Memorandum submitted by the Broadband
Stakeholder Group (S 47)
I. INTRODUCTION
1. Approximately 67% of the UK population
has access to a mass-market broadband solution—that is one
that is targeted at residential or small business users. Broadband
availability is highest in urban and suburban areas (where 75%
of the UK population live). However, broadband availability falls
significantly in market towns, rural villages and remote areas.
2. Significant barriers exist to the extension
of mass-market broadband coverage to rural areas. The high costs
involved in deploying new networks in areas of low population
density make it difficult for operators to build sustainable business
models to justify investment, particularly given the challenging
commercial conditions faced by the ICT sector. Even wireless networks,
which are cheaper and easier to deploy than fixed networks, have
only so far been deployed on a relatively small scale. These problems
are exacerbated by uncertainty about the level of demand. Broadband
remains a relatively nascent market and only about ten per cent
of users have so far taken up broadband services where they are
currently available. Promoting broadband take-up remains a key
priority for the Broadband Stakeholder Group.
3. Nevertheless, in some of the most remote
parts of the country, the economics are so challenging that it
is clear that the market will not deliver without some form of
intervention. However, it would be premature to suggest that market
failure exists in all areas where broadband has not yet reached.
With concerted action on the part of industry, community groups,
local, regional and national government, regulators and other
stakeholders the BSG believes that it will be possible to extend
the reach of broadband services to new areas. This is essential
for both regional economic development and social inclusion. However,
in some areas of the UK public sector funding may be required
to ensure coverage and regional authorities will have a pivotal
role to play in harnessing private sector investment, regional
funding and public sector demand.
II. THE BROADBAND
STAKEHOLDER GROUP
4. The Broadband Stakeholder Group (BSG)
was established in April 2001 to advise the government on the
development and implementation of a strategy to enable the UK
to meet the government's target to have the most extensive and
competitive broadband market in the G7 by 2005. Membership of
the BSG is open and voluntary and includes stakeholders from across
the whole broadband value chain, including: service providers;
equipment suppliers; the content industry; central and local Government;
RDAs; local community groups; consumers and consumer representatives;
trade unions and trade associations etc.
5. The BSG published its first report November
2001 with a set of 15 strategic recommendations to meet the government's
broadband objective[1].
Most of these recommendations were accepted and integrated into
the Government's UK Online Broadband Strategy[2].
A follow-up BSG report was published in November 2002, providing
an update on progress and further recommendations.
III. WHAT IS
BROADBAND?
6. The BSG defines broadband as "Always
on access, at work, at home or on the move provided by a range
of fixed line, wireless and satellite technologies to progressively
higher bandwidths capable of supporting genuinely new and innovative
interactive content, applications and services and the delivery
of enhanced public services."[3]
This definition deliberately avoids defining broadband in terms
of specific data rates, as these are likely to change over time
as the technology and the market develop.
7. Broadband connectivity is not new—large
organisations have been using very capacity leased lines for many
years, however, developments in technology now mean that similar
services can be offered to residential users, small businesses
and public services—offering the prospect of pervasive high
speed connectivity.
IV. WHY IS
BROADBAND IMPORTANT?
8. The deployment of mass-market broadband
services is still a relatively recent phenomenon and the impact
of broadband on economic growth has still to be assessed. Nevertheless,
many economists continue to predict significant macroeconomic
benefits from the proliferation of broadband networks. These predictions
have driven a number of governments around the world to act and
to prioritise broadband deployment as a matter of government policy.
South Korea put broadband at the heart of its strategy for transformation
towards a knowledge-based economy, and as the world leader in
broadband it is now starting to derive real economic and social
benefits, from its success including the rapid development of
e-commerce, e-learning, e-government and e-growth[4].
9. The BSG believes that Broadband has real
potential to accelerate the five key drivers of economic growth:
enterprise; innovation; competition; investment and skills[5].
