Written evidence submitted by Arqiva
SUMMARY OF
KEY POINTS
AND RECOMMENDATIONS:
— Access
to broadband increasingly matters. There is an increasing social
and economic cost to each person who falls on the wrong side of
this "digital divide".
— The
longer that areas which are broadband "not spots" remain
unconnected, the less desirable they will be for inward investment,
and the less attractive they will be as a place to live to each
successive year's school leavers.
— The
800 MHz and 2.6 GHz spectrum are both needed to meet growing demand
for data by users of smartphones (such as the iPhone) and tablets
(such as the iPad), where the 2.6 GHz is best suited to delivering
high bandwidth in urban areas, while the 800 MHz is ideal for
covering non-urban areas, including very rural areas.
— But
it is also essential that the 800 MHz spectrum achieves what fibre
cannot do—universal access to broadband.
— Arqiva
strongly believes that it would be proportionate and highly desirable
for Ofcom to increase the coverage obligation for one of the 800
MHz licences from 95% of the UK's population to 99% of each Nation's
population.
— This
would bring considerable economic and societal benefits and would
also achieve optimal use of this precious spectrum.
— A range
of international studies show that a 10% increase in broadband
penetration increases GDP by 1%.
— In
our view, any short-term cost to the Treasury of imposing a 99%
coverage obligation on one 800 MHz licence would, over the long
term, be considerably less than the opportunity cost of not providing
access to broadband, or of providing it years later, to at least
hundreds of thousands of homes, schools and farms and other small
businesses.
ABOUT ARQIVA
Arqiva is a media infrastructure and technology company
operating at the heart of the broadcast and mobile communications
industry and at the forefront of network solutions and services
in an increasingly digital world. Arqiva provides much of the
infrastructure behind television, radio and wireless communications
in the UK and has a growing presence in Ireland, mainland Europe
and the USA.
Arqiva is implementing UK Digital "Switch-Over"
from analogue television to Freeview—a huge logistical exercise
which touches every Parliamentary constituency, requiring an investment
by Arqiva of some £700 million and which is successfully
being delivered to time and budget.
Arqiva is also a founder member and shareholder of
Freeview, and operates two of the UK's three Freeview commercial
multiplexes, providing 40 services on Freeview to 19
million homes.
Arqiva was a key launch technology partner for Freesat
and is also a shareholder in YouView and the licensed operator
of the Digital One national commercial DAB digital radio multiplex.
Arqiva operates nine international satellite
teleports, over 70 other staffed locations, and around 9,000
shared radio sites throughout the UK and Ireland including masts,
towers and rooftops from under 30 to over 300 metres tall.
In addition for broadcasters, media companies and
corporate enterprises Arqiva provides end-to-end capability ranging
from:
— outside
broadcasts (10 trucks including HD, used for such popular programmes
as Question Time and Antiques Roadshow);
— satellite
newsgathering (30 international broadcast SNG trucks);
— 10
TV studios;
— spectrum
for Programme-Making & Special Events (PMSE);[35]
to
— satellite
distribution (over 1200 services delivered).
Elsewhere in the communications sector, the company
supports cellular, wireless broadband, video, voice and data solutions
for the mobile phone, public safety, public sector, public space
and transport markets.
Arqiva's major customers include the BBC, ITV, Channel
4, Five, BSkyB, Classic FM, the four UK mobile operators, Metropolitan
Police and the RNLI.
Arqiva has bid in three Ofcom spectrum auctions,
securing spectrum in two of them.
Arqiva is a British success story, owned by a consortium
of long-term investors and has its headquarters in Hampshire,
with other major UK offices in Warwick, London, Buckinghamshire
and Yorkshire.
Arqiva welcomes the opportunity to respond to the
Culture, Media and Sport Committee's new Inquiry into Spectrum.
ANSWERS TO
QUESTIONS
Whether the proposed method of spectrum allocation
promotes, or hinders, competition in the provision of mobile broadband
services;
1. Arqiva agrees with Ofcom that mobile operators
would need access to spectrum for both capacity and coverage (essentially
sub-1 GHz spectrum) in order for there to be effective competition.
