Broadband - Business, Innovation and Skills Committee Contents

Memorandum submitted by Intellect


  Intellect is the UK trade association for the technology industry, which comprises the information and communications technologies (ICT), electronics manufacturing and design and consumer electronics (CE) sectors, including defence and space-related IT. We are formed by 780 Small to Medium-Sized Enterprises (SMEs) and multinational member companies with interests in these sectors, and exist solely for their benefit. The industries that Intellect represents contribute £96 billion to the UK economy, comprising at least 8% of the UK's GDP and 4% of its total employment.[103] The issues considered by this inquiry are central to our members, who include a number of leading Internet Service Providers (ISPs), as well the majority of UK's leading device manufacturers and IT Services & Software Providers. Intellect and its predecessors[104] have promoted the use and spread of broadband internet access since its invention. We also were instrumental in establishing, and currently house, the Government's leading advisory group on Broadband, the Broadband Stakeholder Group. As such, we await the report of the Business and Enterprise Committee on this topic with interest.


    — The proposed 2Mb/s Universal Service Commitment (USC) is to be welcomed. However, to realise the true potential for economic and social benefits that broadband brings it would need to have been more ambitious. A USC for next generation broadband (40-50Mb/s) could create 280,000 new jobs for a year and truly enhance the UK's international competitiveness. The current state of the public finances make such a USC difficult to realise. Therefore, legislation that implements the USC should facilitate a future upgrade of this nature.

    — The proposed levy on copper lines is the best funding mechanism available to support deployment of next generation broadband to remote areas. It is transparent to tax-payers, takes pressure off the public finances by being off the Government's "balance sheet" and the burden on the public is, in comparison with what citizens are paying for next generation access in other countries, very light.

    — Broadly, the Government's plans to support next generation access are sensible, proportional and focused around supporting and incentivising the market's own deployment plans. The procurement process used access needs to be transparent. Industry should be engaged with at an early stage in a neutral environment.

    — The current speed offered by ISPs is affected by factors outside their control, including poor wiring in people's homes and the manner in which telephone exchanges are located. There is also no legal/regulatory definition of what "broadband" actually is, so ISPs are left to define their own service which confuses consumers. ISPs should ensure that factors that affect speed which are within their control are better publicised. Ofcom has already initiated successful industry lead efforts to ensure this happens.

    — Ofcom's current focus on promoting competition disincentivises industry from investing in communications infrastructure, as they do not see potential for return on investment. Changing Ofcom's statutory duties is an appropriate way to address this problem.

[Is] the target for Universal Access to Broadband at 2Mb/s by 2012 ambitious enough?

  A clear government commitment to ensure access to broadband is crucial to the future social and economic development of the UK. Intellect has for some time called for just such a commitment. A Universal Service Commitment (USC) for broadband access of 2Mb/s is an important step. At the same time, we believe that the USC will not, in its current form, enable UK businesses and consumers to harness the full potential that broadband has to promote wealth generation in new and innovative ways. As the Government is already aware, 89% of UK broadband users already enjoy a 2Mb/s or better broadband service. Many of these users already find that speeds of 2, 4, 6 or even 8Mb/s speed are not sufficient to support the applications that they would like to use their broadband connections for. Ensuring access to 2Mb/s does not constitute a step change in terms of the broadband speeds currently enjoyed by the significant majority of consumers and businesses.

  The proposals contained in the Digital Britain report to move towards broader provision of next Generation access networks[105] are particularly timely. It is on this topic that the Government could have been more ambitious. In particular, Intellect believes that Digital Britain could have considered whether the introduction of a USC for next generation access might be feasible and/or possible in a shorter timeframe than is outlined. There is substantial research to suggest that the introduction of a USC for next generation access networks, and facilitating the £5 billion[106] of additional investment needed to realise it, would lead to the creation of approximately 280,500 new or retained jobs within the UK for a year, as per Table 1 below[107].

Job TypeTotal Jobs Small Business Jobs
Indirect & Induced134,500 37,000
Network effect69,500 34,500
Total Jobs280,50094,000

  Increasing investment in communications infrastructure in this way would have real and tangible benefits to the UK as a whole. Inducing the kind of job creation that would reduce unemployment levels at a time of significant increases will require a more wide-ranging commitment than the USC contained in Digital Britain. Evidence suggests that the UK's international competitiveness would be significantly enhanced by this a more wide-ranging commitment of this nature. In particular a study recently cited by the Parliamentary Office for Science and Technology (POST), notes that communications infrastructure is rated as the third most important factor by senior executives of international corporations when determining company location[108].