A view supported by a recent US Department of Commerce report[6]
predicting that the specific regional economic development benefits
resulting from greater broadband deployment and use would include:
— Job creation and retention.
— Reduced traffic congestion.
— More successful industrial growth,
recruitment and retention.
— Improved education and health systems.
— More productive research and development.
— Increased start up and entrepreneurial
activities.
— Urban core revitalisation.
— Improved government efficiencies
and service delivery.
10. As globalisation continues, countries
and regions will compete with each other on the quality and pervasiveness
of their high-speed communications networks. The BSG believes
that the successful rollout and take-up of Broadband is of central
importance to the health and future prosperity of the United Kingdom.
11. Broadband should be particularly beneficial
for rural areas as it allows people to communicate and share information
regardless of their physical location. Broadband can help to strengthen
rural communities by making community services more easily accessible
and can also help in rural regeneration. By enabling companies
and organisations located in rural areas to engage with clients
and suppliers anywhere in the world broadband provides new opportunities
for growth and job creation. There is already evidence of some
SMEs moving out of urban areas to broadband enabled rural locations
to take advantage of cost savings and other benefits associated
with rural life. Broadband also facilitates more flexible working
patterns. Home working is proving to be a major driver of demand,
reducing the need to commute to urban areas.
V. CURRENT BROADBAND
COVERAGE
12. Approximately 67% of the UK has access
to a mass-market broadband solution—that is one that is
targeted at residential or small business users. Two-way satellite
are available across the UK however, these are currently priced
at a premium to terrestrial services. Broadband availability is
highest in urban and suburban areas (where 75% of the UK population
live), where economies of density make the deployment of broadband
relatively cost effective. However, broadband availability falls
significantly in market towns, rural villages and remote areas
(home to 25% of the UK population).
13. As figures 1 and 2 illustrate, broadband
remains a relatively "urban" phenomenon. The high costs
associated with the roll-out of new broadband networks and uncertainty
about the level of demand are major barriers to market-led broadband
deployment in less =ensely populated areas. The map below shows
the coverage of mass-market broadband technologies in the UK as
at the end of August 2002.
Figure 2: Population (Household) Coverage
by Mass-Market Broadband by Area Type[7],
Q3 2002
| DSL
| Cable | FWA
| Total |
|
| Urban centres |
| (50% UK population) | 89%
| 60% | 22%
| 95% |
| Surburban centres |
| (25% UK population) | 52%
| 33% | 3%
| 58% |
| Market towns |
| (15% UK population) | 21%
| 11% | 1%
| 26% |
| Rural villages |
| (7% UK population) | 6%
| 1% | 0%
| 7% |
| Remote rural |
| (3% UK population) | 1%
| 0% | 0%
| 1% |
| Overall | 61%
| 40% | 12%
| 67% |
|
[Source: Analysys].
VI. EXTENDING BROADBAND
COVERAGE
The challenge of building sustainable business models for rural
broadband
13. There are currently a number of constraints to the
commercial deployment of broadband in rural areas. These include:
low economies of density; high equipment and civil infrastructure
costs; demand uncertainty; the current risk averse financial climate
and the scarcity of appropriate radio spectrum.
14. Firstly, there is a close correlation between broadband
coverage and population density as the average cost per user of
deploying new technology in less densely populated areas is significantly
higher than in urban areas. Economies of density are a primary
factor in determining the cost effectiveness and therefore commercial
viability of providing new or upgrading existing local access
networks[8] in any given
area. High economies of density have usually been a key success
factor in countries where there has been very rapid deployment
of broadband such as South Korea[9].
Unfortunately, almost a third of the UK population lives in areas
of relatively low population, making the commercially sustainable
provision of broadband access more difficult.
15. Secondly, population densities are significant due
to the high cost of equipment and civil infrastructure. In the
case of fixed networks, 65-70% of the cost associated with the
deployment of new fixed local access networks is related to civil
infrastructure (trenches, ducts, poles, masts and buildings).
