Memorandum submitted by Department for
Business, Innovation and Skills
INTRODUCTION
The Department for Business, Innovation and
Skills supports industry through the Government's active industrial
policy designed to increase competitiveness and productivity.
The telecommunications industries provide significant support
to the UK's economic and social base and provide high value, high
quality jobs that tap into our strengths of industrial and academic
research and development. Telecommunications are integral to all
UK's business functions serving all industrial sectors and to
helping to support growth of new businesses and maintain a balanced
economy. Through support for the telecommunications sector there
will be opportunity for greater innovation in service provision
helping deliver consumer benefit in the shape of better service
levels and greater choice. The government's Digital Britain report
published on 19 June set out a number of new initiatives
to build on work to support the emerging digital economy to ensure
companies and Britain is well placed to take advantage of opportunities
once we come out of recession.
BIS—OBSERVATIONS
ON THE
COMMITTEE'S
QUESTIONS
Whether the target for universal access to broadband
at a speed of 2Mb/s by 2012 is ambitious enough?
The Government set out some of its thinking
behind the figure of a 2Mbps universal service commitment in the
Digital Britain Interim Report in January.
Our rationale is based on the importance that
the internet is assuming in people's everyday life, as a critical
support for education, work, engagement with government and leisure.
As the Digital Britain Report pointed out, for those households
who have it broadband has become an essential utility as important
as electricity, gas or voice telephony.
But of course some homes, and even some businesses,
simply cannot get access to a broadband connection because the
essential investment in the network has not been carried out.
We believe that there is a basic equity point here—with
broadband being so important both economically and socially it
cannot be considered fair that relatively large portions of the
population are denied access simply because of where they live.
Having reached that conclusion we then needed
to consider what exactly it was that we felt everyone should have
access to. "Access to the internet" is not a simple
complex in terms of technical definition. We looked at a number
of different criteria:
First, at its heart this policy is about access
to services. So what are the characteristics of the key services?
The universal broadband commitment should give everyone reasonable
access to the sorts of services that we see so many people relying
on today for economic and social benefit. The table below shows
the most common current internet uses and the bandwidth they require.
256 kb/s |
512 kb/s | 1Mb/s |
2Mb/s |
| Basic internet browsing | As before, plus
| As before, plus | As before, plus
|
| Instant Messaging | Basic video streaming
| iPlayer | Download music album in 5 mins
|
| Email | Tele-health | SecondLife
| Long-form video (MPEG4) |
| VoIP | Faster internet browsing
| P2P file-sharing | Video conferencing via TV
|
| Online radio | | Fast internet browsing
| |
| Basic video call | | Download audio CD in 10 mins
| |
| Network storage & backup |
| "Near-VHS" PC conf call |
|
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|
At 2Mbps users could download a music album in around five
minutes; access long form video at a decent quality and use video
conferencing. These services go beyond the minimum requirements
of web browsing, email and iPlayer use, but are among those becoming
expected by broadband users. Any lower level of service would
be likely not to match up to what is becoming typical internet
use, particularly projecting ahead three to four years.
Critically, we want to ensure that everyone can have access
to public services online and, for instance, can benefit from
education opportunities and other economic opportunities. None
of this is particularly bandwidth hungry at the present time.
Indeed the services we identified requiring the greatest bandwidths
are video-conferencing and audio-visual services such as iplayer.
Clearly all these services are desirable, but it would be difficult
to see eg HD audio visual streaming as a critical service that
everyone needs to have access to.
Second we need to consider the costs of delivering relevant
services. The minimum desired level of service needed to be balanced
against the cost involved in securing it. Each escalation of the
minimum level of service would have two effects: firstly, it would
bring more homes into the scope of the USC scheme, the table below
shows the number of households currently able to obtain speeds
between 256k and 2mbps and second the technical solutions required
to deliver universality might be more expensive as different approaches
might be needed in some areas in order to deliver speeds significantly
higher than 2Mbps. The reason that the market has not tackled
this problem is that they do not consider it commercially viable
to do so.
