Memoranda submitted by East Midlands Development
Agency
This is a joint response on behalf of the nine
English Regional Development Agencies (RDAs) prepared by EMDA
in its capacity as lead RDA on Broadband and ICT. In our earlier
response to the Digital Britain (DB) consultation the RDAs argued
that we are already living in a DB and that the challenge for
the UK is to facilitate the shift to what we described as a Next
Generation Digital Britain characterised as a modern 21st Century
Low Carbon Knowledge Economy.
To deliver the Government's vision the UK needs
to ensure appropriate and timely investment in the economic architecture
of a digital economy. This requires investment in both the underlying
digital infrastructure and in our businesses and citizens capacity
to exploit these digital opportunities (but also to mitigate the
threats).
The way we respond to these opportunities will
have a major role to play in steering Britain out of the current
economic downturn and will play an increasing role in delivering
a low carbon economy.
This response seeks to follow the broad questions
as set out in the consultation document.
1. Whether the target for universal access to
broadband at a speed of 2Mb/s by 2012 is ambitious enough?
The RDAs would commend the Government for its
proposal to establish the principle of a Universal Service Commitment
(USC) for broadband. This aspiration sends a powerful and welcome
signal to the market.
However, we would question whether focusing
on a specific speed is appropriate and sends the right investment
signal to the market. In a rapidly changing digital economy the
Government's objective should be to future proof infrastructure
investment not peg it to an arbitrary speed. We are concerned
that setting a 2Mb/s [asymmetric] service requirement for the
USC sends a specific market signal that economically rationale
organisations will translate into specific technology choices.
We drew attention in our DB response the resounding and continuing
silence on the role of symmetrical services which, although not
widely utilised today, we should expect to become significantly
more important in the future. Set at 2Mb we can expect to see
a further extension of the UK's reliance on networks based on
elements of the old copper telephone network as distinct from
a market signal that encourages a transition to a dedicated optical
fibre network.
Our position is that we already live in a DB
having moved, in a very short period of time from zero to near
100% availability of first generation broadband and where the
internet is for many of us woven into the fabric of our lives
as businesses and citizens. We accept entirely that the public
sector is generally not well placed to second-guess what the specific
applications or services will drive next generation broadband—the
market will determine these. However, it is reasonable to expect
that as the UK economy seeks to transform itself into a low carbon
knowledge economy that the demand for bandwidth will increase
exponentially. A knowledge economy is bandwidth hungry because
it is built on the trading of ideas (regionally, nationally and
internationally) and the interplay and exchange of information—where
the basic commodity of exchange is digital data.
Even were these seismic changes to the structure
of the economy not to happen it is worth noting that the entire
public sector is driving traffic growth through the adoption of
web based channel management strategies and the pioneering of
new service delivery arrangements both of which have implications
for bandwidth. It is a concern that no one public body has responsibility
to reflect, in a national broadband plan, the economic and social
implications of the cumulative impacts of the demand for bandwidth
arising from the wider eGovernment agenda let alone the demand
arising from these structural changes to the economy.
2. Is the Government right to propose a levy
on copper lines to fund next generation access?
In our response to the DB consultation we accepted
that there is much disagreement around the timing of investment
in Next Generation Broadband (NGB) infrastructure but we urged
the Government should adopt a precautionary principle and, at
a minimum, set out a transition timetable—an approach broadly
accepted in the DB report.
At issue for the RDAs was the fact that transitioning
to NGB was, in financial terms, orders of magnitude bigger than
simply "piggy backing" a broadband offer over an existing
telephone network.
The problem has always been one of funding.
The RDAs do not take a position on the role
of the levy we do, however, take the view that any public sector
solution has to: (1) future proof investment; (2) provide regulatory
certainty; (3) deliver vfm; (4) be equitable and; (6) acceptable
by the public at large.
3. Will the Government's plans for next generation
access work?
Success will be measured by the country's capacity
to deliver a "fibre rich" next generation broadband
network in a timely manner.
The analysis in DB suggests that the market
will deliver to two-thirds of the population, leaving public intervention
to support a Final Third project to deliver "at
least 90% coverage"—all of this to be completed
by 2017. The Government identified £200 million to deliver
the USC and proposed a Next Generation Fund with a c.£150
million annual funding stream arising from a proposed supplement
on all fixed copper lines to deliver the Final Third project.
This approach raises three concerns: (1) funding;
(2) timing; and (3) commercial confidentiality.
