4 Next Generation Access
Background
37. Next Generation Access (NGA) is the term
given to broadband technologies which will be able to deliver
speeds well in excess of the current network; loosely defined
as speeds in excess of 20Mbps.[42]
At present, the average UK network speed is 4.1Mbps,[43]
delivered over copper cables, which have a maximum theoretical
network speed of 24Mbps. Technological solutions will be necessary
to deliver Next Generation Access, of which at present the four
most practical are:
- increasing the capacity of
existing copper networks, using ASDL 2+ technology;
- delivering broadband via satellites;
- mobile or wireless delivery of broadband; and
- replacing the existing copper lines with a new
optical fibre infrastructure.
The majority of debate on NGA has focused on replacing
existing copper lines with a new optical fibre infrastructure.[44]
The two main methods by which optical fibre can be used to deliver
a NGA service are:
- Fibre-to-the-cabinet (FTTC):
a fibre is run from the local telephone exchange to the telecoms
cabinets replacing the existing copper line. The signal is then
carried from the cabinet to the home via the existing copper infrastructure.
This removes the longest continual length of copper line resulting
in a significant increase in speed (up to 40Mbps); and
- Fibre-to-the-home (FTTH): a fibre is run from
the telephone exchange to the cabinet and from the cabinet to
the home. This completely removes the copper from the network
providing extremely fast connection speed which could deliver
up to 100Mbps.
38. Several companies are already deploying NGA
networks in parts of the UK. Virgin Media is delivering a network
capable of providing 50Mbps to approximately 50% of homes while
BT is conducting trials on its own NGA products ahead of a £1.5
billion investment programme.[45]
However, these two networks are likely to provide coverage largely
to the same areas. This is because the costs of deployment rise
rapidly as population density decreases.[46]
39. The Government does not believe that the
market will be able to provide NGA networks to the entire populationthose
living in rural and remote areas being the most difficult to service.
Its assessment is that the market will be able to deliver NGA
to between 50% and 66% of the population leaving the remainder
unserviced.[47]
40. Digital Britain
has labelled the remaining section of the market as the "Final
Third" and has proposed a "Final Third Project"
to deliver at least 90% coverage by 2017,[48]
through public investment. The Department commented that while
it welcomed the market-led investment in Next Generation Access,
Government intervention may be necessary as "there was no
obvious means by which the market, unaided, would serve the final
third of the population."[49]
41. The Government has proposed a £1 billion
public infrastructure investment programme to fund this roll-out
of NGA to 90% of the population. The remaining 10% at present
is regarded as being too remote or sparsely populated for it to
be economic to deliver NGA to at the current time.[50]
The funds will be raised from a 50 pence levy on fixed telecom
lines, which we discuss in the next section of our Report.
42. We share the Government's
enthusiasm for the swift development of Next Generation Networks
and for maximising access to those networks. We believe that the
United Kingdom's competitiveness is, to a significant effect,
dependent on its telecommunications network. However, we have
doubts about aspects of the Government's policies to achieve an
objective with which we entirely agree.
The Government's analysis
43. It is the Government's intention that intervention
will only occur in those areas which will not be serviced by the
market. The Broadband Stakeholder Group,[51]
the Government's leading advisory group on broadband, commissioned
research into the economics of NGA roll-out, and calculated the
cost to businesses of providing NGA access, using fibre-to-the-cabinet
(FTTC) technology, to the entire populations.[52]
The graph which follows shows this cost in relation to the percentage
of population covered.

As the graph illustrates, costs rise rapidly beyond
70%, reflecting the difficulties, and therefore increased cost,
of delivery for rural and remote areas.
44. The Broadband Stakeholder Group model is
based on two assumptions. First, that the total cost of deployment
will remain fixed at £5 billion.[53]
Second, that 31% of the population will use the service. Both
of these assumptions have been challenged by our witnesses.
45. The British Sky Broadcasting Group disputed
the assertion that the cost of deployment would remain fixed.
It argued that technological innovation could result in the total
cost falling:
the cost of roll-out remains uncertain as technology
is evolving all the time. In basing its assessment of market reach
on BT's cost analysis the Government failed to acknowledge the
dynamic nature of the economics of roll-out which are continuing
to improve. For example developments in 'micro-trenching' techniques
have reduced the average cost of laying fibre dig from £75-£100
per metre to £30-£40 per metre.[54]
46. Regulatory changes also have the potential
to reduce the final cost. For example, legislation to allow the
sharing of ducts, the deployment of new telegraph poles, and the
utilisation of municipal infrastructure all have the potential
to drive down costs.[55]
47. The Broadband Stakeholder Group also assumes
that the national take up rate will be 31%.[56]
However, there is no convincing case provided for this figure.
