Memorandum submitted by BT Group plc (S50)
INTRODUCTION
1. BT is pleased to provide this written
memorandum of evidence to the Committee. BT operates throughout
rural Britain, indeed in many rural areas it will be among the
leading private sector employers with employees who are committed
to provide the best possible communications services to all the
users of its networks and services.
2. We recognise that access to broadband
infrastructure is an increasingly important factor in commercial
life and it has the potential to have a major impact on a range
of other issues from health to entertainment. The infrastructure
itself needs to be complemented by relevant and meaningful applications
and services, in particular from Government, so that companies,
organisations and individuals can see value in using broadband
services—just having a network is not enough.
3. BT has put provision of broadband at
the heart of its strategic focus for the UK. However, extending
broadband to rural areas presents a real challenge for the industry
within the current regulatory disposition and commercial environment,
and given the relatively modest provision for public sector co-funding
of rural broadband infrastructure. So BT needs to have a sound
business case for broadband, not only as a matter of good business
practice but also to help ensure that BT is compliant with its
regulatory and competition law requirements. Specifically we are
prohibited from pricing below cost, or cross-subsidising from
one part of the business to another.
4. It is within these external circumstances
that BT is required to develop its broadband plans. Its acknowledged
innovative approaches are designed to foster increased demand,
to reduce the costs of providing broadband facilities, and to
encourage creative partnerships with others, both in the public
and private sectors, to bring the benefits of broadband to areas
that might not be reached on a purely commercial basis.
5. This short paper looks at the current
and likely future position relating to the provision of broadband
services in the UK, and addresses the specific issues relevant
to rural areas.
WHAT DO
WE MEAN
BY "BROADBAND"?
6. One of the most important things to establish
is what we mean by broadband. There are many different definitions
and debate can easily be distorted unless it is clear what is
meant by the terms used.
— "Broadband" means fast
access to the internet and other electronic services at speeds
greater than those obtainable over normal telephone lines.
— There is no agreed minimum speed
for what constitutes "broadband". BT's basic mass market
broadband product is based on ADSL (Asymmetric Digital Subscriber
Line) technology which converts the traditional "copper pair"
between the exchange and the customer into an internet channel
with speeds of up to 512 kbps (ie up to 10 times faster than a
normal "narrowband" telephone line.) All of the statistics
we publish assume this is the base speed, and this is the speed
we mean by "broadband" in this paper. It should be noted
that not all the statistics published in the UK and elsewhere
in the world are based on this rigor of definition.
— "Broadband" embraces a
number of technologies and companies. It is not just about BT
or about ADSL, but covers a wide range of services and technologies,
with ADSL or cable modems, wireless, satellite etc, all with the
potential to provide faster and more sophisticated access to the
internet and its services. ADSL is not the current lead technology
for broadband in the UK. UK cable companies have over 50% of current
broadband connections, giving the UK one of the most competitive
broadband markets in the world.
— Large and medium businesses are already
used to broadband, in the form of private circuits. These are
available throughout rural Britain. The UK has world-beating prices
for such circuits and together with the USA leads the world on
take-up, implying significant competitive advantage to the UK
versus other countries with lower take-up and no specific disadvantage
to rural businesses of medium size and above. The current public
debate is about extending this access to higher bandwidth to SMEs
and individuals at mass market prices.
PUBLIC POLICY
POSITION
7. The UK Government's policy is to rely
upon competitive forces to deliver broadband for Britain. This
contrasts with approaches elsewhere in the world where some countries
have provided huge public subsidies (eg Korea) and others where
the incumbent telecommunications operator has been incentivised
to deploy broadband in commercially challenging areas by being
granted a virtual broadband monopoly at retail level in the more
commercially attractive areas (eg Germany.) Neither approach has
been adopted in the UK. In fact a recent report from the respected
consultancy, OVUM, says that the UK government has committed less
than $5 (£3) per head to broadband, compared with $25 per
head in France, and $95 per head in Japan.
8. Decisions on such matters are for the
Government and BT is not asking for subsidy or market assistance.
However, it has to be recognised that this different public policy
context means the UK's path to broadband will inevitably take
a different route from those of countries such as Korea and Germany.