There was therefore a risk that one or more of the current operators
could have found itself post-auction with a sub-optimal spectrum
portfolio with which to maintain its market position, hindering
competition. Ofcom has addressed this by proposing an auction
design intended to achieve each of four mobile network operators
having spectrum for both capacity and coverage.
2. However as network infrastructure is increasingly
shared, and with future
mobile technologies supporting carrier aggregation (and therefore
pointing the way towards spectrum sharing), competition
is increasingly focussed at the service layer.
3. So there is a risk that, while the proposed
method of spectrum allocation promotes competition, Ofcom may
be engineering an outcome which may not reflect where the market,
of its own volition, is heading.
Whether the upcoming auction can provide value
for money for tax payers and how that should be balanced with
benefits for consumers;
4. Although securing best value for tax payers
is usually thought of purely in terms of auction proceeds, best
value should also take account of the economic contribution and
achievement of public policy objectives deriving from its use.
Indeed Ofcom is charged with securing optimal use of spectrum,
not maximising proceeds from its sale.
5. Of all the spectrum currently lined up for
future award by Ofcom, the forthcoming auction of 800 MHz and
2.6 GHz is the single most important. This importance results
not just from the need for the mobile operators to address rapidly
increasing subscriber demand for data, but also because of the
widespread recognition that ensuring universal access to broadband
is one of the most important public policy objectives to achieve
over the medium term.
6. Not everyone will be offered fibre; wireless
will be the only cost- and time-effective means of providing access
to broadband for virtually all those who won't be, with 800 MHz
the optimal spectrum to use for that. Satellite broadband will
also play a role, but its higher cost and lower speed (combined
with higher latency) makes it sub-optimal for all but those who
couldn't be cost-effectively offered broadband by other means.
7. In meeting these expectations, and of satisfying
its statutory duties to secure optimal use of spectrum and to
serve the interests of citizens and consumers, Ofcom must balance:
— competition
concerns;
— spectrum
efficiency (which, for LTE[36]
"4G", is maximised with large contiguous holdings);
— enabling
innovation; and
— contributing
to achieving public policy objectives.
8. Arqiva believes that Ofcom has got the balance
about right - apart from one major issue which must be
revisited before Ofcom publishes its draft Regulations for the
auction.
9. While Ofcom has recognised the key role which
800 MHz could and should play in delivering universal access to
broadband, their proposed coverage obligation stops short of actually
ensuring that universality would be achieved.
10. This is short-sighted. There is an ever-greater
social and economic cost to each person who falls on the wrong
side of this "digital divide".
11. Set against any reduction in auction proceeds
directly attributable to an increased coverage obligation would
be the economic and societal benefits (visible benefits to consumers).
Universal access to broadband maximises digital inclusion, which
is an instrument of real social change:
— Improving
the life chances for the unemployed;
— Widening
access to online educational materials and resources, raising
children's grades and life chances; and
— Enabling
the financially-disadvantaged and less knowledgeable, or media
literate, to pay the same discounted prices for commercial products
and services as everyone else.
12. Studies undertaken by McKinsey, Allen, OECD
and the World Bank show that a 10% increase in broadband penetration
increases GDP by 1%.
13. Surely ensuring that the 800 MHz spectrum
achieves what fibre alone cannot do - universal access to broadband—must
be a key component of providing the best value for money for tax
payers, and delivering benefits for consumers?
The potential for next generation mobile internet
services offered by the forthcoming availability of spectrum;
14. The take-up of internet-connected personal
mobile wireless devices—smartphones, tablets, Kindles—has
been astonishing and continues apace.
15. In addition to fast access to the internet,
with pages re-sized for a smaller screen and hundreds of thousands
of apps optimised for handsets (and for as long as it's connected,
a smartphone is constantly sending and receiving data), smartphones
are also supplanting stand-alone music and video players, portable
games machines and satellite navigation devices.
16. And with
Near
Field Communication (NFC)
technology becoming integrated, smartphones are becoming the most
ubiquitous means of making contactless payments, and will likely
become consumers' loyalty cards as well. Smartphones are also
becoming a new way to shop, allowing awareness of your interests,
tastes, past purchases and location - and your "phone may
alert you to purchasing opportunities accordingly.