Level of coverage | 256 KB/s
| 512Kb/s | 1Mb/s
| 2Mb/ss |
| Availability | 99% | 98.5%
| 97.9% | 93% |
| Approx. unserved households | 250,000
| 370,000 | 510,000 | 1,750,00
|
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Some consumers will be able to improve their connection speed
through fixing home wiring issues on their own initiative, whilst
the market will also extend 2Mbps reach to some homes through
existing plans for network build.
However, less savvy consumers may require help with identifying
the source of their wiring problem and resolving it. Other households
will only receive 2Mbps if there are network upgrades that would
not be delivered under normal commercial conditions.
Our investigation, primarily with Ofcom and BT, of the likely
cost of filling in "notspots" suggested that 2Mbps was
likely to be affordable with available government funds, private
investment and leveraged other regional investment. The table
below shows where intervention could take place.
Thirdly we considered average speeds currently prevalent
in the UK. The average domestic connection is estimated by Ofcom
at the time was 3.6Mbps (now 4.1Mbps) and some 85% of households
have access to speeds of 2Mpbs or faster. The point here is to
provide an acceptable floor, not to try to equalise all internet
connections at some average level. A USC set much below 2Mpbs
would risk not delivering adequate connectivity. A USC set much
above 2Mpbs would require a comprehensive network upgrade. It
is important in this context not to look at the USC in isolation,
but to also consider the final third fund which aims to bring
high speed broadband to as much of the population as possible.
We therefore took the judgment that a government intervention
to ensure 2Mbps universal service represented good value for money
and delivery of a service that was in line with user expectations.
We are aware that other countries around the world are carrying
out their own analysis of the issue and setting out their own
universal service ambitions. We believe the UK's ambition compares
favorably with comparable other countries.
The France Numerique plan set out plans for a 512Kbps universal
service; Finland committed in December 2008 to a 1Mbps universal
service by 2010 as a stepping stone to a much more ambitious
100Mbps by 2015. Germany has likewise committed to a 1Mbps universal
service.
We are of course aware of developments in Japan and Korea,
where the Governments are reported to be ensuring much greater
bandwidths. We continue to monitor developments in the Far East,
but would note the very different demographic and industrial policy
conditions in which these commitments are made.
Finally, the 2Mbps commitment needs to be placed in the context
of our overall broadband policy. Our Universal Service Commitment
at 2Mbps is a baseline figure aimed at providing a minimum service
level for broadband consumers. We are also taking steps to support
rollout of much faster broadband services to the vast majority
of homes in the UK. We believe this is a better indication of
ambition.
Is the Government right to propose a levy on copper lines to
fund next generation access?
The Government set out in the Digital Britain Final Report
its decision to support investment in Next Generation broadband.
In this, we said that while the market-led investment in Next
Generation broadband was welcome, there was no obvious means by
which the market, unaided, would serve the final third of the
population. We therefore proposed a Final Third Project to deliver
at least 90% coverage by 2017.
The costs of investment in next generation broadband is significantly
more than was required to provide first generation because there
is a much greater requirement for replacement of the physical
infrastructure. The UK Government, in common with other National
Governments regards the communications infrastructure as having
increasing importance to the economic and social fabric of our
society.
Whilst the market has moved to deliver NGA to those geographic
areas where potential commercial returns are highest; where population
density is high and where the likelihood of competition at the
infrastructure level leading to operation efficient market operation
is acceptable there would be no requirement for Government for
intervention. This currently represents around 50% of the market.
For areas where population density is low and the commercial
investment case is weak, where even if there were 100% take-up
of broadband, the commercial return would be insufficient to justify
the original investment to deliver NGA into the final 30% of the
market within the next 10 years through commercial investment
alone. The Government believes that it is necessary to incentivise
market investments by making available a fund to increase the
attractiveness to commercial investors of extending NGA into the
final third.
The cost of investment remains high and in order to incentivise
the investment necessary to bring NGA to the final third, particularly
at a time when the economic outlook continues to prove challenging,
it was decided that the preferred option would be to impose a
modest levy on fixed lines to raise the additional revenue required
to make up the NGA fund.
We were conscious of the need to pitch the levy at a level
which neither disrupted the competitive balance in the market
to a great degree nor put an undue burden on bill payers. We said
in the Final Report that there would be exemptions for low income
households. Additionally, the costs to households of telecoms
services has been falling over a period of many years.
