Broadband for all -- an alternative vision

Broadband for all -- an alternative vision
Select Committee on Communications
INQUIRY INTO SUPERFAST BROADBAND
Oral and written evidence
Contents
Aardman Animations – written evidence.......................................................................................... 4 Arqiva – written evidence .................................................................................................................... 8 Avanti Communications – written evidence ................................................................................. 17 Bentley Walker – written evidence................................................................................................. 20 Boundless Communications Ltd – written evidence ................................................................... 21 British Film Institute – written evidence ........................................................................................ 24 British Recorded Music (BPI) – written evidence ........................................................................ 29 Broadband Stakeholder Group (BSG) – written evidence......................................................... 39 Broadband Stakeholder Group – oral evidence (QQ 550-622) ............................................... 48 Broadway Partners – written evidence .......................................................................................... 68 BT Group plc – written evidence .................................................................................................... 74 BT Group plc – oral evidence (QQ 466-549) .............................................................................. 86 Buckinghamshire Business First – written evidence .................................................................. 110 Professor Peter Buneman – written evidence ............................................................................ 115 Francesco Caio – oral evidence (QQ 115-135) ......................................................................... 116 Click4Internet – written evidence ................................................................................................. 127 The Coalition for a Digital Economy (Coadec) – written evidence ...................................... 131 Dr Peter Cochrane OBE – oral evidence (QQ 29-74)............................................................. 135 Communication Workers Union (CWU) – written evidence ................................................ 150 Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249) 157 Communications Consumer Panel – written evidence ............................................................ 197 David Cooper CEng MIET – written evidence ........................................................................... 210 Cotswold Community Networks Ltd – written evidence ....................................................... 216 The Country Land & Business Association – written evidence .............................................. 221 Creative Coalition Campaign – written evidence ...................................................................... 226 Cumbria County Council – written evidence ............................................................................. 230 David Hall Systems Ltd – written evidence ................................................................................. 236 Department for Culture, Media and Sport – written evidence .............................................. 241 Department for Culture, Media and Sport – oral evidence (QQ 748-809) ........................ 249 Department for Culture, Media and Sport – supplementary written evidence .................. 270 Digital Outreach – written evidence............................................................................................. 271 Directors UK – written evidence .................................................................................................. 275 Everything Everywhere – written evidence ................................................................................. 283 Everything Everywhere – supplementary written evidence ..................................................... 286 Federation of Communications Services – written evidence .................................................. 288 Federation of Small Businesses – written evidence ................................................................... 292 Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) – written
evidence ............................................................................................................................................... 296 Film Distributors Association – written evidence ..................................................................... 302 Forum of Private Business – written evidence............................................................................ 306 FTTH Council Europe – written evidence .................................................................................. 307 FTTH Council Europe and Communications Chambers – oral evidence (QQ 136-249) 313 Fujitsu – written evidence................................................................................................................ 314 Geo Networks Limited – written evidence ................................................................................ 316 Dr Tehmina Goskar – written evidence ...................................................................................... 319 GreySky Consulting – written evidence ....................................................................................... 321 Peter Griffin - written evidence ..................................................................................................... 326 Groupe Intellex – written evidence .............................................................................................. 330 Mr John Howkins – written evidence ........................................................................................... 334 Huawei – written evidence ............................................................................................................. 335 The Independent Networks Cooperative Association (INCA) – written evidence .......... 377 KCOM Group PLC – written evidence ....................................................................................... 383 Robert Kenny – written evidence ................................................................................................. 387 Leire Exchange Broadband Action Group – written evidence ............................................... 394 The Liberal Democrats Action for Land Taxation and Economic Reform (ALTER) –
written evidence ................................................................................................................................ 396 Suvi Lindén – oral evidence (QQ 1-28)........................................................................................ 397 John McDonald – written evidence ............................................................................................... 410 Miles Mandelson – written evidence ............................................................................................. 415 Miles Mandelson and Rory Stewart MP – oral evidence (QQ 430-465) .............................. 426 Dr Christopher T Marsden – written evidence ......................................................................... 444 Microsoft – written evidence .......................................................................................................... 456 Microsoft – oral evidence (QQ 623-649) .................................................................................... 463 Microspec – written evidence ........................................................................................................ 474 Dr Catherine A. Middleton – written evidence ......................................................................... 476 Middleton Tyas Parish Council – written evidence ................................................................... 481 Milton Keynes Council – written evidence ................................................................................. 482 Tom Morris – written evidence ..................................................................................................... 485 Motion Picture Association – written evidence ......................................................................... 490 The National Education Network – written evidence.............................................................. 494 NG Events Ltd – written evidence ................................................................................................ 510 2
NICC Ethernet Working Group – written evidence ................................................................ 514 Northern Fells Broadband (Cumbria) - written evidence........................................................ 518 Objective Designers – written evidence ...................................................................................... 522 Objective Designers – oral evidence (QQ 75-114)................................................................... 526 Ofcom – written evidence............................................................................................................... 543 Ofcom – oral evidence (QQ 650-747) ......................................................................................... 556 Chi Onwurah MP – oral evidence (QQ 250-282) ..................................................................... 580 Chi Onwurah MP – supplementary written evidence ............................................................... 591 Parliamentary Office of Science and Technology (POST) – written evidence .................... 594 John Peart – written evidence ........................................................................................................ 598 Mike Phillips – written evidence ..................................................................................................... 600 Simon Pike – written evidence ....................................................................................................... 602 Pitchup.com – written evidence ..................................................................................................... 608 Prospect – written evidence ........................................................................................................... 610 The Publishers Association – written evidence .......................................................................... 621 Steve Robertson – oral evidence (QQ 320-353) ....................................................................... 625 Les Savill – written evidence ........................................................................................................... 639 South West Internet CIC – written evidence ............................................................................ 640 SSE plc – written evidence............................................................................................................... 643 SSE plc - oral evidence (QQ 379-407).......................................................................................... 649 SSE plc – supplementary written evidence .................................................................................. 660 Rory Stewart MP and Miles Mandelson – oral evidence (QQ 430-465) .............................. 670 Sunderland Software City – written evidence ............................................................................ 671 TalkTalk Group – written evidence .............................................................................................. 673 TalkTalk Group – oral evidence (QQ 408-429)......................................................................... 679 TalkTalk Group – supplementary written evidence .................................................................. 688 TalkTalk Group – further supplementary written evidence .................................................... 690 Taxpayers’ Alliance – written evidence ........................................................................................ 693 Three – written evidence ................................................................................................................ 698 Three and Vodafone – oral evidence (QQ 354-378) ................................................................ 702 UCL Centre for Digital Humanities – written evidence........................................................... 715 Upper Deverills Broadband Action Group (BAG) – written evidence ................................. 717 Virgin Media – written evidence .................................................................................................... 720 Virgin Media – oral evidence (QQ 283-319) ............................................................................... 729 Vodafone – written evidence .......................................................................................................... 744 Vodafone and Three – oral evidence (QQ 354-378) ................................................................ 748 Vtesse Networks – written evidence ........................................................................................... 749 Wispa Limited – written evidence ................................................................................................. 750 3
Aardman Animations – written evidence
Aardman Animations – written evidence
Summary
1. I am making this submission as Head of IT for Aardman Animations based in Bristol.
2. Aardman are a typical creative company living in the digital age. We are in the happy
position of needing to push material out for many different types of clients and this
gives us a great deal of industrial experience. Most companies don’t cover quite as
many bases as we do, although their data needs may actually be higher. So what’s
good for us will definitely be good for the industry as a whole.
3. The submission is based around comments on the list of questions in the ‘Will
superfast broadband meet the needs of our “bandwidth hungry” nation?’ call for
evidence document; the original question is prefixed with (Q) and is in red text.
Response
4. (Q) What is being done to prevent a greater digital divide occurring between people who
can access superfast broadband and people in areas where the roll-out of superfast
broadband may not be commercially attractive? How does the UK communications market
vary regionally and what is the best way to connect the areas that the market alone cannot
reach? Is a universal service obligation necessary to avoid widening the digital divide?
5. A universal service obligation is needed, this would expand the ability of companies
to utilise home working in particular which would have a significant green advantage
whilst reducing company costs, many workers commute from poorly serviced areas,
so it is these areas that could see serious advantages from improved broadband, it
would also enable people with commitments to family at home or disabled people to
be able to engage with the workplace from a home office opening up work
opportunities that are difficult currently for many people.
We need to ensure that rural communities are not penalised due to the far greater
cost of rolling out the infrastructure for remote communities and seeing
disproportionate charges etc. for the service.
(Q) Will the Government’s targets be met and are they ambitious enough? What speed of
broadband do we need and what drives demand for superfast broadband?
6. History of government projects tends to show that targets won’t be met and will fall
short of what is expects, whilst costing far more than originally projected.
7. The digital world is moving forward at a huge pace, with broadband there is a focus
on the download speed but never on the upload speed or contention, to succeed in a
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Aardman Animations – written evidence
digital era we need to see a much greater upload speed and low contention, for
every download there has to have been an upload that is actually the important bit if
you are producing content.
8. In my opinion we need to see faster download but more importantly we need to see
upload speeds matching download speeds or it will not be of any use to people
needing to work in the digital space, contention needs to be lower to give a more
predictable performance.
As an example, a typical production size on completion is 624 Gigabytes (Shaun the
Sheep as an example) with the best business broadband speeds this would take about
6 days to upload and over a day to download… assuming you see no service
interruption.
9. I would say we need synchronous speeds in excess of 100Mb to ensure we can be
competitive in the large content production and distribution space, content is going
to continue to increase in size and complexity (>high def, 3d etc.) so bandwidth will
need to be regularly reviewed and improved.
10. (Q) In fact, are there other targets the Government should set; are there other indicators
which should be used to monitor the health of the digital economy? What communications
infrastructure does the UK ultimately need to remain competitive and meet consumer
demand over the next 20 years?
11. You need to ensure that the back end infrastructure can cope with any increase of
consumer broadband speeds; if this is neglected we will see contention at the backend that will negate any benefits at the client side. This will present itself as erratic
performance, which is not good for business working in this space.
12. We need low contention high speed (>100Mb) synchronous bandwidth to remain
competitive.
13. A number of possible metrics could be used here which could include the uptake of
broadband based digital media technologies such as TV and Film services, the uptake
of Internet TV’s and growth of smartphone and tablet sales.
14. (Q) How will individuals and companies use cloud services for distributed storage and
computation? What network properties are required to enable efficient provision and use of
such services?
15. Cloud Services are being pushed heavily by the cloud companies, but this sort of
service is completely reliant on a fast upload speed, which current high speed
broadband just does not deliver, and this is not understood by many SME’s. We
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Aardman Animations – written evidence
regularly see data changes internally of greater than 1 Terabyte, such data flows
would need serious uplink speeds to ensure those changes successfully reached a
backup/archive containment in any business acceptable time frame.
16. What also needs to be considered with cloud services is resilience of your network;
this is something that is also not properly understood. If a company moves key
business activity into the cloud they need to be very sure they have a faster and fully
resilient network link to the internet than they had previously , because if they lose
any of these links the business is at risk of not being able to function until the link is
restored. Network links are currently too expensive to make this viable to many
SME’s and hence I suspect they just take the risk of non-resilient slower links putting
their business at risk of failure.
17. (Q) To what extent will the advent of superfast broadband affect the ways in which people
view, listen to and use media content? Will the broadband networks have the capacity to
meet demand for new media services such as interactive TV, HD TV and 3D content? How
will superfast broadband change e-commerce and the provision of Government services?
18. Without doubt broadband is going to increasingly be used for all types of high
bandwidth content as we have seen in recent years. Nearly all consumption of
content in the home will be via broadband in coming years. Unless the infrastructure
is dramatically improved it will be a miserable experience for many users and
businesses.
19. These technologies are already being pushed at national level but in reality it is only
achievable in useable form in cities and large towns. Attention also has to be paid to
back end infrastructure as that risks being the bottleneck as more and more of these
client services come online. Has anyone computed the real likely costs of the
necessary infrastructure and the impact these costs may have on SME overhead, or
indeed Government services?
20. (Q) Will the UK's infrastructure provide effective, affordable access to the 'internet of things',
and what new opportunities could this enable?
21. This will only happen if significant investment is made and in all areas of the country.
If done correctly it will empower small businesses to spring up outside of the big
cities, reduce the need to travel to work and give opportunities to people who find
mobility for work difficult. It could also revolutionize communications by enabling
useable personal video conferencing capabilities etc. See above regarding costs.
22. (Q) What role could or should the different methods of delivery play in ensuring the
superfast broadband network is fit for purpose and is as widely available as possible? How
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Aardman Animations – written evidence
does the expected demand for superfast broadband influence investment to enhance the
capacity of the broadband network?
23. Multiple delivery methods definitely need to be part of the plan to ensure a broad
reach for the service in all areas.
24. If investment does not run ahead of demand we will see an appalling service that
hinders rather than helps the consumer.
25. (Q) What impact will enhanced broadband provision have on the media and creative
industries in the UK, not least in light of the increased danger of online piracy? What is the
role of the Government in assuring internet security, and how should intellectual property
(IP) best be protected, taking into account the benefits of openness and security?
26. Enhanced broadband opens opportunities for media and creative companies to reach
many more consumers in new and innovative ways. This does of course increase the
risk of piracy and hacking etc. so all companies need to pay much more attention to
security and data protection.
27. The government needs to put more funding and greater priority on internet security,
making companies far more aware of the risks they encounter when working in
cyber-space, possibly using legislation to ensure this happens, as in the finance
industries etc.
CONCLUSION
28. In my humble opinion the High speed broadband that is currently being proposed will
fall short of the requirements needed for a competitive digital economy. We need to
be looking at low contention synchronous bandwidth with speeds of 100Mb
minimum and 1Gb requirements will not be many years behind this.
29. We also need to improve the delivery times for high speed infrastructure as this can
be appalling and very expensive; even in supposedly highly connected cities. Councils
need to work closer with the data companies to smooth the way here.
4 March 2012
7
Arqiva – written evidence
Arqiva – written evidence
Summary of Key Points and Recommendations:
•
Arqiva welcomes the opportunity to respond to the House of Lords Communications
Committee’s timely new Inquiry into The Government’s Superfast Broadband Strategy.
•
The Committee are quite right to begin this Inquiry by focusing on the risk of a ‘digital
divide’. Arqiva strongly believes that the real gain for UK plc is to achieve universal
access to broadband - not to push fibre to a little over 90% penetration and then stop.
We believe there would be a considerable opportunity cost (both economically and
socially) if, come 2015, consumers who already have access to broadband were “superserved” with fibre… while millions who currently have little, or no, broadband provision
remain under-served, forgotten or left behind.
•
Arqiva strongly welcomes the £530 million of public investment in broadband being
managed by DCMS. Yet, it appears that the current broadband procurements by the
Devolved Bodies and Local Authorities in the English Counties will still leave some
consumers without access to broadband by the Government’s target of 2015. The
emphasis placed on making superfast broadband (essentially fibre) as widely available as
possible is a laudable aim - but there are insufficient funds to offer superfast to all. Some
funding must be targeted at other solutions for those who will not be offered fibre.
•
Only by investing in wireless/mobile broadband alongside fibre can we ensure that the
final 6-8% or so of homes can also have access to a minimum 2 Mbps service.
•
Arqiva welcomes Ofcom recent revised proposal to increase the coverage obligation
from 95% of the UK population to 98% in the auction of 4G licences. This is positive
news – however, by setting a UK-wide obligation, rather than measuring this obligation
by Nation separately, England, Scotland, Wales and Northern Ireland may not benefit
equally.
•
Arqiva also strongly welcomes the initiative by the Chancellor of the Exchequer to invest
£150 million in improving rural mobile phone coverage. Although principally envisaged to
address mobile voice “not spots”, it would be a missed opportunity if this Mobile
Infrastructure Project (MIP) failed to secure 4G mobile broadband for affected
consumers, as a complement to the 4G coverage obligation, not least since many of
them would have no reliable fixed line broadband alternative. To maximise the
effectiveness with which the £150 million in invested, shared infrastructure with shared
backhaul should be procured by BDUK.
•
An essential element of the UK’s digital communications infrastructure needs to be
consideration of how far the UK has managed to deliver pervasive mobile broadband and
Wi-Fi – including on the London Underground and major train lines where coverage is
currently either non-existent or, at best, patchy. Given that Transport for London and
Network Rail are both public sector bodies there is a clear role for Government in
addressing this.
8
Arqiva – written evidence
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 £630m and which is successfully being delivered to
time and budget.
Arqiva is also founder member and Shareholder of Freeview (Arqiva broadcasts all six
Freeview multiplexes and is the licensed operator of two of them) and was a key
launch technology partner for Freesat. Arqiva is also the licensed operator of the
Digital One national commercial DAB digital radio multiplex.
Arqiva operates five international satellite teleports, over 70 other staffed locations,
and around 9000 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 trucks);
• 10 TV studios (including the National Lottery Live)
• spectrum for Programme-Making & Special Events (PMSE) 1 ;
• playout (capacity to play out over 70 channels including HD); 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 welcomes the opportunity to respond to the House of Lords Communications
Committee’s new Inquiry into The Government’s Superfast Broadband Strategy.
1
Such as the wireless cameras operated by the BBC and Sky News, and the radio microphones used in virtually all
television production and many West End shows.
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Arqiva – written evidence
The Questions
What is being done to prevent a greater digital divide occurring between
people who can access superfast broadband and people in areas where the
roll-out of superfast broadband may not be commercially attractive? How
does the UK communications market vary regionally and what is the best
way to connect the areas that the market alone cannot reach? Is a universal
service obligation necessary to avoid widening the digital divide?
1. Arqiva welcomes the opportunity to respond to the House of Lords
Communications Committee’s timely new Inquiry into The Government’s Superfast
Broadband Strategy.
2. The Committee are quite right to begin this Inquiry by focusing on the risk of a
‘digital divide’. Arqiva strongly believes that the real gain for UK plc is to achieve
universal access to broadband - not to push fibre to a little over 90% penetration and
then stop. We believe there would be a considerable opportunity cost (both
economically and socially) if, come 2015, consumers who already have access to
broadband were “super-served” with fibre… while millions who currently have little,
or no, broadband provision remain under-served, forgotten or left behind. Indeed,
there is an ever-greater social and economic cost to each person who falls, or is left
behind on the wrong side of this divide. Indeed, 2009 studies undertaken by
McKinsey, Allen, OECD and the World Bank showed that a 10% increase in
broadband penetration results in a 1% increase in the rate of growth of GDP. Now,
more than ever, the UK needs growth.
3. Broadband penetration varies considerably by area, as does its speed and reliability
for consumers who can access it. Sadly, the actual take-up in some areas falls far
short of potential access. Digital inclusion cannot be overlooked.
4. Arqiva, therefore, strongly welcomes the £530 million of public investment in
broadband being managed by DCMS. Yet, it appears that the current broadband
procurements by the Devolved Bodies and Local Authorities in the English Counties
will still leave some consumers without access to broadband by the Government’s
target of 2015. The emphasis placed on making superfast broadband (essentially fibre)
as widely available as possible is a laudable aim - but there are insufficient funds to
offer superfast to all. Some funding must be targeted at other solutions for those
who will not be offered fibre.
5. There needs to be a mixed solution: fibre where it makes most sense to deploy it;
wireless/mobile broadband for the remainder - except for the most remote locations
which could only practically be offered satellite broadband.
6. Only by investing in wireless/mobile broadband alongside fibre can we ensure that
the final 6-8% or so of homes can also have access to a minimum 2 Mbps service.
7. To that end, Arqiva welcomes Ofcom recent revised proposal to increase the
coverage obligation from 95% of the UK population to 98% in the auction of 4G
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Arqiva – written evidence
licences. This is positive news – however, by setting a UK-wide obligation, rather
than measuring this obligation by Nation separately, England, Scotland, Wales and
Northern Ireland may not benefit equally.
8. Arqiva also strongly welcomes the initiative by the Chancellor of the Exchequer to
invest £150 million in improving rural mobile phone coverage. Although principally
envisaged to address mobile voice “not spots”, it would be a missed opportunity if
this Mobile Infrastructure Project (MIP) failed to secure 4G mobile broadband for
affected consumers, as a complement to the 4G coverage obligation, not least since
many of them would have no reliable fixed line broadband alternative. To maximise
the effectiveness with which the £150 million in invested, shared infrastructure with
shared backhaul should be procured by BDUK.
The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
9. Arqiva welcomes the £530 million intervention – but the emphasis appears to be on
enabling the market to deliver superfast to 90% of households by 2015 – rather than
ensuring that all households have reliable access to broadband of at least 2Mbps (fast
enough for iPlayer). We also note that at the time of writing not one single contract
has been placed – so it is too early to tell whether the amount is being effectively
applied.
10. Developing ‘maximum social and economic benefit’ requires more than just
maximising access to broadband, it also requires:
•
•
•
Competition amongst service providers, where the terms of access to
BT’s infrastructure and services is a factor (we also note that Ofcom
currently proposes to apply the 4G coverage obligation to only one
mobile operator)
Lowering prices to ensure all households are able to afford access (if
superfast is offered at a premium price to “fast enough” broadband, then
many consumers won’t take it).
An effective strategy for digital inclusion.
11. However, Arqiva believes the debate about ‘superfast’ broadband is not just about
installing the infrastructure, it’s about the uses to which it is put and what we can
achieve with it. We note that the Government has ambitious plans to move to
digitised public services, which should i) deliver better public services for lower cost;
and ii) create a new dialogue between citizens and public service providers. We
recognise there is also a broad consensus that a programme to address digital
inclusion is essential, not just to ensure that the expected efficiency savings from
digitising public services are achieved, but as an instrument of real social change:
•
•
Improving the life chances for the unemployed.
Widening access to online educational materials and resources and
ultimately raising children’s grades and life chances.
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Arqiva – written evidence
•
Enabling the financially-disadvantaged and less knowledgeable, or media
literate, to pay the same discounted prices for commercial products and
services as the technology-savvy (who, ironically, are usually better able to
pay more).
12. In addition, there is a risk that the much-heralded huge cost savings from slimming
down “offline” Whitehall will not be realised - until access to digitised public services
becomes universal.
Will the Government’s targets be met and are they ambitious enough? What
speed of broadband do we need and what drives demand for superfast
broadband?
13. The government target of having the “best broadband in Europe” in 2015 is very
challenging, and Arqiva believes this will be difficult to meet within the current
funding if it is interpreted as meaning that there will be universal access to the best
broadband in Europe.
14. Arqiva is concerned, as outlined above, that there remains a risk that not everyone
will get something by 2015. We believe that all households should receive a minimum
of 2 Mbps of reliable broadband which is sufficient to watch BBC iPlayer, and file tax
returns etc. True, consumer demands may exceed this in the future – not least
where demand for faster speed is driven predominantly by ‘multiple-user’
households. However, there is currently no clear legal driver at present for
‘superfast’ broadband.
In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
15. As well as coverage and availability, Government should measure both take-up and
usage. At the moment there is little data captured regarding how services are used,
although we note that the UK is the European leader in e-commerce use.
16. The competitive market is delivering the infrastructure that it thinks consumers will
need and which can be provided at a price that they will pay (which is where
commercial provision in many rural areas is so challenging); it remains the best
arbiter for investing in communications infrastructure. However, in order to ensure
industry continues to invest in the future, both government and Ofcom must ensure
that the levels of competition in the market are maintained and/or strengthened.
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Arqiva – written evidence
17. In addition, Arqiva believes that as video is the principal driver of consumer-demand
for data (and fast access to it), government needs to also have regard for content
delivery networks and UK-based data centres.
How will individuals and companies use cloud services for distributed
storage and computation? What network properties are required to enable
efficient provision and use of such services?