Regards funding—the Broadband Stakeholder Group
estimate that the cost to deliver next generation broadband is
in the range of £5 billion-£29 billion[83]
depending on which technology is chosen. DB identifies £200 million
funding for the USC and (taken up to 2017) c.£1.2-1.4 billion
through the Next Generation Fund. BT for their part have made
public plans to spend £1.5 billion on NGB but we note that
a recent article by Analysis Masons suggest that a funding gap
is likely to endure .[84]
Timing—our principle concern in the joint
RDA response to the DB consultation was to urge the Government
to commit to a timetable that would see NGB available across the
UK. RDAs broadly accept the DB analysis that much of this investment
will rightly be made by the private sector leaving a Final Third
[or maybe more] requiring public sector support. This approach,
however, means that NGB will primarily be delivered to the mass
market by decisions taken largely outwith the public sector. It
is a concern that Ofcom's recent consultation on Next Generation
Networks published on 31st July 2009[85]
drew attention to what amounted to a major strategic review by
BT of its plans for 21CN. Ofcom suggested that the effect of this
change, along with the current difficult market conditions, appears
to have brought considerable uncertainty into the timing of future
investment by the wider market. Whilst the UK market digests what
this means the DB report provided examples of how our international
competitors are pushing ahead with broadband roll-out plans.
Our position remains that it is difficult to
quantify the economic returns [or costs from any delays] from
the timing of the roll-out of NGB across the UK. But—if
as we argued—that connectivity is a critical infrastructure
for a 21st Century Knowledge Economy, then timing is an important
factor that should not be left to the vagaries of the market.
Given the long lead-in times for civil works there is a case to
argue that the UK should adopt the precautionary principle and
create an investment climate that accelerates investment now rather
than wait for the market to discover that competitors have secured
commercial advantage in this new digital economy.
Confidentiality—it remains the case that
in its planning for NGB the public sector is frequently handicapped
by confidentiality issues and a general reticence by the telecoms
industry to share information. If the DB analysis is correct and
the public sector has a role to play in delivering something like
a final third this can only be achieved with a much more open
approach to the sharing of information—if only to comply
with state aids requirements. A much broader exchange of information
and openness is required across industry if private and public
bodies are to work effectively.
4. If companies are providing the speed of
access which they promise to consumers?
RDA's believe that the consumer is sovereign
in the broadband debate. The recent report from Ofcom on broadband
speeds confirmed that actual broadband speeds are significantly
below the advertised headline speeds.[86]
It remains unclear what, if any, impact the voluntary code of
practice on broadband speeds introduced by Ofcom has had on actual
service performance.
It remains the case that a customer in a bar
would not expect to pay for a pint only to then receive a half.
We see no reason to argue that the market for broadband should
be materially different to any other market. In a nascent market
the principle of best endeavour that applied to first generation
broadband may have been acceptable. However, we might expect that
in a NGB market with consumers offered significantly higher speeds,
we should expect consumers to be more discerning about quality
of service issues. Indeed QoS may expect to play a much more important
role in differentiating (and monetising) NGB services. An economy
in which connectivity is a marginal activity is fundamentally
different to an economy where connectivity is a critical infrastructure.
5. The extent to which current regulation
strikes the right balance between ensuring fair competition and
encouraging investment in next generation networks?
The European Commission has made much of Functional
Separation as a means to overcome competition problems and specifically
cites the positive impact this structural change has had upon
UK experience, where: "…it triggered a surge in broadband
connections". We would not disagree that functional separation
has accelerated the market and significantly improved competition
in the UK but we would caution that experience in the UK suggests
that where competition exists it is typically focused on price
and constrained to specific geographies. We are concerned that,
in the absence of countervailing forces, this structure does little
to help accelerate the transition to next generation broadband
and, at a practical level, encourages a climate of secrecy that
inhibits the sharing of information between incumbents and public
agencies interested in understanding the economics of transition.
It is also worth noting that the 2003 Communications
Act gave Ofcom the specific responsibility of ensuring that a
wide range of electronic communications services—including
high speed data services—is available throughout the UK.
Given that the Government's argued in the DB report that we have
a structural problem with the UK broadband market whereby at least
a third of the market is not likely to be served by NGB it is
reasonable to conclude that in some locations the regulatory environment
has served the competition objective rather better than the investment
objective and that in these poorly served locations the right
balance has not always been drawn.
6. Any other views stakeholders think the
Committee should be aware of.
