Memorandum submitted by CBI
The CBI believes that Britain's future competitiveness
will depend on its ability to develop a world-class digital infrastructure
that promotes the fast and easy flow of ideas and information.
We have strongly supported the creation of a government vision
to facilitate the move to an advanced digital economy.
In this response we argue that:
— It is vital that Britain has a strategy
for the deployment of advanced digital communications.
— Broadband deployment should be market-led,
with government acting as an enabler.
— To achieve a fully digital Britain, focusing
on supply only is not sufficient. The Government has a vital role
to play in stimulating greater demand for ICT services, and must
be ambitious about it.
Question 1: Whether the target for universal
access for broadband at speed of 2MB/s by 2012 is ambitious
enough?
1. The Government's Digital Britain (DB)
proposals set out a vision of how the UK can move to a fully digital
economy. The Government's ambition is for every household in the
UK to have broadband access at speeds of at least 2Mbps by 2012,
provided through a mixture of fixed, wireless and satellite technologies.
Government is also looking to achieve a greater roll-out of high
speed broadband (25Mbps or more) to cover 90% of the UK population
by 2017.
2. The rollout of broadband in the UK over
the last decade has been a success with the market delivering
services of at least 2Mbps to between 85 and 90% of premises.
Moreover around 99% of premises can currently receive some level
of internet connection even if it does not reach a speed of 2Mbs.
3. The average speed currently experienced
by consumers in the UK is 4.1Mbs per second [40]
which makes the USC speed of at least 2Mbps below the average
at which most of the UK households operate, but still among the
most ambitious commitments in Europe. France is pursuing a similar
goal but at a significantly lower speed (512Kbps) and Germany
is focusing on next generation broadband and targeting a more
selective group of users (50Mbps to 75% of the population by 2014),
but has not committed to universal coverage of broadband services.
A relatively small number of countries have proposed more ambitious
universal commitments such as Finland which has proposed 100Mbps
by 2014 as part of a long-term strategy started in 2004.
[41]
4. The extensive roll out of current generation
broadband in the UK means that the business case for further deployment
to the 10%-15% (approximately) of premises that do not currently
receive 2Mbs is weak. There is therefore a genuine issue about
how to ensure those that do not receive any broadband, or have
a connection speed of below 2Mbs, have the ability to be part
of a digital Britain.
5. Given the current state of the public
finances, the CBI believes that government should not allocate
significant new public money for broadband delivery. Using a combination
of funds released from the digital switchover and some of the
already announced Strategic Investment Fund enables the Government
to extend digital inclusion without committing significant new
public funds. The Government should now act quickly to clarify
the rules for the universal service commitment and to agree the
release the funds from the digital switchover programme with the
BBC so that providers can begin delivering this commitment. Importantly
the Government should set out a service objective on a technology
neutral basis to enable the private sector to determine the optimal
technology to meet the Government's ambition. This is likely to
vary depending on the geography of the area in question.
6. The USC is designed to ensure that everyone
has the ability to participate in a digital Britain. Therefore
it is necessary to address issues of take-up of internet services
as well as access. The Government is placing a great emphasis
on infrastructure roll-out for approximately 10-15% of premises
and an equal level of focus must be given to the 25% (approximately)
of households that can receive already receive internet access
of at least 2Mbs but choose not to take it up. The work of the
Digital Inclusion Champion, the focus on ICT skills, and improving
the confidence of internet users will be very important to making
this agenda a success.
Question 2: Is the Government right to propose
a levy on copper lines to fund next generation access?
7. The majority of funding for next generation
access should be provided by the private sector. It is important
to recognise that significant private sector investment plans
for next generation broadband that would cover about 50% of the
UK population have already been announced. By July 2009 Virgin
Media had deployed fibre-based broadband of up to 50Mbs to 12.5 million
homes and is piloting speeds of 200Mbit/s. BT has announced a
£1.5 billion investment to make super-fast broadband available
to 40% of the UK by 2012. Research from the Broadband Stakeholder
Group (BSG) shows that the market could, over time, extend these
services to cover approximately 60% of UK households. The primary
role of government and regulators must be to promote this private
sector investment through an appropriate regulatory framework.
8. However, the remainder of the UK population,
above the 60% population threshold, is the hardest to reach and
will prove the most costly. The cost of extending high speed broadband
to cover all UK premises is estimated to be around £5 billion
for Fibre-To-The-Cabinet (FTTC), or £29 billion for
Fibre-To-The-Home (FTTH).[42]
Based on this analysis of the significant capital expenditure
required together with the uncertainty about the level of demand
for high speed broadband makes purely private sector rollout to
90% of premises look challenging in the medium term.
9. The Government proposes to bridge this
gap through the creation of a Next Generation Fund financed by
a 50p levy on each copper line. It is estimated that this could
generate around £150 million per year or around £1billion
over seven years[43]
to support wider roll-out of high speed broadband beyond what
the market is expected to provide. [44]
10. Given the condition of the public finances,
the CBI believes that this not the right time to invest significant
new public monies in high speed broadband so the Government was
right to not make an unfunded commitment in the Digital Britain
report.
