbeth, Eastside and The Jewellery Quarter.   

2.    Both BT and Virgin have trunk network (duct infrastructure) in some parts of these areas but have hitherto chosen not to exploit it.  BT has said it has some limited plans to develop access network in the area but its preferred FTTC solution was seen by the Council as failing to provide adequate broadband performance.

3.    The Council discussed with both BT and Virgin the possibility of gaining access to their existing infrastructure but neither approach was ultimately successful.  Virgin is of course under no regulatory obligation to provide wholesale access to its infrastructure, and declined to do so.  The BT regulated access product (PIA).was found unsuitable because: 

·        Some BT duct was unfit for co-location

·        The pricing of BT’s PIA product proved to be unattractive

·        PIA is essentially not available to business customers.

4.    The Council therefore applied for c£10million (or was it £6million?) of public funding via the government’s ‘super-connected cities’ scheme (which has set aside £114m for similar projects in 10 of the largest cities).  The proposed network is intended to be genuinely open access and will offer a full array of wholesale services. 

5.    The application was successful and received state aid approval from the European Commission in June of this year, the first such clearance to be given.  However, while the council claims to have kept BT and Virgin fully informed throughout, both have now made formal requests to the ‘Commission to have that decision revoked.  (Virgin has also appealed to the European Court of Justice to have the Commission¹s decision struck out). They argue that the money will be used to build a state-funded rival in areas already well covered by their own broadband networks. This, they allege, would contravene state aid rules, would be a waste of taxpayers’ money and would undermine broadband investment from the commercial sector. 

What to make of it all?  Chi Onwurah, shadow BIS minister, sees it as ’another example of the chaos and incompetence at the heart of the government's broadband strategy’.  Yet it could equally be seen as a vindication of that very strategy – letting the private sector lead broadband investment in urban and marginal areas.  BT and Virgin may have been wrong-footed on this occasion but they are likely to be much more alert in future to pockets of demand, either to extend their existing network or to offer access to potential public sector investors.  

On the other hand, the story seems to endorse critics who see government reliance on BT’s current network technology, based on FTTC, as a short-sighted strategy.  On the face of it, the Birmingham experience also supports regulatory criticisms that BT’s PIA remedy is not fit for purpose (for all the reasons suggested to Ofcom) and that third party access obligations should probably also be imposed on Virgin’s network.

Quite a storm.

It’s the vision thing…

I have to say that I was disappointed, though not greatly surprised by the government’s official response to the recent House of Lords report on broadband strategy.  Predictably enough, the government shot down some of the report’s wackier ideas – like the suggestion of a state-sponsored FTTH network, costing “in excess of £25bn”.  But to this reader, the value of the HoL report was less in specifics than its high level messages, for instance:

1)   Setting humane objectives for the value of broadband diffusion, rather than relying on service metrics.

It’s all very well the government explaining that speed alone will not be the critical measure, rather contradicting the words of the former Culture Secretary, but the HoL has to be right in focusing on the demand side aspect of broadband development.  As the Select Committee put it: “what is important is the long term assurance that as new internet applications emerge, everyone will be able to benefit, from inhabitants of inner cities to the remotest areas of the UK.”  The government response does not address this issue.

2)   Warning against the dangers that both the BDUK framework and the delegation of decisions over broadband architecture tend to favour the dominant incumbent.

More pointedly, the Committee’s fear was that current broadband investments, including those enabled by government subsidies, could allow BT to recreate in fibre the monopoly it gradually lost in its copper network.  To the extent that the government addresses this issue, which is not much, it seems to see it as wholly a matter for Ofcom.  (Don’t hold your breath!). 

It’s hardly news when the government chooses to ignore a Select Committee critique, even one that’s been well researched, but when the wheels are already falling off current policy – here, for example – it seems a pity not to have been more receptive to alternative ideas.

 

Huawei away

Don’t you just love a good conspiracy theory?  When, some six years ago, BT issued an invitation to tender for its so-called ‘21CN’ network upgrades, the major supplier chosen was Huawei, then a little known (but fast-growing) Chinese manufacturer.  In addition to the predictable disappointment expressed by Marconi and other, more familiar suppliers, the decision subsequently led to some concern that the new hardware might be ‘hijacked by China to cripple the UK's communications infrastructure’.  It was reported in early 2009 that UK intelligence officials feared ‘a risk that China may have used its influence on Huawei to ensure 21CN is vulnerable to a remote attack’.

Fears of a Chinese conspiracy later died down in the UK but similar concerns have more recently erupted elsewhere.  Earlier this year, the Australian government blocked Huawei’s participation in the NBN project to build national superfast broadband infrastructure.  The company also faced opposition to its commercial expansion in India and, just this month, a congressional committee report urged U.S. companies to steer clear of Huawei (and ZTE Corp, another Chinese supplier), citing concerns that the Chinese government could install malicious hardware or software in U.S. telecommunications networks.  The report was covered in detail by ‘The Economist’, no less, the magazine having run a major survey last August on Huawei and other Chinese multinationals.  The Economist sought to draw a distinction between UK and US approaches to Chinese procurement:

“America has no effective system of supply-chain checks. In Britain, by contrast, where BT is a big customer, Huawei has established a unit (run in close co-operation with GCHQ, Britain’s signals-intelligence agency) with security-cleared personnel, including former employees of GCHQ, who vet gear from China before it is installed.”

I was still radiating in the warm glow from this reliable assurance when I saw the headline in last Wednesday’s Guardian: 

“Huawei's relationship with BT under investigation by MPs”

A fire is born?

Oh dear, oh dear, it was bound to happen: the mess at BDUK just got worse.  Sparks generated by Ian Grant have been fanned into life by the national press and politicians. One to follow…

Back to the drawing board…

Earlier this week, Robert Leigh of The Guardian put forward the idea of imposing a monthly £2 levy on broadband subscriptions in order to subsidise the costs of (print) investigative journalism.  Daft as it may seem, the idea was welcomed by Leigh’s (normally sensible) colleague on The Guardian, Roy Greenslade. 

I have to admit that I’m mildly sympathetic to the idea: like Leigh, I worry about a world in which, absent the investigative writing of commercial journalism, “wwe’ll just get the timid BBC on the one hand, and superficial junk on the other”.  But the £2 broadband levy simply won’t do as a remedy: aside from its obvious distribution concerns (who wants to subsidize Murdoch?), the levy is patently in the wrong place: any economic transfer should be attached to usage, not general subscriptions.  In other words, I agree with Mr. Leigh’s critics who respond with an ‘adapt or die’ message: the challenge is for the quality press to come up with some kind of ‘pay wall’ that meets their needs and is fit for purpose. 

But the broader point is that newspaper proprietors are not alone in struggling to find an economic model that continues to reward their investment: the providers of broadband infrastructure, particularly those investing in the expensive access network, are desperate to find ways of sharing their costs with others in the broadband value chain.  So far, all such attempts have been rebuffed – typically on grounds of net neutrality – but the pursuit of new business models is a healthy sign of market development and should not be discouraged.