Broadband - Business, Innovation and Skills Committee Contents

Memorandum submitted by Consumer Focus

1.   Whether the target for universal access to broadband at a speed of 2MB/s by 2012 is ambitious enough?

  The aspiration for availability of two mega bytes per second (Mbps) is expressed as a target only and therefore a movement towards a goal rather than an obligation. There have been genuine concerns expressed as to whether this can be met and how it will be met. If it is not achieved then what are the consequences and what are the remedies for those who miss out? It is important that when the universal service commitment (USC) is put out to tender that reaching the goal becomes an enforceable contractual obligation and that progress is monitored.

  The target is for universal access but universal is defined downward as 98.5 per cent. The likelihood is that the remaining 1.5% will consist of the most disadvantaged and therefore from a social justice point of view the target is not ambitious enough. Given the geography, distance and access issues in Scotland and Wales,[64] it is likely that consumers in the devolved nations are in particular danger of missing out. A similar problem applies to rural areas in England, particularly in the north, and in Northern Ireland. These are the very communities that have most to gain from access to high quality, high speed broadband services.

  The roll out must be underpinned by mapping and targeting of disadvantaged areas so that the digital divide does not become more pronounced.[65] Other aspirations of the Digital Britain report, such as digital switchover and online delivery of public services,[66] are dependent on genuine universal access, not statistical universality.

  Access can not be assessed on the basis of physical availability alone. For example, UK average broadband take up is 68% and the Scottish average is 60%, however due to low incomes and low PC ownership, take up in Glasgow is only 39%.[67] Similarly economic change and development is now very dependent on access to technology and failure to deliver to a reasonable target has implications for flexibility in working, employment opportunities, education and research, creative partnerships, global competitiveness of businesses, and the development of new business.

  The commitment is defined by way of reference to download speeds, but is this an appropriate measure? Or should a range of factors be considered to determine a basic essential service? It is clear that access depends also on upload speeds, a guarantee of a sustained and reliable service, quality of service and contention rate specifications, affordability, network maintenance and dispute resolution specifications. Usability and functionality depend on consideration of a range of criteria to ensure minimum standards and we would encourage the commitment to a download speed to also incorporate the other elements that have an impact on access.

  The speed of two mega bytes per second (Mbps) has been widely criticised as not being ambitious enough. This is set against a backdrop of comparisons with other countries and the sorts of speeds available via superfast broadband in some (generally affluent) areas in the UK. Is there any science in two Mbps? Where has the figure come from?

  The aim should be for minimum speeds necessary to maintain basic multi-purpose usage and in particular support high definition video and audio sites, video conferencing, voice and data services and proper interactive use of new generation public services. The Digital Britain Interim report itself sets out the criteria for the desired level of minimum service, which includes average speeds, usage of services and access to public services as well as taking account of the likely evolution of technology and the market.[68] We believe that a target broadband speed should be set on the basis of these criteria and then costed with the object of developing strategies to fund the desirable speed rather than compromising on this.

  Current usage indicates that the figure of two Mbps is already inadequate on the basis of the criteria set out in Digital Britain. Ofcom reports as at July 2009 the current average for broadband speeds is 4.1Mbps.[69] It is expected that between now and 2012 demand for average speeds of 20Mbps is likely.[70] It is clear that two Mbps will not support innovation and development nor keep pace with average usage. In order for any speed to retain relevance and currency it will need to be reviewed against objective criteria on an annual basis.

  We welcome this year's announcement by Ofcom of the go-ahead for super-fast broadband and we have already seen significant developments in rolling out this service. It is estimated that this will deliver speeds up to 10 times faster than current broadband speeds with providers already announcing services of up to 50Mbs.[71] Superfast broadband will support a range of simultaneous and high bandwidth services at the same time. The announcement, however, highlights the increasing likelihood of a digital divide if realistic and relative minimum broadband speeds are not set as part of a legally binding Universal Service Obligation (USO).

  We believe greater ambition in the areas of;

    — obligations versus target,

    — actual universality of access with emphasis on roll out to those currently disadvantaged,

    — how basic service is defined to deliver to consumers and businesses the service that they need; and

    — in level of service commitment to ensure that basic provision does not lose touch with developments in the rest of the world and also developments in access to faster and more efficient technology in the UK,

  will lead to greater returns for the UK as a whole both economically and socially.

2.   Is the Government right to propose a levy on copper lines to fund next generation access?

  We know average speeds in the top four countries are already at more than 20Mbps. Other countries have sought to boost their creative market involving a substantial injection of funds or levies on industry to implement higher speeds, notably Australia ($30 billion over eight years—base level of 12Mbps, but 90% of country should get speeds up to 100Mbps), Malaysia ($2.2 billion), South Korea (US$938 milliion over five years), Greece ($900 million), Singapore ($700 million), and Finland ($102 million, 100Mbps to 90% by 2016).[72] It is clear that the cost of implementing Next Generation Networks will be substantial and all options need to be considered.