9. One way in which the Government could
be of enormous help is by themselves ensuring that they utilise
online broadband capabilities for the applications and services
they use to deliver public services. In this way they would be
helping to generate demand not only by providing citizens with
reasons to go online but also in generating direct usage into
schools and other key rural institutions.
10. We are discussing these and other issues
mentioned later in this paper with various agencies, including
DTI, Treasury, DEFRA, DfES, the UK Broadband Taskforce, the RDAs,
the Countryside Agency and the Broadband Stakeholders' Group.
PRICING AND
AVAILABILITY
11. According to Oftel, prices in the UK
are amongst the cheapest in the world, including consumer DSL
prices lower than the G7 average including Germany.
12. The UK is a fully competitive market,
with cable being the largest platform in terms of customer numbers
and BT having less than 50% of the total UK broadband market.
BT supplies ADSL to over 300 ADSL providers, enabling others to
offer their own broadband services, in competition with BT's own
retail broadband business.
13. As of 28 February 2003, 1,148 exchanges
had been ADSL-enabled in the UK—covering approximately 66%
of homes and 73% of internet users—and this number continues
to rise.
IMPROVING RURAL
AVAILABILITY
14. The cost of enabling an exchange is
typically £200,000 or more. BT has enabled exchanges that
seem likely to see the best level of take-up, based on analysis
of current internet usage, the cost of converting a particular
exchange and the cost of the high capacity "backhaul"
connection back to the core network. Exchanges in rural areas
tend not to be as attractive in such terms as those in urban areas,
both because of the longer distances involved in connecting back
to the core network and also because smaller exchanges are less
able to accommodate the new broadband equipment without substantial
modification, while the fixed costs have to be shared among fewer
potential users.
15. Assessing and stimulating demand in
rural areas are the keys to enabling more exchanges, and huge
efforts are now being made to encourage greater take up of broadband.
For example, BT has:
— introduced a unique registration
scheme whereby customers in non-enabled areas can register their
interest in broadband with an Internet Service Provider (ISP),
the ISP advises BT, and levels of demand are then shown on www.bt.com/broadband
. BT has announced threshold levels for over 700 exchanges, based
on the costs of equipment and backhaul (taking the traffic to
and from the core network.) Once the number of confirmed registrations
have reached the levels announced, we will upgrade the exchanges
concerned;
— this registration scheme applies
to all non-enabled areas, irrespective of whether a threshold
level has been set;
— since the scheme started:
— over 150 exchanges have now reached
their trigger levels;
— 25 exchanges have been enabled under
the scheme;
— on average, one exchange a day is
hitting its trigger point; and
— more than 300,000 registrations have
been made.
16. It should be noted that the trigger
points that have been set are at approximately 50% of the break-even
customer numbers required at the relevant exchange—BT is
still carrying a considerable commercial risk under this model,
but the indication of initial take-up makes that risk more manageable.
17. It is worth noting that other countries
are now looking to adopt similar registration schemes, recognising
the advantages of giving consumers the ability to register prospective
demand.
18. BT is also:
— conducting trials around the country
of a cheaper, smaller-capacity ADSL solution (Exchange Activate)
that can provide service for smaller numbers of customers. Trials
are being supported by local sponsors (eg New Forest Business
Partnership and Gwynedd County Council); and
— consulting with interested parties
on indicative prices for Exchange Activate, to assess likely interest
if it is decided to launch the product later this year. The proposals
include making the product available at any exchange in the UK
which is not enabled and where there is no plan to do so. It will
allow blocks of up to 30 customers to be connected. See Annex
A for further details on Exchange Activate.