17. So handsets acquired principally for their
internet connectivity offer much more besides. And technology
allows these phones to get smarter (dual core processors now here)
with bigger, better screens and more storage.
18. Therefore the forthcoming availability of
additional mobile broadband spectrum offers a twofold advantage.
Firstly, the spectrum provides operators with an additional tool[37]
to address their subscribers" insatiable appetite for data.
Secondly, when the latest LTE technology is deployed, it will
offer consumers much faster download and upload speeds.
19. In 2009 there were 10 million UK mobile internet
subscribers, but by 2014 PwC forecast there will be 24.5 million.
For many of those consumers mobility, with the ability to be reached
anywhere and all the time with personalised, context-specific
services, has huge value.
20. By 2015, Enders Analysis expects:
— UK
smartphone penetration to reach 75%;
— Mobile
internet use to reach 28% of total time spent online; and
— Mobile
advertising spend in the UK to reach £420 million, equivalent
to 10% of desktop spend.
21. 400 million smartphones worldwide use more
bandwidth than the six billion standard cellular phones in use.[38]
60% of time spent on smartphones is a new activity (maps, games,
social etc) for mobile users.[39]
22. This is a revolution. There can be little
doubt that the smartphone is the new PC. But without a data connection,
its value is hugely reduced.
23. The UK needs the 800 MHz and 2.6 GHz spectrum
to be awarded without delay - and for the 800 MHz (ideally suited
to covering large non-urban areas) to be deployed as widely as
possible. This is both to spread the benefits of smartphone (and
tablet and laptop dongle) use widely, and to enable that spectrum
to be available for use to offer fixed substitute broadband to
homes, schools, farms and other small businesses which could not
economically (even with public subsidy) be offered fibre.
24. The most certain way to ensure that the potential
for next generation mobile internet services offered by the forthcoming
availability of spectrum is spread widely is for Ofcom to require
universal coverage from one of the 800 MHz licences.
Whether the upcoming auction can deliver improved
mobile broadband coverage in rural areas, as well as cities;
Why improved coverage
of broadband matters
25. Businesses have long realised the importance
of having broadband access to stay connected to suppliers and
customers, and to have the potential of expanding their geographic
spread of their customer base—worldwide if they wished.
26. Farmers are becoming increasingly vocal where
lack of broadband access to the commercial and public services
necessary for their chosen profession becomes an additional burden
to an essential line of work which, for many, is hard enough already.
Other rural SMEs share that view.
27. Increasingly consumers and citizens need
access to broadband for education, work, interacting with public
services and for their social life too. Access to broadband at
home enables remote working and hobbies to be turned into cottage
businesses, and future SMEs.
28. As we have said previously, recent studies
have shown that a 10% increase in broadband penetration increases
GDP by 1% and, in addition to the economic benefits, access to
broadband can be an instrument of real social change.
29. There is an increasing social and economic
cost to each person who falls on the wrong side of this "digital
divide". The longer that areas which are broadband "not
spots" remain unconnected, the less desirable they will be
for inward investment, and the less attractive they will be as
a place to live to each successive year's school leavers.
30. Achieving universal access to broadband,
ensuring that no-one is excluded from the connected, digital society
of the future, is one of those rare public policy objectives which
has the strong support of all of the main political parties.
UNIVERSAL ACCESS
TO BROADBAND
MAKES ECONOMIC
AND SOCIAL
SENSE
Why 800 MHz spectrum has a key role to play
31. While many broadband "not spots"
are in urban and suburban areas, and best addressed by fibre,
a large number of not spots are in rural areas and the outer suburbs
where the need to upgrade individual connections to each home
or business to provide broadband by fibre or other fixed line
solution can be ruinously expensive—and this will all take
considerable time.
32. If insufficient homes are clustered together,
fixed line solutions are unviable. Fibre requires 50 households
per cabinet to make it economic to deploy, so many rural homes
could not be offered fibre with the funds currently available
for subsidy.