This is of vital importance because the level of demand is key
to determining how much of the country the market can reach without
Government intervention. There would, for example, be an approximate
40% reduction in the cost of deployment if take-up is increased
from the 31% set out by the Broadband Stakeholder Group to 62%.
Demand for NGA: "A killer
app?"
48. A "killer app" (killer application)
is a term used to refer to any computer program or application
which is so necessary or desirable that it will drive forward
larger technology. We asked our witnesses if they could identify
such an application or programme beyond those which existing broadband
could offer, which would drive demand for NGA. Mr Williams, Chief
Executive of Avanti Communications, believed that:
Video is the answer. It is all about video. Our customer
throughput is doubling every year. Every 12 months the amount
of data downloaded doubles. On our own network we see that it's
video [
] With services like those that BT and the BBC are
offering, encouraging consumers to download real TV programmes,
that pattern is only going to accelerate.[57]
49. In September 2008, the Government published
a review by Francesco
Caio,[58] which it had
commissioned to examine the barriers to roll-out of next-generation
broadband in the United Kingdom. His review "Barriers to
Investment in Next Generation Access" (Caio Review)[59]
also highlighted television as a major driver for NGA up-take
in other countries but warned that the extremely competitive nature
of the UK television marketwith satellite, cable and digital
terrestrial TVmade internet provider TV a less attractive
option than in other countries.[60]
50. Dr Timothy Whitley, Group Strategy Director
BT Group, was also sceptical about video driving higher demand
for NGA services. He pointed out that BBC iPlayer was delivered
using only 900-700Kbps, "even to a decent sized television",
much less than the speeds of 40-60 Mbps which would be delivered
by NGA."[61] He
went on to argue:
It is easy to run away with the notion that that
there are vast swathes of applications out there right now that
need 50 or 100Mbps. There are indeed specific applications, multiple
high definition TVs [for example] but they are probably not the
things most people are doing today.[62]
51. Supporters of NGA have responded that demand
will follow supply and that content cannot develop until NGA is
deployed. As Mr Paul, CEO of Vtesse, argued:
We could have had the same conversation in the year
2000 about what people will be doing with the Internet today and
I think we would have got it mightily wrong. It is very difficult
to say what will be [its applications], but undoubtedly people
will find things to do with higher speeds.[63]
52. However, this assertion has not been borne
out by evidence from countries which have already deployed NGA,
most notably Japan and Korea. The Caio Review examined those markets
and found that there was "no correlation between NGA penetration
and the sort of content people consume."[64]
Dr Whitley from BT also highlighted an example of a telecommunications
company in Denmark which no longer advertised their high speed
services to customers.[65]
53. The Caio Review contained a similar finding,
noting that France Telecom had, as of July 2008, only 14,000 fibre
subscribers to its high speed services out of a possible 344,000
connectable homes.[66]
The Caio Review also highlighted the fact that there was little
evidence of a "substantial pent-up demand" for faster
broadband being delivered at higher prices. Moreover, it found
evidence which suggested that consumers in other countries continued
to prefer low prices for lower speeds, where a choice was available.[67]
54. In its evidence British Sky Broadcasting
Group highlighted an unwillingness by consumers to pay for super-fast
broadband as an inhibitor to the commercial deployment of NGA:
since Virgin Media launched its 50Mbps service there
has only been 3 percentage point rise, year on year, in the proportion
of customers taking their 20Mbps or 50Mbps broadband packages
and they are continuing to experiment with pricing and services,
cutting the cost of the 50Mbps service from £35 to £28,
to establish what customers want and how much they are willing
to pay for it. [68]
55. There are parallels to be drawn between the
roll-out of first generation broadband and that of NGA. The Trade
and Industry Select Committee's 2004 inquiry into broadband examined
why the take-up of first generation broadband had been slow and
found that the competitiveness and keen pricing in the dial-up
broadband market was hindering the migration to broadband.[69]
Ultimately, broadband take up was spurred by the introduction
of price competition into the broadband market and a slower increase
in the requirement for faster connections as internet content
became more sophisticated.
56. The evidence we have heard
suggests that there is no pent-up pressure for super-fast broadband
from consumers, due both to a lack of new applications and an
unwillingness to pay higher bills for internet access. We do not
believe that the Government has yet made the case for intervening
in the market to provide NGA access to consumers who already receive
a reasonable quality of service. Furthermore, we conclude that
achieving a universal service of 2Mbps should be the priority.
When to intervene: Pre-empting
the market?