18. Cloud computing offers flexibility to the Enterprise market, enabling SMEs to access
the computing power previously enjoyed only by much larger competitors. For
consumers, access to cloud services enables content and other data to be shared
between devices so that, for example, phone contacts need no longer be specific to
their current handset, and books and films can be “bookmarked” to enable later
continuation from the same point on a different device.
19. Demand for Data Centres will expand as market demand for digital content and
services grows. As facilities grow in size and number, the associated increase in
power consumption will require far greater efficiency in terms of the facility power
utilisation and within IT server / storage equipment. The growth in HD video and
content distribution networks will require a wider geographical distribution of Data
Centre facilities and require higher capacity connectivity.
To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such as
interactive TV, HD TV and 3D content? How will superfast broadband
change e-commerce and the provision of Government services?
20. Arqiva maintains that some broadband is better than nothing – and that the faster the
broadband the better the experience. However, the way that audiences are
consuming media content has changed significantly over the past decade. New
platforms, services, applications and devices will continue to shift consumer
behaviour.
21. Consumers are demanding “catch up” content from BBC iPlayer, ITV Player, 4oD
and similar applications in ever greater numbers. Although this is overwhelmingly
additional, rather than substitutional, to consumption of traditional linear television.
Audiences are increasingly irritated by problems like ‘buffering’ from poor broadband
connections. With such applications being rolled out to tablets and other mobile
devices, we are witnessing a shift in consumer demand to more data being consumed
outside the home or office and ‘on the go’.
22. An essential element of the UK’s digital communications infrastructure therefore
needs to be consideration of how far the UK has managed to deliver pervasive
mobile broadband and Wi-Fi – including on the London Underground and major train
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Arqiva – written evidence
lines where coverage is currently either non-existent or, at best, patchy. Given that
Transport for London and Network Rail are both public sector bodies there is a
clear role for Government in addressing this.
Will the UK's infrastructure provide effective, affordable access to the
'internet of things', and what new opportunities could this enable?
23. The “Internet of Things” is a reference to pervasive “machine-to-machine”
communications, where devices such as energy smart meters, connected TVs,
connected fridges and connected cars unilaterally access the internet to communicate
data about their performance, location, consumer usage data etc. Machine-tomachine communications is expected to grow exponentially, so that there will be
many more devices connected to the internet than people, although the absolute
amount of data generated may be relatively small.
24. If the UK’s infrastructure is to enable effective access to such communications, then
it needs to be recognised that the “last hop” will almost always be wireless, so both
availability of suitable spectrum and associated infrastructure where demand is likely
to be generated are key considerations.
25. Access could not be regarded as effective if machine-to-machine communications
were essentially precluded from the London Underground, major train lines or major
roads (in that latter case, Intelligent Transport Systems are expected to be a major
growth area where the UK should be positioning itself as Europe’s lead). To that end
public sector bodies such as Network Rail, Highways Agency and Transport for
London will have a role to play.
How might superfast broadband change the relationship between providers
and consumers in other sectors such as content? What aspects of this
relationship are key to enabling future innovations that will benefit society?
26. It is too early to say with any certainty how superfast broadband will change
relationships between providers and consumers in other sectors such as content.
Arqiva notes that during the last decade the digital consumption of music and, for
that matter books, has posed serious questions and challenges for the long-term
future health of the music and book publishing world. The online legal purchase of
music through iTunes and Amazon etc – as well as the ongoing challenges of illegal
downloading has posed questions for producers, and rights-holders as well as the
business models of traditional retailers including HMV, WH Smith and the defunct
Woolworths. Superfast broadband may similarly pose challenges for linear
broadcasting and the traditional public service broadcasters, with significant
implications for investment in UK-originated content. However assuming that
consumers will continue to overwhelmingly demand content of UK origin, then
universal access to broadband will offer new routes to market for UK content
producers outside of their traditional relationship with broadcasters.
27. Faster broadband will clearly be beneficial for households likely to demand
simultaneous HD content, but in the medium term ensuring universal access to
14
Arqiva – written evidence
broadband may prove to be a bigger enabler of new content opportunities than
superfast. Whether broadband does change the relationship between content
providers and consumers will also be influenced by ‘data caps’, where even in
Standard Definition a single one hour programme could comprise 1GB of data.
28. For this reason, in addition to its universality, Freeview will continue to offer a more
efficient means of offering a range of (increasingly HD) content to all consumers.
What role could or should the different methods of delivery play in ensuring
the superfast broadband network is fit for purpose and is as widely available
as possible? How does the expected demand for superfast broadband
influence investment to enhance the capacity of the broadband network?
29. Public investment will maximise the number of consumers who will be offered
superfast broadband, where the vast majority will be offered a service based on
Fibre-To-The-Cabinet (FTTC) rather than Fibre-To-The-Premise. But even FTTC
would be prohibitively expensive to provide for many rural consumers, including
many of the 30% of SMEs in rural areas which would be too small to justify their own
dedicated Ethernet line, so would need consumer or small business ISPs for
connectivity.
30. As we contend above, wireless/mobile broadband must complement fixed provision
to ensure that broadband is as widely available as possible. Unlike fixed solutions, no
roads need to be dug up and no ducts shared (not that there are many in rural areas
anyway), so wireless broadband could be deployed quickly.
31. As already stated, given the limited commercial appeal to the market of offering
broadband to the last 5% or so of the population, both Ofcom’s proposed 4G
coverage obligation and the MIP are essential elements in ensuring that those
consumers who won’t be offered superfast are still offered broadband of at least 2
Mbps.
32. There will still be some consumers for whom even wireless broadband would not be
the most cost-effective solution. Where population density falls below 15 houses per
km2, satellite is likely to be the cheapest broadband solution. However the level of
monthly subscriptions and associated speed and data caps, latency, and even “rain
fade” are issues with satellite broadband.
Does the UK, for example, have a properly competitive market in
wholesale fibre connectivity? What benefits could such a market provide,
and what actions could the Government take to ensure such a market?
33. Ofcom must remain vigilant that the competition remedies in place continue to
deliver the benefits that we have seen over the last decade, and explore alternative
remedies in the future should existing remedies fail to sustain the level of
competition that the market is capable of supporting.
15
Arqiva – written evidence
What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of
online piracy? What is the role of the Government in assuring internet
security, and how should intellectual property (IP) best be protected, taking
into account the benefits of openness and security?
34. As already argued, universal and (on average) faster broadband connections have the
potential to offer new ways for content producers to reach consumers. Faster
speeds enable simultaneous consumption of HD content and should particularly
provide new opportunities for the UK’s innovative games industry to extend
successful franchises such as Grand Theft Auto to a real-time multi-player service.
35. It is not clear what the relationship might be between piracy and superfast
broadband; one view is that improved infrastructure may better support attractive
legal services that would entice the consumer away from illegal services; another is
that more bandwidth will support more piracy. In any event it is probably not helpful
to link the two issues too closely and instead focus on the current remedies being
pursued now in relation to the protection of IP online. In addition, a move to cloud
services and initiatives such as UltraViolet may help to reduce online piracy.
13 March 2012
16
Avanti Communications – written evidence
Avanti Communications – written evidence
What is being done to prevent a greater digital divide occurring between people who can access
superfast broadband and people in areas where the roll-out of superfast broadband may not be
commercially attractive?
ANSWER
The phrase super fast broadband is misleading. No government report has adequately
explained why 24Mb is necessary. Fibre provides this kind of peak speed, but only in urban
areas, so why promote this as a national target?
But one could alternatively choose to prioritise a technology which provides 100%
geographic coverage at 10Mb as satellite does. The Broadband Stakeholder Group, in its
work leading up to the Carter Report did NOT recommend a 24mb standard. We believe
that government has got carried away promoting a technical standard which is unnecessary,
impractical and not at all analysed or clearly understood. 24Mb would only be necessary if
multiple occupants of a dwelling were simultaneously watching streaming high definition
television. Is this an objective worthy of government subsidy, when HD television is
universally available at lower cost with BSkyB?
The provision of fibre on a universal, national basis is a preposterous notion which ignores
fundamental economics. If the £530m is spent on fibre, it will either:
A) subsidise investments which would have been made anyway in densely populated areas,
or
B) fund pilot projects which are not economically viable and will end when the subsidy ends.
Government objectives should instead by re-prioritised to make sure that every family in the
country has a minimum 2mb broadband service. Satellite can provide 10Mb universally and
should therefore be the technology of choice.
How does the UK communications market vary regionally and what is the best way to connect the
areas that the market alone cannot reach? Is a universal service obligation necessary to avoid
widening the digital divide?
ANSWER
There is no such thing as a region that the market cannot reach. Satellite can provide 10Mb
everywhere. The installation costs of up to £400 can be a barrier for some families or their
service providers but are VASTLY lower than the enormous cost of laying fibre outside
cities.
The Government have committed £530 million to help stimulate private investment – is this enough
and is it being effectively applied to develop maximum social and economic benefit?
17
Avanti Communications – written evidence
ANSWER
No, it should be target first at Universal service.
Will the Government’s targets be met and are they ambitious enough? What speed of broadband
do we need and what drives demand for superfast broadband?
ANSWER
The government will fail to ensure that every family has broadband because it is wasting
money on unnecessary pilots with the wrong technology. Every child should have access to
broadband regardless of family income, and every job seeker should have the same access to
information.
In fact, are there other targets the Government should set; are there other indicators which
should be used to monitor the health of the digital economy? What communications infrastructure
does the UK ultimately need to remain competitive and meet consumer demand over the next 20
years?
ANSWER
Universal Service should be mandatory.
How will individuals and companies use cloud services for distributed storage and computation?
What network properties are required to enable efficient provision and use of such services?
No comment
To what extent will the advent of superfast broadband affect the ways in which people view, listen to
and use media content? Will the broadband networks have the capacity to meet demand for new
media services such as interactive TV, HD TV and 3D content? How will superfast broadband
change e-commerce and the provision of Government services?
ANSWER
The highest profile media will remain broadcast because it is time sensitive, and this is
overwhelmingly more efficient using broadcast technology rather than unicast. Time shifted
download content will grow, but it will not dominate, and the costs of using it will moderate
consumer behavior.
Will the UK's infrastructure provide effective, affordable access to the 'internet of things', and what
new opportunities could this enable?
ANSWER
The market will provide adequate service; the question which remains is about affordability
to the poorest families.
18
Avanti Communications – written evidence
How might superfast broadband change the relationship between providers and consumers in other
sectors such as content? What aspects of this relationship are key to enabling future innovations
that will benefit society?
What role could or should the different methods of delivery play in ensuring the superfast
broadband network is fit for purpose and is as widely available as possible? How does the expected
demand for superfast broadband influence investment to enhance the capacity of the broadband
network?
ANSWER
Money wasted on fibre subsidy is crowding out the benefits of Universal Service.
Does the UK, for example, have a properly competitive market in wholesale fibre connectivity? What
benefits could such a market provide, and what actions could the Government take to ensure such a
market?
No comment
What impact will enhanced broadband provision have on the media and creative industries in the
UK, not least in light of the increased danger of online piracy? What is the role of the
Government in assuring internet security, and how should intellectual property (IP) best be
protected, taking into account the benefits of openness and security?
No comment
12 March 2012
19
Bentley Walker – written evidence
Bentley Walker – written evidence
May I present the following remarks/responses to points raised in respect to broadband
delivery throughout the UK.
Digital Britain target is questionable!
The delivery through fibre optic service suppliers has a major part to play and one would
imagine a significant target to achieve. The costs associated are obviously significant and
the time to complete the infrastructure completion is upon us. I readily except that Fibre
Optic services for broadband are suitably justified throughout urbanised areas but to what
expense elsewhere. I just feel that we have been ignored to some degree as a satellite
internet service provider, currently delivering systems to many homes through the UK,
providing speeds up to 10mgbts/sec. If you map out the not spots and allocate satellite
broadband services to these locations then the job to achieve Digital Britain becomes easier
to achieve. We could work together with these fibre optic service providers to deliver the
satellite broadband solution where the infrastructure becomes unfeasible, this would make
some sense. We could actively complete 1,000s of installations throughout the UK within
weeks; it is purely a case of working out our position and objectives adding a government
supportive marketing statement explaining our position in respect to the delivery of
broadband to these rural communities/villages.
Please examine our pricing and proposal based on a method to achieve the Digital Britain
target in conjunction to Fibre Optic services which means a subscription from the second
month is the only payment required by the customer cost.
Customer requires hardware & installation plus a service speed of 6mgbts/sec download and
is a (light user) £214.99 hardware cost and completed installation which includes the first
month subscription @ £24.99 /month. (All prices inc vat.)
With a grant of £250.00 by allocation we can then actively market the services to these
locations with the supportive statement outlining our position in providing internet
connection at these locations. The problems with current grant arrangements it is left to the
customer to become aware of the offer which leads to low up takes and the service
provider to not market the product effectively.
17 February 2012
20
Boundless Communications Ltd – written evidence
Boundless Communications Ltd – written evidence
Questions the Committee will consider:
What is being done to prevent a greater
digital divide occurring between people
who can access superfast broadband and
people in areas where the roll-out of
superfast broadband may not be
commercially attractive? How does the
UK communications market vary
regionally and what is the best way to
connect the areas that the market alone
cannot reach? Is a universal service
obligation necessary to avoid widening
the digital divide?
Response
Name/Status
1 Andy Wilson, Chief
Executive
Boundless Communications
Response on behalf of Boundless Communications
There has been and continues to be a great deal of coverage
about bridging the digital divide with many private and
Government initiatives aimed at delivering a uniformly high speed
service. It is our view that although these initiatives are well
intentioned most seem to start from the premise that the only
way forward is “Fibre”. Although this is an ideal solution for
many premises (business and residential) it is not a cost effective
solution for many in rural communities and some business parks,
located on the outskirts of many towns. As a consequence the
strategy of ”upgrading exchanges and certain cabinets with fibre”
will actually widen the digital gap by delivering higher and higher
speeds to the people that currently receive acceptable
broadband whilst leaving many people with the same or even
lower speeds.
For example it is estimated that this type of policy would address
95 -97% of the population in Lancashire; Lancashire County
Council estimates, January 2012.
It is our view that the 3-5% not covered will probably account
for over 10% of the rural community; the very communities
these initiatives are aimed at.
This does not have to be the case. It is possible to deliver a
super-fast service at speeds of up to 100Mbps into virtually all
community groups and businesses now. To do this government
strategy needs to change from a technology, grant funding and
partnership perspective to achieve it.
21
Boundless Communications Ltd – written evidence
By adopting a blend of FTTC (Fibre To The Cabinet) and FTTM
(Fibre To The Mast) coupled with high speed radio delivery to
the premises that cannot be reached easily with fibre it is
possible to deliver 100Mbps broadband to virtually everyone
now.
Grant funded FTTC schemes will not address the demand or the
population fully in Rural areas. A “Universal Service Obligation”
is a must along with the recognition that large Tier 1 providers
will not deliver without partnerships with other smaller rural
providers.
The Government have committed
£530 million to help stimulate private
investment – is this enough and is it
being effectively applied to develop
maximum social and economic benefit?
2 Andy Wilson, Chief
Executive
Boundless Communications
Will the Government’s targets be met
and are they ambitious enough? What
speed of broadband do we need and
what drives demand for superfast
broadband?
3 Andy Wilson, Chief
Executive
Boundless Communications
In fact, are there other targets the
Government should set; are there other
4 Andy Wilson, Chief
Executive
22
The £530M is a welcome addition to help bridge the “Digital
Divide”. However, many organisations ideally suited to deliver
maximum benefit to rural communities are prohibited from
bidding because of the selection criteria used. It appears to be
geared towards large Tier 1 providers. Adopting a more flexible
approach would allow other companies to participate delivering
greater penetration and a faster roll out at a much lower price
point.
Targets will always be achieved if the criteria used for defining
them are not tight enough. For example “97% of the population
will receive superfast broadband” is a great headline figure and
technically true. However if you are in the 3%, which may
actually equate to 10 or 20% of the rural population in
geographic terms, it is a failure. Care should be taken to ensure
any targets will directly drive benefits to the communities in real
need. It is possible with a blend of technology to deliver high
speeds to the majority of communities providing coverage close
to 100%.
See (1 & 3) above however more specific measurements
focussed directly at the target communities and groups should be
Boundless Communications Ltd – written evidence
indicators which should be used to
monitor the health of the digital
economy? What communications
infrastructure does the UK ultimately
need to remain competitive and meet
consumer demand over the next 20
years?
What role could or should the different
methods of delivery play in ensuring the
superfast broadband network is fit for
purpose and is as widely available as
possible? How does the expected
demand for superfast broadband
influence investment to enhance the
capacity of the broadband network?
Does the UK, for example, have a
properly competitive market in
wholesale fibre connectivity? What
benefits could such a market provide,
and what actions could the Government
take to ensure such a market?
Boundless Communications
implemented. For example tighter geographic speed targets
down to post code sector (incode) level rather than high level
percentage statements. This would focus any funding to areas of
real need rather than “easy wins”. This approach would
maximise the benefit into areas either poorly or not served at all.
5 Andy Wilson, Chief
Executive
Boundless Communications
See (1) above. It is essential if we are to achieve a near universal
superfast service to use a variety of delivery methods. FTTC and
fibre to the home is not a cost effective or practical solution for
many rural properties. A combination of 4G, FTTC, FTTM and
either fibre to the home or high speed radio links will allow the
government to exceed its superfast broadband goals. A pure
fibre strategy will fail and prove to be prohibitively expensive. A
typical radio link from an FTTM mast can be delivered for less
£300 per property. The equivalent fibre delivery in hard to
reach communities would typically run into the thousands or
even tens of thousands per property.
YES in major towns and cities however NO in rural areas. A
scheme that would allow rural broadband projects either
managed by the community or speculative ventures by business
to receive subsidised super high speed fibre backhaul, Gbps
speeds, would massively reduce the delivery costs for these
projects. This would allow smaller more agile
organisations/communities to offer competitive superfast
services in areas that would not be cost effective otherwise.
Local connectivity is a must but this must be coupled with high
speed backhaul to ensure the digital gap is bridged.
6 Andy Wilson, Chief
Executive
Boundless Communications
March 2012
23
British Film Institute – written evidence
British Film Institute – written evidence
Introduction
1. The British Film Institute (BFI) is today the lead organisation for film in the UK.
Founded in 1933, it has always been a champion of film culture in the UK but in its
new wider role, it has the additional purpose of supporting and helping to develop
the entire film sector. Its Royal Charter emphasises its responsibilities to develop the
arts of film, television, and the moving image. Its new role as a Government armslength body and distributor of Lottery funds, widens the BFI’s strategic focus and
increases its potential impact, both culturally and industrially.
The BFI welcomes the opportunity to respond to the House of Lords Select
Committee on Communications’ Call for Evidence in relation to its inquiry into the
Government’s superfast broadband strategy.
2. The Government’s broadband strategy has important implications for the film
industry in general, and for film culture and the BFI’s public policy goals in particular.
As with other content industries, the internet is transforming the ways in which films
are delivered and consumed, both legally and illegally. As with other forms of
content, there are both opportunities and threats.
3. The greatest opportunity comes from the growing availability of video-on-demand
(VOD) services, which allow potentially limitless libraries of films to be offered to
people wherever they live. Films and other forms of audiovisual content are being
consumed in greater amounts on smart-phones and tablet devices. And as take-up of
connected TVs grows, VOD services will migrate over time from PCs to TV sets,
allowing families and friends to watch films together on large screens in their living
rooms.
4. The BFI especially welcomes the access VOD services can potentially provide to
contemporary and classic British and international films that have historically been
difficult to see, especially for people who live a distance from their nearest
independent cinemas (which are typically located in the main metropolitan areas). As
well as allowing films themselves to be distributed, new digital services offer a wide
range of information on films – such as film-related news and blogs, previews and
clips, and reviews – enabling communities of fans to engage more deeply with the
films that they love.
5. As DVD sales fall, it is important for film rights-holders to be able to develop new
business models that generate sufficient income from the exploitation of films via
online services. Alongside the difficulty in establishing viable business models, one of
the biggest threats to the film industry comes from copyright theft and infringement,
given the ease with which it is possible to make perfect digital copies of films and
distribute them illegally around the world.
6. The Call for Evidence asks if superfast broadband will meet the needs of our
“bandwidth hungry” nation. More than any other popular form of content, film is
highly reliant on fast and reliable broadband services to enable online distribution,
given the large data requirements: it is audiovisual in nature, feature-length films often
24
British Film Institute – written evidence
run to more than two hours in duration, and consumer expectations of high picture
and sound quality are typically higher than for other forms of audiovisual content
(such as TV programmes). Our understanding is that minimum bandwidth
requirements of 3Mb/s are needed to provide DVD-quality pictures. The
requirements for HD video are higher (in the region of 5-10Mb/s) and much higher
still to match the quality of Blu-ray discs (50-100 Mb/s).
7. For these reasons, the rollout of superfast broadband in the UK will have a significant
effect on the film sector. This brief submission responds to the issues raised by the
Call for Evidence that are of greatest concern to the BFI. We would be pleased to
provide further information to the Select Committee on any of the matters
discussed, on request.
Responses to individual questions
Overall communications infrastructure
1. What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
The BFI believes that the UK needs a broadband infrastructure that is (a) universally
available, and (b) sufficiently fast to provide the full range of digital media services that
people will demand. We discuss these points in relation to other questions in greater
detail below.
2. To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such as
interactive TV, HD TV and 3D content?
For films, in particular, the availability and quality of superfast broadband services will
have a significant impact on levels of consumption in the home. The success of DVDs
relative to their predecessors, VHS cassettes, indicates how much consumers value
superior picture and sound quality, and how this can drive levels of consumption.
The growth in demand for large flat-screen HD TV sets in people’s homes has led to
the increased popularity of Blu-ray discs in recent years, offering even higher levels of
quality, including the ability to offer films in 3D (this also requires special TV sets and
glasses, although glasses-free 3D technologies are expected to come to market in the
near future). Audiences increasingly want to watch feature films at home with the
highest levels of picture and sound quality. New VOD services linked to connected
TVs can potentially bring vast libraries of films to people’s living rooms. But such
services can only deliver HD-level (or higher) sound and vision with superfast
broadband. Reliability of service is also very important. At peak times of day,
delivered broadband speeds can be substantially less than advertised rates. This has a
disproportionate impact on video streaming services. As with other utilities, fit-forpurpose broadband networks need sufficient capacity to be able to meet demand at
all times of day.
More generally, superfast broadband opens up the potential for a broader range of
consumer, business and educational services, particularly those that require two-way
25
British Film Institute – written evidence
interactivity or which involve the use of moving images. One area of particular
interest to the BFI, given its educational remit, is the potential for new services to be
developed that facilitate learning in schools and in higher education.
Given the rapidly growing demands for bandwidth for audiovisual and other kinds of
content that we can expect over the coming years – which will be exacerbated by
the development of cloud-based services and by the proliferation of new kinds of
internet-enabled devices – we agree with the comment in the Call for Evidence that
broadband speeds of 1Gb/s may be needed by 2020, if not sooner (see also para 4
below).
Digital divide
3. Several questions in the Call for Evidence relate to the digital divide, and regional
variations in service. The BFI welcomes the focus on the digital divide in the Call for
Evidence. A key public policy goal of the BFI is to ensure that audiences all over the
UK have access to a rich diversity of films. As we noted in the introductory remarks,
VOD services potentially have an invaluable role to play in making a rich and diverse
range of films available to rural and remote populations. There is a risk that – if the
digital divide is not adequately addressed – the same people who do not live close to
independent cinemas or other cultural venues that offer films other than those
programmed by the main multiplex chains will likewise be denied of access to VOD
services that would expand the range and kinds of films available to them.