Meanwhile, although, equipment costs have fallen (particularly
for products that can be manufactured on a large scale for global
markets), they remain a significant cost and a major barrier to
the rollout or upgrade of new networks. By encouraging/allowing
operators to share infrastructure it may be possible to reduce
investment costs and improve the business case for new network
investment.
16. Thirdly, although take-up is accelerating (1.5 million
users in January 2003) the UK broadband market is still at a relatively
nascent stage and is characterised by considerable uncertainty.
Questions remain about business models, price elasticities, and
the future availability of compelling content, services and applications
market. Operators are therefore currently concentrating their
efforts in building the market in the more accessible urban areas.
The further development of a dynamic, competitive sustainable
market is a prerequisite for releasing new investment for wider
deployment.
17. Fourthly, the high costs of extending coverage are
exacerbated by the challenging financial conditions currently
facing the ICT sector. The current funding problems experienced
by many telecoms operators are obviously slowing the growth of
broadband. Market conditions will stabilise, but it appears that
this could be a slow process and so access to capital will continue
to be a major constraint on the development of Broadband in the
UK as operators are required to have very robust business models
to justify investment in the current financial climate. This is
a factor that must be recognised by both policy makers and regulators
alike.
18. Finally, given that wireless networks are significantly
less expensive to deploy than fixed networks, they should be ideally
suited to addressing the issue of broadband coverage. However,
the ability to deliver low cost mass-market wireless solutions
to complement equivalent fixed line services such as ADSL and
Cable depends upon the availability of appropriate spectrum. Not
all spectrum is equal, some frequencies have the right combination
of physical properties such as range achievable and data capability
(for a given service) which results in that band being very much
more suitable than other bands for the provision of commercially
viable mass-market wireless broadband services. So far, very few
services targeted towards residential users have been launched
using the frequencies currently available in the UK, to a large
extent this is because the frequency properties do not allow for
commercially sustainable low cost products in areas of low population
density. (To reiterate the point made above, given the current
financial constraints facing the sector as a whole, operators
need to have very robust business models in order to secure investment
funding for new networks).
VII. CURRENT MARKET
DEVELOPMENTS
19. Despite the these difficulties the private sector
is putting considerable effort into extending broadband coverage.
ADSL
20. Having broadband enabled more than 1,100 exchanges
(covering more than 60% of households) BT stated that further
upgrades of exchanges would only be carried out where clear demand
indicated commercial viability. To this end, the company announced
trigger levels for demand necessary to implement upgrades and
established an online registration scheme for consumers. This
initiative has been particularly successful, all over the country,
local community groups have actively campaigned to encourage local
residents and businesses to sign up for broadband. More than 175
BT exchanges have now hit their broadband trigger levels and have
been or are in the process of being DSL enabled and another 700
are still on the registration list.
21. At the same time, BT is trialling new ADSL technology
including the use of new, smaller ADSL exchange equipment—"mini
DSLAMs"—designed for deployment in smaller exchanges,
which would not otherwise be commercially viable to enable. BT
is also trailing an extended reach ADSL product which could increase
ADSL coverage in broadband enabled areas to about 97%. Currently
ADSL services have a maximum range of 5.5kms, which means that
about 5% of households that are currently connected to an ADSL
enabled exchange are too far from the exchange top receive broadband.
An extended reach ADSL product would help to overcome this problem.
22. Through the combination of demand registration schemes
and the potential use of new technology, BT believes that ultimately
it should be possible to reach 80% of UK population with ADSL
technology.
CABLE
23. Due to the high costs associated with deploying new
cable networks, they are not particularly suitable for deploying
broadband to low population density areas and cable is not expected
to play a significant role in delivering broadband to rural areas.
Rather, it is anticipated that NTL and Telewest will focus on
consolidating their businesses in competition with BT where they
already have a presence.
SATELLITE
24. Several operators are now offering two-way satellite
services, which are available across the whole of the UK. However,
these services are priced at a premium to other terrestrial consumer
broadband products (mainly due to the cost of the consumer premises
equipment) and are primarily targeted towards the SME market.