It is interesting to note that in its efforts
to remain completely technology neutral the DB report does not
articulate the potential benefits of a UK fibre to the home (FTTH)
strategy. This is perhaps not surprising given that this would
be the most costly of all the NGB solutions—estimated by
the BSG at around c£29bn. It is unquestionable that taking
fibre to every premises in the UK would be costly and that in
practice any NGB solution will utilise a range of technologies.
The BSG, however, usefully summarised the advantages of fibre
in their Pipe Dreams report which argued that:
FTTH is regarded as the ultimate next generation
broadband solution. FTTH would be a one-off investment that could
be exploited for many decades to come. Continued innovation in
fibre optic technology means that once an end to-end fibre connection
is in place, the local access layer would no longer be a constraint
in the network. FTTH is regarded as more secure than other options
as it does not require active street cabinets and the long-term
operating costs would be lower than for other technology solutions.
However, the up front capital costs of deploying fibre would be
very significant.[87]
The critical factor for policy makers to understand
about fibre is that its carrying capacity is virtually limitless
and, in contrast to all other broadband technology solutions,
once installed the investment is future proofed. When the country
invests in roads or rail infrastructure these assets are amortised
over 30 or even 60 years not three years that are typically
applied to assets in the IT industry. It seems clear that, were
we able to apply the same investment logic used in road or rail
to a FTTH [or fibre to the premises] investment there would be
a compelling economic case, particularly for a public sector determined
to secure both the competitiveness of Place and value for money
in its investments.
On the 17th Nov 2004 BT announced it had
connected its first homes in a FTTH trial. In 2007 Steven
Timms observed that: Unlike elsewhere, there are in the UK
hardly any fibre to the home connections In fact, I don't know
of a single one[88]
Remarkably, two years on, as Japan nears the point where over
half its population is connected by fibre,[89]
here in the UK we are still piloting FTTH and await a substantive
announcement of any major roll-out programme.
It is widely accepted that c.60% (maybe more)
of the cost of fibre is related to the dig. In an area where local
government has significant powers related to building control,
planning and the regulation of streetworks it remains frustrating
to note that as yet there is little evidence that they are using
their powers through, for example, the coordination of street
works either public or private to facilitate the roll-out of fibre.
Equally, it does not help the nascent FTTH market that, even on
green field sites, it cannot be assumed that FTTH will always
be the default connection of choice by the incumbent supplier.
The Government's Transformational Government
agenda assumes that public services will increasingly be delivered
by virtual channels. There appears a powerful logic to this. Indeed,
recent research by Socitm suggests that the cheapest channel is
the web at £0.27p per transaction compared with £3.22 for
the phone and £6.56 for face-to-face. However, even
in a DB we should not expect to serve our citizens only virtually—a
point well made when the Business and Enterprise Committee examined
the future of Post offices.[90]
But to see this simply as either virtual services or traditional
misses the point. The whole public sector will have to innovate
to maintain, indeed improve, models of service delivered in what
will be a much tighter fiscal climate and this alongside huge
demographic pressures. No doubt some services will shift online
but many will still have a person on the front of them—at
the point of contact.
In the future we should increasingly expect
to see our public servants needing to rely more and more on the
connections they have to their respective back-office networks
in order for them to do their job effectively and efficiently.
Whether these services are delivered in person, at an office or
in a home, or online, they will all be underpinned by technology
where the role of broadband connectivity becomes more not less
important.
21 September 2009
83 Final report for the Broadband Stakeholder Group,
The costs of deploying fibre-based next-generation broadband infrastructure,
(8th Sep 08) Back
84
Digital Britain: tax shock funds fibre, Analysys Masons
(1st Sep 09) http://www.analysysmason.com/About-Us/News/Newsletter/Digital-Britain-tax-shock-funds-fibre/ Back
85
http://www.ofcom.org.uk/consult/condocs/ngndevelopments/main.pdf Back
86
UK broadband speeds 2009, Ofcom (28th Jul 2009) Back
87
Pipe Dreams? Prospects for next generation broadband deployment
in the UK, Broadband Stakeholder Group, (2007). Back
88
Speech to Broadband Stakeholder Group-Next Generation Access,
Commonwealth Club, 18th Sep 2007 Back
89
http://www.oecd.org/dataoecd/21/58/39574845.xls Back
90
HC 371-I., P/1., Post offices-securing their future (23rd
Jun 2009) Back
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