  As we noted in our submissions to Lord Carter during the drafting of Digital Britain, Intellect's ideal scenario, and one which we feel would have produced the greatest economic and social benefit for the UK would require greater ambition than that displayed. We believe that the Government should have considered the introduction of a USC for at least 50% of UK homes to be connected to a next generation access network, within five years, or by 2013, and laid out a policy "roadmap" to connect virtually 100% of homes within seven years, or by 2015. Successful realisation of such a roadmap would be dependent on adequate incentives for private sector investment or public sector investment incentives. It is also important that all possible means for delivery of this access are considered, and the most appropriate chosen objectively and appropriately. These means would include "fibre"[109], wireless and satellite technologies. Without proper reference to most appropriate delivery method, there is a risk that actually implementing a USC will be more expensive than it needs to be.[110]

  Whilst the Intellect "vision" of a USC is more ambitious than that expressed in Digital Britain, we do recognize that, given the current state of the public finances, a USC for next generation access via a mixture of "fibre" to the home, satellite and other wireless technologies would be difficult to realize in the short term. The 2Mb/s USC will provide an important base-line service, and help to ensure that all UK citizens will be able to receive, for example, an adequate service on the BBC i-player and have access to high quality "streamed" music and video. Universal broadband access will also provide ISPs and content portals with greater opportunities to monetize their services, as they will be able to provide more compelling services to consumers. These improved services will give these consumers a real alternative to accessing the content they want through the illegal file-sharing services that are currently in widespread use.

  In conclusion, the existing USC constitutes a positive step forward. However, there should be scope in future government policy, and perhaps in the relevant legislation about to go through parliament, for the terms and specifications of the 2Mb/s USC to be amended to reflect the need to keep pace with emerging new technologies and platforms, as well as the broadband capabilities of our major economic competitors. If any specification remains static, the social and economic benefits afforded by having a USC in the first place will degrade. Also, as time goes on, the cost of the technology necessary to deploy next generation access networks will fall, thereby making a successful realization of a USC that encompasses it more likely. Provision needs to be made to facilitate this in legislative terms.

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

  Intellect believes that the proposed levy on copper lines is the best mechanism available to ensure that virtually all the population will enjoy the benefits of being connected to a next generation access broadband connection. Broadband has been proven to provide real economic benefits. Government policy should necessarily seek to ensure that as many citizens as possible have broadband access that is able to support the applications they wish to use. As noted elsewhere in this submission, there are also definite, but indirect, economic and social benefits to promoting deployment of such networks in the form of substantial job creation.

  Whilst the introduction of a levy to fund any given measure or infrastructure project, be it the 2012 Olympics or the London Cross Rail project, will always be a matter for public debate, Intellect views the proposed levy as the best possible means for facilitating what is a laudable goal. The comparison here to Cross Rail is particularly prescient. There was a prolonged public debate prior to the approval of this project. Through this approval, the Government has rightly set a precedent that the funding of major infrastructure projects can be effectively facilitated through a levy mechanism. As the Committee will be aware, Cross Rail is mainly funded by a levy on London council tax-payers. Extensive research has shown that Cross Rail will have particularly marked indirect benefits to the wider economy in terms of expanded labour market catchments, improved job matching and better facilitation of business to business interactions[111]. In a similar way to Cross Rail, expanding access to next generation broadband networks will improve information flows and open new way s of organising economic activity and collaboration. These effects, both the transport and broadband infrastructure sense, are referred to by economists as "agglomeration". The evidence used in making a case for Cross Rail to be funded by a levy mechanism is equally applicable to any similar assessment of whether to fund access to next generation networks through the same mechanism.

  Secondly, given the current state of the public finances, we would suggest that funding the delivery of widespread access to Next Generation Broadband through a levy system, rather than general taxation, will ensure that a significant potential burden to the Government's "balance sheet" will be removed at a stroke. Using a levy system, the Government's commitment to assisting such investment can be realised without unduly burdening the public purse at time that it is under particular strain.

  Thirdly, use of a levy system (and the payment of its proceeds into the "Next Generation Fund" or NGF) will ensure that spending on next generation access networks is transparent from a taxpayer perspective. In the long term, contributors to the NGF will be able to directly see the benefits of their paying a levy, and know for certain exactly what the revenue raised under it is going towards. This kind of direct relationship between financial contribution and definitive results is attractive to taxpayers, and will ensure that there is a clear link between taxes raised and direct benefits to UK citizens.