25. However, considerable effort is being put into the
development of a consumer satellite proposition. So called "one-way
hybrid" systems are currently being trialled using a combination
of a satellite downlink with a terrestrial return path (56kbps
modem, ISDN line or GPRS as the return path.) Whilst these services
will not share the same performance characteristics as other broadband
solutions they should provide a valuable alternative to narrowband,
where other broadband services are not available.
WIRELESS
26. The BSG believes that wireless broadband technologies
have the potential to make the biggest impact on extending broadband
coverage. The key advantages that wireless access systems offer
include relatively cost effective system deployment suitable for
less densely populated areas, fast installation and rollout and
nomadicity and full mobility.
27. A number of frequency bands have been made available
for wireless broadband services in the UK, however, only a limited
number of commercial services targeted at residential users have
actually been launched, mainly because the frequency properties
of the bands made available or the allocation processes used have
not allowed for commercially sustainable low cost products. For
instance, many industry players remain sceptical as to whether
it will be possible to deploy viable wireless broadband propositions
using the 3.4 GHz band due to the fact that the licences are being
allocated on a regional rather than national basis.
28. The BSG has called upon the Radiocommunications Agency
to review its spectrum allocation for wireless broadband and to
develop a new strategic plan for wireless broadband. Recognising
that the commercial viability of a proposal is dramatically affected
by the operating frequency, it is crucial that more suitable frequency
bands are made available for wireless broadband.
MOBILE
29. GSM services are widely available across the UK and
GPRS (so-called 2.5G) services, which offer new mobile data services
will also be accessible across the UK. However, the roll out of
3G services is likely to be more limited due to the high infrastructure
investment costs involved. One route to address this problem would
be to allow mobile operators to share network infrastructure in
rural areas.
VIII. ROUTES FOR
SUCCESSFUL PUBLIC
SECTOR INTERVENTION
30. Despite the difficulties associated with extending
broadband coverage to rural areas the BSG does not believe that
it would be either appropriate or desirable to impose any form
universal service obligation on the provision of broadband services.
Although a tempting panacea, such a regulatory intervention would
be extremely premature given the nascent stage of the market and
would inevitably stifle competition, innovation and growth in
an important and dynamic sector of the economy.
31. However, judicious intervention by the public sector
can help to support broadband rollout in rural areas. In the English
regions, the RDAs have access to significant funds for economic
development and regeneration, and it is clear that European Structural
funds can also be used to support broadband projects. Where necessary
appropriate use should be made of these funds to encourage wider
broadband deployment.
PUBLIC PRIVATE
PARTNERSHIPS
32. Public/private partnerships have a major role to
play in extending coverage and stimulating demand and there are
a large number of diverse projects being trialed and implemented
across the regions and devolved administrations to explore options
for encouraging the wider deployment of broadband. Many of these
have been funded through the DTI's £30 million broadband
fund. Whilst not all of these projects will be successful, some
are already starting to have a real impact. The UK Broadband Task
force has a key role to play in leveraging the experience of the
most successful schemes so that the lessons are learnt and disseminated
between regions, devolved administrations and other stakeholders.
33. A very good example of the power of broadband to
stimulate community development is in the pioneering project in
Cornwall under the ActNow banner. This is a groundbreaking partnership
between BT, the South West England RDA, Cornwall County Council,
local business organisations and colleges. Crucially this initiative
has focused on action to stimulate demand from day one of the
project and has not simply concentrated on the supply side infrastructure
issues. As a result the first 1,000 customers were signed up within
four months of the project's launch, which in turn led to more
BT exchanges being ADSL enabled. Cornwall is now one of the fastest
growing broadband markets outside London.
