Memorandum submitted by Broadband Stakeholder
Group (BSG)
Introduction
The BSG welcomes the opportunity to input to
the Committee's inquiry into broadband speed.
The BSG is the UK Government's leading advisory
group on broadband. It was established as a cross-sector government
advisory group in 2001 to help the UK lead the G7 in
broadband penetration and connectivity. It provides a neutral
forum for collaboration between organisations across the converging
broadband value-chain with the ultimate aim of helping to create
a strong and competitive UK knowledge economy. Further information
about the BSG can be found at: www.broadbanduk.org
Is the target for universal access to broadband
at a speed of 2Mbps by 2012 ambitious enough?
BSG supports the concept of a 2Mbps universal
service commitment, however, it is important to be clear on its
objective, which is to achieve the universal availability of a
minimum level of connectivity in a relatively short time. The
BSG's chairman Kip Meek first proposed the idea of establishing
a Universal Broadband Commitment in a speech in October 2008,[29]
and the BSG has supported the Government's efforts to develop
this policy since then.
At a time when 17.3 million UK homes and small
businesses[30]
are making regular and extensive use of broadband it is appropriate
to ensure that all households and small businesses, regardless
of where they are located, have access to a minimum level of broadband
connectivity that enables functional use of today's generation
of internet services.
In establishing what the minimum level of service
should be a balance has to be struck between the capability required
and the cost of delivering that capability. In the BSG's view
setting the USC at 2Mbps strikes that balance between cost and
capability. Although it is lower than the average broadband speed
available today (4.1 Mbps[31])
it will provide a level of connectivity that enables functional
use of the type of basic online services that many would view
as essential, and can be delivered at a reasonable and proportionate
cost. The higher the specification for the USC is set the more
costly it will be to deliver.
It is extremely important to recognise that
the USC is intended as a floor, not a ceiling. In some instances,
where there are clusters of broadband not spots, it may be cost
effective to implement next generation broadband solutions to
meet the USC, with the result that consumers will get significantly
faster broadband speeds than the 2Mbps target. However this will
not be possible in all instances as the technology solutions available
in each case will vary: the BSG believes that a mix of technologies,
including fixed wireless and satellite will be required to deliver
the USC.
Further measures will be required to meet longer
term ambitions to deliver universal availability of next generation
broadband and these are discussed in more detail below. However,
given the high level of broadband adoption and use that we see
today it is appropriate that short term action is taken now to
ensure the universal availability of basic broadband. The 2Mbps
USC is an appropriate and proportionate response to that challenge.
Is the Government right to propose a levy on copper
lines to fund next generation access?
The transition to next generation broadband
is now underway in the UK. Virgin Media's 50Mbps service is now
available to approximately 48% of homes, and Virgin Media expects
to make higher speed services available in these areas in the
future using DOCSIS 3.0 technology. BT has now started its
deployment of fibre to the cabinet (FTTC) and currently plans
to make its 40Mbps service available to 40% of UK homes by 2012.
We are still in the early stages of next generation broadband
deployment both in the UK and in other markets, however, and take-up
is still relatively low. This is likely to increase over the next
few years, driven in part by the emergence of new online services
and applications, although the pace of take-up is uncertain.
In 2008, the BSG published a detailed study
on the costs of deploying fibre based next generation broadband
in the UK.[32]
This study provided a detailed analysis of the way in which deployment
costs vary in different areas and highlighted the way in which
costs rapidly increase outside higher density areas.
The research found that fibre deployment costs
will be relatively constant across areas with higher population
densities. This implies that, if a commercial case for deployment
exists at all, then the market should, in time, be able to deliver
to approximately two thirds of the UK population. Beyond that
point, the costs of deployment to the final third of UK premises
will be significantly higher, making commercial deployment progressively
more difficult. However, deployment costs may fall over time and
the business case for investment in more rural areas could prove
to be more positive, if demand proves to be stronger than is currently
predicted. Moreover, wireless and satellite technology could have
a significant role to play in providing higher quality connectivity.
