Getting the message?

As promised, I’ve been mulling over Ed Richard's address to the Total Telecom World Conference last month.  Entitled ‘Competition & Investment in Superfast Broadband’, this was a curious speech, elegant in some ways but containing more than the usual share of empty rhetoric. In fairness, I thought it set out the challenges of the superfast era pretty well but it was rather less convincing in the solutions it offered. 

In essence, the difficulty is that ‘the ‘early fibre’ phase of broadband development involves considerably greater risk for investors and companies’ than did historic network upgrades, the uncertainties including:

·        the chosen deployment technologies;

·        consumer demand and willingness to pay;

·        capital expenditure and deployment costs;

·        end user equipment;

·        the nature of competition 

In response, says Richards, regulators will have to take the following approach: 

·        Avoid hostages to fortune by adopting policies that are light touch, long term and flexible

·        keep regulation and regulatory actions predictable

• respond to converged and bundled services by providing consumers with better quality information and by giving them more sophisticated switching options.

In other words, “We must accept that this phase of development is different to its predecessor and, most fundamentally, we must recognise that we need to aim to combine essential investment with effective competition…we aim to ensure that regulation is as adaptable, flexible and innovative as the broadband technologies that are being deployed”  Not exactly a policy blueprint, eh…?  And the central issue of how to avoid regulation acting as a disincentive to investment is barely touched on. 

It’s also unclear whether the suspected former tension between regulator and government has been resolved.  Richards is at pains to point out that the creation of ‘the best broadband network in Europe by 2015’ is government policy, not an Ofcom objective, and that “our regulatory approach needs to be seen alongside the context of the public policy objectives” (whatever that means).  More pointedly, Richards explains that: “we have worked with the government to identify some key criteria to ensure that public investment is the friend of competition and not inadvertently its enemy”.  Unfortunately, these criteria are not explained.  With that in mind, it’s curious to note that the latest consultation on duct & pole access – one of the central pillars of Richard’s regulatory strategy for the new era – has been launched by DCMS, rather than Ofcom.  Hmm…

Back from the dead…

Well, hello at last!  I must say it feels very good to be blogging again.  I won’t bore you today with all the ‘editorial’ reasons behind the extended silence: some will no doubt emerge over time.  For now, let’s just say that a planned summer vacation was unexpectedly extended into a seasonal sabbatical.  But the break did at least give me the chance to review the themes I’ve been addressing over the past or so.  

As I said in an earlier blog, one of my main concerns has been ‘the development of competition in the communications sector’, particularly the regulatory approach to fostering broadband access in the UK – both universality and the emergence of next generation, ‘superfast’ services. Underlying both issues is the worry that regulatory policies pay inadequate attention to the business models needed to encourage private sector investment in infrastructure projects with very long pay-back periods.  Over the past year this concern of mine with investment signals has to a large extent been played out through the blog’s close attention to the so-called ‘net neutrality’ debate, specifically its potential constraints on traffic management and the blocking commercial evolutions such as managed internet services or the emergence of new payment models. 

Looking back, I’ve noticed that possibly undue focus on net neutrality news may have crowded out the broader, and more substantive challenges of promoting infrastructure investment.  Happily, however, two fairly recent policy contributions by Ofcom may help to restore the balance. On 24^th November, it published its eagerly awaited statement, Ofcom's approach to net neutrality, setting out the steps it expects ISPs to take to ensure customers are aware of how internet traffic is being managed on their networks.  Without going into detail about the statement, it generally advocates a policy of non-intervention so far as traffic management is concerned, e.g.

“Our current view is that we should be able to rely on the operation of market forces to address the issues of blocking and discrimination, but we will keep this position under review”

For the time being, therefore, most concerns about neutrality are to be left to self-regulation and market forces. On that basis, I hope to avoid extensive coverage of the subject in future.  Instead, I’ll be concentrating on issues such as those raised in Ed Richard’s November 8th speech to the Total Telecom World Conference, ‘Competition & Investment in Superfast Broadband.  In fact I’ll be doing that next time…

The World is just horribly expensive…

I’ve been moaning lately about the need for some fresh thinking on how to improve the business case for investment in next generation broadband networks.  I had almost forgotten the reasons for my evangelism when some figures emanating from Brussels reminded me of the enormity of the task.

Earlier this year, I commented on the 'CEO Roundtable' convened by Neelie Kroes to consider ways of boosting NGA investment.  The follow-up meeting to that inaugural event was held in mid-July.  Looking at the outputs, one of the key themes addressed by the Working Groups of CEOs was ‘How to Achieve the 2020 European Digital Targets’.  (You may remember from an earlier piece that the EU has set the eye-watering objective that, by 2020, all European citizens should have access to broadband speeds of 30Mbps, and that 50% should have access to 100Mbps).  Based on data from the EIB, Arthur D. Little, BNP Paribas and McKinsey, the CEOs estimate that these targets will require total investment of between 140bn€ and 290bn€.  That’s a big spread – let’s just call it 200bn€ - but, given comparable metrics for the UK, it certainly sounds plausible.  According to some 2008 work done for the BSG by Analysys Mason, rolling out NGA beyond planned coverage to just 90% of the UK population, even employing the cheapest (FTTC) technology, is going to require further investment approaching £2.5bn.  That puts government subsidies of £530m (to include a universal service obligation) into context.  It also explains why the CEO Roundtable delivered a rather gloomy conclusion on European investment prospects:

“Under the current market and regulatory conditions, shareholders of telecom operators are not willing to commit the necessary funds to achieve a massive NGA roll-out. ROI expectations on NGA in Europe are not considered as favourable as in other markets such as wireless or as in other regions”.

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.