1 Introduction
Background
1. The United Kingdom has always been a world
leader in telecommunications. On 25 July 1837 the first commercial
telegraph company began operating between Euston and Camden Town,
in London. Within twenty-nine years a global telegraph network
crossed oceans and continents forming a world wide web, all of
which converged on a small hut in Porthcurno, Cornwall.
2. In 1866 the first transatlantic telegraph
message took 17 hours to complete. Today the same message could
be transmitted from the average UK home in a fraction of a second.
However, technological change continues to accelerate and once
again the United Kingdom faces the question of how best to maintain
its position as one of the world leaders in electronic communications.
3. The development of retail broadband began
in the late 1990s, in response to growing demand for faster internet
access, which at the time was limited by the conventional telephone
network. On conventional networks, data was transmitted as audible
signals in a similar manner to fax machines, at connection speeds
of up to 56kbps. The innovation of providing broadband over the
same copper network was achieved by enabling the network to carry
communications signals outside the frequency range used for normal
telephone communication. This provided a broader band of frequencies
over which data was transmitted, while simultaneously allowing
normal telephone conversations to occur over the same cable. This
formed the so-called Asymmetric Digital Subscriber line (ADSL)
which currently provides a theoretical maximum speed of 24Mbps.
4. Take-up was initially slow, so in the early
2000s Ofcom began to examine ways to increase competition to the
market, in order to drive down costs and increase consumer awareness
of broadband.[1] In 2005
Ofcom concluded that there was little chance of competing infrastructures
emerging and so split British Telecom (BT) into BT Retail and
BT Openreach; a process known as functional separation.[2]
In January 2006, Openreach began its management of the network,
providing wholesale access to all internet service providers on
the same terms as BT Retail.[3]
5. This regulatory change was successful in increasing
competition in the broadband market, which resulted in the driving
down of the cost of broadband and an increase in its take-up.
By 2009, 63% of households were connected to the internet, placing
the United Kingdom eleventh in the world, ahead of the USA. Current
trends suggest an uptake of 75% by 2013.[4]
6. However, the increased demand for broadband
highlighted the problem of universality of coverage.[5]
Due to the physics of signal transmission over copper cable the
speed of a broadband connection diminishes as the length of the
cable delivering the service increases. As a result, those living
far from communication hubs (telephone exchanges or telecom cabinets)
experience slower speeds than those who live closer to the communication
hub. This has left some areas, typically rural and suburban locations,
unable to access what are considered to be modest speeds.[6]
7. In terms of broadband speed, concerns have
increased about the United Kingdom's position in relation to its
international comparators. Japan and Korea, among others, have
deployed networks capable of up to 100Mbps connection speed, which
compares to the UK's average of 4.1Mbps.[7]
These super-high speed networks are termed Next Generation Access
(NGA) networks. It has been argued that allowing the United Kingdom
to fall behind other countries will have an impact on the UK's
competitiveness.[8]
Digital Britain
8. In July 2009, the Government published the
Digital Britain White Paper. It contained the Government's
vision for the digital economy and included a series of conclusions
and recommendations relating to broadband in the United Kingdom:
- 11% of the UK broadband users'
experienced unacceptably slow connection speeds (below 2Mbps),
the Government intends to intervene with £200 million of
public money;
- it is uneconomic for the market to deliver Next
Generation Access (NGA) beyond 63% of the population, therefore
the Government will subsidise roll-out of NGA in uneconomic, chiefly
rural, areas with around £1 billion over seven years taking
coverage to 90%;
- the NGA fund should be raised by a 50 pence levy
on fixed telephone lines; and
- around 40% of Britons with access to broadband
currently choose not to be, or cannot afford to be, connected.
In response the Government has established the Digital Inclusion
Task Force with a budget of £12 million over three years.[9]
Our Inquiry
9. Following publication of Digital Britain,
we announced an inquiry into Broadband speeds. The terms of reference
were:
- Whether the target for universal
access to broadband at a speed of 2Mbps by 2012 is ambitious enough;
- Is the Government right to propose a levy on
copper lines to fund Next Generation Access?
- Will the Government's plans for Next Generation
Access Work?
- If companies are providing the speed of access
which they promise to consumers;
- The extent to which current regulation strikes
the right balance between ensuring fair competition and encouraging
investment in next generation networks; and
- Any other views stakeholders think the Committee
should be aware of.
10. We took evidence on two occasions. On 2 November
we took evidence from Mr Andrew Heaney, Executive Director of
Strategy and Regulation, TalkTalk Group, Mr Aidan Paul, Chief
Executive Officer, Vtesse Networks, Dr Timothy Whitley, Group
Strategy Director BT Group, BT and Mr David Williams, Chief Executive,
Avanti Communications. On 24 November we took evidence from Mr
Ed Richards, Chief Executive, Ofcom, and Rt Hon Stephen Timms
MP, Minister for Digital Britain, and Ms Rachel Clark, Deputy
Director of Broadcasting and Content, Department for Business,
Innovation and Skills. We thank all our witnesses, and those individuals
and organisations who submitted written evidence. We also want
to express our thanks to David Johnson, a POST fellow,[10]
who assisted us in our work.
1 Ofcom Strategic Review of Telecommunications Phase
I consultation document, April 2004, p 3-40 Back
2
Ofcom Final Statement on the Strategic Review of Telecommunications,
and undertaking in lieu of a reference to the Enterprise Act 2002,
September 2005, p 1-30 Back
3
The historical development of BT: www.btplc.com Back
4
"One in five homes broadband connected by 2010", 28
September 2009 www.itpro.co.uk, Back
5
Department for Business, Innovation and Skills, Digital Britain,
July 2009, p 54 Back
6
Ev 79 Back
7
Ofcom, UK Broadband Speeds, July 2009, para 1.7 Back
8
Ev 112 Back
9
Department for Business, Innovation and Skills, Digital Britain,
June 2009 Back
10
Parliamentary Office of Science and Technology. Back
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