4. Is a universal service obligation necessary to avoid widening the digital divide?
We believe that the Government’s commitment to ensuring universal access to
standard (2 Mb/s) broadband represents only a modest start. As ever more
audiovisual content is distributed online, and in particular as the demand for access
to feature films grows, the BFI believes that such speeds will rapidly come to seem as
outdated as dial-up internet access now is. We believe that the universal access
provisions should be extended, over a sensible time frame, to superfast broadband,
to ensure that feature films are not excluded from the types of content that are able
to benefit from this new means of delivery.
We would welcome greater clarity in the definitions of broadband speeds, as
different levels of what are loosely referred to as “superfast” broadband will have
very different implications for the range of services that are feasible. Speeds of 1Gb/s
(which the South Korean government aims to achieve in all homes by the end of this
year) will enable a much richer range of services than speeds of 100Mb/s, for
example. We would suggest that different tiers of “superfast” broadband should be
clearly defined (e.g. 1-10 Mb/s, 10-100 Mb/s, etc), and that the government should set
an ambitious but realistic series of targets to achieve universal access for each
successive tier of broadband over the next decade.
5. The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit [in locations where the commercial
investment case is weak]?
26
British Film Institute – written evidence
While the BFI is not in a position to comment on the effectiveness of the deployment
of the £530 million of public funds, we believe that sufficient funds should be made
available to ensure that the universal service obligations can be met, given that it will
not be commercially viable to serve the most remote parts of the UK.
Impact on creative industries
6. How might superfast broadband change the relationship between providers
and consumers in other sectors such as content?
The BFI believes that superfast broadband can stimulate a series of positive changes
in the film industry, to the benefits of audiences and the industry alike. On the supply
side, as noted above, it becomes feasible to offer much wider selections of films than
are typically offered in cinemas and video rental stores. This means that, where most
multiplex cinema chains mostly show films from the major studios, there is far more
potential for VOD services to make available films from a wider selection of
producers and distributors. This can have positive benefits for UK plc, helping British
filmmakers get their films to audiences. Of particular importance to the BFI is the
ability for a wider range of current and archive British films to be made available to
the public, including those in the BFI National Archive. On the demand side, audience
tastes need no longer be constrained by the range of films on offer at their local
multiplex. These changes can trigger a virtuous circle: by expanding audiences’
horizons, it can stimulate demand for a more diverse range of films, making it easier
for British filmmakers to raise funding for new projects.
7. What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of
online piracy? What is the role of the Government in assuring internet security,
and how should intellectual property (IP) best be protected, taking into
account the benefits of openness and security?
Our responses to previous questions have covered the impact of broadband
provision on film, focusing primarily on ensuring the potential opportunities can be
realised. Alongside this, online copyright theft and infringement is a major concern, as
we noted in the introduction. As an organisation which invests public money in the
production, distribution, exhibition and archiving of films, the BFI is keenly aware that
copyright infringement and theft is damaging to the interests of citizens generally as
well as to rights-holders and the creative community. It is crucial that rights holders
are able to make their films available to audiences secure in the knowledge that there
is a robust legal framework in place which is designed to significantly reduce
copyright infringement and theft – both online and offline. In previous submissions,
the BFI has welcomed the announcements by Government regarding the next steps
for the implementation of the Digital Economy Act (DEA) in respect of measures to
curb online copyright infringement, and we wish to see rapid implementation of the
measures to significantly reduce online copyright infringement that are contained
within the Act.
Conclusion
27
British Film Institute – written evidence
8. Film is the most “bandwidth hungry” of all kinds of content, and demand for films via
new VOD services will play a significant role in setting overall levels of demand for
bandwidth from UK consumers. The BFI believes that the Government’s superfast
broadband policy should seek to ensure universal access across the UK, closing the
digital divide over time. This will enable audiences across the country to access the
rich heritage and diversity of films – and information about them – with an ease
never previously available. Measures to combat online piracy should remain a
priority for the Government, to enable legal services to develop and viable business
models to emerge.
March 2012
28
British Recorded Music (BPI) – written evidence
British Recorded Music (BPI) – written evidence
The BPI (British Recorded Music Industry) is the representative voice for the recorded
music industry. Our membership comprises 426 record companies and associates including
over 350 independent labels and the four major record labels – Universal Music, Sony Music,
EMI Music and Warner Music. Together, these account for more than 85 per cent of the
sound recordings sold in the UK every year.
The BPI welcomes this inquiry as a sensible way to look at broadband development in the
round, considering all of the potential economic benefits but also the costs. Higher speeds of
broadband ensure that consumers and businesses can access large audio visual files, enabling
the speedy consumption, distribution and use of content. Much of the economic benefits of
wider access to broadband will accrue to those countries that produce the best content and
in this the UK has a comparative advantage as a world leader in creative content.
Within this submission we will give some context of the economic success of the UK music
industry and highlight the opportunities and challenges of superfast broadband. The
submission makes several recommendations to ensure a healthy, growing digital economy
that allows the UK to maintain its comparative advantage in content. The BPI recommends
that:
•
•
•
•
•
•
ISPs in the UK that are publicly subsidised sign up to voluntary agreements with
rights holders, based on the US model, to implement graduated response to
copyright infringement by subscribers on the network. This should be a condition of
the subsidy and should be contracted for through any intermediary.
Subsidised broadband networks must offer software filters to subscribers that allow
parents to make decisions about access to content by children using the metadata
from schemes such as Parental Advisory.
Government sets a target to reduce illegal distribution of content on UK networks.
The distribution of subsidy should be connected to this target, so that increased
speeds go hand in hand with increased security.
Government does not extend a format shifting exception to cloud services, and
makes it clear that cloud services should seek licences for storage and access to
copyrighted material.
Ofcom be given both a general duty to tackle infringing content online to ensure
customers have confidence in safety and legality online, particularly when using
trusted brands. BPI also recommends that the Ofcom media literacy duty includes a
duty to educate about copyright and the importance of using legal sites.
BPI recommends that the Intellectual Property Office is re-established as a body to
champion the UK copyright industries, with clear statutory duties to protect and
promote the interests of UK intellectual property in the UK and overseas and to coordinate effective enforcement of UK rights domestically and internationally. The
Intellectual Property Office should also have a duty to educate consumers on the
value of ideas and intellectual property and the importance of respecting intellectual
property rights
The Digital World and Music
29
British Recorded Music (BPI) – written evidence
1.
The growth of online means that the UK music industry can sell content in many
different ways to consumers and faster broadband access makes it much easier for
consumers and businesses to access and share content. However, it also allows the
widespread uploading and downloading of content illegally.
2.
Music has embraced digital markets, and the UK is a world leader in innovation in
digital music services. However, Internet piracy remains a huge problem for the future
development of the UK digital music market as faster speeds make it harder for
legitimate businesses to compete with illegal file sharing sites and prices are
constrained by free illegal content. Faster broadband speeds mean it is possible
to illegally download all 24 of the Beatles albums (compiled as a
discography) in less than an hour. The BPI ran a test on the Adele discography
whilst compiling this response and all of it could be obtained and downloaded illegally
in fewer than 30 minutes.
3.
Without effective measures to combat piracy, legitimate business models will always
be competing with illegal, free content. Revenues lost to UK content industries are an
economic loss that means jobs, growth and opportunity for world class UK creative
talent. The lack of implementation of the Digital Economy Act is a stumbling block to
the ability of the creative community to enforce their own rights. The Act was passed
almost two years ago in April 2010 and has not yet been implemented. As a result,
rights holders continue to lose revenue which is vitally important in the investment of
future generations of musical talent.
British Music and the Economy
4.
The British music industry is the second largest exporter of music in the world
with a 12% share of global sales of recorded music. This is significantly higher than the
UK’s average share of trade in goods (3%) and services (7%).
5.
Following in the footsteps of an exceptional heritage of global superstar artists, British
performers still punch above their weight:
•
Adele’s album 21 was the biggest selling album in the world in 2011. The
top-selling global artist album also came from a British act in four of the
last five years; 2
•
in 2011, for the fourth year running, British artists accounted for around one
in 10 of every artist album sold in the US, with cumulative share of sales totalling
11.7% (up from 9.8% the previous year);
•
In March 2011, the UK claimed the top 3 positions in the US Billboard Album
chart with Adele, Mumford and Sons and Marsha Ambrosius for the first time in
over 25 years; and
•
Adele’s album 21 had the longest run at the top of the US charts by a UK
album this century (overtaking the Beatles 1 album in 2000).
6.
The trade in invisible services for music is a significant net benefit to the UK economy.
Taking income abroad and payment made overseas from UK record companies for
public performance royalties, synchronisation and licensing for use on sound carriers,
2
Amy Winehouse - Back to Black, 2007; Coldplay - Viva la Vida, 2008; Susan Boyle - I Dreamed a Dream, 2009.
30
British Recorded Music (BPI) – written evidence
and digital income, the trade surplus for the industry in 2009 was £137.7m, the highest
annual total since 2001.
7.
8.
The British music industry is both a major employer and in the main is a business
based on a significant number of very small businesses:
•
Music & Visual and Performing Arts are the largest employers in the Creative
Industries with 300,000 employed in 2009 (1% of UK employment).
•
In the middle of difficult times for the UK economy, employment in
music and visual and performing arts went up by nearly 13,000, from
279,636 in 2009 to 292,536 from in 2010.
•
In 2011, Music & Visual and Performing Arts sector had the greatest number
of enterprises for the Creative Industries (30,500, 1.5% of the UK).
As an industry it reinvests over 20% of its revenue in artist development with 47% of
this expenditure provided upfront in the form of advances. As a comparator biotech considered to be a significant R&D based industry in the UK – typically invests 15% of
its revenue in R&D.
An innovative sector in the digital age
9.
The record industry has worked hard to create and licence new business models for
the digital age. There are more than 70 legal digital music services in the UK,
more than any other country in the world.
10.
More than £1bn has now been spent on digital music in the UK since the first
legitimate services were launched in the UK in 2004 and digital retail sales in the UK
grew by 18.2% to £316.5m, accounting for 26% of sales in 2010. Strong growth
continued in 2011, pushing digital sales to 41% of revenue in Q3 2011.
The Challenge from Broadband File Sharing
11.
Internet piracy remains a huge problem for the future development of the UK digital
music market as faster speeds make it harder for legitimate businesses to compete
with illegal file sharing sites and prices are constrained by free illegal content. As
mentioned above, entire discographies can be searched for online and downloaded in a
short amount of time. Search engines will almost exclusively put infringing links on the
first page of search, and advertising by recognised brands fund sites that earn money
distributing infringing content.
12.
Recent research from Harris Interactive shows that three quarters of all digital
music obtained in 2010 was done so illegally and that the retail value of single
tracks downloaded from unauthorised sources in the UK totalled £984,000,000 during
that year. In the face of this challenge the legal digital market is doing extremely well,
but it cannot hope to compete fairly with the illegal market. BPI recognises, of course,
that every track downloaded illegally would not be substituted with a legally purchased
track. Taking this into account, Jupiter (now Forrester) Research estimates the lost
31
British Recorded Music (BPI) – written evidence
revenue of the recorded music industry in 2011 to illegal music downloading to be
£236 million, at retail values.
13.
Despite the exceptional creative achievements of UK artists and the expertise of UK
labels in marketing their music abroad, the UK recorded music sector faces difficult
times as increasing illegal downloading has deprived the industry of revenue which is
essential to ongoing investment. Revenues of UK record labels have fallen by 32%
since 2004 from £1,220.4m to £823.8m in 2011.
14.
The UK risks falling behind its competitor nations when protecting and
enforcing the rights of creators. The Hadopi law in France has been in effect for more
than a year and the industry is seeing positive results in the decrease of peer-to-peer
filesharing. In the United States, voluntary discussions have led to an agreement
between rightsholders and major ISPs - the “Progressive Copyright Alert System”
allows rightsholders to detect infringement and ISPs to send an electronic alert or
message to the internet user which must be acknowledged by them. The alert informs
the user that they have violated the Terms and Conditions of the contract between
the user and the ISP. More recently, in Spain, we’ve seen the introduction of the Sinde
Law (Law on Sustainable Economy) which provides for an expedited procedure for the
blocking of illegal websites and the removal of illegal links.
South Korea and Superfast Broadband
15.
In South Korea the Government took an interventionist approach to the roll out of
fibre optic based broadband, with targets that more than 80 percent of households
would have access to fast connections of 20mbps or more by 20073 . The South
Korean recorded music market began to contract in 2002 as illegal downloading
soared, driven by the rapid adoption of broadband. This decline continued to the end
of 2007. During this period, the number of physical record stores in the country fell
from around 2,000 to fewer than 200.
16.
In April 2009, however, new legislation was introduced establishing additional
measures to tackle online piracy, including graduated response procedures. The
legislation became effective in July 2009 and was accompanied by major educational
and public awareness campaigns initiated by the government.
17. The South Korean music market increased by 10% in value in 2009 and then
by a further 12% in 2010. A range of legitimate services have developed, offering
consumers easy and low-cost access to music. Record companies increased their
rosters of local artists, laying the foundations for a boom in K-Pop that has spread
across Asia. South Korea moved from being the 19th largest recorded music
market in the world in 2007 to the 12th largest in 2010.
Specific questions in the call for evidence
The Government have committed £530 million to help stimulate private investment – is this enough
and is it being effectively applied to develop maximum social and economic benefit?
3
Borland and Kanellos, 2004
32
British Recorded Music (BPI) – written evidence
18.
BPI believes that maximum social and economic benefit for the UK will only come
from the development of legal markets for the production and distribution of content
online. Superfast broadband is a significant opportunity for the UK’s world leading
content industries. However, superfast broadband is also a great threat if it is not used
to develop legitimate online industries and instead allows a portal to piracy.
19.
Two years on from its enactment, the Digital Economy Act has not been implemented.
The measures within the Act require content holders to pay the costs of the system,
yet large amounts of public money are being used to subsidise the superfast broadband
networks that will increase the amount of illegally distributed content. Without a legal
framework that secures a legitimate market, the subsidy will hasten the decline of the
UK content industry and cause great economic harm.
20.
A very small proportion of that money, say £20m, would be enough to fund both the
measures under the Act and an extensive education campaign around the importance
of copyright and the economic cost of theft of content. This would be a small
contribution by the Government compared to a broadband subsidy that could have a
high impact on the behaviour of consumers.
21.
When allocating public money the BPI believes it is in the interests of the taxpayer to
only offer subsidies to internet providers that are prepared to take measures to secure
those networks against illegal activity. Where public money is used, networks must
implement the highest possible standards of consumer protection.
22.
BPI believes it should be a condition of public subsidy to ensure that networks block
access to sites that are involved in the facilitation and distribution of illegal content and
measures in place to tackle copyright infringement through connections to their
networks. This should include blocking websites notified to the ISPs as dealing in illegal
content and by allowing rights owners to send notices to subscribers that are using
networks to distribute and download infringing content.
23.
BPI recognises that the subsidy may not be given directly to an internet service
provider, but through an intermediary. However, the subsidy should bring with it an
obligation to place contract terms with any suppliers to ensure that networks are
secured against illegal distribution of content.
24. BPI recommends that the ISPs in the UK that are publicly subsidised sign
up to voluntary agreements with rights holders, based on the US model, to
implement graduated response to copyright infringement by subscribers on
the network. This should be a condition of the subsidy and should be
contracted through any intermediary.
25.
There are also issues over harmful content. The BPI has a digital scheme in place for
Parental Advisory to help parents protect children from viewing and listening online to
music that is unsuitable for children. The BPI makes this scheme available for all legal
services.
26. BPI recommends that subsidised broadband networks must offer software
filters to subscribers that allow parents to make decisions about access to
33
British Recorded Music (BPI) – written evidence
In fact, are there other targets the Government should set; are there other indicators which should
be used to monitor the health of the digital economy? What communications infrastructure does the
UK ultimately need to remain competitive and meet consumer demand over the next 20 years?
27.
Speed of broadband alone is not an indicator of economic wellbeing. The BPI believes a
healthy digital economy would focus on the growth of legal digital markets for content,
products and services.
28. BPI recommends that Government sets a target to reduce illegal
distribution of content on UK networks. The distribution of subsidy should
be connected to this target, so that increased speeds go hand in hand with
increased security.
How will individuals and companies use cloud services for distributed storage and computation?
What network properties are required to enable efficient provision and use of such services?
29.
Cloud services offer a great service for consumers to store and access their files and
information; they also are a significant opportunity for rights holders for commercial
licensing of innovative services. However, cloud services also offer a significant threat
to lawful sale of content through the opportunities they offer for copyright
infringement through the uploading of music and sharing of links. The case of
Megaupload has shown the difficulties with the oversight and operations of cloud
locker services.
30.
The Government is currently consulting in its copyright consultation on measures that
will weaken the ability of UK content industries to license and police cloud services.
Through making it clear that the uploading of music to cloud services is subject to
license, the Government could ensure that consumers have absolute clarity that the
services that they are using are legitimate and properly secured.
31.
A vibrant economy of cloud services would not distinguish, as the Government is
proposing in its consultation, between value added services and cloud services that are
purely for storage. BPI believes that they are broad substitutes, and the price of
innovative services that are being licensed by BPI members would be constrained if
there were another category of services that the Government had explicitly opted out
of licensing arrangements. There would undoubtedly be harm if Government pursues
such a twin track approach of a clearly licensed market and a grey market for cloud
service storage of content.
32. BPI recommends that the Government does not extend a format shifting
exception to cloud services, and makes it clear that cloud services should
seek licences for storage and access to copyrighted material.
To what extent will the advent of superfast broadband affect the ways in which people view, listen
to and use media content? Will the broadband networks have the capacity to meet demand for new
media services such as interactive TV, HD TV and 3D content? How will superfast broadband
change e-commerce and the provision of Government services?
34
British Recorded Music (BPI) – written evidence
33.
The UK has the most competitive and the most advanced market for digital music
services in the world. There are more legal digital music services in the UK
than in any other country, including the United States, with over 70 available
to UK consumers. There are as many as 20 million recorded music tracks available on
the larger of these services, covering almost the entirety of the catalogue of music
commercially released in the UK.
34.
Digital has transformed the music landscape in the UK. The Official Charts Company
began measuring its impact at the start of 2004, when MyCokeMusic launched in the
UK. By the end of the year – during which time the iconic iTunes store had opened –
almost 5.8m songs had been legally downloaded, equivalent to 17.9% of all singles sold.
35.
By the end of 2011, the singles market has been completely revitalised, with sales now
at highest ever levels (175.1m in 2011) and over 750m digital singles bought since
2004. The digital album is also making impressive headway, with more than 80m sales
since 2006 when sales were first recorded. In 2011 they accounted for 23.5% of all
albums sold in the UK.
Sales of Digital Downloads in the UK (units millions)
Single Track
Downloads
2004
5.8
2005
26.4
2006
52.5
2007
77.5
2008
109.8
2009
148.8
2010
158.6
2011
175.1
Source: Official Charts Company
36.
Albums
N/A
N/A
2.8
6.2
10.3
16.1
21.0
26.6
This has had a large impact on record company revenues which have diversified
enormously. By the end of 2010 all digital income streams accounted for 27.4% of
industry income and year end data from 2011 will show a further increase.
Trade Income from Digital Music 2004 – 2011 (£ millions)
2004
2005
2006
2007
2008
2009
2010
2011
Source: BPI Surveys.
Tracks &
Albums
2.7
12.4
25.2
71.6
101.1
162.6
193.5
241.1
Other*
Total
17.8
26.2
32.3
40.6
71.6
117.9
188.8
225.8
281.7
35
British Recorded Music (BPI) – written evidence
* Other includes ringtones, subscriptions, ad-supported income and other digital music income.
37.
38.
The legal digital music landscape in the UK has evolved at breathtaking speed, entirely
based on current licensing practices. The most significant landmarks in the history of
digital music have been:
•
The licensing of digital “a la carte” services with the unbundling of album
products into constituent parts (tracks): from 2004 onwards major stores such as
iTunes, Amazon mp3 and 7Digital have offered catalogues of many millions of
tracks; but there are also smaller “niche” stores specialising in certain genres or
particular business models, e.g. Juno Records 4 ; Trackitdown 5 , Boomkat 6 ,
Fairsharemusic 7 ;
•
The removal of all digital rights management technology around download to
own;
•
The development of “all you can eat” subscription models models e.g.
Napster 8 from 2004 with millions of tracks available on-demand on the
consumer’s computer and mobile devices;
•
The launch of free to user, ad-funded, unlimited streaming models e.g. We7 9
from 2007 as a direct competitor to piracy, and massive scale platforms for
professional and user generated content like YouTube and professional music
video content such as Vevo 10 , launched in the UK in 2011;
•
The bundling of music services with other products e.g. Virgin Media
broadband 11 and Spotify; and
•
Launch of iTunes iCloud and iMatch in 2011. iCloud allows a user to
download all the songs they have purchased from iTunes onto any mobile device;
iMatch extends this functionality to any song in a user’s collection, even if not
purchased from iTunes, for a modest annual fee 12 .
The use of music produced by UK labels goes beyond use for music services, into
cross-media offerings, games and brands and the UK has been at the forefront of
innovative digital service launches.
How might superfast broadband change the relationship between providers and consumers in other
sectors such as content? What aspects of this relationship are key to enabling future innovations
that will benefit society?
4
5
6
7
8
9
10
11
12
http://www.juno.co.uk/
http://www.trackitdown.net/
http://boomkat.com/
http://www.fairsharemusic.com/
http://www.napster.co.uk/
http://www.we7.com/
http://www.vevo.com
http://shop.virginmedia.com/broadband/broadband-extras/spotify.html
http://www.apple.com/uk/icloud/features/
36
British Recorded Music (BPI) – written evidence
39.
As described above, the UK has a very vibrant digital music market with the highest
number of legal digital services in the world, with nearly 80 services. Consumers
will consume music digitally in many different ways, and will have much more power as
a consumer as to what they buy and how they build up their collection. However, it is
important that Government helps educate consumers of the importance of paying for
content for future investment in new music. Innovation requires risk, but it also
requires the ability to make a return.
40.
The BPI set up a digital innovation panel in the autumn of 2010 to help foster
innovation in the provision of digital services using music. The panel was put together
to promote partnership in creating and developing digital music services, primarily
through shared customer insight and to ensure early label input into proposed
consumer propositions. The panel consists of influential executives from within various
record label and publisher business functions - digital, commercial and insight &
strategy. It has commissioned and managed a comprehensive programme of consumer
research and digital market mapping, which has revealed a plethora of potential
opportunities for digital music services.
41.
The panel has held a series of 'Open Session' brainstorms involving a range of service
providers including Tesco, We7, MFlow, eMusic and BT. Its members have also
experimented with digital partners via API's, hack days and 'sandbox' developments such as EMI Open and Universal Open - where the labels open up parts of the
catalogue to developers via API's for better music discovery apps and other new
services. One example of such an app is Discovermusic 13 .
42.
Innovation is very vibrant in technology that uses copyright, but there are many factors
that cause problems with investment in the UK, not least problems of access to
finance for small businesses.
What impact will enhanced broadband provision have on the media and creative industries in the
UK, not least in light of the increased danger of online piracy? What is the role of the Government in
assuring internet security, and how should intellectual property (IP) best be protected, taking into
account the benefits of openness and security?
43.
One significant problem with the current internet model is that many of the major
companies take a neutral view of illegal activity. Consumers are taken across networks
by reputable companies, pointed by search engines that have global recognition to sites
that have advertising by established brands and offer payment by world renowned
payment providers. Yet the content they could be consuming on that journey is
entirely illegal, and the money passing through advertising, payment and search is going
to people profiting from business models built on infringement of copyright.