33. Fibre is not cost effective to deploy for
more than 1 million households—wireless broadband is the
only practical solution for virtually all of them (with satellite
broadband being offered to the final few). Wireless broadband
could be deployed quickly and offered to all consumers within
range of each transmitter as soon as it was switched on.
34. The 800 MHz spectrum is ideal for providing
universal broadband access (having previously provided universal
public service television), covering large areas, bending around
hills and going through walls. Conversely the 2.6 GHz spectrum
offers high bandwidth but small cell size, and is ideally suited
to urban and inner suburban areas,
35. The effectiveness of using 800 MHz spectrum
to deploy 4G wireless broadband in rural areas was modelled for
Ofcom and Arqiva in 2009 and, at the end of 2010, Arqiva borrowed
some of this spectrum from Ofcom and carried out an extensive
4G trial.
36. We were able to demonstrate delivery of high
speed broadband (in excess of 50 Mbit/s) in a challenging rural
environment (difficult and highly costly for fibre to address)
where citizens currently experience typical speeds which are less
than 500 kbit/s.
37. 800 MHz wireless broadband must be
an essential part of the solution to achieve the government's
key public policy objective of universal broadband. The special
contribution which 800 MHz spectrum should make to achieving this
objective has also been recognised by the European Commission,
where a recent Commission Proposal[40]
to the European Parliament and the Council included:
"Member States…shall ensure that the
provision of access to broadband content and services using the…800MHz
band is encouraged in sparsely populated areas, in particular
through coverage obligations."
38. Of course, wireless broadband spectrum could
be implemented both for mobile broadband (handsets, tablets, dongles)
and for fixed substitution (where fixed broadband wouldn't be
cost-effective).
800 MHZ IS
ESSENTIAL TO
ACHIEVE UNIVERSAL
ACCESS TO
BROADBAND.
The optimal coverage obligation
39. While Ofcom, in its proposals for the auction,
has recognised the key role which 800 MHz should play in delivering
universal access to broadband, their proposed coverage obligation
stops short of actually ensuring that universality would be achieved.
40. 95% population isn't universality. Indeed
it is an obligation so unadventurous that an operator could theoretically
comply without deploying its 800 MHz spectrum in the whole of
Suffolk, Northern Ireland and Cumbria combined.
41. Using the same spectrum, and infrastructure
still in place, Arqiva delivered more than 98.5% population coverage
of television. It is clear that at least some of the 800 MHz spectrum
ought to achieve far closer to universality than has been proposed
by Ofcom.
42. The 98% population coverage called for recently
by MPs following a debate in the House of Commons on rural broadband
would almost achieve the goal, but only a 99% obligation would
leave so few consumers potentially requiring a satellite solution
(slower and more costly) that there would be no need for alternative,
far more interventionist means of ensuring wireless broadband
could be offered to them.
43. The proposed coverage obligation should be
assessed by Nation, to ensure that the benefits are spread
widely. The Committee should note that the French proposal for
their 800 MHz is for the 99.6% coverage obligation to be measured
regionally.
44. Only by imposing a 99% population coverage
obligation by Nation—and ensuring universal access
to broadband, and hence digitised public services—would
the projected huge cost savings from slimming down "offline"
Whitehall be achieved.
45. If imposing a 99% population coverage obligation
by Nation on one 800 MHz licence reduces the auction proceeds
from that licence (which, given that each block of this spectrum
has different characteristics, may not be apparent even when the
auction has closed), that short-term loss to the Treasury may
be dwarfed by the long term economic and societal benefits of
providing access to at least hundreds of thousands of homes, schools,
and farms and other small businesses, which would otherwise have
been left without.
THE RIGHT
COVERAGE OBLIGATION
WILL ACHIEVE
UNIVERSAL ACCESS
TO BROADBAND.
Whether licence fees for mobile operators have
previously been set at appropriate levels, and how this should
be assessed;
46. Prior to the 3G licences, the licence fees
paid by the relevant operators of mobile spectrum was determined
by Ofcom without any market benchmarks and with that spectrum
being non-tradable.
47. Only when the outcome of the 800 MHz/2.6
GHz auction is known will it be clear whether those licence fees
were set at an appropriate level.