BSG is currently considering undertaking further research on the
costs and capabilities of wireless and satellite networks in the
near future.
While it is possible to conclude that due to
the high costs involved, the market is unlikely to deliver universal
access to next generation broadband without some form of additional
support, and it is not possible to predict with certainty at this
stage exactly how far the market is likely deploy in practice.
This is not a situation that is unique to the UK, but a reality
that is facing policy makers and regulators around the world.
This raises three questions for policy makers:
1. Does this matter? Are there likely to be any
negative consequences from a growing divergence between the capability
of broadband services available in urban areas and those available
in rural areas, in either the short or long term?
2. If it does matter, what action should government
take and when should it take it?
3. If public funding is required, what mechanism
should be used to make that funding available?
Most BSG members agree that disparities in the
quality of broadband services available in urban and rural areas
will have negative implications in the long term, as shown by
the general consensus that it is important to make 2Mbps broadband
available to all UK households. However, views vary on when it
will be necessary to take action in respect of higher speed broadband
and NGA, what form that action should take, and how it should
be funded.
Those sceptical about the need for immediate
action argue that:
— the UK like most other countries is still
at a relatively early stage in the deployment of next generation
broadband and that the likely extent of market-led deployment
is still unknown;
— therefore, there is a high risk of public
money crowding out private investment with the consequence that
(a) public money is wasted investing in areas that private investment
would have provided and (b) NGA roll-out will be delayed
— expenditure of £1 billion to
upgrade the network would be a poor use of public money especially
given that the services and applications likely to be enabled
by next generation broadband are still largely undefined, and
therefore cannot yet be considered essential;
— and as a result intervention at this
stage would be premature.
They also argue that the levy itself would be
a regressive and unfair tax and act as a disincentive to broadband
take-up for those consumers for whom the choice of whether or
not to subscribe to a broadband service is a marginal decision.
There is also a concern that government would not be able to sufficiently
ring-fence the fund created by the levy given the pressures on
the public finances.
Those in favour of intervention on the other
hand argue that:
— it is clear that commercial deployment
won't extend into rural areas and that recent analysis of the
high capital costs of deployment make it possible to identify
what the likely extent of market-led deployment will be;
— there is growing international consensus
on the social and economic benefits likely to accrue from next
generation broadband deployment;
— any potential economic inefficiencies
associated with intervening now would be outweighed by the benefits
of achieving timely ubiquitous availability;
— given the very long lead times required
for policy development and scheme implementation it is better
to plan now while there is still time, rather than to act in haste
later when the problem becomes more manifest; and
— action is required now to ensure timely
provision rather than waiting until those living and working in
these areas become seriously disadvantaged.
Whilst many of those in favour of intervention
believe it would be better to fund that intervention through direct
taxation, the levy is regarded as a novel but proportionate mechanism
to address this issue that reflects the wider pressures on public
expenditure.
Will the Government's plans for next generation
access work?
Should the levy be introduced and the Final
Third Project go ahead, careful thought will be required as to
how it is implemented.
The Government has proposed establishing a Network
Design and Procurement Group (NDPG) to oversee the implementation
of the Final Third Fund. While it is appropriate that this detailed
implementation work be done at arm's length from government, it
is important that the NDPG should not be developing policy, which
must remain the role of government. It is also important that
this new body draws on the full range of relevant stakeholder
experience in this area as it develops its thinking. The approach
of the NDPG should not leave the final 10% of UK homes unaddressed
and digitally excluded.
The central idea of the Government's approach
is that the final third fund should be available to provide a
top up subsidy to support deployment in rural areas. The NDPG
will have to determine which areas will qualify for the subsidy;
what scale of subsidy will be provided in any given area; and
how these procurements are presented to the market. In each case
it will be necessary to ensure that the potential for market distortions
is minimised, a technology neutral approach is adopted, value
for money is ensured and that intervention achieves the best long-term
outcome for the UK's communications infrastructure. It will also
be necessary to consider the role for alternative wireless or
satellite solutions in providing service to those homes where
the cost of fibre deployment is prohibitive.