44.
At the moment the companies involved – ISPs, search engines and payment companies,
do not take enough responsibility for their role in the illegal online economy. The
resulting system is bad for consumers and bad for legitimate content businesses. UK
jobs, growth and content production will suffer. BPI has asked for the industries
involved to take simple steps to help consumers online, including:
13
http://www.discovermusic.com/
37
British Recorded Music (BPI) – written evidence
45.
•
search engines ranking legal services above illegal services – at the moment
Google, the most used search engine, tends to serve almost wholly infringing sites
on its first page of results;
•
ending the financial support for illegal sites by not placing advertising on them,
or profiting from infringement by selling key words associated with piracy or by
selling mobile applications which facilitate infringement; and
•
not to allow payment to infringing sites from credit cards and payment
services.
Whilst it has been shown now in court that sites that are facilitating illegal distribution
of content may be blocked through the Copyright, Designs and Patents Act 1988
(through the Newzbin II case) the process is still too slow and expensive for rights
holders. BPI believes a court process is important but it should be done in the
applications court or another procedure which can be cheaper and quicker (i.e. less
than the 6 months to a year) than the current process.
46. BPI recommends that Ofcom be given both a general duty to tackle
infringing content online to ensure customers have confidence in safety and
legality online, particularly when using trusted brands. BPI also
recommends that the Ofcom media literacy duty includes a duty to
educate about copyright and the importance of using legal sites.
47.
The UK content industries are world class, but the influence of non UK technology
companies in Government is clouding the debate over the importance of property
rights. The overall agency with responsibility for IP in the UK Government, the
Intellectual Property Office, has a weak understanding of the digital business models of
the creative industries and their reliance on the copyright framework; and is pursuing
policies that consist primarily of weakening creators’ rights to benefit third parties (in
particular technology companies) at the expense of UK creative industries. The future
health of our world class content industries requires co-ordinated effective and
supportive measures across Government.
48. BPI recommends that the Intellectual Property Office is re-established as a
body to champion the UK copyright industries, with clear statutory duties
to protect and promote the interests of UK intellectual property in the UK
and overseas and to co-ordinate effective enforcement of UK rights
domestically and internationally. The Intellectual Property Office should
also have a duty to educate consumers on the value of ideas and intellectual
property and the importance of respecting intellectual property rights.
2 March 2012
38
Broadband Stakeholder Group (BSG) – written evidence
Broadband Stakeholder Group (BSG) – written evidence
Overview
•
BSG welcomes the opportunity to input to this timely inquiry.
•
UK consumers are amongst the heaviest users of the Internet and e-commerce
globally, driven by one of the highest levels of broadband take-up in the EU.
•
The UK communications market is highly competitive, and is going through a period
of investment in both fixed and mobile services – to meet rising demand/use of
bandwidth, and to provide new and improved services to end users.
•
This is being complemented by a programme of activity by government to ensure
that those households that are not served by market investment have access to the
best range of services possible.
o This includes a subsidy available for ensuring that superfast broadband is
available to 90% of all households, as well as a coverage obligation for the
next generation of mobile broadband services to ensure coverage of up to
98% of the UK.
o BSG has expressed its concerns over how the subsidy is being made available
through the BDUK procurement process and the policy environment facing
investors, and ultimately whether the current approach will achieve the
optimal outcome.
o Increasing take-up of broadband, regardless of speed, will generate most
economic and social value in the short to medium term. Therefore, it is
important that a focus is maintained on ensuring that all households have
access to a minimum level of broadband service, and that government
continues efforts to get more and more households online.
•
The market for superfast broadband is still at a nascent stage. Superfast services have
only been made available to consumers relatively recently and it is difficult to predict
what the level of demand for these services will be. Evidence from other countries
where superfast broadband was made available earlier suggests that the adoption rate
for superfast tends be slower than it was for first generation broadband. The reason
for this may be that first generation services are currently sufficient to meet most
consumers’ needs at this time. However, continued innovation in content, services
and applications will drive consumer demand for higher speed access services over
time.
39
Broadband Stakeholder Group (BSG) – written evidence
•
. It is important that policymakers have realistic expectations of the likely levels of
take-up that superfast broadband will achieve in the UK in the short-medium term,
and draw appropriate lessons and comparisons with other markets across the world.
Specific questions
•
What is being done to prevent a greater digital divide occurring between
people who can access superfast broadband and people in areas where the
rollout of superfast broadband may not be commercially attractive? How
does the UK communications market vary regionally and what is the best
way to connect the areas that the market alone cannot reach? Is a
universal service obligation necessary to avoid widening the digital divide?
The government has established a programme to ensure that superfast services are made
available to a minimum of 90% of households within each county or nation in the UK. This
policy is addressing most of the new divide between those with access to superfast and
those without.
However, more important is resolving the continued old divide between those with access
to basic broadband and those without. The government’s programme also plans to ensure
that the remaining 10% of homes receive the best broadband possible for the funding
available, with a minimum service of 2Mbps being available. It is unlikely that these homes will
receive fibre-based superfast broadband, as these services are too expensive for operators
even with the subsidy that is available. Therefore, it is crucial that sufficient consideration is
given to the solutions deployed to these homes by successful bidders in the current BDUK
procurement process. Meanwhile it is also important that the efforts of both government
and industry continue to encourage the take-up of broadband by non-adopting households.
There are regional and, particularly, national differences in the UK communications market –
in particular in terms of take-up. However, the key difference in service provision is between
urban and rural areas, rather than between distinct geographic regions. More dense areas
improve the economics of service provision for operators, and are therefore more likely to
see increased competition, through investment in exchange unbundling by ISPs, cable service
availability, and investment in fibre-delivered superfast broadband by the incumbent (or in
some instances a new entrant).
40
Broadband Stakeholder Group (BSG) – written evidence
•
The government have committed £530m to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
The government investment is likely to be sufficient to enable the market to deliver
superfast broadband to 90% of households, though it is likely that this level of funding was
based on the deployment of a fibre to the cabinet (FTTC) solution, which uses the existing
copper network from the cabinet to the home, rather than delivering fibre to the home
(FTTH).
However, the question of whether it is being effectively applied raises many issues, including
the policy and regulatory environment, and procurement design; BSG has raised a number of
concerns with DCMS and BDUK at various stages of the programme’s process.
At this time, a number of public policy issues remain outstanding that, if resolved, would
enable the funding to go further by reducing the costs of deployment and operation to
industry. In particular:
•
•
•
there remains a lack of clarity regarding the application of business rates to
subsidised fibre-based networks (an issue the BSG continues to work on with the
Valuation Office Agency);
government is in the process of establishing revised regulations regarding the
deployment of overhead cables, but which are not yet final and about which industry
still have some issues to be addressed;
infrastructure sharing discussions with utility infrastructure operators have yet to
come to a conclusion; a positive outcome could lead to reduced deployment costs
There also remain industry concerns regarding some aspects of the regulatory landscape.
Alternative operators consider that the sub-loop unbundling product (SLU) from Openreach
is not sufficiently usable at scale to allow for investment by operators in their own fibre in
the access network. This issue has been highlighted by Digital Region Limited, a regional
FTTC network in South Yorkshire, and despite reviews by both Openreach and Ofcom has
not been resolved to the satisfaction of alternative operators.
Alternative operators have also raised concerns about the pricing of, application of, and
processes involved in using Openreach’s passive infrastructure access (PIA) product, which
enables the sharing of BT’s ducts and poles. PIA is still in the early stages of development,
and further trials with alternative operators are required in order to develop the product
further. However, PIA is likely to be an important enabler of competition for BDUK
projects; until such time as alternative operators consider it to be fit for purpose, a lack of
commercially viable infrastructure sharing options will remain an obstacle for competitors
wishing to investment in rural superfast broadband.
41
Broadband Stakeholder Group (BSG) – written evidence
Industry has also raised issues with the procurement approach. BDUK, the DCMS unit
leading on the procurement, has taken an approach that focuses on local authority areas as
individual project areas, and uses the local authorities themselves as the lead procurement
bodies. This approach was heavily influenced by the government’s localism agenda. In the
view of the BSG, these projects are of too small a scale for the sector, resulting in too many
procurements and insufficient network sizes to be sustainable. Paradoxically, by attempting
to create local projects for local communities, government has created too many projects in
total, which carries too high a cost to bid in the view of smaller players, resulting in limited
competition across all projects.
The local approach also has implications for consumers in terms of their choice of service
provider. Currently, the major ISPs that account for nearly 90% of the broadband market
(BT, VM, TalkTalk and Sky) either provide services over Openreach’s access network or, in
the case of VM, over their own access network. Non-national networks, such as KCom in
Kingston-Upon-Hull, do not benefit from the presence of the major national ISPs due to the
costs to those ISPs of integrating with a different network, and so consumers miss out on
the benefits of choice and competition. Digital Region also faces this problem in its FTTC
network in South Yorkshire, on which none of the major ISPs provide service. By breaking
up the procurement in to small, local networks, there is a risk that islands of connectivitywill
be created that fail to provide consumers with the choice of ISP found in the rest of the
market. Ultimately, this reduces take-up of services which in turn would undermine the
commercial sustainability of these networks.
In terms of achieving maximum social and economic benefit from broadband, in the short
and medium term the biggest prize is not in achieving widespread superfast broadband
availability, but in ensuring everyone has access to basic broadband as a minimum, and that
we continue to push for non-adopting households to adopt broadband services. In the
longer term, achieving value from this intervention will require high levels of availability and
adoption of superfast broadband on the networks that are funded; this will be best achieved
through competition between service providers, which leads to lower prices, higher take-up,
and sufficient penetration in order that innovation in Internet-based services will be
stimulated.
The government’s current programme recognises the importance of the demand-side, and
requires local authorities to undertake demand stimulation. Government should also
continue to focus on moving public services to digital delivery, aligning this with policies and
programmes that encourage non-adopters, some of whom are heavy users of public
services, to adopt broadband services.
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Broadband Stakeholder Group (BSG) – written evidence
•
Will the government’s targets be met, and are they ambitious enough?
What speed of broadband do we need and what drives demand for
superfast broadband?
The government target of having the best broadband in Europe in 2015 is very challenging,
and in our view will be difficult to meet on all of the indicators that the government has said
form the ‘best’ broadband: the UK leads in some areas (such as usage and take-up of first
generation broadband), but not in others (such as speed, based on available metrics). The
most important part of the target, however, is take-up and usage, for this is how value is
generated (a fibre network with few users produces little value, however extensive its
coverage); the UK is generally considered strong in these areas compared to European
peers.
The target is sufficient, though a more suitable target would be one based on the UK’s
needs, rather than a relative target based on the performance of all other EU markets. For
example, there may be good reasons why we are not number one in the EU for some
particular metric, but as long as the infrastructure meets the needs of the UK then this is
not an issue to be concerned with. Similarly, the UK’s target is more sensible than the target
set by the European Commission, which is for all homes in Europe to have access to 30Mbps
and above by 2020, with half subscribing to 100Mbps services.
This target is unlikely to be met. Of most concern, however, is that the targets are
technology-specific, with the 100Mbps target intended to require investment in FTTH
technology, while the 30Mbps target is intended to discount any services delivered via ADSL
over existing copper (such services have a theoretical top speed of 24Mbps). In the view of
the BSG, it is likely that a range of technologies will provide the connectivity required by
consumers in the future, and to discount technologies through a target like this risks losing
the benefits and advantages of technologies other than fibre. Decisions on technology are
best left to the market, not policymakers; public policy should be technology-neutral.
Demand for superfast broadband at present is driven predominantly by the multiple-user
household; at this point there is no ‘killer app’. It is worth noting that the major innovations
in first generation broadband began to occur when take-up had achieved 30-40%. It is
possible that innovative services that require superfast broadband will be developed only
once penetration has reach a level that provides a large enough audience; this may be
penetration within the UK for UK-specific services, or it could be global
penetration/penetration across the English-speaking markets for international services. .
Indeed, increasingly existing high-bandwidth services (such as IPTV) are finding ways to work
effectively at lower speeds and within the constraints of the existing broadband network.
However, it is true that entertainment services, particularly video, are increasingly available,
and used, online: new entrant IPTV services such as BT Vision and, later this year, YouView;
TV catch-up services such as iPlayer and ITV Player; over-the-top services such as Amazon’s
LoveFilm; and content from existing Pay-TV providers, such as via SkyGo. Such a content
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Broadband Stakeholder Group (BSG) – written evidence
rich and bandwidth intensive, mix of services may well drive take-up of superfast services for
heavy user households.
•
In fact, are there other targets the government should set; are there
other indicators which should be used to monitor that health of the digital
economy? What communications infrastructure does the UK ultimately
need to remain competitive and meet consumer demand over the next 20
years?
As well as measuring supply-side targets such as availability/coverage, government needs to
measure take-up and, particularly, usage. Usage is how economic and social value is created
by the network. However, very little data is captured regarding the usage of services. Given
the importance and increasingly central role the digital economy is playing in the UK, the
government should develop metrics and gather data to understand the use of the Internet
and Internet-based services by consumers and businesses, and the value this generates in the
UK economy. It would be helpful if this was also built in to the government’s proposed
scorecard, to assess whether the UK has the best broadband in the EU.
The competitive market is on the whole delivering the infrastructure that consumers will
need and are willing to pay for; it remains the best judge for investing in communications
infrastructure. In order to ensure industry continues to invest in the future, government and
regulator should ensure that the levels of competition in the market are maintained and,
where sustainable, strengthened.
•
To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such
as interactive TV, HD TV and 3D content? How will superfast broadband
change e-commerce and the provision of government services?
The way consumers consume media content has changed significantly over the last decade of
broadband availability. It is likely that this transformation will continue to accelerate over
time: new services and devices will emerge and consumer behaviour will continue to shift.
Superfast broadband services have the capacity to deliver HD services; however, it is worth
noting that so can first generation broadband services: content services are continuously
evolving so as to be delivered over ever-lower bitrates, in order that they are as widely
accessible as possible. As stated previously, it may well be that a proliferation of video
service users within a household will require a superfast service to support them. However,
existing content services can also be supported by first generation broadband for the vast
majority of customers.
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Broadband Stakeholder Group (BSG) – written evidence
In the long term, superfast broadband may have the potential to enable a radical
transformation of public service delivery. However, the priority for government should
remain moving all services to digital delivery and striving for 100% adoption of broadband:
accessibility is a key aim for public services, and until such time as superfast broadband
services achieve widespread take-up government should focus on services that can operate
over existing broadband services. Government should continue to work with connectivity
providers and other suppliers in order to develop digital services and over time transform
service delivery across government.
•
How might superfast broadband change the relationship between
providers and consumers in other sectors such as content? What aspects
of this relationship are key to enabling future innovations that will benefit
society?
Increased bandwidth through wider availability of superfast broadband is likely to bring
increased opportunities to consumers and society as well as across the broadband value
chain; however what those opportunities might be is difficult and dangerous to predict.
There is a view that superfast broadband can more easily support bandwidth intensive
applications and that these will form a part of the attraction to consumers in driving demand
for superfast services. Another view is that however much capacity you have, pipes will
always “fill” and that managing network congestion will continue into a superfast world. This
opens up the possibility of delivering what have been termed “managed services” in the net
neutrality debate, whereby prioritised delivery is offered with a guaranteed quality of service,
either to consumers direct or to content and service providers. This has been cited by some
as a useful development in the context of securing investment in networks
It is too early to say with any certainty how superfast broadband will change relationships
across the broadband value chain, however, it would seem likely that superfast broadband
provides opportunities for innovation to the benefit of consumers and society.
•
What role could or should the different methods of delivery play in
ensuring the superfast broadband network is fit for purpose and is as
widely available as possible? How does the expected demand for superfast
broadband influence investment to enhance the capacity of the broadband
network?
Both fixed and wireless services will be required in order to ensure the greatest connectivity
is available to the greatest number of people. It is likely that superfast fixed-line broadband
will be complemented by 4G mobile broadband coverage in many areas, while 4G will
provide an alternative method for delivering broadband in areas where it is too expensive to
deploy fibre and the copper cannot support sufficient speeds to the consumer. Ultimately, it
is important that the market is given the opportunity to deploy the technologies that it sees
as most appropriate for delivering the services that consumers want.
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Broadband Stakeholder Group (BSG) – written evidence
Demand is crucial in the business case for investment in superfast broadband. The high fixed
costs mean that the higher the take-up the lower the deployment cost per home is. This
means that where demand has been stimulated and operators can expect higher levels of
take-up, the investment case is more attractive and, ultimately, that investment will go
further and cover more homes than it otherwise might have done. The BDUK process has
recognised the importance of demand to the business case for rural investment; BSG
encourages local authorities to share approaches to demand stimulation, in order that best
practices can be identified and that the most effective demand stimulation techniques are
applied as widely as possible. However, this is a difficult issue, with genuinely effective
demand stimulation approaches from governments few and far between.
•
Does the UK, for example, have a properly competitive market in
wholesale fibre connectivity? What benefits could such a market provide,
and what actions could the Government take to ensure such a market?
The UK has one of the most competitive consumer broadband retail markets in the world,
which has been the key driver of the high levels of adoption and usage seen in the UK. This
has been enabled particularly through a successful local loop unbundling regime.
Competition in superfast broadband services today is based on wholesale broadband access
products. Other remedies for creating competition, however, have not seen widespread use
and have not achieved the same impact: sub-loop bundling, as discussed earlier, has faced
challenges when used at scale, while industry continues to have unresolved concerns over
the pricing, processes and uses for PIA (on which work continues).
At present there is a limited provision of dark fibre between communications providers. The
investment in superfast broadband being made by BT is predominantly FTTC, so it is unlikely
that dark fibre will be available for retailers of consumer broadband products; even where
FTTH is available, it is likely to be deployed using GPON technology, which cannot be
physically unbundled. The use of wholesale fibre for the delivery of business connectivity is
an issue that would need to be addressed in Ofcom’s upcoming Business Connectivity
Market Review.
BSG considers that Ofcom must remain vigilant that the competition remedies in place on
both fibre- and copper-based services deliver the benefits that we have seen competition
deliver over the last decade, and explore alternative remedies in the future should existing
remedies fail to sustain the level of competition that the market is capable of supporting.
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Broadband Stakeholder Group (BSG) – written evidence
•
What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of
online piracy? What is the role of the Government in assuring internet
security, and how should intellectual property (IP) best be protected,
taking into account the benefits of openness and security?
It is not clear what the relationship might be between piracy and superfast broadband; one
view is that improved infrastructure may better support attractive legal services that would
entice the consumer away from illegal services; another is that more bandwidth will purely
support more piracy.
In any event it is probably not helpful to link the two issues too closely and instead focus on
the current remedies being pursued now in relation to the protection of IP online.
About the Broadband Stakeholder Group (BSG)
The BSG is the UK government’s advisory group on broadband. It provides a neutral forum
for organisations across the converging broadband value-chain to discuss and resolve key
policy, regulatory and commercial issues, with the ultimate aim of helping to create a strong
and competitive UK knowledge economy. Further information about the BSG can be found
at: www.broadbanduk.org
March 2012
47
Broadband Stakeholder Group – oral evidence (QQ 550-622)
Broadband Stakeholder Group – oral evidence (QQ 550-622)
Evidence Session No. 8.
Heard in Public.
Questions 550-649
WEDNESDAY 13 JUNE 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Bragg
Lord Clement-Jones
Baroness Deech
Lord Dubs
Baroness Fookes
Lord Gordon of Strathblane
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witnesses
Mr Richard Hooper CBE, Chairman, Mr Antony Walker, CEO, and Ms Pamela
Learmonth, CEO designate, Broadband Stakeholder Group
Q550 The Chairman: A warm welcome to both of you from the Broadband Stakeholder
Group. Richard Hooper, you are the chairman, and Antony Walker, you are the chief
executive.
Antony Walker: That is correct.
Richard Hooper: Behind me is the chief executive designate. Antony Walker is demob
happy—he is going to become the deputy director of Intellect, so he is in his last couple of
weeks.
The Chairman: Would the chief executive designate like to come and get into practice?
Come up to the front. You are rather lonesome back there.
Richard Hooper: We will basically delegate difficult questions to Antony and very difficult
ones to the chief executive designate, Pamela Learmonth.
The Chairman: Obviously we are most grateful to you for coming. Thank you. The
meeting is being broadcast so, before we formally start, could you just each say who you
are? If you would like to make a brief opening statement, please feel free to do so.
Richard Hooper: I am Richard Hooper, chairman of the Broadband Stakeholder Group,
known to some of your members for the work on the Royal Mail, which I am not going to
talk about today.
The Chairman: And digital copyright.
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
Richard Hooper: And digital copyright, but I gather you are going to do something on
intellectual property, so I should be delighted to come back for that, because there are some
exciting things in that area—sometimes as exciting as broadband. Briefly, the BSG is an
industry body. It is a critical friend, we hope, of the Government and Ofcom, and it is made
up of telcos, fixed and mobile, content providers—BBC, ITV—and also equipment
manufacturers like Cisco and Ericsson. That is the BSG.
Antony Walker: I am Antony Walker. I have been chief executive of the Broadband
Stakeholder Group since about 2001, so pretty much through the whole course of the
deployment of broadband in the UK, so I have a fairly long background in the evolution of
the broadband market.
Pamela Learmonth: As Richard said, my name is Pamela Learmonth. I have been working at
the Broadband Stakeholder Group for a number of years and, on Antony’s departure, I am
due to take on his role in a number of weeks.
Q551 The Chairman: Just as a matter of interest, within your decision-making structure,
is it one man, one vote? How do your decisions evolve?
Richard Hooper: We do not tend to vote; it is more an industry body. What makes it
interesting from your point of view is that actually we reflect a wide diversity of interests.
For example, we have those who are very keen on local community networks—Malcolm
Corbett at INCA. I do not know whether they have appeared before you, but they are at
that end. Then we have the big industry end, with BT and Virgin Media.
Q552 The Chairman: Is it fair to say that you tend to find ways of reaching a degree of
consensus in what you say?
Richard Hooper: Yes, I think so. The style of the group is to foment disagreement if
possible, because then we can actually find out what people really think, but yes.
Q553 The Chairman: That is fine. I am just trying to find out, from this very wide range
of people who are behind you, how you get to the conclusions you reach.
Richard Hooper: On the whole, we get some good consensus. Something that Pam is
working on at the moment is a code of conduct for the open internet. One of her jobs is to
get that, and I think we are getting that.
Antony Walker: I would also add to that. We have always been very clear about the BSG.
The BSG’s role is not to be a trade association; it is not there to represent members. It is
really there as a forum to bring people together to try to discuss and resolve complex
issues. We have never seen ourselves as a representative organisation. We are much more a
forum to discuss and, hopefully, provide insight into some of the various complex areas of
broadband policy.
Q554 The Chairman: Let me just get the ball rolling with a very general question. The
Government have told us that they intend that this country should “have the best superfast
broadband network in Europe by 2015”. Do you think this is a sensible way of describing
what they ought to be trying to do? If it is, what do you think the characteristics should be
of what emerges?
Richard Hooper: What constitutes “good” or “best” is probably the most important
question. Let me just start by saying, first of all, it is multi-dimensional. It is not a single thing.