How the position of the UK compares with other
countries, with regards to the allocation and utilisation of mobile
broadband spectrum;
48. Legal proceedings, and then the last government's
Digital Britain initiative, delayed Ofcom awarding the 800 MHz
and 2.6 GHz spectrum, but equipment is only just becoming available
now and neither spectrum band will be available UK-wide until
2014. There are still many countries which have yet to allocate
these bands. So, contrary to the views of some commentators, the
UK is not obviously lagging behind in allocating and (more importantly)
using this spectrum.
49. In addition, the MOD has given priority to
the release of its 2.3 GHz mobile broadband spectrum.
50. In terms of utilisation, the UK's adoption
of smartphones (28% share of total handset users by March 2011[41])
compares favourably with other major European countries, and all
of the operators have felt the impact of their subscribers' insatiable
demand for data on their mobile broadband spectrum in urban
areas.
51. But meeting the demand for data requires
a data connection, and here the UK arguably has sub-optimal utilisation
because there are so many data "not spots". The 3G licences
contained population coverage obligations of only 80%, a far less
challenging coverage target than was placed on 1G and 2G licences,
and 3G is unavailable in many rural areas. This strongly suggests
that there is little commercial incentive for investment beyond
this level.
52. The UK should learn the lesson of 3G when
licensing 4G, where the 800 MHz spectrum is ideally suited to
rural coverage and that spectrum will be awarded against a backdrop
of a series of public procurements of broadband where up to £830
million of public subsidy identified by Central Government, plus
additional funding from the Devolved Assemblies, the EU and industry
itself, will be available by 2017 to make access to broadband
of at least two Mbit/s downlink universally available.
53. Unless the 800 MHz coverage obligation is
for close to 100% population coverage, with sanctions for non-compliance,
there could be no guarantee that the operator would choose to
deploy the spectrum to anything approaching that level.
54. If Ofcom were persuaded to set a coverage
obligation of 99% population, measured by Nation, on just one
of the 800 MHz licences, then more than one million homes (maybe
two million citizens and consumers) wouldn't be left on the wrong
side of an ever-widening digital divide.
55. Any outcome which left all of the 800 MHz
spectrum unused across large swathes of the UK could hardly be
assessed to have been the optimal use of that precious spectrum—and
it is optimal use of spectrum (a Crown asset) which Ofcom
is charged by Parliament to achieve, not maximising auction proceeds.
The possible impact of the auction on alternative
uses for spectrum.
56. Decisions taken by Ofcom on auction timing,
auction design, technical licence conditions (ie what purchasers
would be permitted to do with their spectrum) and methods of payment
for purchased spectrum all influence who might be awarded spectrum
and what they might then do with it. Technical- and service-neutrality
is a goal for spectrum awards, but it can never be achieved.
57. In determining an auction design and technical
licence conditions, Ofcom has regard to what the market tells
it is the most likely source of demand, taking account of current
and imminent equipment availability. For an 800 MHz/2.6 GHz auction
in 2012, that demand is almost certainly going to be to deploy
LTE technology. Arqiva believes that Ofcom is right to assume
use of LTE for this auction.
58. Obviously an auction designed with LTE use
in mind might then preclude an alternative use, but Ofcom cannot
design an auction to accommodate every potential use and, given
the potential for spectrum between different uses to have to be
left fallow to minimise interference, arguably seeking to maximise
different uses could also lead to a sub-optimal use of that spectrum.
59. One other factor to note is that there is
a risk that, in seeking to derive new licence fees for existing
mobile spectrum from the auction values achieved for 800 MHz and
2.6 GHz, Ofcom may be tempted to then determine licence fees for
other spectrum with very different economic value, such as the
spectrum used by Freeview.
June 2011
35 Such as the wireless cameras operated by the BBC
and Sky News, and the radio mics used in virtually all television
production and many West End shows. Back
36
Long-Term Evolution, the next mobile technology after 3G. Back
37
In addition to technology upgrades and the deployment of more
sites (ie more efficient use of spectrum). Back
38
Source: Orange Business Services. Back
39
Source: AppsFire. Back
40
COM(2010) 471 final Back
41
Source: Enders Analysis. Back
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