  We also believe that the actual burden to consumers of paying the proposed levy is relatively small, especially in comparison with that proposed elsewhere. Australia, for example, will require a net contribution of over £1,300 per household to deliver its recently-announced USC commitment[112] for next generation access networks. In comparison, UK households with one copper line will be required to contribute £6 per year to the proposed next generation fund. This is less than the cost of two pints of beer bought at a pub, equivalent to a quarter of an average "tank" of petrol, or the cost of six pints of milk. The burden this places on UK copper line users should then be balanced against fact that the levy would provide sufficient funds to incentivise investment in Next Generation Access broadband in many areas that would otherwise face that a wait of indeterminate length, or never receive it. The direct and indirect benefits to residents of these areas will far outweigh the £6 per year, per line, levy payment that is proposed.

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

  The role of government in the broadband market should revolve around optimisation of the market deployment of next generation access networks in as timely and efficient manner as possible. As with all government interventions, it is difficult to strike the right balance in pursuing this role. Whilst Government could perhaps have been more ambitious in terms of the characteristics (or features) of its proposed USC for broadband access, principally by linking it to provision of next generation access networks in the short term, we believe that the mechanism (via the Next Generation Fund, or NGF) that has actually been outlined for realising next generation access broadband to the vast majority of UK citizens is balanced, well proportioned and workable. The analysis in Digital Britain of how a government can effectively support the market in this area is sound.

  As Digital Britain notes, the market already has well developed plans to deploy next generation access to approximately 50% of the UK population where clear returns on the necessary investment are evidently possible. The role for government in this process is, therefore, to incentivise the market to deploy such services where the business case for doing so is not clear. The establishment of the NGF and the direct link between it and a levy on copper lines is, as stated above, the most appropriate and proportionate way to facilitate this.

  The proposals for a delivery body, the Network Design & Procurement Group (NDPG), that is at "arms length" from government but clearly accountable to it, is the best tool for facilitating this kind of government intervention. The NDPG will be an integral element in delivery both a USC of 2Mb/s and effective use of the NGF. However, there is currently considerable ambiguity over the actual processes that will be followed by the NDPG to procure the capacity, equipment and services to deliver next generation access to the "final third". In order to mitigate this ambiguity, immediate efforts should be made to ensure as wider community of stakeholders from both the private and public sector are involved in the process of formulating specifications for the necessary tenders.

  Intellect, in partnership with the Cabinet Office and National Audit Office, has successfully assisted 28 government departments and non-departmental agencies with similar procurement processes in the past three years within a technology and commercially neutral environment. We can foresee significant difficulties with the effective deployment of next generation access networks to the "final third" if clear and transparent processes for engagement with industry at pre-tender stage are not used. Ultimately, it will be industry that will have to develop and marshal the capabilities and resources that will make next generation access a reality for as many UK citizens as possible. Early industry engagement is therefore key. Harnessing representative but neutral industry expertise will ensure that next generation access networks can be effectively delivered as Digital Britain outlines and that, in the long term, links with the commercial interests that will deliver it are successfully and effectively maintained. Whilst we understand that the procurement process that will follow the establishment of the next generation fund will be for the NDPG, and not government, to formulate, we do believe that the Government should be considering how to harness best practice in this area at an early stage.

  The Government also envisages that wireless, or mobile, technology will play an important role in terms of ensuring that UK homes have access to next generation networks. As they correctly state, existing mobile networks are unlikely to deliver the level of capacity needed to enable homes to use mobile broadband in order to access next generation access. Future technologies such as LTE[113] or WiMax[114] are practical alternatives to these networks but potential operators of networks using this technology are currently constrained by the lack of availability of suitable radio spectrum[115] in order to deploy them. Whilst the Government has committed to ensuring such availability, Digital Britain effectively envisions that sufficient spectrum will not be made available until the summer of 2010 at the earliest. In our view, this is too late for wireless mobile broadband to make a substantial contribution to realising the 2Mb/s USC. We also believe that such a schedule may affect the availability of mobile broadband to the consumers in the long term unless more radio spectrum is released as soon as possible. We note that Government has made efforts to address this issue through the Independent Spectrum Broker (ISB) process. If mobile broadband is to make a substantial contribution towards the delivery of access to next generation networks and universal broadband, issues around adequate radio spectrum need to be resolved at the earliest opportunity.