One of the issues is that people can be obsessed by speed: “It is only good if it is
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
100 megabits.” That is not a view that we share. In terms of importance in what is good,
coverage is extremely important—that is to say the number of homes passed. Clearly the
take-up of services from the homes passed is extremely important. Speed is clearly
important, but so is the quality of the service. If it drops out the whole time or the speed,
because of contention ratios, is going up and down, that is no good. Perhaps most important
above all—my background is in media, which is shared by some people around this table like
Lord Gordon—it is about services. We are in the business of developing a technology not
because it is fun but because it will provide services that are useful to people. The
extraordinary thing about the UK, which gets quite a lot of criticism on broadband, is that
actually we are number one in the league worldwide for applications of the internet, use of
the internet, online shopping and e-fulfilment, according to Boston Consulting. You could
perhaps talk about that.
Antony Walker: It has been a paradox over the last 10 years that, while the UK has never
been at the top of any league table in terms of broadband speed, it has consistently been at
the forefront of countries that have made really full and productive use of the internet,
through all of the stages of the evolution of the internet. This idea that there is a strict
correlation between available speeds, productive use and the value to the economy I just do
not think is the case. There is a correlation, but it is a weak one. In terms of what “good”
looks like, I would summarise it as a network that provides a step change in performance
but that is widely available and widely used, with usage being absolutely fundamental. That
does not necessarily mean having the best or the fastest network, but it means one that is
certainly good enough for the requirements of the time and is quickly and widely available. I
actually think that is the trajectory we are on, in the UK.
Q555 Lord Gordon of Strathblane: BT was giving evidence yesterday, and pointed out
that it faces plenty of competition for the BDUK funding, which originally had nine people in.
The remarkable thing is that all but two appear to have dropped out. There have been some
witnesses who have suggested that the way the thing has been set up benefits BT. Why do
you think it is that BT is able to compete where others, including Fujitsu, have dropped out?
Richard Hooper: First of all, I think it is fair to say, Lord Gordon, that we do not actually
know the results of the franchises yet. It is speculation, so we have to be a little bit careful,
but I think your speculation is widely shared in the industry—that BT will win many, if not
all, and Fujitsu might win a couple. There is a curious paradox about this because, when this
initiative was launched by the Government, it was launched on the back of localism—local
community networks. It certainly reminded me of the famous years of the early 1990s,
which a number of you will remember, with the famous cable television saga, when large
numbers of very small networks were franchised and we spent the next 20 years ruing that
decision as they were all swept up by Virgin Media. One of our answers is that this is,
whether one likes it or not, an industry of scale. This is about scale.
Q556 Lord Gordon of Strathblane: That leads me on to the second point. It has been
suggested to us that, since the areas franchised have been council areas, rather than larger
areas, that has benefited BT, which has already built in-scale.
Antony Walker: It should not be surprising that BT remains in the process. They are the
one existing operator that operates nationally, has a national presence and an existing
network. That means they have advantages in terms of access to their existing network, but
it also means they have an ability to absorb risk that perhaps some of the other new
entrants find more difficult. Having said that, there is some justification behind the critique of
the size of the project areas. Some are very, very small-scale but, generally, opting for fairly
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
small-scale project areas has rather worked against the economics of network build. It has
meant that, for a new entrant coming into this, they face a real risk of perhaps only winning
one or two essentially sub-scale projects, which could be very difficult to turn into long-term
profitable businesses. The risk of only coming away with one or two wins is actually quite
significant.
Q557 Lord Gordon of Strathblane: If I could add in a supplementary question on that,
since there are some areas that are hopelessly uneconomic, whatever the size of the region,
you are perhaps more likely, are you not, to get somebody to take them on if they are part
of a larger franchise than a smaller one?
Antony Walker: Yes, and certainly that was some of the input that we gave back to DCMS
and BDUK at an early stage. That was that larger franchise areas, at a sub-regional level,
would have been more attractive to larger, broader consortia, which might then have been
able to take on a higher level of risk in bidding to win those projects.
Richard Hooper: I have done advisory work in New Zealand and Singapore, and know
Australia extremely well, and what is very striking about those three is that they are basically
the first-mile local loop. Superfast broadband is one provider, the same provider across the
whole country, and it is significantly subsidised to do it. It is not as if we are out of step.
Q558 The Chairman: Do you think then that Defra’s approach through the Rural
Community Broadband Fund is, in a sense, misplaced, because it is encouraging small
communities to come forward, which are proposing pretty small “parish pump” type
networks? Are they ever going to manage to look after them and do it properly?
Antony Walker: There are some quite serious challenges around being very small, not least
the challenge of getting larger-scale service providers on to your network. If you are very
small and local, it may well be that the local population is not too concerned about that,
because they are happy to work with a small local ISP that is locally known. In a sense, if the
Defra fund is, in a way, used to mop up the remaining areas that are perhaps left un-served
post the BDUK process, that could actually be quite useful and effective. One thing that has
been very clear to me over the last 10 years has been the extraordinary level of interest and
commitment that you get at the local level. Broadband is something that local communities
care hugely about, and they are willing to put a lot of effort and work into ensuring their
communities are served. Harnessing that is something that could produce benefits, but they
are likely to be individual isolated solutions. I do not think it is a blanket solution for the
whole final third.
Q559 Lord Gordon of Strathblane: The final point of criticism of the method for
distributing public funding that has been put to us is that going for the gap-funding model also
favours BT, because they have better knowledge of the market and have been an incumbent
operator. Is there any validity in that?
Antony Walker: I think that is a challenging one. Partly the NYnet pilot project was
designed to test out the gap-funding model versus other models. NYnet eventually went for
the gap-funding model. If at the outset your objective is to get the most efficient use of
public funds to deliver a network for the needs of that local area, gap funding is probably the
most efficient way to go forward. If you had another objective, for example trying to really
encourage a new entrant into that part of the market, you might have gone for something
different. From the pure perspective of an efficient route to procurement, I think gap funding
is probably the right way to go.
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
Richard Hooper: One of our concerns about procurement is the speed of it; it has been a
very slow process. One of our messages from BSG would be that speed is very important in
this. It is about economies of scale, network effects, driving usage and driving penetration. I
gather now that we have another round of concern about state aid involvement. If BT were
to win all those franchises, there is another state aid issue. In the city areas—and we will
perhaps talk about connected cities—you have more state aid issues, which is slowing it
down yet again.
Q560 Lord Gordon of Strathblane: Do you in fact agree with the observation that has
been put to us that the real benefits of the internet only come about when you have 100%
penetration?
Richard Hooper: I do not think it is 100%, but clearly the network effect is vital for the
Facebooks, Googles and big service providers, because your costs are spread out among
large numbers of users.
Antony Walker: If you look at the history of the first generation of broadband, all the big
innovations in services and applications took place once the market had hit about 30%, 40%
or 50% penetration. There are very few markets anywhere in the world that have hit 100%
penetration. It is when you hit mass-market numbers that you have the scale there that
enables people to invest in innovation in services and applications.
Q561 Earl of Selborne: We heard from BT how they favour point-to-multipoint
cabinets, which serve an area rather than individual premises. The complication appears to
be that they use a technology called gigabit passive optical network—GPON—which
effectively makes it difficult to unbundle. There is therefore a competitive disadvantage for
servers like TalkTalk, which gave evidence to us. Is it inevitable that this GPON technology
should be used, given its limitations? Incidentally, it makes it incompatible with the
requirements of state aid obligation to provide open access to publicly funded fibre access
networks.
Richard Hooper: Let us just take, first of all, fibre to the cabinet—FTTC—which is what
you are talking about. The problem with unbundling at the cabinet level, which is the
sub-loop unbundling idea, is that, by its very nature, you have a smaller number of potential
customers than when you unbundle at the exchange, as we have done historically, because
that is a much larger area. There is a really serious business difficulty about unbundling at the
cabinet level, irrespective of the technology. As you rightly say, TalkTalk, which is a member
of BSG, is really quite critical of that notion of sub-loop unbundling and is finding it quite
difficult to justify. In terms of the technology, what about point to point? Do you want to
talk about that and its advantages?
Antony Walker: Yes. We have done a lot of detailed cost modelling around various
different technologies. In fact, it was our cost modelling that came up with the concept of
the final third and so on. In terms of all the modelling we have done, it makes strong
commercial sense. If you have existing networks, ducts, and copper and fibre in those ducts,
a point-to-multipoint deployment makes sense from both a cost and practical perspective.
BT has behaved in an entirely logical way in terms of the investment that it has made, and
actually that is what has happened in many countries elsewhere in the world. This was an
issue that everybody was aware of right from the outset, when we started talking about
fibre, and it was something that Ofcom was very aware of—hence the focus by Ofcom on
other routes to wholesale competition, including active line access and so on. The active
wholesale products that have been developed with Ofcom, and then with the industry, have
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really been designed to overcome that challenge as much as possible. I think it would be
wrong to characterise it as something that BT has deliberately pursued in order to restrict
avenues for competition; it was always going to be a problem. Actually, the UK market is, in
many ways, the most advanced in developing active wholesale products to compensate for
that issue.
Q562 Earl of Selborne: Given that the cabinets do have obvious commercial
practicalities and advantages but they have this serious handicap—that they are difficult to
unbundle and therefore there is a reduction in competitive advantage—is there any prospect
over the horizon of a new technology that would improve the ability to unbundle?
Antony Walker: There is the potential for wavelength unbundling. WDM-PON already
exists, which enables you to unbundle individual wavelengths across a fibre. That could
potentially open up a route to unbundling in future that would enable quite a lot of
differentiation. The technology is not quite there yet, but it is entirely possible.
Q563 The Chairman: In your experience, do you think this technology is likely both to
come soon and at a sensible economic cost?
Antony Walker: It rather depends on the global market, because the technology companies
that develop those kinds of products develop them to global, not just national, scale. It
rather depends on the extent to which there will be demand for the product globally. That
then asks questions about what regulatory policy and requirements might happen in other
markets. There are some uncertainties about that, I would agree.
Q564 Baroness Bakewell: Can I stay with this issue of BT’s use of passive optical
networks? Could that bring about a situation in which a fibre local-access market would have
less differentiation than currently exists in the copper market?
Antony Walker: Possibly, yes. In this next period, that is going to be one of the most
important questions that Ofcom has to be focused on. There is no doubt in my mind at all
that the real success of the UK market over the last few years has been the level of
competition across the market. It has been extremely positive. Any lessening of that
competition would probably be a negative outcome for the UK as a whole. It is something
that Ofcom is going to have to pay close attention to. If it is apparent that there is an
insufficient level of competition, then it will have to look to other remedies to try to address
that.
Q565 Baroness Bakewell: Do you get the feeling that Ofcom is prepared to
countenance that?
Antony Walker: Yes, I think that it is very much minded to ensure that.
Q566 Baroness Bakewell: To the disadvantage of the market.
Antony Walker: I do not see it as being to the disadvantage of the market.
Richard Hooper: What I always say is that local loop unbundling at the exchange level in
the copper era has been very successful. I was there when we set it up in Ofcom, so I have a
vested interest in that. I think it is beginning to run out of road, as we move to the world of
more fibre that you are describing. I do not think the answers are quite as simple as they
were in the exchange. Unbundling fibre is quite complicated and, as Antony said, that
technology is not fully there yet. This leads one to think in a policy sense—and we all have
to face up to this—is this, yet again, dare I say it, a natural monopoly? Do we really think
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that we want resources to go into providers of fibre to your and my home? Is there not
logic in saying that this is probably more of a natural monopoly and to take the policy
consequences of that? That is what has happened in Singapore and Australia, and is
happening in New Zealand. That is the issue.
Antony Walker: From my perspective, I think it is too early to pre-judge what the outcome
will be. There is a range of wholesale products that have been developed to try to address
this problem. We know from the history of when regulated wholesale products are
developed it is an iterative process; they take time to get right. It is a process of negotiation
between BT, other operators and the regulator. Previous experience has shown that they
can be tweaked and got right. You can potentially have a strong level of competition in the
market. The other thing I would say is do not forget the competitive pressure in the market
that comes from cable and also from mobile going forward. LTE technology delivered by
mobile is going to put additional significant pressure on the markets. It will certainly compete
with the low end of fixed services. When you add up all of that competitive pressure, the
UK starts to look like a relatively competitive market compared with almost any other
market you will see in Europe.
Q567 Lord Dubs: Is not the difficulty that the competition will be in the large urban areas
and there will not be that competition you are talking about in the smaller towns and in the
countryside? It will be a bit unbalanced and, therefore, BT will be an enormous beneficiary
from this.
Richard Hooper: No, because you are surely going to require, in any world, a sensible
workable interface from any network to the TalkTalks and the Skys of this world. That is
something that BSG has been working on to make sure that, where you have a network, it
can interface easily with competing service providers. That is not just in the city; that can be
across the country. It actually comes back again to the question of scale. That is easier to
achieve if you have a lot of reasonably sized networks than if you have a large number of
very small and fragmented networks. There is no question: service provider competition is
possible in the countryside, but infrastructure competition will not happen in the
countryside, except via mobile and so on.
Q568 Lord Dubs: Will not the fact that there will not be infrastructure competition
work to the detriment of competition generally, because the provider of the infrastructure is
under no pressure to keep down prices?
Antony Walker: First of all, pricing tends to happen at a national level anyway. Yes, you have
decreasing levels of competition as you move out from the most urban areas to the
periphery. It is a reality in every market. Having said that, in the UK market competition
does go quite a long way out. I am not sure that there is any single remedy that can address
that, but I would say that active wholesale products are the cheapest way to allow new or
other entrants into the market. It seems to me that, the further you get out, the more
dependent you will be on those active line access—ALA—type products.
Q569 The Chairman: Can I just ask one quick point? Ofcom has divided the market up
and has suggested that the fixed and mobile markets are different markets. Do you think
that is realistic in the sort of world we are moving into?
Richard Hooper: Market definition in competition authorities is a highly specialised world.
In a commonsense sense, sitting around this table with you, it does not seem like it to me. In
the US, 27% of households no longer have a fixed line.
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The Chairman: You have answered my question; that is fine.
Q570 Lord Clement-Jones: This brings me on to the next question, because we are on
to LTE and so on, despite all the auction delays and so forth. A lot of people seem either to
hope or assert that mobile can actually fill the gaps in broadband coverage, on the basis that
we may not reach the full 100% by 2015 with fixed-line broadband. In the light of the
Government’s current approach, policy and so forth, how effective a backstop do you think
3G or 4G could be?
Richard Hooper: Let me just start by making the point that one of our critiques of this
business—and it is not just in this country—is that everybody says we are technology
neutral, but actually we then spend the next five hours discussing fibre to the home, which
of course is not technology neutral. There is a very strong view from BSG that, if you are
serious about technology neutral, then okay, fibre to the home is one of the issues, so is
mobile, as you say, but also fixed wireless, which tends to get forgotten. Actually, we would
see it having quite a major role in certain rural areas. I think it is important. If you look at
some of the material coming out of Brussels at the moment on state aid guidelines for
broadband, it is very fixed-oriented. Indeed, the next-generation network—NGN—is still
defined as a fixed wired service. I do think that is an important issue.
Q571 Lord Clement-Jones: By the way, are you making that point to government
yourself?
Richard Hooper: Yes, we are.
Antony Walker: Mobile, yes, but wireless technologies more broadly certainly have a key
role to play. Actually, you can use the same technology and indeed the same spectrum but, if
you are going point to point rather than mobile, you start to deliver a service to the
consumer that looks and feels a bit more like a fixed-line service. The reality is that, in
certain areas, the costs mean that wireless will be the only way that you will deliver a
service. That is not to say that it is necessarily a cheap way of doing it, but it will be more
cost-effective than trying to get fibre closer to some of those premises.
Q572 Lord Clement-Jones: Are we really addressing that currently in terms of the
technology that is just around the corner? Are we pursuing fibre as the only goal?
Antony Walker: BT and others are trialling various wireless technologies, looking at using
some of the broadcast white space spectrum and different ways of using LTE technology on
a point-to-point basis and so on. There is a lot of innovation taking place and actually LTE
technology is evolving remarkably quickly. I know colleagues in Sweden are seeing some
quite impressive speeds that can be delivered using LTE. It is not an absolute substitute; it
does not do everything that a fibre does. In many ways, we see mobile being entirely
complementary with fixed but, in certain areas, it will be the best solution.
Q573 Lord Clement-Jones: If that is the case, what do you make of the level of coordination among BDUK, the Mobile Infrastructure Project, Defra’s Rural Community
Broadband Fund and so on? Do those bodies understand that is the case?
Antony Walker: We have been quite involved in the Mobile Infrastructure Project, and,
while the objective of that was really around filling those voice not-spots, right from the
outset we asked how we can make sure that what we do to address that problem is also
useful from a BDUK broadband perspective. Yes, the co-ordination there has been good. I
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do not think the co-ordination is always generally good; some of the policymaking has been a
bit fragmented. Actually, the Mobile Infrastructure Project has been one of the better ones.
Q574 Lord Clement-Jones: Does that mean that the bids that are being put forward are
quite often mixed technology? They are not just purely concentrating necessarily on fibre.
Antony Walker: When you get into the last 10%, you are looking at wireless solutions as
well.
Richard Hooper: The curious thing about the driver of this is consumer behaviour. Those
of us around this table who have children in their 20s, 30s and 40s know that they spend
most of their time on mobile phones with dongles doing broadband. They do not spend a lot
of their time at fixed sites, so the generation that is actually driving the technology is
incredibly mobile. If you go into a wine bar in London, you will see it at work. It is a mobile
world.
Lord Clement-Jones: We had better get the auctions off the ground pretty quickly.
Richard Hooper: Some of us are probably a bit fixed in our ways.
Q575 Baroness Deech: The background to what I am asking now is that I got the
impression from listening to you that Mr Walker thought the competition was very
successful in this area and Mr Hooper perhaps less so. I am not so sure myself about
competition as opposed to government intervention. Do you think there is justification for
government intervention to bring about super-connected cities, or could this have been left
to the market?
Richard Hooper: The fundamental idea of super-connected cities is to go for the less wellsupplied parts of the city. This is a sort of equivalent to the final third that we talk about in
the BDUK programme in the city. A concern I have is that you could easily have policy drift
away from that objective more into wiring up cities and getting 100 Mbps. The purpose of
that programme is to make sure that undersupplied parts of the city are supplied. That is
where the programme should be.
Antony Walker: There are clearly urban areas that would not otherwise be served.
Therefore, there is a clear rationale for subsidy in parts of those areas. There is also an issue
with SMEs. Very often, SMEs tend to cluster in areas where there is a low density of
residential properties. Because those residential connections make that area attractive to a
commercial investment, they end up in a bit of a desert for connectivity. There are two
market failures there that need to be addressed. The challenge is, if you are going in there as
an operator, you would naturally want to join things up. Then you have the risk of
over-building where other people have already made investments, and then you get into all
the state aid issues. It is a lot harder to fix and the state aid issues are complex. There are
some genuine problems there.
Q576 The Chairman: Do you think that the way in which the super-connected cities are
going to roll out is going to deliver what you said you thought it ought to? Are the suburbs
and the really bad bits of these cities, in reality, going to be beneficiaries of this?
Antony Walker: It may vary by project.
Richard Hooper: These are very early days in that programme. It should, but I still worry
about policy drift sideways.
Q577 Lord Clement-Jones: Are those projects let?
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Antony Walker: They are in the process of being let.
Q578 Lord Gordon of Strathblane: Taking Ruth’s question of leaving it to the market,
arguably a city contains good bits and bad bits. Surely the profit they will make out of the
good bits should be enough to cross-subsidise the bad bits, if you make it an obligation that
they have to cover everything.
Antony Walker: The difference is that you are dealing with areas where there are already
established deployments. Manchester is quite a good example. In east Manchester and the
Trafford area, there is a big part that has been unserved and is likely to remain unserved
without some additional subsidy to go into that area, because there is not the density of
connections in the area to make it efficient or rational for a private investor to go in and
invest. I do think there are areas where there is a clear rationale to do something.
Q579 Baroness Deech: Would you say that that applies a fortiori to cities versus rural
areas? I get depressed when I hear about the difference. Surely there is a case for the
strongest government intervention from the centre and less emphasis on the market and
competition.
Richard Hooper: Do you mean rurally?
Q580 Baroness Deech: Right throughout the country. I just do not see how we are ever
going to get there if we leave communities to go out and try to sort things for themselves, if
we keep relying on partial government subsidies and so on.
Antony Walker: I do not think that quite characterises what is happening. Just after 2015,
we should be at the point where there are plans in place to address at least 90% of premises
in the UK. There will be some areas that will still need to be addressed and may need
further measures after that, but I think the whole point of the BDUK process has been to
try to have a concerted approach to addressing this market failure. I come back to the
earlier point, which is that we do take the view that telecoms remains a scale business, and it
is easier to address this issue at scale rather than do it in very small projects. Our
preference would probably have been for a number of sub-regional projects that made sure
you covered everything.
Richard Hooper: I think it is right for the Government to press on still and address the
market failure. I think it is very difficult to know what that boundary condition is. In an area
of Lord Bragg’s specialisation, public service broadcasting, where market failure begins and
ends is immensely difficult. It is a very porous part of the world, but I still think it is the
sensible way forward. If we come back to competition, in the two-thirds where the market
clearly is not failing, there is vigorous competition in this country, both services and
infrastructure based. As far as we are concerned, long may that be the case.
Q581 Lord Gordon of Strathblane: Is it not a case for mimicking the creation of the
original telephone network? Admittedly when the telephones were publicly owned, we did
not count the cost of covering rural areas, any more than we did with television
transmission.
Richard Hooper: Do you mean by cross-subsidy?
Lord Gordon of Strathblane: Yes.
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Richard Hooper: I think that world has gone. I fear that you have to split it up. There is a
local loop; there is a long-distance loop. There are services, and they behave in very different
ways in different markets. I suspect that world has gone.
Lord Gordon of Strathblane: So we can forget about any universal service commitment,
let alone obligation.
Richard Hooper: In the 1990s, when I regulated you in Glasgow and Edinburgh, the first
conversation we ever had was on the matter that if I, as the regulator, introduced too much
competition into Glasgow and Edinburgh, you would have to reduce your public service
broadcasting commitments.
Lord Gordon of Strathblane: And I have been proved right.
Richard Hooper: I have a long memory.
Q582 Earl of Selborne: I continue on the regulatory theme. In your written evidence,
you refer to some regulatory concerns. You write: “Alternative operators consider that the
sub-loop unbundling product from Openreach is not sufficiently usable at scale to allow for
investment by operators in their own fibre in the access network.” You go on to refer to
some of the difficulties in South Yorkshire with Digital Region Limited, which have not been
resolved. The second area you refer to is also the passive infrastructure access and concerns
about sharing BT’s ducts and poles. You say there is concern that is not as accessible as it
should be. Would you like to elaborate on both those regulatory concerns?
Antony Walker: As I said earlier, the process of developing regulated wholesale products is
always an iterative process. It takes time to get it right and there will always be parties to
that process who feel that more should be done. In fact, I cannot think of any regulated
product ever where there has been consensus that it was all perfect. I think there is more
work to be done in developing some of those products and making them fit for purpose.
However, I would also say that there are a couple of other elements to that. When we look
at duct access for example, one of the biggest constraints that potential new entrants face is
the fact that they are unable to use duct access if they want to provide business services,
fibre to a telecoms mast or something like that. That is an issue that Ofcom will have to look
at in its business connectivity market review, which is happening this year. There are some
regulatory restrictions on what duct access can be used for. This comes back to this issue of
market definitions. This is why you are getting a blurring between residential and business
markets. Ofcom is going to have to make a determination about the extent to which those
markets are becoming less defined.
Q583 The Chairman: You are telling us that you think that, essentially, those markets
are morphing together.
Antony Walker: Yes, and that has real implications for a product like PIA, which need to be
addressed. The other thing I would say is we have done a lot of work looking at the use of
overheads—poles and so on—and one of the biggest barriers to the use of poles is the
planning system. The consultation processes that are required if you want to utilise poles or
put up new ones are pretty onerous and off-putting to investors.