57. A number of our witnesses aired concerns
that there was a risk that the Government could act, or intervene,
too early; and that the introduction of a public subsidy could
"freeze out" private sector investment. TalkTalk believed
that early intervention could result in some private investment
being postponed:
with operators delaying the network roll-out so that
they tap into public funding [
] as a result much of the
public money will not create new investment but be simply wasted
funding projects that were going to happen anyway.[70]
This point was echoed by British Sky Broadcasting
which argued that until there was greater clarity over the likely
extent of market provision of NGA, it was difficult to assess
whether large-scale public intervention was justified.[71]
Furthermore, BT, while supporting the principle of using public
money to assist the market, remained of the view that "there
are many questions as to how and when".[72]
58. The uncertainty among broadband suppliers
seems at odds with the Government's assessment that the market
will not deliver beyond the 50% to 66% level without intervention.
When he came before us, Stephen Timms, Minister for Digital Britain,
stated:
we do have to do some hard headed economic analysis
[
] There is a judgment here, I agree with you, and our judgment
is that it is not acceptable to end up with only two-thirds of
the country having services to which others are already getting
access.[73]
59. It seems that NGA roll-out will be economically
challenging and that currently there is little indication of what
the level of demand for NGA will be. However, both Vtesse and
BT are conducting trials in areas which are considered to be at
the economic margins of the market.[74]
Consequently, in a relatively short period of time there will
be market data available which will be able to demonstrate the
viability of providing NGA to communities in rural areas. This
will enable both the Government and the market to judge the economic
and social case for NGA roll-out.
60. Mr Richards, Chief Executive of Ofcom, made
the argument against early intervention very succinctly, arguing
that while intervention will be necessary at some point, the market
was still experimenting:
With fibre, it is a new investment, people have got
to make those new decisions and I do not think we yet know, and
I do not think the companies know, exactly what the best balance
between competition and investment is.[75]
We believe that this, coupled with the uncertainties
that surround customer demand for NGA, means that the Government
should resist the temptation to intervene until the market's capacity
to deliver this service becomes more clear.
61. We accept the analysis that,
given the current public policy framework, an entirely market-driven
approach to NGA roll-out is unlikely to deliver NGA to every home.
Therefore, if there is to be near-universal access to NGA, changes
to public policy or some form of Government intervention will
be necessary. Changes in public policyfor
example to allow competitor access to BT's ducts, or to the rating
of fibre optic networksmight
prompt the market to deliver, and technology itself is changing
rapidly. Whether this is the right time to intervene with public
money and what form this intervention should take remains an open
question.
62. Premature intervention by
the Government in the NGA market could prove unnecessarily costly.
We believe it would be unwise for the Government to intervene
until the market has established what it is capable of delivering
by itself, something the telecommunications companies are still
in the process of doing. Fifty percent of the United Kingdom already
has potential access to high speed broadband and that proportion
will grow as investment increases and technologies develop. These
processes could accelerate if they are provided with an appropriate
public policy framework.
Where to intervene: starting
at the extremes
63. The Government has already indicated that
it intends to use its NGA fund to roll-out broadband in areas
where it is not economically viable for the market alone to provide
a service. However, the Government will have to decide on which
part of the "Final Third" should be targeted first.
The options available are either:
- the most populated areas, which
would benefit more people in the short term but run the risk of
freezing out private sector investment; or,
- the least accessible, which would benefit fewer
people but avoid the risk of interfering in the market.
This dilemma was noted by the CBI:
The hardest to reach premises are the most unlikely
to be served by the market but will also be the most expensive
and will therefore consume more of the fund per household. Alternatively
starting with the households that it is most cost effective to
serve could cover areas which the market could be more likely
to reach over time.[76]
64. When we asked the Minister for a view on
these two options he replied:
We have not indicated that yet. That will [
]
be an early task for the procurement group that is being set up.
We have simply said that we think the priority should be those
who do not have an adequate service at the moment. How beyond
that the priorities are set will be a matter for them to determine
and a very important judgment for them to make.[77]
65. It should also be noted that there may be
a conflict with European law. TalkTalk believe that any early
commitment by the Government could represent a breach of the European
Commission's guidelines for State Aid.[78]
That said, it believed that starting the investment in the least
economic areas could ease those concerns, as EU State Aid guidelines
"highlight the need to ensure that public funds are only
used in areas where the private sector will not go."[79]
Such a decision would also minimise the risk of public investment
distorting the market. These are also the areas which are likely
to have a poor quality of service at the moment, and so will benefit
the most from an improved service.
66. We believe that if public
intervention is to occur then where it begins geographically is
of critical importance. We recommend that the Government act cautiously
in any intervention it may make, and that any such intervention
should be in areas where the private sector is least likely to
venture. This would allow the market time to assess the economic
case for further roll-out beyond 66%, decrease the chance of private
investment being crowded out and decrease the possibility of contravening
EU state aid rules.