This will not be a straightforward process and
the scheme design process will need to be extremely thorough to
ensure the right approach is developed. The NDPG's proposals should
be consulted upon in detail before any procurement is undertaken.
Time should be taken to get this right.
As explained above views differ as to whether
the proposed levy is the right mechanism to fund next generation
broadband deployment in rural areas. However, we do believe that
public funding will be required at some stage if next generation
broadband services are to be universally available. If and when
such an intervention is made, and regardless of the funding mechanism
chosen, the Government must at that stage ensure that it clearly
explains to citizens its rationale for intervention and the benefits
they are likely to derive in the long-term.
The BSG also advocates addressing both the demand
and supply sides of this challenge. The Government has recognised
the importance of this through its Digital Participation agenda
for current generation broadband. It will be important that similar
activities and focus are provided to developing the demand side
for next generation broadband in areas where the Final Third Project
will be supporting the delivery of superfast broadband services.
The Digital Britain Report also set out the
Government's proposals to bring forward the release of spectrum
that would provide improved mobile broadband capacity. The BSG
supports this objective, and of the work of the Government's Independent
Technical Arbiter, as they seek to find a solution. Mobile broadband,
particularly the next generation of mobile broadband, will be
an important competitive driver in the market for fixed line services.
Furthermore, increased wireless capacity will be an important
complement to next generation broadband in the future.
The Government has also committed to reviewing
the regulations regarding the overhead deployment of communications
cables. According to the BSG's analysis, removing the restrictions
facing the deployment of overhead cables could provide some benefit
in terms of cheaper deployment to investors.[33]
The Government's task will be to assess the demand for this from
operators, and to balance any possible benefits with the dis-benefits
associated with overhead cabling. BSG consider that this is worth
exploring, and will support the Government's efforts to explore
this further.
In the Digital Britain Report the Government
committed to providing investors with greater clarity regarding
the non-domestic rating of fibre assets. This was initially undertaken
through a seminar facilitated by the BSG.[34]
As a result of this seminar, the BSG is now working with the Valuation
Office Agency (VOA) to provide greater certainty regarding the
treatment of fibre assets with the development of a range of deployment
scenarios that the VOA will provide an indicative approach to.
The government supports this work, which should provide investors
with greater clarity as to their liabilities under the rating
system.
The Government is also supporting the COTS Project
(Commercial, Operational and Technical Standards for Independent
Local Open Access Networks), a BSG-led and facilitated project
that is seeking to develop a harmonised approach to support the
delivery of broadband services regardless of the ownership or
operation of the underlying infrastructure.[35]
The outcome of this project should enable new entrants to the
market to provide next generation broadband, particularly in areas
the market would otherwise not serve, and provide consumers with
an equivalent choice of services to those available elsewhere.
An area where the BSG feels there is need for
more work to be undertaken, and which was not discussed in the
Digital Britain Report, is access to passive infrastructure. Although
there is still considerable uncertainty about the potential impact
that passive infrastructure sharing might have in practice the
BSG believes further work is required to examine the underlying
technical, operational and commercial issues to identify whether
the sharing of passive infrastructure such as ducts could play
a significant role in increasing the scale, pace and reach of
next generation broadband in the UK. The BSG is undertaking further
work with industry stakeholders to examine this, building on the
work undertaken for Ofcom by Analysys Mason that set out some
of the barriers to the use of duct access.[36]
Are companies providing the speed of access that
they promise to consumers?
Broadband is a difficult service to market.