Q584 Earl of Selborne: What should be done to sort that out?
Antony Walker: It is a challenging one. If you really wanted to encourage more use of ducts
and poles, you would make it a lot easier for people to get permission to use those ducts
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and poles. You would make that much more predictable and low cost for operators. Of
course, the challenge to that is you get local opposition to the use of that infrastructure.
Q585 Lord Skelmersdale: Are you saying that is a regulatory issue?
Antony Walker: Yes, it is a planning issue.
Richard Hooper: It is a planning issue. One of the reasons why the United States of
America absolutely powered ahead on cable television, compared with Europe and the UK,
was poles. In a perfectly normal urban environment, everything is strung on poles. The coax
cable was strung on poles. That was a reason for incredibly quick penetration of cable
television compared with the UK, where poles are environmentally problematic.
Antony Walker: It is the same if you go to Japan. You will see all the fibre is overground; it
is all on poles, which makes it an awful lot cheaper to deploy.
Q586 Lord Skelmersdale: Is there logic in that because, after all, there are already wires
on poles?
Antony Walker: The concern is that you get a proliferation of more of that infrastructure. If
you go to Asian countries, in particular, you will see huge numbers of cables on poles, with a
real visual impact.
Q587 Earl of Selborne: The CPRE is not keen.
Antony Walker: Yes. As a society, we have to make trade-offs. If we decide that we do not
want lots of things strung over poles, then we have to accept that has an impact on our
broadband deployment.
Q588 Baroness Bakewell: It would be hard to find any kind of consensus on that,
because you have small groups resisting it wherever it is.
Antony Walker: Exactly, but what I am saying is that is a real constraint on the ability of
new entrants to be able to make use of existing poles or put up new poles.
Richard Hooper: One of the drivers in the city of Amsterdam for cable television was the
exact opposite: it was to get rid of terrestrial antennas on top of buildings. From
Amsterdam’s point of view, that would obviously destroy the look of the city. By having a
strong cable television underground network, they actually got rid of all those.
Q589 The Chairman: In this general area, are there problems in practice posed by
wayleaves? We heard from Virgin that, if they want to join up a house, they have to pay £60
for the right to go through the kerb, while BT already has a right to put in a cable. It does
not seem to get in their way.
Antony Walker: I am not quite sure.
Richard Hooper: I think, as President Obama said, that is above my pay grade. It is a very
complicated issue, but there is a serious point.
Q590 The Chairman: The crucial point is that there are some serious issues to do with
wayleaves. Is there a degree of inherent distortion of a free and fair competition as a result?
Richard Hooper: Somebody kindly said they thought there was a discrepancy of view
between us, and there probably is, because we do have diverse views on the BSG. I still
come back to not putting out of your minds the possibility that the last bit in an all-fibre
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environment may have to be, dare we say it, a monopoly. A lot of other countries have
come to that conclusion and, from that, have actually structurally separated their telco. The
irony in Australia is that, having spent years privatising Telstra, it is now taking it back into
public ownership through the local loop. That is a very interesting story—a circular one.
Q591 Lord Clement-Jones: That may well have to be the case, but nevertheless there is
another issue involving BT technology that affects the competitive environment and the
smaller competitors’ ability to compete in that landscape. Could you explain why you think
BT has not adopted the ALA standards? We heard in evidence from Chi Onwurah that
Fujitsu has done so in its submissions.
Antony Walker: ALA was a regulatory solution that was developed by Ofcom as a model
for what it thought a wholesale product could look like. BT then went away and developed
GEA through working with NICC, so with all of the commercial players. It worked with the
industry to develop GEA.
Q592 Lord Gordon of Strathblane: Sorry to interrupt, but BT told us that GEA
antedated ALA.
Antony Walker: Yes, in some ways. It started earlier but finished later, if you know what I
mean, but all of the players were there. As I said, we are still in this iterative process and
there is further reconciliation that is happening within the NICC that may seek to address
some of those outstanding problems.
Q593 Lord Clement-Jones: You do agree, though, that GEA is not as encouraging, if
you like, to competitors as ALA has been.
Antony Walker: I am not close enough to some of that detail to be absolutely sure of that.
Richard Hooper: It is said to be less differentiating.
Antony Walker: Again, I would say that, if you look at the history of any regulated
wholesale products, it is an iterative process; they take time to get right. I am not surprised
that there are some players who are saying it is not quite right at the moment. For me, that
is a fairly normal state of affairs in an evolving market.
Q594 Lord Clement-Jones: What pressure is there to evolve, in that sense?
Antony Walker: There is pressure from BT’s Openreach customers. Also part of Ofcom’s
job is to maintain that regulatory pressure.
Q595 The Chairman: You have got your commercial operational technical standards
work going on. Is that intended to address some of these points?
Antony Walker: That work was intended to address this issue of what happens in a
situation when BT does not win one of these local projects. It is based on this experience of
what happened in South Yorkshire with Digital Region. It was a very early stage intervention,
where a network was built and then the operator really struggled, in fact failed, to get any
big national ISPs to provide service on its network. It became apparent that the reason for
that was that to interface into it, to connect into that network, the ISPs—Sky, TalkTalk and
others—would have faced really significant additional costs just to get the interface right.
What those ISPs were saying is they would expect a small local network to pretty much
replicate the kind of interface that BT provides. We did a lot of work asking what the
requirements would be for an ISP or a small network provider, and if we could resolve this
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problem. At the end of the day, it is not a technical or technology problem; it is actually a
commercial problem. The question is: who bears the cost of developing that service stack?
The problem is, first of all, that you do not know whether you are going to win a project,
and then you do not really know how many customers you are going to have, so you are
reticent to go ahead and make that investment. That therefore means that there is
uncertainty about whether you will be able to attract big ISPs. That then leads to uncertainty
about how many customers you will attract to your network. That leads to uncertainty
about whether you will be commercially sustainable. It is a chicken-and-egg problem in terms
of who makes the investment when. If you do have a situation where you have only one or
two non-BT providers at relatively small scale, it is a good example of the way in which
small-scale procurements go against the natural scale of telecoms.
Q596 The Chairman: Do you think it is something that should be mandated by the
regulatory authorities—that you have to be able to get the bulk of generally available
services?
Antony Walker: We talked to BDUK about whether it should mandate a COTS solution,
and it felt that went beyond its remit. It has simply required that there should be active and
passive wholesale access. We remain concerned about how that is going to work in practice.
South Yorkshire is a salutary lesson in the fact that, if you get that wrong, if you fail to
address that problem, it really challenges long-term sustainability.
Q597 The Chairman: How did the South Yorkshire problem arise? Do you know?
Antony Walker: I think it was over-optimism about how easy it would be to attract
operators on to the network. In the early days, people just did not think it was going to be a
problem.
Q598 The Chairman: It was almost naivety.
Antony Walker: In the very early days, there was naivety and then, over time, it became
apparent that this was quite a big intractable problem.
Q599 Earl of Selborne: You say TalkTalk and Sky cannot afford to participate in that
regional network.
Antony Walker: It does not make commercial sense.
Q600 Earl of Selborne: Why is it more expensive to participate in that regional
network?
Antony Walker: It is all about the investment required to create the service stack that
provides the interface into the network. If you are Sky, you do not want it to be more
expensive than it is to plug into BT’s network. You just want to have the same interface. Sky
reckoned, I think, that it would need about 500,000 customers to justify making changes to
its service stack in order to make the interface.
Q601 Earl of Selborne: Was therefore the original mistake not to use a common
specification?
Antony Walker: We flagged this issue very early on and we tried to drive some work to
resolve it. I think it probably should have been specified as a requirement: to be clear about
how you were going to address this. Too often, it has been left to the end: “We will worry
about how we get service providers once we have built the network.” Actually, you need to
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worry about how you are going to get service providers right at the outset, because that
drives your demand profile on your network.
Richard Hooper: We should never go away from the promotion of competition in service
provision. The thing is that is a separate business through some of the pipes, or can be
separate, but service provision should always be, and must be, strongly competitive.
Q602 The Chairman: The problem for the consumer is that, if you happen to live on a
network that does not have the appropriate characteristics, you are going to be severely
disadvantaged in terms of what you can get. You are going to risk having, shall we call them,
“digital ghettos”.
Richard Hooper: I do not think it is politically and socially acceptable, and I do not think it is
acceptable business-wise, because you will probably have less take-up as a result.
Q603 The Chairman: The logic of that is then surely Ofcom should do something about
it, is it not?
Richard Hooper: Ofcom does a lot about it in relation to BT.
Antony Walker: Ofcom’s view was that, if a network is built and this becomes a problem,
they will look at it.
Q604 The Chairman: It has in Yorkshire. It is scale perhaps.
Antony Walker: Yes. I agree. As I said, it is an issue that we flagged up a long time ago. We
are concerned that it still has not been resolved.
Q605 Baroness Fookes: If we could stay with BT in a slightly different way, we have had
quite a lot of evidence about the relationship between BT Openreach and BT Retail, with
some suggestions that this is not altogether satisfactory. What is your take on this
relationship?
Richard Hooper: It is at the heart of the topic. The whole point of operational separation,
which was set up in 2005, was that Openreach had to treat all service providers,
competitors to BT Retail, equivalently. That is at the heart of it. The notion of equivalence
was a British invention, I think, which has since gone into other parts of the world. That was
absolutely the central issue, and therefore the argument is to what extent Openreach does
that. Certainly from where I sit, but it is a judgment, Openreach has worked extremely hard
on that and done a great deal, but you do immediately get the question of whether
operational separation is sufficient in a telecom and whether you move to the next stage,
which is structural separation. Whereas that was barely debated around the world five or
six years ago, today it is debated quite rigorously, because then suddenly there is no
connection between the two companies. Telecom New Zealand has just split. Its Openreach
equivalent is called Chorus, and Chorus is now a separate listed company alongside Telecom
New Zealand. They have no relationship—they are separate companies—and therefore that
enforces that discipline even further.
Q606 Baroness Fookes: Would you like to tell us whether you think that is the route
we should take?
Richard Hooper: It is not for me or for BSG to say that. BT is an important member of
BSG. I am just saying that, if you look around the world, that has become a serious part of
the debate, particularly as we develop all-fibre solutions.
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Antony Walker: It is clearly there as a solution, if you reach the situation where there is a
real sense that there is a genuine lack of competition in the market. It is important that
everybody remembers that you have that in your back pocket as a solution. To my mind, at
the moment I do not think there is sufficient evidence that suggests that there is a lack of
competition. Actually, we have a situation where we have a number of commercial players
investing at scale and pace. Now would be the wrong time to come to that conclusion.
However, I would say that the interesting thing is that we now have a number of live
examples around the world. If I were in government, I would want to pay close attention to
what is happening in those markets and to learn from them, so that, if I was in a situation
where I thought that was the right route to pursue, I was very well informed about the pros
and cons of doing so. Do not underestimate the level of disruption that you would cause by
going down that route. Since Australia has gone down that route, for four or five years now,
actual network deployment or take-up has been extremely limited. It is a very slow way of
changing course. Do not underestimate the level of disruption that would cause.
Q607 Baroness Fookes: Do I infer then that the problem is not great enough, or
scarcely there at all, to warrant such interference?
Antony Walker: That is right for now. There is a very good question, which I am sure is
central to all of you, which is this issue of the choice between fibre to the cabinet or fibre to
the home. There is a question at a certain stage that says: is there a point at which you need
to move to fibre to the home? Our view at the moment is that current investment plans will
deliver the kind of connectivity that the UK needs in order to stay at the forefront of use
and exploitation of the internet. That is what really matters.
More to the point, deploying fibre to the cabinet is much faster than deploying fibre to the
home. Therefore, I think we get to that point of a step change more quickly, which will be of
broad benefit to the UK economy. If I am wrong and we get to a point where you have to
change course and go to fibre to the home, then one of the ways you might seek to do that
is through structural separation. There is another policy option that you have there, which is
switching off terrestrial television or at least setting a target to switch off terrestrial
television, even if it was 15 years out, because that then gives a very strong demand driver. It
would essentially mean that television would have to be delivered over broadband at some
point in the future.
Q608 Lord Clement-Jones: You would switch off Freeview or something, would you?
Antony Walker: Yes, you would switch off terrestrial TV.
Q609 Lord Gordon of Strathblane: Could we be absolutely clear? If you switch off
terrestrial television, then you would have to have 100% access.
Antony Walker: Absolutely, that is exactly the point. That is a very strong signal to the
market that says universal very high-speed broadband will be essential. That gives some
investor confidence.
Richard Hooper: The paradox of the broadcasting world is that it is effectively a fixed
technology. Most people watch their television in fixed locations from fixed sets. Actually,
spectrum’s great wonder is its ability for mobility.
Q610 Baroness Fookes: Is this a likely scenario over the next 15 years? Should we be
thinking about this?
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
Antony Walker: One of my biggest critiques of governments over the last 10 years, while I
have been involved in these issues, has really been the insufficient attention paid to very
long-term thinking. We wrote a big report in 2007 called Pipe Dreams?, which raised this
whole issue of next-generation access. At the time, that was an issue that very few people
were thinking about. What has happened is we have gone from denying there was a problem
to everybody suddenly agreeing there is a problem, and then suddenly we are immediately
into implementing solutions. What was missing was that period when we were really
thinking about what the long-term strategic options were and then how you would
implement them. As I leave this role, I would say to government: invest in some long-term
policy thinking, look at those long-term policy issues, and understand the extent to which
some strong signals could actually lead to some market-driven outcomes, rather than having
to spend public money on doings that could actually be delivered by the market.
Q611 The Chairman: I want to go back to talking about the complete separation
between the infrastructure and the service provider. Are there good reasons for the current
arrangements we have, as opposed to reasons why they might change? It was put to us
yesterday by Openreach that they did not matter to BT, which had the confidence its own
retail service was going to be able to run out through the network, if it was extended. The
impression was that that relationship was important to them.
Richard Hooper: It clearly is. Every telco would come into the room and say the same
thing: that it is extremely important to the relationship between the retail arm and the
wholesale arm. Some telcos are now saying that the world has changed fundamentally. I can
remember a day when the director of wholesale at BT sat below the salt in directors’
meetings, because he had wholesale customers, which was not terribly proper. The real
customers were retail customers. Historically, that has always been a very strong driver of
telecoms companies around the world, but I think that is changing. The irony is the reason
why the director of wholesale suddenly found himself—and it was a he—above the salt was
that he was getting very large sums of money from mobile operators for interconnections.
He was actually doing extremely nicely, thank you. The world has fundamentally changed.
Wholesale is acceptable and retail is important.
Q612 The Chairman: Does the Chinese wall really exist then?
Richard Hooper: It certainly does under BT under Ofcom supervision, because it was very
strictly governed, and it happens today. I think Openreach, very fairly, has worked extremely
hard on that. Would they make different decisions if they were separate companies? That is
an interesting question you might have asked them yesterday.
Q613 Lord Dubs: Having a Chinese wall goes against what you said about the possibility
that that infrastructure might have to be provided on a monopoly basis, does it not?
Richard Hooper: If you go down that route, it goes from a Chinese wall to a wall.
Q614 Lord Dubs: Mr Walker, you talked about keeping things in our back pocket,
meaning it is a possibility. As a Committee, we have to produce a report and we cannot
keep things in our back pocket.
Richard Hooper: If you remove all broadcasting that will certainly be in the headlines.
Antony Walker: My recommendation would be that we have long-term options to change
course if we need to—if there is compelling evidence that you need to change course. My
take on the market at the moment is that now is not the time to change course. In 2007, we
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
set out a very clear critique of where we were, when we looked at the policy framework,
the regulatory framework and the commercial conditions. None of the foundations was in
place that would enable a transition to next-generation broadband.
If I look at the market today, I would say that, from a regulatory, policy, and market or
commercial perspective, all those building blocks are in place, and we are now making
progress towards what I think will be a positive outcome. This is not the point to disrupt the
broad regulatory and policy landscape. It is a point at which you give confidence to investors
that they are making safe investments. If I am proved wrong, and if we reach somewhere
that is less positive, that is when you revert to those options. In economics, there is this
term “option value”, and it is real value. It is the value of being able to change course to do
things differently. The option value should not be dismissed here.
Q615 Lord Dubs: I understand that, from BSG’s point of view after all you have a variety
of members with different, and sometimes somewhat conflicting, interests. When you say
this is not the right time, I wonder whether any time would be the right time. It seems to
me that we have a chance now to say something, and say something quite fundamental, if we
wish to.
Richard Hooper: I think you should say things like “speed up”. You should say, “Service
competition is extremely important and should be continued.” There are lots of big
messages that need to be said. I also do not think we should indulge in UK bashing. I would
end where I started. If UK broadband and government policy is so bad, how come we are at
the top of the league in the world for usage of the internet and e-services? Looking at Lord
Clement-Jones, there are more digital music services in the UK than any other country in
the world.
Q616 Lord Dubs: Nobody is saying it is bad. All we are saying is, as a Committee, we
have to look forward and listen to what you have been saying.
Richard Hooper: And be technology neutral. Really be fair to mobile, fixed wireless and
under-the-ground fixed. Do not be obsessed with it all being about fibre to the home and
nothing else. That would be very helpful.
Q617 Baroness Bakewell: I want to take up what you were saying about long-term
planning, because it is not possible to know the future. We are talking about boxes and
cabinets, all sorts of fibres and this, that and the other. Let us talk about people. What
confidence do you have in the expectation that the market is going to consistently increase,
in the short term very steeply, and from then on retain a plateau that will keep the whole
system changing and facilitate all these developments that you promise?
Antony Walker: In terms of the UK market, BT is rolling out its Infinity product at a rate
that is almost faster than any other operator anywhere else in the world at the moment.
There is a massive investment taking place—a very rapid increase in the capability and
capacity of broadband networks that are going to be available to UK consumers at a
relatively small premium to existing services. What we are seeing is that there are two types
of customer that are taking that product quite quickly. There are those who already take the
best that is available and are keen to immediately take the next best thing available. There
are also those who are on very poor connections already and who see big additional value in
upgrading to the new service. Beyond that, it is unclear.
The bulk of consumers at the moment seem relatively happy with the broadband that they
have, so we think that they will possibly migrate a little more slowly to the new services as
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
they are rolled out. But do not underestimate how quickly a new level of capability is being
deployed into the UK market that will stand the UK market in good stead for the short to
medium term. As to the longer term, if there is a need to go beyond the capability of this
existing infrastructure, there are possibilities in commercial and technical routes that would
enable the market to make that investment. If it did not, that is when you can potentially
resort to your other regulatory options.
Q618 Baroness Bakewell: Could the market reach saturation point?
Antony Walker: Demand for bandwidth will continue to increase. It is exponential, as more
devices come along. These days, people may have five or six devices in their home that
download things without them even knowing—that are upgrading some of their software
overnight without them being aware. We are an ever increasingly connected society that
makes more and more use of this connectivity.
Q619 Baroness Bakewell: I think that is very important and it is just wonderful.
However, we have an ageing population. We have a population increasingly in
single-occupancy homes. Whereas an old person might welcome being connected, and we
know about telehealth and all that kind of thing—excellent—the households that are
multi-use, which young people are very excited about, are actually on the decrease, rather
than on the increase.
Antony Walker: That is true and it is a challenge for operators, in terms of having these
varying levels of demand. They have to configure their networks in order to be able to cope
with those varying levels of demand in an efficient way. The other thing I would say, talking
about what “good” looks like, is it is about everybody being connected. It is about reaching
the most socially excluded groups in the country. It is about technology that enables those
people to connect easily without any technical knowledge. All of those things must not be
overlooked as we focus on this issue of broadband speed. Those things are just as, or
perhaps even more, important.
Q620 Baroness Bakewell: Do you think they should be part of the criteria that drive
forward all of this activity?
Antony Walker: In terms of the metrics for success, the metrics for best in Europe are
around speed, coverage, price and choice. To me, the most important thing is usage, and I
really think that should be expressed as an additional metric. It is very hard to measure. It is
very hard to find things that you can use to measure that, but usage is absolutely the most
important thing.
Q621 The Chairman: We have already overshot our allocated time, so I fear I ought to
draw the hearing to an end, but it has been an appropriate conclusion we have got to in the
way that our debate has developed. Thank you both very much, but is there anything else
absolutely burning you want to say to us that you have not? If that is the case, now is the
chance.
Richard Hooper: I would just stress that final point about coverage. I think coverage is a
terribly important issue. If you had a choice between an elite having lots of 100 Mbps and
lots of people having 2 or 10 Mbps, I know where my choice would lie.
Q622 The Chairman: Is that a real choice?
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Broadband Stakeholder Group – oral evidence (QQ 550-622)
Richard Hooper: I think public policy is driving in that correct direction. We are talking
about 90% having access to superfast and the other 10% having at least 2 Mbps. People are
now beginning to say 2 Mbps is too slow and could be quicker. I think that 100% coverage of
the country is where we should be heading and we should go for it aggressively.
Antony Walker: My final point would be: beware of getting drawn into picking technologies
and winners. In the 1960s, people thought that the future of civil aviation was in superfast,
supersonic, so we built an aircraft that was essentially designed to provide ultra-fast travel
for the ultra-rich, which was Concorde. The thing that changed the world was the jumbo jet.
It was not as flashy, it was not as fast, but it was the thing that changed the world. Be careful
of being drawn into picking winners.
The Chairman: Thank you both.
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Broadway Partners – written evidence
Broadway Partners – written evidence
A Modest Proposal To Unleash Increased Investment and Higher Returns For
All 14
Summary
The UK is an acknowledged leader in the global knowledge, media and creative
industries, both old and new. Yet with regards to the local broadband infrastructure that
supports these and other information-intensive industries, the UK is lagging behind many
competitor countries. And within towns and cities, but most particularly in the countryside,
the digital divide is only getting wider, given the ever-increasing richness of Internet
content.
This has direct economic and social policy implications, none of which are positive.
This paper’s focus is principally ‘the final third’, although the core proposal has equal
applicability throughout the UK. Rather than dwell on the issues, the paper proposes
constructive solutions which will, the author believes, deliver multiple benefits, including:
• Increased investment in the final third;
• A more dynamic regulatory, competitive and financing model; and
• Empowerment of local communities and Local Government.
At a stroke, the UK could be transformed from laggard to leader in global telecoms,
unleashing a wave of infrastructure investment, stimulating the information and creative
industries, promoting social cohesion, and enhancing the UK’s status as a destination for
inward investment.
Introduction
While this paper’s main purpose is to present constructive ways forward, some
acknowledgment of current shortcomings is necessary to provide context.
1.
The rural broadband initiative is not delivering the desired results, with only one
serious bidder emerging from an 18-month framework negotiation process, and very
little in the form of genuinely ‘new’ investment.
2.
Local network upgrade is concentrated on incremental upgrades to the existing
network – serving the incumbent’s purpose, but not that of wider stakeholders. It is
widely recognised that the current proposed technological solution, fibre-to-thecabinet (FTTC), is but a temporary ‘fix’, and will require further rounds of investment
within a few years.
3.
Meanwhile, demand remains unsatisfied throughout large swathes of the ‘final third’
and, nationally, there seems little likelihood that the UK will meet its European Digital
Agenda Next Generation Access (NGA) targets15 .
14
15
The opinions expressed herein are those of the author, Michael Armitage.
100% coverage of 30 Mbps broadband, and 50% subscribed to over 100 Mbps, by 2020
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Broadway Partners – written evidence
Why is investment not happening?
Numerous reasons are cited for industry’s failure to invest more proactively, of which the
most significant are:
•
•
•
Demand uncertainty;
Assumed inadequate returns; and
A shortage of financing 16 .