34. The Cornwall project, and others in the UK, demonstrate
some key principles that lead to successful project implementation:
1. Working in Partnership: with the private sector, local
authorities, development agencies, the education sector, business
support organisations and, crucially, local communities themselves
all engaged in the creation and implementation of a broadband
development plan;
2. Investment: with shared investment, shared risks and staged
roll-out;
3. Focus on the People: the real determining factor in the
creation of a healthy broadband market is people, the users. Successful
projects focus on motivating people, not just manipulating pipes;
4. Purpose: ensuring that there are a range of compelling
applications that mean something to local communities, businesses
and individuals;
5. Support: providing high levels of support, training and
other help, including financial incentives.
PUBLIC SECTOR
AGGREGATION
35. The aggregation of public sector demand for broadband
can also play a role in helping to extend broadband coverage to
new areas. By aggregating public sector demand (ie combining procurement
from different public services and bringing it to the market in
a coordinated manner) government can act as an `anchor tenant'
for operators and improve the commercial case for rolling out
networks in new areas. A number of significant developments have
been undertaken by government in the last 12 months to take this
forward. However, there is some way to go to deliver on the aggregation
vision and government will need to actively encourage, enable
and support pragmatic aggregation projects at the regional level.
INFRASTRUCTURE SHARING
36. As mentioned above, significant capital is required
to achieve wider scale broadband roll out. A substantial part
of the capital requirement, particularly at the local access network
level, is for civil infrastructure, ie, the trenches, ducts, poles,
masts and buildings needed to accommodate the transmission networks.
However, if this civil infrastructure were shared, the overall
investment costs could be significantly reduced and the barriers
to new network deployment lowered.
37. The BSG has therefore proposed that the establishment
of third party Civil Infrastructure Utilities should be encouraged
to provide civil infrastructure that can be used and shared by
network operators (both wireless, mobile and fixed) to deploy
new networks.
38. As the civil infrastructure utility would be available
for use by competing access operators, it would encourage multi-operator,
multi-technology competition in the local network in areas where
competing access infrastructures would not be commercially viable.
The "third parties" could include RDAs, local authorities,
community groups, construction companies or financial institutions
coming together in an attempt to facilitate the provision of broadband
access in their areas. The concept could develop as follows:
— The local or regional authorities would decide
to ensure the creation of civil infrastructure suitable for telecommunications
networks (ducts, manholes, masts, co-location sites etc.) in their
area and look for commercial partners.
— The partnership would finance and construct the
infrastructure.
— The infrastructure would be leased to operators
of both wireless and fixed networks at non-discriminatory prices.
39. For some areas of the UK, the commercial viability
of broadband provision may be questionable even after the deployment
of third party civil infrastructure. In such cases, local authorities
may decide to create financial incentives to attract operators
to provide services to the general public, possibly in combination
with demand aggregation schemes.
Broadband Stakeholder Group
10 March 2003
1
http://www.broadbanduk.org/reports/reports.htm Back
2
http://www.e-envoy.gov.uk/oee/oee.nsf/sections/reports-broadband/$file/index.htm Back
3
As a starting point this would include higher bandwidth services
(defined as 256 Kbit/s by the OECD-the BSG recommends using OECD's
definition in order to allow international comparability) but
anticipates progressive development through to next generations
of Broadband. Back
4
Source: Investigating Broadband Technology Deployment in South
Korea, Brunel/DTI July 2002. Back
5
See BSG Report and Strategic Recommendations November 2001. Back
6
Understanding Broadband Demand, Office of Technology Policy,
US Department of Commerce, September 2002. Back
7
Note: The definitions of area type are based on the population
density of the postal sector. This means that low population density
postal sectors may be classed as rural, even if they are close
to high population density areas. Back
8
During the late 90s there was heavy investment in backbone infrastructures
leading to the oversupply of capacity in trunk networks. However,
this investment was not matched by investment in the local access
network and it is this part of the network that is currently the
bottleneck for pervasive mass-market broadband access. Back
9
Source: Investigating Broadband Technology Deployment in South
Korea, Brunel/ DTI July 2002. Back
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