The Ofcom Communications Market Report 2009 suggested
average household spend on telecoms services in 2008 was
£65.01, down from £68.84 in 2007. The average amount
spent on internet services was down from £11.37 to £10.71,
while the average amount spent on fixed voice was reduced from
£23.49 to £22.26. This continues a trend of broadly
similar reductions since 2005.
In other words, for an average household which subscribes
to either fixed line telephony or internet services or both, a
50p levy would be less than the decrease in prices for fixed line
services.
We are still in discussion with stakeholders about the fine
details of how the levy will operate and may modify the scheme
in light of this consultation.
Will the Government's plans for next generation access work?
Provided the levy is established in 2010, and we are able
to implement our plan of allowing the Network Design and Procurement
Group to begin the process of identifying areas for support speedily,
we believe Next Generation broadband investment will be forthcoming
in the Final Third.
In turn, we hope this will stimulate investment not only
in dense urban areas but in the suburban areas in between, as
companies seek to establish networks of scale and present a national
proposition.
Taking account of the above methodology we believe that a
well designed and structured procurement programme will encourage
development of bids, which deliver infrastructure improvements.
We intend to consult shortly on the issues raised by the proposed
final third fund, such as how to define the final third, how to
ensure that it incentivises rather than squeezing out investment
and other issues such as how to ensure competition in the high
speed broadband market.
If companies are providing the speed of access which they promise
to consumers?
The Government and UK telecoms Regulator have discussed this
issue extensively with operators over recent years and were pleased
that Ofcom were able to agree with the majority of providers the
introduction of a voluntary code of practice, which aims to provide
consumers with better information about the 'real' speed they
will experience at the point of sale. That is to say when a customer
orders broadband from a service provider a line test takes place
and the result is relayed to the customer, so that they are aware
of the service level they can realistically expect to receive.
The nature of DSL broadband will always leave scope for some
dissatisfaction, because it remains subject to a number of technical
variations at any given location, the most common being that the
longer the line length, or the further the customer is from the
telephone exchange the less speed and potential reliability of
the service. This is simply the laws of physics at work. If however,
customers feel that they have genuine grievances there are processes
in place to accommodate complaints, the first recourse would obviously
be to their respective service provider, but if that does not
lead to a satisfactory outcome, then Ofcom and an the Office of
the telecoms adjudicator http://www.offta.org.uk/index.htm would
be well placed to take forward and respond and resolve complaints.
The extent to which current regulation strikes the right balance
between ensuring fair competition and encouraging investment in
next generation networks
The balance between investment in networks and competition
at a service level is one that has been considered by governments
and regulatory agencies across Europe and beyond. At its baldest,
the trade-off is expressed in terms of whether it would be appropriate
to allow a national incumbent to re-establish a monopoly service
in exchange for a major upgrade to the broadband infrastructure.
This will very seldom be attractive, for obvious reasons. The
challenge therefore is how to deliver investment in a way that
will allow for competition that serves the interests of consumers.
The UK broadband market is one of the most competitive in
the world. Following the Strategic Review of Telecoms, functional
separation of BT Group and Ofcom's application of regulations
on local loop unbundling, consumers enjoy low prices and a choice
of providers. Added to this is the substantial competitive pressure
from the cable network and mobile networks. We have seen successive
upgrades in the level of service across different technologies,
with speeds in the copper network accelerating from 512Kbps to
up to 24Mbps today. All of this is valuable progress, the benefits
of which we do not wish to throw away.
It is for Ofcom to provide the Committee with more details
of its plans for regulating next generation networks. The Government
is though responsible for setting the statutory framework in which
Ofcom operates. We set out in the Digital Britain Report our plans
to amend the Communications Act 2003 to make the promotion
of investment in communications infrastructure one of Ofcom's
principal duties alongside the promotion of competition.
We believe that giving equal prominence to these two objectives
is appropriate in the context of a telecoms policy which seeks
to deliver an upgrade to the nation's infrastructure, in contrast
to a policy which essentially sought to provide competitive access
to a legacy asset in the form of the copper network. We not anticipate
that this will result in a dramatic shift in regulatory strategy
on the part of Ofcom, but in the medium to long term it should
provide the right basis for a sustainable balance between investment
and competition.
23 September 2009
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