However valid a justification for under-investment in today’s regulatory and competitive
environment, it does not have to be like this. After all, similar demand, return and
financing conditions prevail in other countries, where substantial investment is nevertheless
taking place - so why not in the UK?
Indeed, our proposals address substantially all of these issues and concerns.
First, the risk is not that of demand – which is clearly substantial - but that demand might
be diluted through competing networks; the ‘prisoner’s dilemma’ ensures that neither
incumbent nor entrant feels able to invest for fear of the other duplicating that investment.
Second, returns are likely to be inadequate on a ‘build it and they will come’ model; but can
be made to be substantially worthwhile if stakeholders’ interests are properly aligned, if
demand is actively stimulated, if return horizons are sufficiently extended, and if the ‘nonmonetary’ benefits of fibre are also factored in.
Third, while the financing environment is unquestionably challenging, and near-impossible
from the incumbent’s perspective of a required 2-year payback, it is not that challenging.
There exists a multitude of savers and investors, local, national and international, which can
be tapped for long-term capital - if only an appropriate investment vehicle were available to
them.
The fact that there exists significant demand, as well as the financial capacity to support that
demand, and yet there is a delivery gap, demonstrates that it is rather a failure of policy that
lies at the heart of market failure in UK broadband. Three reasons:
1. Infrastructure competition – At the heart of the problem lies the fact that telecoms
consumers’ interests have for decades been sacrificed on the ideological altar of
infrastructure-based competition. In the local distribution environment, where economies
of density are predominant, and where well established regulatory models actively separate
network elements into ‘passive’, ‘active’ and ‘service’ layers, allowing different competitive
models in each, the bottleneck nature of the passive local access network argues for a
more enlightened approach that recognises its essentially utility nature.
2. Vertical integration – Allowing the incumbent to remain vertically integrated has had
two consequences – first, the regulatory requirement to conduct regular and detailed
market reviews to define, areas of significant market power (SMP); and second, the
16
See the European ‘Digital Agenda’ at:
http://ec.europa.eu/information_society/digital-agenda/documents/digital-agenda-communication-en.pdf
See also, ‘2020 Vision, Financing UK NGA’ by Brian Condon on behalf of INCA
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Broadway Partners – written evidence
consequent need to develop detailed and prescriptive ‘ex ante’ regulatory remedies, the
effect of both of which is to create uncertainty and to discourage long-term
investment.
3. Institutional blockage - The coalition Government’s well intentioned Localism agenda
reverses decades of centralisation, and it is little wonder that many local authorities feel
under-resourced to carry out many of the tasks expected of them. This manifests itself in
numerous ways – an excessive fear of legal challenge by the incumbent regarding the
interpretation of State aid and public procurement rules; an inability or reluctance to
engage meaningfully with local communities, and therefore an inability to draw up
coherent local broadband plans; and a lack of experience of financial markets as a
source of alternative financing.
Perversely, this institutional tendency to do too little is exacerbated by a Central
Government tendency to intervene too readily: while the ground-rules remain flawed,
no amount of tinkering will make them appreciably better. And direct Government
intervention, albeit with the best of intentions, but nevertheless seemingly random, simply
throws an already fractured industry into paroxysms of redundant activity – of which the
only beneficiaries are industry consultants – while confusing and deterring long-term
investors.
So, the answer is…..?
For the UK’s broadband problem to be resolved, policy makers need to accept only two
basic premises – from which much good will flow.
First, that fibre represents the future of telecommunications, and is worth investing in;
and
Second, that in the local access network, only one physical network needs to be and should
be built, and that the passive elements of this network – duct and cable – do not need to be
owned by any one operator. Indeed, ownership should be open to all stakeholders –
including the community which, at least in rural areas, will necessarily be putting up a
significant part of its financing.
The co-investment model is well described elsewhere 17 , both in concept and detailed
practice, and follows well established precedent across Europe 18 . Just as with the longestablished practice of mast-sharing in the mobile industry, the conceptual logic underpinning
the co-investment approach is clear: to share, or pool, investment in that part of the value
chain where there is least benefit to be derived from competitive tension or duplication.
And it is the local, passive access network, typically comprising more than 80% civil
work, which offers the least benefit from competitive duplication, and the greatest benefit
from investment pooling.
17
18
See ‘How a co-investment model could boost investment in NGA networks’, by Oxera consultants
http://www.oxera.com/main.aspx?id=10068
See:
http://www.broadbandeurope.eu/Lists/Competences/EU%20Guide%20on%20Broadband%20investment%20models.pdf
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Broadway Partners – written evidence
The author suggests the following approach: the government should terminate the current
‘competitive dialogue’ process, reallocate the original £530m BDUK money to the new
‘NetCo Fund’ (plus the £150m allocated to rural mobile), and invite industry and financial
institutions to invest alongside, at least on a ‘matched’ basis, for proportionate ownership of
the ensuing passive network.
The invitation to co-invest should appeal to a broad swathe of industrial players –
equipment suppliers, construction companies, Internet Service Providers (ISPs), content
providers, utility companies and telecom network operators – who stand to benefit from
the creation of what would essentially be a wholly new market, as well as from the minimum
return assured by the investment. The creation of a central infrastructure fund, of significant
scale, will also attract to a wide variety of additional funding sources, attracted by the
very long-term and predictable returns as well as by the solid asset backing: both private and
public sector pension funds, dedicated infrastructure funds, multinational financing
institutions such as the European Investment Bank (EIB), corporate and municipal bond
investors, as well as private and public equity investors and foreign sovereign wealth funds.
Communities or projects would then be invited to apply to the NetCo Fund for long-term
finance, with the onus on the community to raise whatever was required to complete the
project, from a range of sources: local investors, EIS and others; businesses, with a clear
economic interest at stake; and Local Authority funding bodies and municipal bonds, of a
‘straight’, Tax Increment Finance 19 , or Social Impact Bond nature. This obligation would act
as a crucial and effective acid test of the community’s commitment to the project,
representing its own ‘skin in the game’. The particular merit of this approach is that it is
the community, both private and public sector, rather than Central Government, that
essentially provides the ‘gap funding’.
The details of such a vehicle will require close devising and scrutiny – for example, how will
its scope of activity be defined: ‘white areas’ only, or progressively throughout the UK? Will
rural mobile be included? What degree of regulatory assurance or visibility of returns is
required to ensure the participation of long-term investors? Indeed, what is the proper role
of the regulator for this Open Access segment of the industry? And what level of return
should be reasonably assured to the Co-investment Fund, and on what basis will surplus
returns be shared with individual communities? Clearly, governance will be key, given the
participation of multiple players.
But these detailed considerations are beyond the scope of this paper, and none are
particularly challenging: one of the great attractions of the co-investment model is
precisely the extent to which it opens up possibilities, rather than closes them down, as
the current incremental, gap-funding approach does.
At a stroke, government will achieve a host of desirable outcomes:
Stimulus to increased investment
• Maximises the benefits of scale and density, by avoiding network duplication;
• Minimises demand risk, also by avoiding network duplication;
• Provides a future-proof, one-time solution;
19
TIF - whereby the local authority pledges the projected income from local taxes and/or business (including the
fibre tax), to the servicing of long-term infrastructure bonds.
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Broadway Partners – written evidence
•
•
•
Maximises take-up (100%, with local authority support for a universal service
commitment, to deliver public services, in the interests of cost efficiency and
social inclusion);
Ensures high levels of local engagement, with local communities encouraged
or required to ‘match fund’ the Co-investment Fund element via, say, taxefficient EIS share offers; and
Provides an efficient financing structure for attracting long-term savings such
as pension funds, as well as for attracting EU Development Funds.
New, more pro-competitive regulatory model
• Offers increased regulatory transparency, following the utility principle;
• Offers, as a result, far great investor certainty;
• A co-investment structure would require very high standards of governance
and transparency, to the benefit of all market participants;
• Provides a mechanism to harness Government support, within State Aid
rules;
• Conforms to EU regulatory Open Access principles; and
• Opens the door to a new competitive/collaborative model.
A new dynamic, for industry and communities
• Full diversity of competition at the service level;
• A commitment to fibre in the access network would enable industry to move
away from commodity pricing principles, and to re-establish service and
pricing differentials;
• A co-ownership position would encourage Local Authorities to engage more
meaningfully with communities, as co-funders;
• Co-ownership could also open Local Authorities to new funding streams,
such as a revived municipal bond market, or Tax Increment Financing, or
public sector pension funds;
• A commitment to fibre upgrade would represent a powerful signal to
prospective inward investment that the UK was serious.
What is the downside?
The current regime is broken, and requires fixing. The co-investment approach offers the
industry and its consumers a means to put things right, and in so doing, to achieve great
things. The author does not anticipate there being any material State aid issues, given how
closely the Co-investment approach follows EU recommended principles, as long as proper
public procurement rules are followed. Similarly, while this move might initially not be
welcomed by certain elements in industry, it is very unlikely that their ongoing commitment
to invest will be jeopardised, and the door to their subsequent participation will
always remain open.
The Author
Michael Armitage has worked in the telecoms industry since joining BT as a graduate trainee
in 1980. He entered the City in 1982, before joining James Capel in 1983, ahead of BT’s
privatisation in 1984. Joining Morgan Stanley in 1987, he was made Managing Director in
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Broadway Partners – written evidence
1997, and led the European Telecoms research effort and latterly headed the Global
Telecoms team. During this time, he was lead analyst on many of the major telco
privatisations in Europe, as well as on numerous private sector IPOs. Since leaving Morgan
Stanley in 2002, he has been advising and raising money for technology companies. In the last
two years he has been devoted to the development of the UK broadband opportunity, and
in 2011 co-founded Broadway Partners, a business dedicated to bringing communities,
operators and investors together. He was educated at The Edinburgh Academy, Université
de la Sorbonne, and Reading University, has a BA (Honours) degree in English, and an MSc
(Sloan) from London Business School.
29 February 2012
73
BT Group plc – written evidence
BT Group plc – written evidence
Introduction
1.
BT is pleased to respond to this Inquiry. This issue is at the heart of our business as
well as being an important focus for government policy. We have already committed
£2.5bn of our own funds to roll out the fibre optic cable required for superfast
broadband (defined as broadband at speeds in excess of 24 megabytes per seconds or
Mbps). This network will deliver superfast broadband at speeds of up to 80 Mbps to
two-thirds of UK premises by the end of 2014, with speeds of up to 300 Mbps available
on demand. We are bidding for public funds and working with local authorities to
extend that roll-out into areas where the commercial case for investment is more
challenging. If successful in most of these bids, we believe we can get superfast
broadband to more than 90% of UK premises. We are working on other solutions to
improve speeds for remaining properties.
2.
It should be noted that 99% of UK premises currently have access to some sort of
broadband connection. For broadband availability, the UK already leads Europe. 90% of
premises already have access to speeds of more than 2 Mbps, enough to stream
standard quality television or video pictures. The challenge is to increase speeds and
take up to drive economic activity. Work on this is well under way.
3.
The commercial roll-out of fibre is proceeding well, with more than seven million of the
UK’s 28 million premises now passed by a BT fibre optic connection. We are deploying
the fibre network very rapidly, passing more than one million premises a quarter. The
number of homes passed should reach 10 million later this year, with two-thirds of UK
properties being passed by BT fibre by the end of 2014.
4.
BT’s fibre network is available to all communications providers to access on an open
wholesale basis – providing consumer choice in service provider and choice wherever
BT deploys its network. BT’s is the only fibre network deployment in the world that
proactively seeks to offer wholesale access to encourage plurality and competition in
retail provision of superfast broadband.
5.
Our fibre deployment is primarily by means of “fibre to the cabinet” (FTTC), with the
broadband signal travelling over copper wire from the local cabinet to the home.
Currently, this enables speeds of up to 40 Mbps downstream and up to 10 Mbps
upstream. These speeds will roughly double from April 2012 to 80 Mbps downstream
and 20 Mbps upstream as a result of technical innovations which we are introducing. In
some areas, particularly greenfield sites, we deploy “fibre to the premises” (FTTP),
enabling speeds of up to 110 Mbps downstream and 10-15 Mbps (depending on service
taken) upstream. FTTP will offer downstream speeds up to 330 Mbps from April 2012.
We have also recently announced plans under which FTTP will be available “on
demand”. This means that all premises in our commercial deployment in two thirds of
the country will be able to receive FTTP by spring 2013. This will be a premium product
offering very fast speeds and will be aimed primarily at SMEs. Businesses which want
especially high speeds will be able to request that fibre be installed from the cabinet to
their premises.
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BT Group plc – written evidence
6.
It is important to understand the basic economics of network deployment. The
infrastructure investment case has many variables, but two of the key variables,
population density and distance to existing network capacity, are particularly important
in driving the costs of network build. This means that in some parts of the country,
where population is dispersed, the investment case for deploying a fibre network is
challenging.
7.
Issues of demand and expected take-up are also important. A superfast connection
enables easier use of multiple broadband devices in a single property – for example, in
the domestic environment, different household members can each use their own
computer or mobile device simultaneously without seeing any degradation of speed and
service. Superfast speeds are also, of course, advantageous for businesses running
websites, trading online at volume, using multiple devices and sending large files over the
internet. Large businesses already use very fast “Ethernet” broadband designed for
larger enterprises; extending superfast broadband more widely will be especially
important for SMEs and households.
8.
In some countries, pay TV has driven demand for superfast broadband, as householders
access pay TV services over fibre connections. This is an important issue in the UK. UK
pay TV markets are dominated by BSkyB, which uses satellite technology to distribute
pay TV channels and has a monopoly over key content rights. This means that investors
in fibre deployment in the UK, and retailers of superfast broadband are denied a very
important means of paying for their networks and driving take-up through pay TV
services. BT and others have pressed for regulatory action to address this and these
matters are subject to current investigation. Opening the market for pay TV is an
important step in driving fibre investment and take up in the UK.
Specific Questions in the call for evidence
What is being done to prevent a greater digital divide occurring between people
who can access superfast broadband and people in areas where the roll-out of
superfast broadband may not be commercially attractive?
BT is bidding for central government funds being made available through BDUK, and also working
with local councils to ensure fibre is deployed beyond the two-thirds of the UK where we see a
commercial case for fibre investment. If our bids are mainly successful, we envisage being able to
reach over 90% of UK properties with superfast speeds, and we are trialling alternative solutions to
lift speeds for remaining properties.
9.
The UK has a good track record of broadband adoption and use, regularly
outperforming other EU and OECD countries on a wide range of measures. For
example, the UK scores well on EU measures of broadband coverage and take-up, rural
coverage, on-line government services, on-line commerce and measures that track the
number of very slow lines.
(http://scoreboard.lod2.eu/index.php?scenario=4&indicators%5B%5D=allIndicators&year
=2011&countries%5B%5D=UK)
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BT Group plc – written evidence
10. McKinsey’s “Internet matters” report of May 2011 named the UK and Sweden as
“leveraging very strong internet usage across the board.” More recently still, the Boston
Consulting Group reported that for the UK, the internet economy was worth £121bn
in 2010, or more than £2,000 per person - the largest value in the G20 group of nations.
11. Although the UK scores well in these reports and on the EU measures above, there is
no dispute that more can be done to help people, especially the socially and
economically disadvantaged, to get online. BT has been helping people get online since
2002. Our digital inclusion campaign, Get IT Together, is designed to get 100,000
people online in 2012. We work with a broad range of partners, such as schools,
community groups and other companies to reach those who need help, and we are a
leading partner of Race Online 2012. BT is leading on Get IT Together, a pilot
partnership with Citizens Advice to help their often marginalised clients to get online.
12. As fibre optic cable is rolled out across the UK to enable superfast broadband, the main
mechanism for limiting any digital divide is central government funds. A total of £530m is
being made available by central government this parliament, disbursed through BDUK to
help connect the so-called “final third” – the parts of the UK where no company
currently sees a commercial case for deployment, given population density and
topographical factors.
13. This funding is to a large extent being matched by local authorities, further enhancing
the ability to deliver superfast broadband to rural areas. If this central and local
authority money is spent effectively, we estimate that fibre optic connections can be
made available to more than 90% of UK premises.
14. We are testing technical solutions that will enable us, with suitable funds, to deliver
improved broadband to the remaining properties, which lie mainly in very rural areas.
Wherever possible, we shall examine innovative ways to work with local communities
on delivering fibre based solutions. However, rolling out fibre optic cable may not be
viable in some of these areas, even with the BDUK funding. Alternatives are likely to
involve radio based solutions.
15. In Bute, we are testing a solution in which broadband signals are carried over unused
parts of the TV airwaves spectrum. Households receive a broadband signal through the
TV aerial. This trial of broadband over TV “white space” is delivering enhanced
broadband speeds to areas of the island that were previously broadband “slow spots.”
The speeds may be sufficient to enable households to, for example, stream high
definition TV over broadband. We intend to trial the “white space” solution in Cornwall
as a next step.
16. In Cornwall, we are already trialling a solution which envisages delivering enhanced
broadband speeds over mobile telephone frequencies. This trial of the use of LTE
wireless technology (so called 4th generation wireless) is in partnership with Everything
Everywhere. The trial has successfully connected areas which were previously
broadband “slow spots”. When trials are complete, we can compare the effectiveness of
“white space” against LTE solutions.
17. There are regulatory issues to be resolved around use of these radio based options.
Decisions would be required from Ofcom before these solutions could be deployed
more widely, but our trials are showing they have the potential to deliver improved
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broadband speeds in very remote/rural areas beyond the reach of even our current
broadband services. They could help resolve existing sub-2 Mbps “slow-spots” and
upgrade them to higher speeds.
18. We are also developing our existing satellite broadband services, primarily for rural
business use, into a product suitable for residential customers. Satellite connections may
well be an option for places where “white space” and LTE do not work. Using satellite is
more expensive and unlikely to deliver the same speeds as “white space” or LTE, but
could still be a solution to connect the most isolated parts of the UK.
19. If BT were successful in securing funds to deliver these services in the “final third”, then
they would be delivered primarily via BT’s Openreach infrastructure. The Openreach
network is made available on equivalent terms to all communications service providers
in the UK. We strongly believe that this is the best way to ensure that customers in the
“final third” receive all the benefits of retail competition that are available elsewhere in
the UK. We believe it is important to guard against the creation of local monopolies by
funding organisations that then fail to provide consumers with a choice of service
providers.
20. BT is already working to overcome the digital divide in Cornwall and Northern Ireland
– two parts of the UK which have secured public funds and pioneered early rollout of
superfast broadband. In Cornwall, for example, a £132m partnership funded by the EU,
BT and Cornwall Council, and managed by Cornwall Development Company, is bringing
superfast broadband throughout Cornwall and the Isles of Scilly, making it one of the
best connected places in the world by 2014. Over 10,000 businesses will be connected
to superfast broadband and the investment programme will create 4,000 jobs, safeguard
a further 2,000 and help attract new businesses to the area.
How does the UK communications market vary regionally and what is the best
way to connect the areas that the market alone cannot reach? Is a universal
service obligation necessary to avoid widening the digital divide?
There are regional variations that impact the ability to deliver broadband services – for example,
variations in topography and population density. In our view, the issues can best be addressed
through a combination of private and public funding to ensure roll-out of better broadband speed
across the UK.
21. The communications challenges in very rural areas are different from those in very
urban areas or indeed those in semi urban areas. Roll-out prospects are affected by the
UK’s geography and social history. For example, there is a tendency for English villages
to be “clustered” around a central point with relatively dense population centres within
the village boundary. This means they are often better suited to deployment of fibre
optic cable than, say, more dispersed rural communities in some other parts of the UK,
where rural populations are often more dispersed, with housing centred on individual
land holdings across a rural area.
22. These regional variations impact the commercial viability of broadband solutions. This is
illustrated clearly in the work of the Broadband Stakeholder Group on costs of
deploying fibre broadband in the UK. Its September 2008 report “The costs of deploying
fibre-based next-generation broadband infrastructure” highlighted the significant uplift in
expected deployment costs for the “final third”, where population density and other
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factors influencing the civil engineering costs of deployment start to increase
significantly.
(http://www.broadbanduk.org/component/option,com_docman/task,doc_view/gid,1036/)
This report also highlighted the dramatic cost difference between delivering FTTP and
FTTC solutions, with the former forecast to cost in excess of £30bn i.e. well beyond the
current commercial or public budgets allocated to address this issue.
23. The UK already has a Universal Service commitment to broadband at a minimum
2Mbps, and this is reflected in the requirements of BDUK in their current procurement
plans and in the local broadband plans of all local councils and devolved administrations.
The idea of a Universal Service Obligation to cover broadband delivery has been
considered a number of times before, most recently in the EU’s review of universal
service in November 2011. This concluded that it would not be appropriate to include
broadband as part of the universal service obligation.
(http://ec.europa.eu/information_society/policy/ecomm/doc/library/communications_rep
orts/universal_service/comm_us_en.pdf). There would be complex issues to be
considered, not least how such an obligation might be funded. However, given current
private sector deployment and Government plans, any suggestion that an obligation
might be needed appears to be outdated.
The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
The £530m committed by the Government through BDUK is stimulating further local government
investment and private investment. In total, they have the potential to deliver superfast broadband
services to over 90% of the UK if the money is spent effectively.
24. There are different potential sources of funds for assisting private investment in the
“final third” – including BDUK money and resource from local government. Discussions
are taking place which should see the private sector committing additional money to
supplement those public funds in order to reach the “final third”. BT estimates that
more than 90% of the UK can be reached with superfast broadband if this public money
is used effectively and unlocks additional private sector investment on the scale we
believe possible.
25. The social and economic benefit to be derived from broadband depends on issues of
affordability, literacy, computer skills and the recognition by potential users of the
benefits to them in accessing and using the broadband network and services. The high
level of service competition inherent in the UK regulatory framework, underpinned by
access to the Openreach network, is an essential element of ensuring an affordable and
effective service. It is important that government continues to focus on the demand side
aspects of its broadband policy, including the full availability of Government services
online.
Will the Government’s targets be met and are they ambitious enough?
The combination of central, local and private sector funds, if properly invested, makes achievable the
Government’s target of delivering the best superfast broadband network in Europe by 2015. The
inclusion of a wide range of measures in the UK target (as opposed to focusing exclusively on one
metric such as speed) is a sensible approach and makes the target both ambitious and relevant.
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26. BT believes that the Government’s target is capable of being achieved if public funds
being made available from BDUK and local authorities are used effectively.
27. In measuring progress against the headline target, the Government proposes to take
into account a wide mix of important factors such as availability, rural coverage, take-up
and usage, and affordability. These elements make the UK targets both ambitious and
relevant. Both central and local government can play active roles in enhancing the UK’s
performance by ensuring government services are designed to actively encourage take
up and usage.
What speed of broadband do we need and what drives demand for superfast
broadband?
The advent of Internet Protocol Television (IPTV) and Video on Demand (VoD) services to the TV
(e.g. YouView) as well as the proliferation of mobile internet devices means households increasingly
have more than one individual accessing the internet at any one time, and this will increase demand
for faster speeds. Small businesses will increasingly want faster speeds so that they can trade online,
advertise via rich internet pages and send/receive “heavy” volumes of internet traffic.
28. One of the main current drivers for domestic superfast broadband is the advent of the
multi-device household, where several individuals “log on” at once and require a reliable
connection for activities ranging from emailing and creating documents through to social
media, movie-streaming and gaming.
29. Small businesses will benefit from superfast broadband as they increasingly advertise and
offer services through interactive web pages; trade online; and exchange heavy amounts
of data online. Fibre networks also provide greater upload speeds which can be
particularly beneficial to SMEs needing to send high data intensive content.