  We have advocated for Government to look at universality in next generation access for the reasons advanced above; the widening digital divide and its implications for consumers and businesses. The target of 90% next generation access by 2017 is likely to leave behind a greater proportion of those who are considered the most disadvantaged, in remote areas, or in the lowest socio-economic classifications now.

  We are yet to see the Government's consultation on the proposed levy on copper lines to fund next generation access but we would be interested as part of that consultation to see the projected cost, the impact assessments and the other options considered. Attaching a levy to fixed lines is likely to constitute a tax on a specific demographic, and one that is reducing because of the increasing movement towards mobile phones and PDAs for communications. Indeed with mobile phone profits continuing to rise it would seem that such a levy may be able to be absorbed by industry on the basis of their proportion of the mobile phone market. In any case, the load needs to be distributed fairly across the sector.

  In our response to the Digital Britain interim report we proposed a number of alternative funding mechanisms such as:

  "All industry players should be expected to commit to targets under the USO which could include minimum broadband speeds and penetration and prioritisation of access to some areas, products that deliver minimum service at limited prices, that supplement media literacy initiatives and enable improved access by disabled or disadvantaged users. Additional funding could be raised through licensing fees, and opening up of spectrum. USO goals could be furthered through applying conditions to these grants of licence and spectrum. Similar roll out obligations were imposed on 2G/GSM operators via licences previously and we suggest the 3G roll out should do the same."[73]

3.   Will the Government's plans for next generation access work?

  While the plans are not yet clear the aspiration to look at ways of enabling universal access to new technology is important. The plans are also dependent on a market roll-out that will reach 60% of households, which will in part depend on resolution of issues of spectrum and consideration of alternative delivery methods.

4.   If companies are providing the speed of access which they promise to consumers?

  The recent report by Ofcom[74] shows that companies are not providing the speed of access which they promise to consumers despite the existing code of practice. This needs to be looked at in terms of delivering any USC and ensuring consumer get what is on the label. The failure to deliver promised speeds affects business efficiency and competitiveness and proposals to deliver public services online.

  Consumer Focus is also aware that traffic management by the ISPs goes on in certain circumstances to provide premium customers with a better service but the circumstances and preferential services criteria are not always transparent.

  Digital Britain places heavy reliance on the market to deliver but if the market is mis-selling now then this reliance may be ill-placed.

5.  >The extent to which current regulation strikes the right balance between ensuring fair competition and encouraging investment in next generation networks?

  Current allocation of spectrum has resulted in anti-competitive forces restricting market growth. These issues need to be resolved and lessons learnt.

  Meeting the two Mbps USC target and the Next Generation Final Third project target depends on the roll-out of next generation mobile networks. Because of the complex picture that currently exists around both allocated and unallocated spectrum, this roll-out will require what the Government-appointed Independent Spectrum Broker has described as "a comprehensive approach to resolving the future of mobile spectrum".

  Two key elements of the Technical Arbitration Process around spectrum modernisation that the Government is entering into are:

    — The alignment of the 2.6GHz paired FDD spectrum and the 800MHz auctions (the "Big Auction") at the earliest practicable date—the Government understands this to be mid 2010.

    — An exchange of 900MHz spectrum by current holders for any acquisition of spectrum in the 800MHz auction, within a specified time period, at a ratio to be determined.[75]

  Consumer Focus approves of the 2.6GHz and 800 MHz auctions because of the scope they provide for new market entry and enhanced competition, as well as the development of next generation mobile networks. The revenues from this auction should be ring-fenced for reinvestment in the USC, next generation networks and other Digital Britain aims.

  We understand the challenges that exist around liberalisation of the 900 MHz spectrum band. The Government has stated its intention to carry out a process of exchange of 900 MHz for 800 MHz spectrum holdings with the current incumbents of the 900 MHz band, Vodafone and O2. The final ratio of exchange has yet to be determined.

  We will be disappointed if the Government settles on a ratio that makes conditions more difficult for new market entrants, damages competition or hinders the development of next-generation mobile networks. A tough stance should be taken with those who are 'hoarding' spectrum and blocking competition. The consumer interest also needs to be protected in relation to digital products and services,[76] particularly in relation to misleading statements about service provision in next generation networks. Pockets of have-nots among the haves will demonstrate the failure of competition and the need for Government initiatives. The judgment by other countries has been that such initiatives require significant Government investment from the outset.

