One-trick pony...?

I recently bemoaned the lack of original thought in BT’s opening contribution to the current DCMS consultation on the Communications Review – particularly the absence of any new ideas on the broadband investment challenge.  Re-reading BT's response, I’m similarly dismayed at the apparent complacency of the dominant operator’s technology assumptions.  For instance:

“We believe that the [Ofcom] WLA market review reached reasonable and pragmatic outcomes with the Openreach ’active’ VULA product seen as the main basis for scale NGA delivery and wholesale competition… The economics of passives are challenging compared to VULA but they do have a possible, complementary role to play outside BT’s footprint… We see wireless as a useful means to distribute superfast broadband on a localised basis, but because of the very high speeds and the required network capacity…we do not believe that wireless is an effective alternative means to deliver superfast broadband speeds over wide areas”.

Many would challenge this BT-centric view of the UK’s NGA development.  For example, Antony Walker, CEO of the Broadband Stakeholder Group, has said that: “There simply isn’t a one size fits all technology solution to deliver a truly ubiquitous next generation broadband Britain, we’ll need to use all of the technologies available.” 

Walker’s comments marked the publication of a new report for the BSG by Analysys Mason on ‘The costs and capabilities of wireless and satellite technologies’.  The report suggests that, contrary to BT’s assertion, ‘terrestrial wireless technologies are capable of delivering a quality of service sufficient to meet the growing demand for capacity from households and small businesses within the decade ahead and that they could provide more cost effective solutions than fibre for about 15% of UK homes. With more spectrum, terrestrial wireless could provide a cost effective alternative to fibre across much of the so called final third of households’.

A Quantum of solace

I’d been hoping that submissions to Jeremy Hunt on the current Comms Review might have said something new or creative about the broadband investment challenge.  (The DCMS isn’t publishing these, so I’m grateful to Roger Darlington for providing a few links).  Sadly, those I’ve seen so far have been all too familiar and predictable.  For example, BT's response is dominated by well-rehearsed concerns about the proper scope and consistency of communications regulation – BT’s perennial pursuit of a level regulatory playing field.  For instance:

 “An asymmetric approach to regulating mobile, cable and pay TV markets has denied consumers effective choice and lower prices and restricted the ability of new entrants to innovate….

A regime that deals with bottlenecks in only one part of the market – fixed line telecommunications – is systematically biased in favour of the owners of bottleneck assets in other parts of the market – mobile and content….

Regulatory action to ensure premium TV content is available on a fair wholesale basis is required…

We have made clear our commitment to opening up our ducts and poles and believe other providers should be prepared to do the same with their own infrastructure…

It is crucial that all recipients of state aid funding offer wholesale access on the same basis as BT…any other outcome would be both unfair and legally questionable”. 

And, as ever, BT has no qualms about offering words of advice to the regulator: 

“Although Ofcom was established as a ‘converged’ regulator, it has never really regulated in a converged way across fixed telecoms, mobile, TV and cable…

The regulator should be vested with powers to act if markets require this, rather than an obligation to act…

We would like to see the Communications Act amended to give Ofcom the power to introduce ex ante regulation into markets such as pay TV…

Ofcom should have the powers to regulate media rights markets if that is necessary to promote effective competition, but should not be responsible for the regulation of copyright law or its enforcement.” 

I do, however, draw some small solace from a couple of sensible comments BT makes about internet regulation, i.e. 

“Government should assess the experience of limited forays into editorial regulation of the internet, e.g. rules on VOD services. They should not assume that the right response to an internet-related ‘problem’ is to regulate it…

In our view, it would be unhelpful for the Government to consider direct regulation of [ISP retail policies] until self-regulation has been given an opportunity to demonstrate its effectiveness”.

Shock horror! UK government raises the bar!

I recently looked at the published objectives of BDUK, the government’s broadband deployment agency, showing how the commitment to universal broadband coverage has evolved over time.  Generally speaking, there’s been a scaling back of ambition, absolute commitments and defined targets being replaced with more aspirational jargon.  For some time, the policy aims for ‘next generation’ or ‘superfast’ broadband seemed to be following a similar path, but then things changed…

BDUK’s original mission statement (under the former Labour administration) set the following objective:

To manage the spend of a ‘Next Generation Fund’ to deliver Next Generation Broadband to 90% of the country by 2017.

