Broadband - Business, Innovation and Skills Committee Contents

Memorandum submitted by Digital Region

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

  The challenge of universal access is always difficult from an economic and deployment prospective, in practice, the principle of achieving this should be maintained.

  We support the proposition to deliver universal broadband. The figure of 2Mb/s does not appear to be ambitious enough in the light of ongoing international initiatives and the potential impact on British competitiveness if we do not retain an information technology leadership position on a global basis.

  Moving to 2Mb/s leaves alot to be desired in the provision of the additional capabilities of Next Generation Access (NGA), such as Quality of Service, multiple service providers across a single connection, guaranteed bandwidth.

  By 2012 large parts of the country will have these NGA capabilities, while others will have been introduced to broadband via the universal obligation of 2Mb/s download. This will further widen the digital divide as applications development, and business & public sector solutions move to NGA delivery models that are inconsistent with 2Mb/sec download.

  The delivery mechanism should remain technologically neutral.

  We strongly believe serious consideration should be given to the uplink channel of the broadband circuit, this has been required for some time. We believe the uplink is required to stimulate creation of new services and capability locally. This will allow the UK to remain at the leading edge of innovation on a broader basis. Furthermore it will also better support recent government initiatives such as proposed in the Glover report and for the longer term objectives of transformational government.

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

  We have reservations on the levy's of this nature. It is recognised that economic timulations may be required to achieve the overall objectives and such economic instruments would be better based on a more technologically neutral approach.

  2.1  The principle here is a reasonable method of at least part funding the move to 2Mb/s particularly in strong market areas.

  However, we do not believe It is right that everyone should pay, and debate is required to determine which groups can be excluded, eg:

    — Lower income groups—we believe should be excluded

    — Those who are already contributing to their own NGA development

    — South Yorkshire is a good example here. The sub region is contributing significantly to the development of the Digital Region NGA network, including end user customers through their local taxation and normal service charges. We do not believe it is right that the people of South Yorkshire pay an additional levy to provide NGA in other parts of the UK?

    — Essential users—we don't believe they should pay an additional charge

  2.2  Funding alternatives should also be explored, for example—

    2.2.1 The Digital Britain report sets out Broadband at a reasonable level, 2Mb/s, is now an essential requirement of every household, business and public sector organisation. It is highlighted as being critical as we progress to an information and knowledge economy. This raises the question of how something so critical can be achieved and aligned with appropriate funding mechanisms.

    2.2.2 Who will own this new infrastructure? BT and others have shown concern around the likely outcome of a "patchwork quilt of networks", but the alternative is the continuation of their monopolistic position. It is becoming evident that this "patchwork" is practical through clear governance, standards and processes. However, if BT are to own large sections of the extended infrastructure, including taking returns over a very long period, surely they should be encouraged to channel a significant amount of their profits to make this happen?

    2.2.3 The cost of collection must also be considered. Upgrades to what are already relatively complicated billing systems will be required by each operator, and business processes will have to change to adapt the new requirements.

    The 50p levy is only helpful if as much of it as possible reaches the intended destination—more NGA for homes, businesses and public sector organisations.

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

  3.1 A universal obligation is probably the only method of getting 2Mb/s to every

 location in the UK in the short/medium term. This does not have to be a single nationally provided obligation, but could be made available through multiple providers, promoting further competition in the market place.

  3.2  The "Final Third Project" is vague in its delivery plans at this time so difficult to consider the likelihood of success.

  3.3  The concern is that it will expand the digital divide further and leave us behind many of our competitor countries due to the fairly lengthy timescale and relatively unambitious target of 2Mb/s.

  3.4  The Digitial Britain report itself sets out the criticality of broad competition. The move to 2Mb/sec download leaves the UK well behind other parts of the developing global economy.

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

  It is widely recognised that the "up to" mentality has left many consumers and citizens dissatisfied with the service. We believe that more precise service level agreements should be provided to the individual consumer. Consideration should also be given to both speed and quality of service to meet customer needs.

  The recent Ofcom study has now confirmed what the market has always known.

    — The average broadband speed in the UK in April 2009 was 4.1Mbit/s. This compares to an average "up to" headline speed of 7.1Mbit/s.

    — The actual speeds received varied widely. Fewer than one in ten (9%) of the sample on 8Mbit/s headline packages received actual average speeds of over 6Mbit/s and around one in five (19%) received, on average, less than 2Mbit/s.

  The promises provided by ISP's are based on download bandwidth. More and more applications are being developed which require a critical upload bandwidth as well. ie more symmetry of bandwidth, to support streaming and interactive applications. The upload capability is almost always so relatively low that similiar up to promises are not possible.

  The technology is available today to provide much greater upload bandwith, enabling that required symmetry.

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

  It is fair to say that the current regulation has historically endeavoured to strike the balance between fair competition and encouraging investment in next generation networks. In recent times there are areas of concern developing, the recent Ofcom report outlining BT's commitment to next generation networks has increased the uncertainty to the investment community. This could potentially cause more investors to question next generation investment. It is clear that action needs to be taken to stimulate innovation alongside next generation network capability and maintain pressure on the transition to a more flexible and capable next generation infrastructure.

  Any industry will struggle where there is a single monopolistic player and telecomms is no different. But in telecoms it is more complex as the monopolist, BT, dominates the infrastructure aspect, and is also the largest provider of services.

  This leads to two key questions:

    (i) How can BT be motivated to extend infrastructure to non commercial areas?

    (ii) At what level should competition be encouraged?

  The relatively slow pace of progress in Next Generation Access and "super fast" broadband infrastructure development, coupled with the relatively unambitious targets set, lead you to feel the market is not as capable as we would like. In such a potentially lucrative market, this suggests the regulation is not balanced making it difficult to encourage investment.

  A very good recent example has seen BT announce plans to provide NGA to 40% of UK residents. This is the 40% which are most commercially advantageous to BT, extending the digital divide further.

  At the same time BT have been allowed to introduce an additional fee of up to £1,000 per cabinet for any other operator to connect into their network. There are over 1,800 cabinets in South Yorkshire, potentially adding £2 million to the Digital Region build cost. This will total something closer to £100 million of additional cost for operators to do this across the UK.

Is it appropriate to compete at the infrastructure level, particularly when one operator has such a distinctive first mover advantage, with a certain degree of control over the national network? Or should a railway network model be adopted with the competitive layer being between those providing services across the network?

  While we still have a monopoly situation in the broadband market, the market is progressing and continues to need focused regulation, requiring intervention where appropriate.

  Assuming a shared goal of wanting as many people as possible using online services, the motivation to go online comes from there being applications/services that the public want to use. Having a particular infrastructure is not motivational to the end user but is the critical dependency to progressing connectivity.

  To support this, regulation and investment, needs to motivate new entrants to build the best possible infrastructure. Competition will come across each network in the services and applications provided.

  It is also critical that the recommendations of the recent "Glover Report" are implemented to provide appropriate support to the SME community.

  Current initiatives have commenced on a micro scale, with multiple networks being developed, but all struggling to provide the mass customer base required by the major service providers. This has had the advantage that multiple networks can work together technically, but still does not provide the required platform to motivate competition in the services provided.

  A "middle ground" of regional (for example) networks takes the monopoly away but provides for sufficient mass to attract greater competition across the services provided.

25 September 2009

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