  If there is to be limited investment in these projects then the tender for covering the gaps needs to be handled carefully. The areas left will be those from which the market can't profit. Contracts let for these gaps will be costly or bid for on the basis of taking up further opportunities. It is important that the provision of basic services does not lock in the supplier as the only provider of further or add-on services, impacting on affordability and choice for consumers. The recent example of Karoo, as a monopoly service provider, cutting consumers' access in Hull without due process, is illustrative of the sort of problems that may result. Evaluation of current programmes should take place as soon as possible in order to identify potential benefits and drawbacks of joint investment and to inform future public investment in next generation networks.

  The European Commission has recently published guidelines on state investment into internet networks, enabling the EU's member states to subsidise companies willing to develop networks in rural or under-served regions but preventing private companies from using public money and then shutting out competitors. Neelie Croes, the European Commissioner for Competition, commented that state aid should be used to develop "new, neutral and open broadband infrastructures in under-served or unprofitable areas, where a competitive market for broadband services needs to develop".[77]

  Consumer Focus recommended the following in our response to the Digital Britain Interim Report:

    "The Government should prepare an assessment of the competition effects of any model it proposes for the delivery of broadband USO prior to a final decision. This assessment could be completed with the involvement of the relevant competition authorities. If there is an indication of a potential loss of competition that could be to the detriment of consumers, then we recommend that Government should only proceed if it is willing to pursue a formal waiver of competition rules in a clear and transparent way."[78]

  As in the area of financial services, a fair market place may not necessarily drive choice and the competitive pressures that will deliver for consumers. Switching and exercising of choice varies across regions and products and these factors need to be taken into account in assessing the need for future regulation.[79]

6.   Any other views stakeholders think the Committee should be aware of?

  The criteria for supply of broadband provision and next generation access are crucial. Even if reliable and fast broadband access is physically available to all it might not be utilised. Digital Britain has indicated the importance of issues of affordability and usability as key factors in ensuring the aspirations of universal access to digital technology are met and consideration needs to be given to a social tariff or base subsidy to supplement physical access.[80]

    "The co-ordination and monitoring of access/digital inclusion work needs to be placed in the hands of one Government body with the ability to direct resources. In line with the Department for Communities and Local Government (CLG) report on Delivering Digital Inclusion, baseline measures need to be adopted to monitor progress towards digital inclusion and the success of various programmes. Objective means of measuring gaps and obstacles need to be established in order to target excluded areas as a priority."[81]

  Roll out of access should address the current priority needs areas first, lest the social exclusion gap drift further. The New Zealand government's broadband commitment prioritises schools and hospitals in its first tranche roll out. Consumer Focus has proposed the following be undertaken before work is contracted:

    "A universal service commitment to access should be adopted by Government, with support and participation of industry, which would include the achievement of measurable and progressive targets in relation to all of the following to be effective by 2012:

    — Network/broadband access and speed.

    — Removal of discriminatory barriers and prioritising of access to those who are currently disadvantaged in the digital market.

    — Competence in, and understanding of, digital products.

    — Usability.

— Access to responsive and interactive public services."[82]

September 2009

64   The "pipes" used for delivery are likely to have a significant impact on quality and speed of service, eg cable or delivery via fixed line provides the best performing service and proximity to the exchange will affect speeds. Many remote areas will be reliant on inferior pipes (or lack of pipes), such as mobile broadband, and are likely to experience inferior quality services as a result. Back

65   The Welsh Affairs Committee Report calls on the UK Government and the Welsh Affairs Committee to work together to start planning how to implement network development in less commercially economic areas at the earliest opportunity. Back

66   The user-centred approaches advocated by community groups and organisations such as Consumer Focus would not be able to be supported on headline download speeds of two Mbs, Consumer Focus, Does Directgov deliver? Forthcoming, June 2009. Back

67   Ofcom, Communications Market Report Scotland 2009. While Ofcom has been working with the Glasgow City Council to address these issues this is not an isolated instance and needs to be addressed UK wide as part of the USC. Back

68   BERR and dcms, Digital Britain, The Interim Report, January 2009, p. 55 -56. Back

69   UK Broadband Speeds 2009, Consumers' experience of fixed-line broadband performance, 28 July 2009. Back

70   Interim report, p.20. Back

71 Back

72 Back

73   Consumer Focus, March 2009, p.17. Back

74   UK Broadband Speeds 2009, Consumers' experience of fixed-line broadband performance, 28 July 2009. Back

75   Digital Britain Final report, dcms and BIS, June 2009, p.74. Back

76   Consumer White Paper 'A Better Deal for Consumers: Delivering Real Help Now and Change for the Future', BIS, July 2009. Back

77 Back

78   Consumer Focus, Response to Digital Britain Interim Report, March 2009, 18 -19. Back

79   See 'Making Markets Work for Consumers in Scotland', Scottish Consumer Council, 2008. Back

80   France Numerique 2012 provides for all French citizens to have access to broadband at a tariff of no more than €35 per month including equipment. Back

81   Consumer Focus, Response to Digital Britain Interim Report, March 2009. Back

82   As above. Back

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