[Are] companies providing the speed of access they promise to consumers?

  Currently, it is the responsibility of each individual ISP to define what the "broadband" service it offers actually consists of. This definition is to a large extent dependent on the service that the ISP is able to provide and sell to their customers. As a result, the current offering, the form of speed, provided by most ISPs is deliberately not very prescriptive. This is not because ISPs market their products in a way that is misleading, as some media reports appear to insinuate. ISPs openly acknowledge that despite their best efforts, it is often difficult to provide the speed noted in their service description. Hence the common and prominent use of the term "Up to". As the Government correctly notes, there are currently 1.9 million UK homes that cannot possibly receive the broadband speeds that may have been noted in the descriptions of services offered by their ISP's because the wiring in their homes is dysfunctional. There are also at least 500,000 homes that are too far away from an exchange and using a "copper" wire connection, which in turn leads to it being difficult if not impossible to provide a speed that an ISP might wish to. Many of these homes are in rural areas where telephone exchanges are less numerous than in more densely populated areas. Both of these issues will be resolved by, respectively, a systematic campaign (including active assistance from government) to re-wire the homes concerned and more widespread deployment of alternative access platforms to Next Generation Access Networks and (such as satellite and wireless) in rural areas. The latter of these actions is specifically addressed by Digital Britain. The former is only alluded to and should be actively considered by Government as a means of allowing ISPs to provision the level of service they would like to give to their customers.

  The situation is further complicated by the fact that there is currently no generally agreed definition of what the term 'broadband' actually means in the UK, certainly not in a legal or regulatory sense. As noted above, ISPs are generally free to establish their own definitions to match the level of service they are able to provide. Therefore, the definition used is inherently linked to the "speed" of access that can be delivered. A number of communications regulators around the world have recognized this problem and are re-opening the debate over the definition of the term "broadband", most notably the Federal Communications Commission in the US.[116] It is very difficult to answer the question of whether ISPs are providing the speeds that they "promise" to consumers without having a firmer definition to reference. This debate is especially applicable in the context of the proposed USC for 2Mb/s broadband access. It will be difficult to know whether the proposed USC is being realized without a firmer definition of what it actually constitutes. Our members have anticipated the discussions that might result and are currently formulating an agreed industry definition of what a 2Mb/s broadband service should mean in a UK context. We will be presenting it to the Government and the NDPG in an effort to resolve this issue.

  Whilst there are a number of factors that are outside of a given ISPs control, there are of course specific actions that can be taken to ensure their customers have a better understanding of what speed they should expect. These actions generally revolve around clear information on factors that affect broadband speeds that are within the control of ISPs and influence the speed their customers will receive. Experts generally agree that there are two such factors: "traffic management"[117] and "contention ratio".[118] Potential customers need to be made aware of a given ISPs policy on these issues. Ofcom have already made significant efforts to ensure that consumers can access comprehensive and easily understandable information on them. These measures include their "Broadband Speed Code of Best Practice", launched in December 2008. Intellect supports these initiatives, and believes that similar industry-led approaches on such issues will be most effective in addressing these issues in the long-term.

Current regulation and the balance between fair competition and encouraging investment in next generation networks

  We note that this issue is currently being considered by the Department for Business, Innovation and Skills and have made our views on this issue known in our response to the appropriate consultation.

   Intellect fully recognizes the need to promote competition between telecommunications operators and ensure that market entry is facilitated. We believe that Ofcom has fulfilled this function particularly well since its creation in 2003. However, the highly complex regulatory regime that the digital communications sector is currently subject to poses a significant barrier for investment in next generation access on the part of existing operators of fixed, mobile and satellite networks. Much of this regulation is rightly focused on ensuring that consumers enjoy the benefits of low priced services. This kind of regulation has led to the UK enjoying the second lowest prices for broadband in Western Europe. More broadly, the price of communication services available in the UK has fallen by 5% since 2004. Household spend on them has also been slowing for three years consecutively.[119] While these trends have undoubtedly been beneficial for consumers in the short term, they may actively harm their interests in the long term. Put simply, regulation that forces prices down[120] for consumers also disincentivises network operators to invest in next generation access networks. As with any other business decision, there must be a clear prospect of a return on investment for operators if they are to take decision to spend. Operators such as BT and Virgin Media already have plans to roll out Next Generation Access to 48% of UK citizens. Assuming that economic projections over future fibre deployment[121] are accurate, and that effective use of other platforms such as satellite and wireless is assured, this level of access will rise to around the "two-thirds" level in the near future. The need for government intervention to ensure roll-out of NGA to the "final third" is to a certain extent due to the fact the balance of regulation between fair competition and encouraging investment is currently tilted towards the former.