19. In addition:
— not only is BT mounting its own massive
marketing and advertising campaign to raise awareness of broadband
but it is working with other providers of services to improve
the marketing of broadband, by providing millions of pounds to
support third party marketing campaigns. We understand the frustration
in non-enabled areas of seeing services being advertised which
they cannot access. However, average take-up in broadband-enabled
areas throughout the UK is running at about 3%. Given that these
are the most attractive areas from a commercial viewpoint, it
is clear that unless we can drive up take-up in those areas through
such marketing methods, commercial deployment in rural areas becomes
a very difficult prospect;
— there are other solutions that will
help spread the availability and take-up of broadband. For example:
— Mesh Wireless is being evaluated
and has the potential to provide a flexible high bandwidth technology
for either symmetric or asymmetric services in locations close
to the transmitter:
— OpenZone (WiFi) offers potential
for a "village hall" solution plus commercial variants;
— Wireless Point-to-Multi-Point
(PtMP) technology is being evaluated—though deployment depends
on the right spectrum being made available and the approach the
Government takes to auctioning it. Regrettably the UK government
has not been able to release the "sweet spot" 2GHz spectrum
which is ideally suited to mass market broadband in rural areas
because of its long reach and ability to pass through trees and
walls, and which has been made available in, for example, the
USA and the Netherlands;
— Local Loop Unbundling (LLU) means
that any company can use the registration scheme's transparency
to upgrade lines at any BT exchange to offer broadband to customers
if they think there is demand; and
— Satellite service is available
virtually everywhere, with prices starting at £59.99 per
month plus initial equipment costs of £899.
REGIONAL PARTNERSHIPS—A
CRITICAL PART
OF THE
WAY FORWARD
20. BT believes it is essential to engage
with partners, both public and private sector, to develop innovative
ways of bringing broadband to parts of the country where a commercial
case cannot otherwise be made and, indeed, such partnerships can
generate significant interest and take-up. BT is, therefore:
— engaged in projects with public sector
bodies, including the RDAs, and with businesses—eg the ACT
NOW partnership in Cornwall and various initiatives in Wales—that
are already extending the broadband "footprint". It
is considering similar partnerships in a number of other areas;
and
— working with rural bodies (eg CLA
and Countryside Agency) and with local pressure groups pushing
to improve the position in rural areas and to encourage sign-up
to the registration scheme.
See Annex B for more detail on such initiatives.
21. The UK government should be a more robust
supporter of such arrangements. Other countries back the idea
that rural broadband may need government involvement. In contrast,
in the UK there is extensive and exhausting case-by-case consideration
given to each new scheme, with both local and central Government
needing to "clear" proposals within a complex rule book
before they can be agreed.
CONCLUSION
22. BT is working hard to find ways of extending
the availability of broadband to rural areas, through changes
to the technology and the costs of that technology, through marketing
initiatives and through working with interested public and private
sector bodies. We believe that existing initiatives will take
us to coverage levels of over 80% of the UK population within
three years. However, this is not where we would like to be, and
we are examining options that could see UK coverage approaching
90%. Our plans have to be made within a commercial framework,
and it is clear that unless there is a dramatic change in the
economics of broadband provision, the remaining 10% will require
either a different public-private partnership model or a different
technological platform. But with the right combination of interested
parties, and appropriate encouragement and support from Government,
we have every confidence that rural broadband will become a reality
within a timescale that will benchmark against key competitors.
BT Group plc
12 March 2003
Annex A
INCREASING BROADBAND AVAILABILITY—EXCHANGE
ACTIVATE
1. EXCHANGE ACTIVATE
— We have been conducting technical
trials of a smaller and cheaper way of bringing ADSL to exchanges
where full commercial viability appears to be unlikely given current
technological constraints.
— The equipment allows small numbers
of customers to be connected, with the possibility of installing
additional blocks of capacity if demand rises.
— This approach also involves a sponsoring
body committing financial resources to the work, with the body
concerned (which could be any organisation or grouping prepared
to become involved) working with a broadband service provider
to aggregate demand, source funding and deliver service.
— The initial trials have gone well
and we are now moving to the next stage which is to release indicative
prices for the service to potential sponsor organisations and
service providers in order to assess the likelihood of the programme
being commercially viable.
2. KEY FEATURES
— Exchange Activate should provide
the means for a community of users to purchase from BT, via a
Service Provider "SP", the network capability to provide
high speed internet access for three years to a fixed maximum
number of end users (in blocks of 30) for a single up-front charge.
— The indicative price for the first
block of 30 users is £55,000, with subsequent blocks costing
£45,000.
— There would then be no additional
charge for usage. After three years, usage charges would kick
in at the then prevailing rate for BT broadband provided through
normal commercial mechanisms.
— The service would only be available
at exchanges where BT had not deployed ADSL and had not announced
specific plans to do so.
— Any SP can be involved—this
is not restricted to BT.