Due to the nature of the underlying technology, it is technically
difficult for ISPs to provide complete assurance about the quality
of any particular line and the broadband speeds that can be delivered
over that line. Some ISPs have marketed their products on the
basis of 'up to' speeds. Although this caveat is understood and
accepted as reasonable by many consumers, it has led to growing
dissatisfaction on the part of some consumers whose lines are
performing at a level considerably below the advertised up to
speed.
Broadband speeds are impacted by a range of
factors that are not under the control of an ISP; these include:
cross-talk on lines; electrical interference; in-home wiring;
and PC specification. There is an even greater range of factors
that impact on mobile broadband speeds. However, there are factors
that are within the control of service providers, such as contention
ratios and traffic management policies.
The key to resolving this issue is to ensure
that ISPs strive to provide clear and accurate information to
consumers so that they are fully informed and have an accurate
expectation of the service they are paying for. The Ofcom Voluntary
Code of Practice on Broadband Speeds is extremely useful in this
regard, as is the Mobile Operators Good Practice Guidelines.[37]
However, given the complexities of the underlying technology this
is likely to remain a difficult issue. Continued oversight from
Ofcom is required to ensure that the industry is doing all it
can to provide accurate information to consumers.
To what extent does current regulation strike
the right balance between ensuring fair competition and encouraging
investment in next generation networks?
Competition and investment are by no means contradictory
objectives. The UK communications sector has witnessed large scale
investment from a wide range of market players since it was first
deregulated in the 1980s. Competition has been and will remain
in the future the critical stimulus that drives long-term investment
in new communications infrastructure and services.
That is not to say however, that there are not
occasions where the interests of competition and investment diverge.
There are instances where short-term competition concerns compete
with longer-term investment needs and in these instances careful
trade-offs have to be made.
In practice Ofcom has had to balance the needs
of investment and competition since its inception. Ofcom has always
argued that a requirement to ensure efficient and timely investment
was implicit in its existing duty to ensure a wide range of electronic
communications services is available throughout the UK and in
the requirement to further the interests of the citizen (which
were generally interpreted as being more long-term) as well as
the consumer (whose interests can be regarded as more short-term).
Ofcom undertook a lengthy process of reviews
and consultations before producing its statement on superfast
broadband in March 2009. Much of that consultation process was
focused on striking the right balance between investment and competition
to achieve an overarching aim for "consumers and citizens
to benefit from timely investment, competition and widespread
availability."[38]
Whilst views will differ between commercial players as to whether
Ofcom has got that balance exactly right, the response to the
statement in general was positive.
ABOUT THE
BSG
The BSG is the UK Government's leading advisory
group on broadband. It 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.
The BSG's diverse network includes telecoms
operators, manufacturers, investors, ISPs, broadcasters, new media
companies, mobile operators, content producers and rights holders,
as well as government departments, Ofcom, Regional Development
Agencies, devolved administrations and others.
September 2009
29 BSG Chairman Kip Meek speech to BSG Autumn Reception,
14 November 2008, www.broadbanduk.org/content/view/350/7/ Back
30
Ofcom, http://www.ofcom.org.uk/research/cm/tables/q4_2008/ Back
31
p8, "UK Broadband Speeds 2009", Ofcom, July 2009. Back
32
"The costs of deploying fibre-based next-generation broadband
infrastructure", Analysys Mason for the BSG, September 2008. Back
33
pp 61-62, "The costs of deploying fibre-based next-generation
broadband infrastructure", BSG. Back
34
BSG Workshop with the VOA, 20 April 2009, www.broadbanduk.org/content/view/369/50/ Back
35
For further information please see www.broadbanduk.org/cots Back
36
"Telecoms infrastructure access-sample survey of duct access",
Analysys Mason for Ofcom, March 2009. Back
37
"Voluntary Code of Practice: Broadband Speeds", Ofcom,
June 2008; "Principles of Good Practice for selling and promoting
Mobile Broadband", Mobile Broadband Group, June 2009. Back
38
"Delivering superfast broadband in the UK", Ofcom Statement,
March 2009. Back
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