  There is also a need to ensure that the regulator (as well as the regulated), is clearly focused on creating the right environment for investment in next generation access networks. It is in this context that Intellect wholeheartedly endorses the concept proposed within Digital Britain of amending the Communications Act (2003) and providing Ofcom with an additional principal statutory duty to promote investment in the UK's communications infrastructure. We have consistently called for appropriate incentivisation of this kind of investment, and are pleased to see that such calls have been heeded. There is a direct link between ensuring that consumers interests are paramount in the provision of communications services, and ensuring that they have access to as broad a range of innovative and beneficial services as possible. The degree to which UK citizens can access and benefit from such services is dependent on the level of investment that is afforded to communications infrastructure that can support them. Ofcom rightly employs a decision=making process that is based on the statutory duties afforded to it, and consistently references these in the publicly available statements and consultations that it produces. We believe that adding an explicit and additional statutory duty of this nature will give Ofcom greater latitude to consider the potential impacts of its decisions on both the interests of consumers and suppliers of communications services. These interests are not mutually exclusive. Such recognition can only improve the effectiveness of Ofcom as a regulatory body.

September 2009

103   Digital Britain Report Impact Assessment. Back

104   Intellect was formed in 2002 as a result of a merger between the Computer Software & Services Association (CSSA) and the Federation of Electronics Industries (FEI). Our full title is "Information Technology, Telecommunications & Electronics Association". Back

105   "Next Generation Access Networks" is a term used to describe the communications infrastructure necessary to deliver "Super-fast" Broadband, or broadband internet access of a speed of up 40-50 Mb/s. Back

106   The cost of delivery of a 50 Mb/s service to a significant number of UK homes has been estimated at between £5-30bn, depending on the technical solution deployed, by the Broadband Stakeholder Group. Back

107   London School of Economics/ITIF Report: The UKs Digital Road to Recovery (2009). Back

108   Cushman & Wakefield, European Cities Monitor ( 2007). Back

109   'Fibre' or fibreoptic cable is a glass or plastic fibre that carries light along its length. A fibre optic cable connection inside a home is necessary in order to provision "super-fast" broadband speeds through Next Generation Access Networks. Back

110   There are already instances of remote areas of the UK (eg remote islands off Scotland) connected to the internet via satellite, as to connect to the interest via terrestrial means would not be cost effective even if subsidised. Back

111   The Eddington Transport Study. December 2006. The case for action: Sir Rod Eddington's advice to Government. Back

112   Broadband Stakeholder Group. Back

113   LTE (Long Term Evolution) is the last step toward the 4th generation of radio technologies designed to increase the capacity and speed of mobile telephone networks. Where the current generation of mobile telecommunication networks are collectively known as 3G (for "third generation"), LTE is marketed as 4G. Back

114   A wireless internet technology that provides internet access of up to 3 Mb/s. The range is greater than that afforded by standard home wireless connections, which rely on a cable connection in the home to function. Back

115   Radio spectrum facilities the use of specific radio transmission technologies. Radio Spectrum is a finite resource, typically Government regulated in most developed countries and in some cases sold or licensed to operators of private radio transmission systems, eg mobile phone networks. Back

116   Federal Communications Commission Seeks Targeted Comments on Defining Broadband" Public Notice £1 GN Docket Nos. 09-47, 09-51, 09-137. Back

117   One user downloading large amounts of data over a long period affects broadband speed received by another. ISPs commonly monitor their networks and occasionally moderate the speed of such users during peak time internet use periods. Back

118   Once a broadband signal leaves your home it joins a 'pipe' connecting neighbours and others to the internet. The greater the number of people that are using this 'pipe', the slower the speed can become. This is often why consumers see their broadband connection slow down during peak usage times. A higher broadband contention ratio means more users potentially sharing your connection, thus a slower connection. An ISP is able to determine what contention ratio is used in a given area. Back

119   The Digital Britain Report. Back

120   Ofcom directly regulates the prices paid by consumers to access consumer networks as a means of encouraging them to cut costs. Back

121   Broadband Stakeholder Group. Back

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