— There will be a mechanism whereby
an exchange will be transferred to the normal commercial basis
if demand turns out to justify that step. At such time, all SPs
would be able to sell services at the exchange in question.
— This will enable broadband to be
given to smaller, often rural, communities.
Annex B
EXAMPLES OF REGIONAL PROJECTS
INTRODUCTION
BT is working with many different organisations,
both public and private, around the country on projects designed
to increase awareness, take-up and usage of broadband services.
There is no single "model" that is being followed, since
circumstances vary enormously in terms of issues like the funding
available and the needs of the different local communities.
1. ACTNOW PROJECT—CORNWALL
Background
The £12.5 million project, including about
£5.25 million from Objective One funds, is one of the largest
private and public sector partnerships since the county was granted
EU Objective One status in 2000. It was launched on April 24 2002.
Partners include BT, the Objective One Partnership Office, Cornwall
Enterprise, the South West of England Regional Development Agency,
Cornwall County Council, Business Link Devon & Cornwall and
Cornwall College.
The ACTNOW package for small and medium businesses
includes pre and post sales advice and support, a range of computer
equipment and broadband connection options to suit the needs of
individual businesses.
Current situation
— 13 exchanges are equipped for ADSL
in Cornwall, with those at St Ives, Bude, Saltash and Penryn having
been enabled from 3 February 2003.
— It has taken just nine months for
the Cornish exchanges to achieve the same market penetration levels
that an average rural exchange reaches in 15 months.
— Nearly 3,000 Cornish businesses and
households have ordered ADSL since the project was launched nine
months ago and demand is running at about 90 orders a week.
2. OTHER ENGLISH
REGIONS
Following the successful launch of the ACTNOW
project in Cornwall, BT has been active in discussing other possible
projects elsewhere in the UK.
For example, BT has been working with Kent Council
and its Education Authority on a project to provide a Managed
Learning Environment for schools. Initially this will be piloted
through the establishment of a number of exemplar projects to
test the robustness of BT and Kent's solutions and initiatives,
and the value of this to Education and Broadband roll out.
BT has also been looking at the possibility
of projects in Wiltshire and Swindon; Devon; Hastings and West
Sussex.
3. SCOTLAND
There are a number of initiatives in Scotland.
For example:
— projects with Highlands & Islands
Enterprise (HIE) have focused on new technology activity to extend
the availability of Broadband into some of the most challenging
areas of the UK. These include a Satellite project with HIE and
implementation of the Exchange Activate trial;
— advance enablement of five exchanges
in the HIE area. This project will result in population coverage
in the Highlands almost doubling by the summer of 2003;
— some joint initiatives with Scottish
Enterprise looking at common economic goals, concentrating more
on demand stimulation and related matters, and with less likelihood
of significant public sector support for infrastructure. SE cover
approximately 90% of the Scottish population; and
— awareness raising activity with a
number of Local Authorities and local communities based on the
importance of broadband to sustaining sub-regional economies.
This requires a joint approach to stimulating the market and thereby
creating the environment for further technology rollout.
4. WALES
Caerphilly
A project involving Caerphilly County Borough
Council, the WDA and BT has been announced, aimed at bringing
broadband technology to the area and driving down the cost to
small businesses. This will involve the enabling of three additional
exchanges in the area, on top of those that have been enabled
under BT's existing plans.
Strand 6
Completed on 31 December 2001 this unique project
involved BT, the WDA and Llwybr Pathway. The project addressed
the supply-side of communications in rural Wales and it ensured
that ADSL broadband was installed in 10 exchanges.
Opportunity Wales
Strand 6 showed that a significant level of
demand stimulation is required to ensure take up. BT consequently
initiated and became one of the lead partners in Opportunity Wales,
one of Wales's largest Objective One projects with a budget of
£21 million over three years. This was launched in April
2002, aimed at addressing inadequacies on the demand-side in Wales
by training SMEs how to get best value out of ICT.
NHS Wales
BT has supplied and manages, in partnership
with NHS Wales, a network that provides up to 1,000 broadband
connections linking more than 500 GP practices, hospitals and
home workers across the country.
Broadband Everywhere
The National Assembly is working on a £100
million Broadband Wales project that seeks to make affordable
bandwidth available everywhere in Wales. BT is working with both
the National Assembly and WDA on this.
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