Under the coalition government, BDUK initially enjoyed joint management - by both BIS (the original parent) and DCMS. These two departments published the following revised aims:

[DCMS] Increase the penetration of high speed connectivity and plan for the use of public money (from whatever source) if necessary;

[BIS] Ensure this country has the best superfast broadband in Europe by the end of this parliament (2015).

BDUK’s recently published 'Delivery Model' document preserves the latter (BIS) objective, thus perpetuating both the undefined ‘best’ and the year 2015 as the relevant date for European benchmarking.  However, the document also takes note of the more explicit goals established under the EU’s ‘Europe 2020’ Strategy, i.e. to have 30Mbps available to all European citizens and for 50% access to 100Mbps by 2020.  Perhaps in recognition of the potential gulf between UK and EU objectives, Jeremy Hunt announced in May the government intention that ‘nine out of 10 homes and businesses in every county in the UK should have access to superfast broadband by 2015’. As a target, this seemed more comforting than the previous ‘best in Europe’ tag but still left some semantic doubts – what did ‘superfast’ mean? Why ‘90 per cent of people in each local authority area’ rather than plain, old ‘90% coverage’…?  Well, I’m happy to say that Ed Vaizey has now dispelled such doubts.  Speaking on the 5^th July at the Intellect Conference on ‘The future of digital entertainment’, his speech included the following:

”We’re pursuing ambitious plans to bring our infrastructure up to speed for a new digital age. We will ensure that 90% of the population have superfast broadband links by 2015 to greater than 24Mbps, and that there is universal coverage. The market will deliver the majority of this, but we have set aside more than £500 million to assist rollout”.

Now that target speed of 24 Mbps has some credibility as the dividing line between old and next generation broadband, so higher speeds will necessarily require some fibre in the access network.  And ‘90% of the population’ is reassuringly straightforward.  So, unlike its universal service pledge, the government’s commitment to the provision of superfast broadband has actually strengthened.  Bravo!

The world is not enough

Forgive the James Bond reference but I’ve been re-reading the DCMS rhetoric on the planned Communications Bill and I’m left a little saddened by the lack of ambition for the UK’s broadband infrastructure.  In his open letter to launch the current Comms review, Jeremy Hunt set out the government’s policy position as follows:

“Our approach is a combination of targeted financial support with £530 million available up to 2015 to support broadband rollout and regulatory and policy interventions aimed at reducing barriers to private investment in superfast broadband networks”.

So what does that mean in practice?  Some understandable local excitement about micro projects for new access hubs?  Yes.  Some tentative steps to open BT’s passive infrastructure (ducts and poles) to third parties?  Yes.  A co-ordinated plan to give the UK ‘the best broadband network in Europe’?  No way…

This is not meant to belittle the Government initiatives: they are worthwhile attempts to address pockets of demand for broadband that the private sector currently sees as unviable.  But the problem with any demand-driven model of infrastructure provision is that it is not forward looking.  It seems incredible that broadband traffic, probably the highest growth sector in the world – and universally acknowledged as the lifeblood of the digital economy – still relies on such a ‘catch-up’ investment strategy.  As with any ‘road-building’ plan, future demand for bandwidth is almost certain to exceed current expectations, so it’s no good dimensioning broadband networks for today’s needs.  Surely the time has come to develop a business model that encourages speculative investment in broadband capacity, thus putting the UK ahead of the digital demand curve…?

Question 9 of the DCMS consultation asks the following: “Is the current mix of regulation, competition and Government intervention right to stimulate investment in communications networks?”  Responses were due in by June 30^th; let’s hope that somebody pointed out that the current regime is not enough.

No panic, please, on neutrality regulation

Following last month’s bizarre machinations in the Dutch parliament, the country’s new net neutrality law is now heading in the wrong direction. Against this background of factional wrangling, it was refreshing to be reminded that the European Commission’s more cautious, ‘wait-and-see’ stance on further regulation is supported not only by network stakeholders but also by leading academics. 

In early 2009, a group of eminent European economists issued a statement on the inappropriateness of imposing increased internet regulation in the EU.  The statement concluded as follows:

“… so far, net neutrality in Europe is a solution looking for a problem which either does not exist or can be solved by mandating clearer customer information and using existing tools to deal with market power. The need for the legislation is unproven, and the unintended consequences on restricting variety, competition and innovation are too big for comfort”.