11. If the Government decides that some
intervention is necessary to extend the roll-out of high speed
broadband further and/or faster than the market would deliver
on its own, then it is right to look for creative solutions as
to how this could be funded.
12. It is not possible at the current time
to conclude whether or not the 50p per month levy is the right
solution as there is insufficient detail as to how it will operate
in practice. Issues such the impact on business consumers of telecoms,
and how the proceeds of any levy would be used to support private
investment in a way that avoids market distortions, have not yet
been fully articulated.
13. Finally, the Government must be careful
to only intervene in areas where commercial investment is unlikely
in the foreseeable future. This is particularly difficult as it
is currently unclear how the market and technologies will develop
up to 2017. The Government should take every necessary step to
ensure that it does not intervene in areas where investment could
be led by the private sector, or that it does not benefit one
type of technology over another, hence distorting the market artificially.
In this context the Government has a difficult choice to make
about which households to start rolling out to first. 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.
Full consultation with industry in order to understand the economics
of their investment decisions will be necessary to judge where
intervention is most appropriate.
Question 3: Will the Government's plans for
Next Generation Access plans work?
14. Having a world-class digital infrastructure
is essential for the future of UK competitiveness. But there are
key uncertainties about the future of high speed broadband; for
instance, doubts remain about the levels of demand, and how the
supply side will evolve in the future. But even in these circumstances
NGA is starting to become a reality with significant private sector
investment plans as outlined above.
15. The primary role of government is to
create the right environment to encourage this private sector
investment through a certain and supportive regulatory framework
for next generation broadband. The market for superfast broadband
is still in its infancy, and there is a real danger that investment
will be delayed or stagnated if regulation is inappropriate. In
particular regulation must be technology neutral. Favouring certain
technologies would be to the detriment of long-term benefits for
consumers, so we believe that it should be left to the market
to determine how best to deliver the services that consumers demand.
16. In addition to focusing on the supply
side the Government can contribute to making the plans for high
speed broadband a success by setting out an ambitious vision for
the way this technology will be used. Ultimately, the success
of the DB initiative will hinge on how advanced ICT infrastructure
is used by businesses and consumers. NGA deployment will enable
a range of applications, from flexible working to telemedicine,
which rely on consistent levels of high quality service provision.
Yet uncertainty over the level of demand for these services has
been one of the key restraints holding back investment in NGA.
17. The CBI believes that the Government
has a key role in stimulating demand for high speed broadband.
Firstly, it can use its significant buying power as the largest
single UK customer to stimulate demand for NGA. By committing
to purchase high speed broadband from the private sector, government
can help to make the economics of these substantial infrastructure
investments work. Advanced ICT infrastructure can increase efficiency
and quality in public service delivery and make available new
services and applications to citizens.
18. We were pleased to see the role of ICT
in public service provision recognised in the DB proposals through
a Digital Switchover of Public Services Programme. This is a positive
step forward and the Government should build on it by being ambitious
about how both current and next generation broadband technologies
can be used in a range of areas.
19. With high speed broadband the health
service can, for example, provide online GP consultations, and
there could be a greater role for remote monitoring of offenders
and the establishment of virtual courts in the criminal justice
system. All of this would help deliver greater value for the taxpayer.
20. Advanced ICT infrastructure can also
be an important part of the solution to major public policy challenges.
It will play a big part in the shift to a low carbon economy,
for instance through developments in smart metering, or by reducing
the demands on our crowded transport networks by enabling people
to work at home.
21. Secondly, the Government can provide
thought leadership and profile for some of the innovative products
and services that businesses can offer with high speed broadband.
Finally, addressing deficiencies in digital skills and building
confidence in the online environment should be of paramount importance
for a government concerned with making digital Britain accessible
for all.
Question 4: Are companies providing the speed
of access which they promise to consumers?
22. Ofcom's recent analysis of actual broadband
speeds experienced by consumers was the first large-scale study
of its kind that we are aware of anywhere in the world. The findings
show that the mismatch between maximum advertised speeds and those
experienced by customers is an issue in the broadband market.
This has gained relevance in recent years as demand grows for
increasingly higher speeds and is a potential indicator of the
attractiveness of high speed broadband for consumers. Industry
has taken steps to address these issues by signing up to a code
of practice on the advertising of broadband speeds and by making
higher speeds available at decreasing relative prices.
23. The availability of fast and reliable
broadband provision is also very important for business users
and it is crucial that they have full information about the speeds
they can expect. Research from Ofcom shows that business spent
nearly £14 billion on telecoms services in 2008.[45]
This expenditure is growing as businesses increase their reliance
on telecommunications to engage with consumers, gain efficiencies,
and improve productivity. We are disappointed that Ofcom's study
on broadband speeds overlooked businesses users and would encourage
further research on business' experience of broadband speeds.
24. As the importance of high speed communications
grows, cross-country broadband speed comparisons become commonplace.