How to intervene: the importance
of neutrality
67. How the Government should intervene, in terms
of technology, is a balancing act. It is difficult to be prescriptive,
because the technical solutions will need to be tailored to each
community's needs. However there are two points which the Government
will need to bear in mind.
68. The first is that while our Report has focused
on NGA provision through the installation of fibre optic cable,
this will not always be the correct solution. In areas where the
distance between the exchange and the cabinet is relatively short
(2.5km or less) then the use of ASDL 2+ technology, which increases
the performance of the original copper wires to as high as 24Mbps
may be better. Similarly, the Government should not ignore the
possibility of using satellite technology to deliver broadband
to the most remote areas where even with a government subsidy
the cost of deploying fibre optic cable would be prohibitive.
While currently this only provides a top speed of 10Mbps it would
represent a significant improvement to remote areas which have
extremely poor, or no, internet access. Any procurement process
that the Government embarks upon must be technologically neutral,
utilising the most appropriate solution in each particular case.
69. Secondly, in cases where fibre optical cable
is the preferred solution, it must be possible for all operators
to use the infrastructure, to ensure effective competition and
a lower price for consumers.
70. While optical fibre may
often be the correct technology to deploy in the delivery of NGA,
the Government must not lose sight of alternatives which are already
able to deliver results. The speed of technological development
in this industry is fast, and solutions which appear to be too
costly or complex today may quickly become the most appropriate
option in the near future. We believe, therefore, that technological
neutrality should be a cornerstone of any Government intervention.
Furthermore, we recommend that any Government-funded infrastructure
should be able to support services offered by multiple internet
service providers. If not, it runs the risk of establishing local
monopolies.
42 Virgin Media's super-fast broadband packages start
at 20Mps. Back
43
Ofcom, UK Broadband Speed 2009, July 2009, p 8 Back
44
Department for Business, Innovation and Skills, Digital Britain,
July 2009, p 60 Back
45
Department for Business, Innovation and Skills, Digital Britain,
July 2009, p 60 Back
46
Department for Business, Innovation and Skills, Digital Britain,
July 2009, p 65 Back
47
Department for Business, Innovation and Skills, Digital Britain,
July 2009, p 64 Back
48
Department for Business, Innovation and Skills, Digital Britain,
July 2009, p 64 Back
49
Ev 43 Back
50
Department for Business, Innovation and Skills, Digital Britain,
July 2009, p 64 Back
51
The Group provides a neutral forum for organisations across the
converging broadband value-chain to discuss and resolve key policy,
regulatory and commercial issues, with the ultimate aim of helping
to create a strong and competitive UK knowledge economy. www.broadbanduk.org. Back
52
Broadband Stakeholder Group, The cost of deploying fibre based
next generation broadband infrastructure: Final Report, 2008,
p 8 Back
53
Broadband Stakeholder Group, The cost of deploying fibre based
next generation broadband infrastructure: Final Report, 2008 Back
54
Ev 67 Back
55
Broadband Stakeholder Group, The cost of deploying fibre based
next generation broadband infrastructure: Final Report, 2008,
p 60 Back
56
Broadband Stakeholder Group, The cost of deploying fibre based
next generation broadband infrastructure: Final Report, 2008,
p 57 Back
57
Q 9 [Mr Williams] Back
58
Mr Caio was the former Chief Executive Officer of Cable &
Wireless Communication PLC. Back
59
The Next Phase of Broadband UK: Action now for long term competitiveness,
www.berr.gov.uk/files/file47788.pdf Back
60
Broadband Stakeholder Group, The cost of deploying fibre based
next generation broadband infrastructure: Final Report, 2008,
p 21 Back
61
Q 9 [Dr Whitley] Back
62
Q 9 [Dr Whitley] Back
63
Q 19 [Mr Kearny] Back
64
The Next Phase of Broadband UK: Action now for long term competitiveness,
w ww.berr.gov.uk/files/file47788.pdf, p 31 Back
65
Q 13 [Dr Whitley] Back
66
Department for Business, Enterprise and Regulatory Reform, The
Next Phase of Broadband UK: Action now for long term competitiveness,
September 2008, p 20 Back
67
Department for Business, Enterprise and Regulatory Reform, The
Next Phase of Broadband UK: Action now for long term competitiveness,
September 2008, p 20 Back
68
Ev 67 Back
69
Trade and Industry Committee, Second Report of Session 2003-2004,
UK Broadband Market, HC 321-I, para 52 Back
70
Ev 150 Back
71
Ev 66 Back
72
Q 7 [Dr Whitley] Back
73
Q 188 Back
74
Ev 162 Back
75
Q 114 [Mr Richards] Back
76
Ev 76 Back
77
Q 173 Back
78
Ev 150 Back
79
Ev 150 Back
|