Despite the more recent clamour in the Netherlands - and elsewhere – for regulatory intervention, the economists’ sceptical view remains largely unchanged.  A paper by Martin Cave on ‘Competition and Consumer Protection Issues in the Net Neutrality Debate’ was submitted to the OECD Working Party on Competition & Regulation for its meeting on 27^th June (Paper ref. DAF/COMP/WP2 (2011) 4).  As before, Professor Cave considers that Europe’s relatively high level of retail competition in internet access has acted as a defence against the exertion of market power, and that any rules on access blocking would be premature:

“…given that currently there do not seem to be significant risks and evidence that exclusionary behaviour is an endemic feature of competition in Europe, ex post rules seem a better option”.

Indeed, Professor Cave goes on to point out the difficulties of even establishing ex ante regulations in a complex, multi-sided market such as the internet.  And he contends that some new optional powers, such as the imposition of a minimum QoS obligation on ISPs (under the revised Universal Service Directive), have been ‘introduced ahead of any evidence of need’:

“As a result, regulators such as BEREC are currently engaged in the task of defining the conditions in which such instrument might be applied…an ‘anti-precautionary’ principle can be applied to regulators, stating that they should not be granted powers ahead of demonstrated need”.

Ofcom please note….

Beware the psephologist!

It’s not often that I get the chance to use the word psephology in this blog but it sprang vividly to mind as I read the results of ISPreview’s latest opinion poll regarding net neutrality. This struck me as a prime example of the ways in which both the framing and interpretation of consumer surveys can reveal quite a lot about the views of the polling organisation itself.  In this case, could it be that ISPreview (like most neutrality fans) abhors the idea of any changes to the current internet business model?  Take the following survey question (and results), for example:

Who should foot the bill for your use of internet content?
The Customer (You) - 42.1%
Your ISP - 31.5%
Content Provider (e.g. Skype) - 26.2% 

A leading question perhaps?  Might the results have been different had the phrase ‘your use of internet content’ been replaced with, say, ‘the conveyance costs of the content you access’? 

As it is, ISPreview appears a little disappointed with the poll result:

“Less than half (42%) of the consumers questioned by ISPreview.co.uk agreed that customers should foot the bill for their own consumption of internet content, which is the normal way of doing things (i.e. the same way you pay for your gas or water supply)…” 

At a stroke, ISPreview thereby dismisses swathes of economic thought on the internet as a multi-sided market (and very different to the linear market for utilities).  Not content with this, the pollster then goes on to paint the dire consequences if the misguided 26.2% had their way: 

“It's not hard to imagine the chaos that could ensue if hundreds or even thousands of ISPs from around the world suddenly began demanding payments from content providers. Some would simply go out of business, thus harming the very content that makes the internet worth visiting…” 

Democracy in action…?

USC: going down?

BDUK, the government agency tasked with allocating funds to rural broadband projects recently (27^th May) announced the successful bidders for the latest round of DCMS subsidies.  Congratulations go to local authorities in Wiltshire, Norfolk and Devon & Somerset who, together with their delivery partners, will share £50m of funding towards new broadband pilots.  All well and good but, in order to get a better understanding of this process, I’ve been looking closely at BDUK’s recently published 'Delivery Model', a document which sets out its philosophy and preferred approaches to issues such as network design, procurement and funding. 

There are, predictably, some quite controversial points in this document but one I spotted early on was that BDUK’S objectives appear to have changed - again.  For instance, in relation to broadband availability, the outgoing Labour government crafted BDUK’s original mission statement as follows:

“To drive forward the government’s proposed Universal Service Commitment (USC) of ensuring broadband availability (at 2Mbps) to every UK household by 2012 “

Following the election, the new coalition government initially proposed joint ownership of BDUK – under both BIS (the original parent) and DCMS. The former realised that the initial USC timetable was not feasible, and modified the objective thus:

“To ensure delivery of the 2Mbps Universal Service Commitment within the lifetime of this parliament (2015)”

By contrast, the DCMS version at the same time (June 2010) was notably less prescriptive, i.e.

“Effectively use the funds provided to meet the Universal Service Commitment”.

Now, in BDUK’s latest publication, and with DCMS fully in control, we see a further tweak to the broadband commitment, i.e.

“To ensure delivery of Standard Broadband to virtually all communities in the UK within the lifetime of this parliament (2015)”.

 
Government targets for ‘superfast’ broadband have likewise seen multiple iterations but that’s another story…