The UK average speed of 4.1Mbs is often compared unfavourably
with other jurisdictions such as Japan and South Korea given the
relatively high headline speeds of around 100Mbs per second advertised
by ISPs in those countries. However, it is important that the
data used in these studies is comparable. The UK study performed
by Ofcom was the first major study to measure experienced speeds
and Ofcom has made a significant step by publicly advertising
these real speeds and establishing a code for broadband speed
advertising. We now urge other countries to follow the example.
Within this context, we welcome the European Commission's plans
to test the quality of broadband speeds across Europe and believe
that future cross country broadband speed analysis should be based
on comparable indicators.
Question 5: To what extent does current regulation
strike the right balance between ensuring fair competition and
encouraging investment in next generation networks?
25. The DB review includes proposals to
extend Ofcom's duties to include a requirement to promote investments
(where feasible) alongside the existing duty to promote competition
in the telecoms market. This recommendation is designed to reflect
concerns that the regulator in the UK has focused exclusively
on promoting competition rather than encouraging investment in
communications infrastructure in the UK.
26. In the context of Next Generation Access,
the balance between promoting investment and maintaining competition
is particularly delicate given the high level of investment needed
and the uncertainty about the levels of demand. But the tensions
between investment and competition are not pertinent solely to
the broadband market. The need to secure long-term investment
is an issue faced by all regulators, particularly in sectors where
there has been a recent move towards more competitive models of
service delivery, such as energy markets.
27. The CBI believes that companies should
be allowed to make a fair return on risky investments, and it
is clear that the economics around NGA are far from certain. But
this objective should not be to the detriment of promoting open
access and a competitive broadband market. The UK broadband market
is currently one of the most competitive and dynamic in the world
and this competition has resulted in significant benefits to consumers.
It provides a great spur to innovation and investment in telecoms
as companies seek to offer the best deals and cutting edge services
for consumers. It is therefore important to safeguard a competitive
communications market through a technology neutral regulatory
framework that supports investment whilst maintaining competition.
28. In order to achieve this, regulators
should think more creatively about innovative forms of risk-sharing.
Previous CBI papers have suggested[46]
that vertical investment partnerships in NGA between service providers
and operators are often preferable to horizontal ones between
operators, because they allow a much broader range of investors
to enter the market. For instance, in higher density areas joint
venture partners might consist of a network operator and a media
provider, in a medium density area between a network operator
and a large retail outlet, and in a low density area between a
network operator and a highway provider. This would facilitate
the transition to a fully competitive broadband market.
29. In its role as a promoter of investment
and gatekeeper of competition in the broadband market,[47]
it is now more important than ever that Ofcom gives consideration
to how risk-sharing partnerships might emerge and how the regulatory
principles may need to adapt to encourage innovation in this area.
Question 6: Any other views stakeholders
think the Committee should be aware of?
30. The CBI believes that if the UK is to
build future competitiveness as a global leader, it will require
a world class digital infrastructure. Prompt investment in digital
infrastructures, the right regulatory framework and government
action to stimulate demand will be key steps for reaching this
ambition. Meeting all of these objectives simultaneously will
require commitment and vision from government.
31. The CBI has supported the publication
of the Digital Britain report as a significant first step. It
is vital for industry that government delivers a vision for digital
economy, and provides the certainty that is necessary for private
investment to thrive. In addition, government has an important
role to play in fostering the demand that will encourage market-led
investment in digital infrastructures. Next generation broadband
can play a major role in transforming the delivery of public services,
enabling the shift to a low carbon economy and promoting a more
inclusive society. But in order to achieve these goals, the government
must work to build confidence and understanding of the digital
environment.
32. These goals are intrinsically medium
to long term. It is therefore important that politicians from
across the political spectrum have a clearly articulated vision
that they are committed to in order to give the private sector
the confidence to plan ahead and to make the necessary investments
to make Digital Britain a reality.
September 2009
40 "UK broadband speeds 2009: Consumers' experience
of fixed-line broadband performance" http://www.ofcom.org.uk/research/telecoms/reports/broadband_speeds/broadband_speeds/broadbandspeeds.pdf</mdef
> Back
41
Finland's National Broadband Strategy: http://www.laajakaistainfo.fi/english/index.php Back
42
BSG report (2008) The costs of deploying fibre-based next-generation
broadband infrastructure http://www.broadbanduk.org/component/option,com_docman/task,doc_view/gid,1036/Itemid,63/ Back
43
http://www.broadbanduk.org/content/view/370/7/ Back
44
BSG comments on Next Generation Fund in Digital Britain : http://www.broadbanduk.org/content/view/370/7/ Back
45
Ofcom (2009) Communications Market Report, p. 236: http://www.ofcom.org.uk/research/cm/cmr09/cmr09.pdf Back
46
CBI submission to Ofcom consultation on Next Generation Access,
December 2008: http://www.cbi.org.uk/ndbs/positiondoc.nsf/1f08ec61711f29768025672a0055f7a8/904B9471CD435A61802575210035A54C/$file/20081201-CBI-Ofcom-Next-Generation-Access.pdf Back
47
http://digitalbritainforum.org.uk/report/executive-summary/ofcom/ Back
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