30. Having said all that, it is impossible to give a specific answer to the question: what
broadband speeds are required now? The private sector is having to promote the
advantages of speeds above 24 Mbps while at the same time ensuring networks can run
speeds of 80-100 Mbps and faster, in order to future-proof the UK’s broadband
services. It is worth noting that in markets such as Singapore, Scandinavia and Japan, the
actual take-up by customers of high speed services has been slow to materialise and is
typically around 20% of users. It is also worth highlighting that larger businesses tend to
have their own dedicated private circuits, delivering high speeds to match their
requirements.
In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
The open access network and high levels of competition at the retail level that underpin the current
broadband network have been instrumental in the high levels of take up, use and commercial value
seen in the current UK broadband market. Maintaining this is a key element in continuing to
provide consumer choice and low prices and should be reflected in the targets set by the
Government.
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31. The Government’s proposed broadband scorecard is intended to track a relatively wide
range of measures and targets over and above speed. Factors such as usage, take up,
coverage and affordability etc., are all key to ensuring that the wider economic benefits
to the UK are realised, rather than achieving a simple position on an international speed
comparison chart.
32. An approach that measures both supply and demand side targets is appropriate and
necessary. Usage is how economic and social value is created by the network. It is also
the key factor in ensuring an economic return to the network provider and thus
sustainability of the economic case for the network and affordability for the customer.
In BT’s view, competition and choice have played a huge part in driving down broadband
costs in the UK (they are now far lower than, for example the USA) and driving up use.
Competition needs to be maintained. That means ensuring that broadband networks
operated by any individual company are opened to others on a wholesale basis.
33. The Government needs to consider how best to develop and track metrics to
understand the use of the internet by consumers and businesses; the effectiveness of the
competitive market in delivering value and choice to end users; and the value this
generates in the UK economy. Reflecting these, the Government’s proposed scorecard
to determine whether the UK has the best broadband in the EU seems a sensible
approach.
How will individuals and companies use cloud services for distributed storage
and computation? What network properties are required to enable efficient
provision and use of such services?
An increase in the use of cloud services by individuals and companies will put increasing reliance on
the broadband network and particularly the access elements of that network, increasing the need
for upstream as well as downstream data. The ability for cloud service providers to effectively access
such networks, offer their services consistently and cost effectively across the UK and in competition
with other service providers, will be key to their success.
34. Cloud computing allows an organisation or user to change the way they buy and use
computing and network hardware and software services. Instead of a company having its
own servers and data storage facilities, these would be held centrally and cost effectively
by scale providers, then accessed via broadband.
35. Cloud computing brings all the “intelligence” and complexity of modern computer
systems into virtual centres where they can be managed and maintained by specialist
providers and made accessible to users as and when they are needed. Underpinning the
entire Cloud concept is the need for a ubiquitous, reliable and scalable communications
network that will link users to the Cloud.
36. The separation and virtualisation of the software and data that underpins a user’s
service (e.g. locating their software or user data centrally in the network) will mean
greater demand for fast upstream speeds, as well as faster downstream speeds.
Companies will want to send data to their remote storage facilities just as much as they
wish to download data from the internet. A shift to these higher upstream data flows
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BT Group plc – written evidence
would further accelerate the business need and policy justification for fibre-based access
networks. This trend is already anticipated in the new fibre based products BT is
deploying, which have increased the upstream data rate significantly compared with
current broadband networks.
To what extent will the advent of superfast broadband affect the ways in which
people view, listen to and use media content? Will the broadband networks have
the capacity to meet demand for new media services such as interactive TV, HD
TV and 3D content? How will superfast broadband change e-commerce and the
provision of Government services?
The extra speed of superfast networks will help enable business models that have been applied to
audio content e.g. i-Tunes to be potentially extended to video content including High Definition
services. The real economic advantage to government services is likely to be through increased takeup and use of the networks, particularly by the socially and economically excluded.
37. The impact on consumer use of media content is the most obvious current shift in
behaviour brought about by higher speed broadband networks. The way users consume
media content has, changed significantly over the last decade due to current generation
broadband speeds, underpinned by very high levels of availability of broadband in the
UK.
38. It is likely that this transformation will continue to accelerate. The advent of YouView,
two-way services and communication (especially potential interest for Government
interaction with citizens) and growing concurrency of usage will require higher
bandwidth. We would also expect other services to develop and evolve that will utilise
higher bandwidth once the capability is widely available.
39. In terms of e-commerce and government services, superfast broadband has potential to
create new service opportunities and accelerate the transition to truly on-line
applications in the areas of tele-health and tele-presence etc. The biggest transition and
impact on Government services is still likely to be found through increasing take-up of
broadband, whatever the speed. Providing users with the skills and opportunity to
access and utilise those services online will, therefore, be at least as influential as the
speed of the connection they use to do it.
Will the UK's infrastructure provide effective, affordable access to the 'internet
of things', and what new opportunities could this enable?
Any move towards an “internet of things” will be facilitated if the UK is connected by an open-access
broadband network or networks – so that a range of companies can buy access to broadband
connectivity on a wholesale basis.
40. The “internet of things” is a term coined to sum up the idea of properties and devices
being connected over the internet, enabling – for example – boilers to switch on and off
in order to exploit off-peak energy supply.
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BT Group plc – written evidence
41. A ubiquitous UK broadband infrastructure, providing access for competing service
providers on fair and equal terms, will help in the fulfilment of this vision. Such a
network would encourage innovation and experimentation in a similar manner to that
experienced on the wider internet.
42. The “internet of things” will need broadband connections which are reliable, secure and
ubiquitous, to enable innovative providers to compete and flourish regardless of scale.
All of these features are possible via the Openreach platform and would continue to be
delivered if Government funds are invested in this platform.
How might superfast broadband change the relationship between providers and
consumers in other sectors such as content? What aspects of this relationship
are key to enabling future innovations that will benefit society?
The way superfast broadband networks impact this relationship is likely to be shaped by the ability
of those networks to support and enable effective competition. It is important that any Government
investment in superfast networks maintains the competitive choice and effective service provider
engagement that has driven change on current broadband networks.
43. The way users consume media content has changed significantly over the last decade
due to the emergence of broadband networks as an effective delivery medium. This has
driven changes to the relationship between consumers and content providers in a
number of ways. For example, we have seen the changed business models for content
distribution as a result of services such as i-Tunes; the growth of user-generated
content through sites such as YouTube; and a marked shift to non-linear TV with
services such as i-Player. In the UK, these changes have been brought about by current
generation broadband speeds, underpinned by very high levels of broadband availability
and the high degree of supplier choice offered by the competitive market.
44. Superfast broadband offers the potential for these changes to continue to accelerate –
for example, seeing changes that have impacted audio content evolve so that video
content can also be distributed online and at high definition rates.
45. This view assumes, however, the open access broadband network(s) continue to
predominate in the UK, so that rival communications providers compete to offer
affordable superfast broadband services.
What role could or should the different methods of delivery play in ensuring the
superfast broadband network is fit for purpose and is as widely available as
possible? How does the expected demand for superfast broadband influence
investment to enhance the capacity of the broadband network?
Superfast broadband is unlikely to be effectively delivered without the extensive use of fibre in the
access network. Other technologies are unlikely to be able to deliver the current and future
demands for higher speeds and increased data volume across all users. Deploying fibre will require
significant investment, particularly in rural areas or areas of dispersed population. In these areas,
costs have to be effectively shared across all network users and service providers by providing
effective wholesale access to the network. A flexible and expandable approach to deploying this
accessible fibre or other technology network will enable it to respond to demand for superfast
services as they materialise.
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BT Group plc – written evidence
46. We believe that an approach that focuses on getting fibre to as many businesses and
consumers as possible is the right one for the UK. This approach underpins the
deployment of telecoms networks across the globe - fixed fibre based networks are
widely seen as the best way of delivering customers’ current and future service
requirements.
47. Ensuring that such a fibre network is also available to service providers to use on
equivalent terms and in a manner that does not require them to make extensive
duplicate investments is also important.
48. Other technologies have a role to play. In particular, radio based services will be
important in the most remote areas, where the business case for fibre services is most
challenging.
49. The rapid growth of data capabilities on smart phones and other mobile devices means
that “data on the move” is a key part of the solution for the future. Most of these radio
based solutions however, ultimately come back to a point in the network where a high
speed fibre based link is needed – most mobile calls and data requests spend most of
their time travelling over a landline network. So effective broadband coverage will
require upgrades both to landline “backhaul” capacity and to the “base stations” which
enable the use of mobile handsets and tablets. Base stations for mobile traffic are
becoming smaller and more localised, in order to enable the re-use of scarce spectrum.
They need localised availability of fibre based high speed links to connect them back into
the main network of the mobile provider.
50. In very rural areas, particularly where the population is widely dispersed, radio based
solutions may be the only effective way to deliver relatively high broadband speeds, due
to the economics of deploying fibre based solutions. As part of our plans to extend our
high speed broadband services out to these communities we have been trialling a
number of different approaches, including trials of “4G” wireless in Cornwall and also
“TV White space” spectrum solutions in Scotland. Both of these radio based options are
designed to deliver relatively high speed broadband to very rural communities cost
effectively. In addition, the option of deploying a satellite broadband service in those
areas which are simply not economically accessible to other technologies is possible.
Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what actions
could the Government take to ensure such a market?
The UK has a very competitive broadband market that scores very highly on a range of international
comparators. There are no legal or regulatory bars on any company investing in its own network
infrastructure. The retail market in the UK is the most competitive in the world and is based on
wholesale fibre connectivity from Openreach, but not from all other providers. Ensuring that
wholesale access to fibre is delivered by those who benefit from public funding is critical to ensure
the maintenance of a competitive broadband market.
51. Openreach has created world leading prices for access to its ducts and poles for others
to use. Prices were approved by the regulator and benchmarked as internationally
competitive. There are no legal or regulatory obstacles preventing any company
investing in their own networks either entirely on their own or by making use of BT’s
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BT Group plc – written evidence
ducts and poles. Nor is there any bar on them making such networks available to
others on a wholesale basis.
52. The UK has the most competitive broadband retail market in the world. The
commitments to equivalent wholesale access from Openreach and the presence of
alternative network providers in key commercial areas together provide the platform
enabling hundreds of communications providers to offer services to homes and
business. There are 6 large providers of broadband services across the UK, with no
single provider having more than 30% of the market. This level of competition has
delivered genuine competitive choice to UK consumers, along with some of the lowest
prices and greatest take up rates for broadband in the world. This market context has
delivered benefits across the entire economy. In particular:- The UK broadband price is virtually the lowest monthly price of all major
developed countries according to Ofcom.
- The UK has the highest level of broadband penetration amongst OECD major
nations at 75%.
- More than twice as many UK users buy content online than other major EU
countries, according to Eurostat figures.
- Significantly higher % of UK employees with ICT skills than major EU competitors.
- The UK is expected to show the biggest increase in NGA coverage, to over two
thirds by 2014, of any major nation, even without government intervention.
- The UK scores highest of all major EU nations on the EU Broadband Performance
Index.
- According to McKinsey this contributed 5.9% to UK GDP in 2009, higher than the
US, South Korea, Japan, Germany, France, India and China.
53. BT believes replicating this competitive market in the future fibre broadband world is
critical. The Government needs to ensure that effective wholesale access is maintained
wherever public funding is available. It should not allow islands of single operator
monopolies to develop. Without such a focus, consumers can be effectively locked into
one retail provider or compelled to go through complex network changes and risk of
service losses to make such a change.
What impact will enhanced broadband provision have on the media and creative
industries in the UK, not least in light of the increased danger of online piracy?
What is the role of the Government in assuring internet security, and how
should intellectual property (IP) best be protected, taking into account the
benefits of openness and security?
54. Widespread availability of broadband has been and will continue to be one of the key
enablers of growth for the media and creative sector. In particular, it stimulates market
entry by fresh, new micro-enterprises which are well -attuned to the demands of “digital
native” consumers. Greater bandwidth provides this sector with opportunities to
develop new and exciting products and services, and allows it to distribute these quickly
and to the widest possible audience.
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55. Services such as i-Tunes and other innovations from outside the traditional media and
content sectors have shown that effective and easy to use legal services for content are
attractive to consumers. Surveys conducted by industry and consumer/citizen groups
consistently indicate that the majority of people wish to consume content through
legitimate services and that those characterised as doing the most “pirating” are also the
biggest paying customers of legitimate services. It is important, therefore, for the media
and content sector to focus on developing new and innovative ways of providing
products and services to customers in ways that meet the ever-changing demands of
those customers in terms of providing timely access to what they want to consume and
how they want to do so. Business models will need to change and adapt. Copyright
rules and the consequences of infringement need to be explained in ways digital
entrepreneurs and consumers can understand. Breach of copyright is wrong but action
to curb infringement needs to follow due process and be proportionate.
56. The Government’s recent approach through its adoption of the recommendations of
the Hargreaves Review signalled a greater emphasis on tackling barriers to growth and
innovation arising from the IP system, to stimulate creativity and to foster a better
understanding of, and respect for, IP. This approach was not dominated by the issue of
stronger IP enforcement. We support a continuation of that approach.
57. We support and are working hard to help create a fully-digital Britain in which every
citizen has the opportunity and ability to enjoy the benefits of being online. Competition
and technological developments will enable consumers to choose how they connect,
what services they receive and how they access content.
58. Superfast broadband networks offer huge potential for enhanced economic growth and
competitiveness in the digital age. If the full benefits of investment in high speed
infrastructure are to be realised, all sectors using superfast networks will need to adapt
and bring innovation to their business models. Successful businesses adapt to the
changing environment in which they work and those who fail to do so will eventually see
their positions eroded as competitors and the consumers of their products advance in
other directions. It would be unfortunate if significant investment in critical
national infrastructure were to be adversely impacted by worries about potential threats
to current business models in any one sector, despite the obvious benefits of that
investment to the economy as a whole.
23 March 2012
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BT Group plc – oral evidence (QQ 466-549)
BT Group plc – oral evidence (QQ 466-549)
Evidence Session No. 7.
Heard in Public.
Questions 430 - 549
TUESDAY 12 JUNE 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Bragg
Lord Clement-Jones
Baroness Deech
Lord Dubs
Baroness Fookes
Lord Gordon of Strathblane
Lord Razzall
Lord St John of Bletso
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witnesses
Mr Sean Williams, Group Strategy Director, BT
Q466 The Chairman: Welcome to Sean Williams, who is the Group Director of
Strategy, Policy and Portfolio for the BT Group. We are very grateful to you for coming. A
lot of us have met you before. If you would like to make some kind of opening statement,
please do so, and then we can get into the hearing proper.
Sean Williams: Thank you very much, Lord Inglewood. I just have five broad points to make
by way of introduction. The first is that BT is the largest commercial investor in fibre access
networks in Europe. We have already spent £1 billion on fibre access networks, and we will
spend £2.5 billion to get across two-thirds of premises in the UK, 18.5 million premises.
The second is that it is not only the largest in Europe, but it is also the fastest deployment in
Europe and possibly in the world. We have deployed our fibre network passed 10 million
premises so far, and in fact in the first four months of this year we passed 3 million premises
in that single period.
The third is that BT’s is the only fibre network deployment in the world that is designed to
provide wholesale access on a voluntary basis and on a fully equivalent basis, which is to say
that we provide exactly the same thing to BT’s retail operations as to everybody else, every
other ISP in the country. In fact, we have over 60 wholesale customers, ISPs, buying our
products from Openreach and BT wholesale.
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BT Group plc – oral evidence (QQ 466-549)
The fourth is that it is very important to understand that investing in fibre access networks
is a high-risk investment. Our fibre business case has a pay-back period of about 12 years.
That is to say we do not get our money back for 12 years, and that is on the assumption
that we achieve the volumes of customers we hope to achieve in our business case. That is a
long-term investment that most commercial organisations would not tolerate, and many of
the choices we have made and some of the things that have been called into question in your
inquiry are really about making sure that what we do delivers a really good customer
experience and makes the business case stack up.
The fifth and final point is that we are committed to supporting the Government’s objectives
to have the best superfast broadband network in Europe by 2015, and indeed to uplift
everybody’s broadband lines to at least two megabits or more. We are willing to spend a
further £1 billion or so of BT’s capital to match Government funding to do that, to roll it out
into the final third, and to get as far as we possibly can into the final third, and we will do
that in a way that brings the entirety of the retail market and brings that all to be available to
all households, so that what we are delivering here is an identical service at an identical price
to all parts of the country, which will be available to every ISP and every end user.
I think these points are a matter of great pride for BT and, I hope, will provide the context
for this discussion.
The Chairman: That is very helpful and wide-ranging introduction, so thank you very
much for that. Perhaps Lord Razzall would like to start.
Q467 Lord Razzall: I think I am going to start with probably the most aggressive
question, and indeed the fact that I have to leave after your answer is not because I know
what you are going to say, so I should say that straight away so you do not think I am leaving
because of what you have said.
I want to ask a question about the whole broadband delivery UK procurement process. As
far as we are aware, there are only really two people who are bidding for here. There is you
and there is Fujitsu, and Fujitsu does not bid for very much. We have had quite a lot of
evidence that the whole process does really benefit BT, and that is what I would like to ask
you. You may not be willing to answer the first bit, which is: in how many of the broadband
delivery UK procurement processes has Openreach bidding been uncontested? If you do not
want to answer that, I understand, but I think it would be quite useful for us because we
have had evidence that only Fujitsu had a few and all the rest is you. How do you explain
your ability to bid for all these funds when the majority of your competitor suppliers have
found themselves unable to do so? Do you think that the targeting of funds at councils
rather than larger franchise areas raises barriers to competition in this area? How do you
respond to the view that we have had expressed to us that the adoption of the gap funding
model has given Openreach a competitive advantage? It is quite a difficult question, I
understand. It is a rather controversial question.
Sean Williams: No, I am very happy to tackle it. None of our bids is uncontested. It is
important to understand that, at a level of the BDUK framework, all of the prices and
proposals that we put forward in the BDUK process have been the subject of a tough
competitive tendering process. There were nine bidders to start with, three were taken
through to the final evaluation, and as you say, two ended up qualifying—ourselves and
Fujitsu—and all of the prices and proposals that we have put in are on the basis of that
competition.
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Q468 The Chairman: Just so that we are absolutely clear—not that I am disputing
that—what you are saying is that in every instance when you come out at the front of the
queue, that is because other people in the queue have not been as good as you have been?
Sean Williams: I will just come to that in relation to specific contracts as well, because what
I am saying is that at the framework level it is a highly contested process--competitive prices-and then when you get to the individual contracts under the framework, or even outside
the framework, in all cases the tender has been contested at the outset, typically with three
or four competitors, and of course during the course of negotiations the number of
competitors diminishes until a sole supplier is left.
Before the BDUK process was devised, there were four fibre access network tenders. We
lost two of them, in North Wales and in South Yorkshire, and we won two of them, in
Cornwall and in Northern Ireland. Within the BDUK process there have been four pilot
projects: in Highlands and Islands, Hereford and Gloucester, Cumbria, which you heard a lot
about just now, and North Yorkshire. All were contested at the outset, and three are still
contested. We are the sole remaining bidder in the Highlands and Islands, which of course is
one of the most challenging areas.
There are four current contracts initiated via local authorities outside the BDUK
framework, in Wales, Lancashire, Rutland and Surrey. We have completed two of those, in
Lancashire and Rutland, but only after competitive bidding. Surrey is still contested and in
Wales, which was contested not just by Fujitsu but also by Balfour Beatty, we are the last
bidder. So, there is no contract in which we have not had to compete vigorously for our
opportunity to supply.
We find ourselves in the position we are in at the moment for two reasons. One is that we
are willing to take a long-term view of the investments and of the risks. The 12-year business
case payback is one that many companies would not tolerate. You would have to ask Fujitsu
how it feels about that. The second is that we have already deployed passed 10 million
premises and in that process we have learnt a lot about how you do this in the most costefficient fashion. The costs to deploy passed premises at the moment for us is considerably
below where it started at the outset, so we have learnt a lot along the way.
You asked about the franchise areas question.
Lord Razzall: Yes, does that benefit you?
Sean Williams: The general theory of franchise areas at the outset was that the smaller the
tendering areas, the larger the number of providers who could compete to supply.
Lord Razzall: Well, that is what we have been told.
Sean Williams: It is not so much that the areas should be bigger. The question, I think, is
whether they should be smaller, and therefore more competitors could supply to smaller
ones. The second point to remember is that some of these areas are much larger than just
council areas. You have the whole of Wales, for example, the whole of Northern Ireland.
We have Gloucester doing the—
Lord Razzall: Highlands and Islands.
Sean Williams: Highlands and Islands is a very big area. These large franchise areas have
emerged from the right way to do the tendering process. From our point of view, we do not
think that gives us any particular advantage. We are very supportive, actually, of the
Government’s approach in trying to focus the tendering at this level, partly because you get
a lot of ancillary benefits that are not related to tendering. In particular, it is very important
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to get local buy-in and local money and local broadband plans, and it is that sense of local
buy-in and support with planning processes and suchlike that is a very important ancillary
benefit to the way the tenders are done. It is a lot of work to run so many tenders.
Q469 Lord Razzall: What about the gap funding model?
Sean Williams: Again, we are generally supportive of the Government’s approach to using
the gap funding model. Generally speaking, it means that you are facilitating competitive
bidding. It minimises the risk of duplicating with public money what is available in the private
sector already. It maximises, therefore, the benefits in terms of speed, coverage and
competition. Alternative approaches in which the public sector ends up owning the resulting
infrastructure will tend to be more expensive for the public purse and more expensive
operationally to run.
Q470 Lord Razzall: Can you explain that?
Sean Williams: In terms of more expensive for the public purse, they are going to have to
pay for the whole of the asset that is bought, whereas in the gap funding model they do not.
We end up owning the asset and so our shareholders have paid for it--at least that part that
is not subject to gap funding.
In terms of operationally, going back to my opening remark, I think it is really important to
understand that what we are delivering here is a mass-market solution that everybody can
use and works from a customer experience point of view for end users, and works from a
customer experience point of view for other communications providers. It is actually quite
challenging to operate a heterogeneous network. Having lots of different network solutions
is not an industrialised mass-market solution for the UK. Quite a lot of what we are doing is
about making sure that the single Openreach network, which is available for all retail
competitors to use, is operationally robust, we can mend it, it works in a consistent way,
and we do not have to have different systems and processes in different parts of the
network. So, if you get a very much more fragmented solution with different ways of doing it
in different localities, it will be more expensive to operate.
Q471 Lord Razzall: In fact, one of the comments that we have had that the gap funding
model favours incumbents with reliable existing revenues rather goes to the answer that you
gave, that the reason you think you are winning more than anybody else is that you are
prepared to take a much longer term view, which was your answer. The gap funding model
rather favours people who are prepared to take a long view because, by definition, they have
existing revenues.
Sean Williams: Well, we do not have any existing revenues in relation to superfast
broadband in these areas at all, so it is a challenging business case. We have to recruit all the
subscribers, we have to get them to subscribe at the prices we are expecting, so none of this
is certain. None of that is available to us at the moment.
What we have at risk is all of our existing broadband revenues and all of our existing
business connectivity revenues, which is a diseconomy of scope in the sense that we are
already earning those revenues in these areas. They are put at risk by the development of
the superfast broadband network. So, I do not think it is relevant to the gap funding
question. I think the gap funding question is really a matter of public policy and procurement.
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Q472 The Chairman: When you were using the word “we” in that sense, were you
talking about BT Retail as well as yourselves, or were you just talking about yourself as
Openreach? Sorry, I was not clear.
Sean Williams: Both. No, when I speak of “we”, it is not always going to be entirely
obvious; I could be speaking for BT Group, BT Retail, BT in the Openreach level. But at both
the Openreach and at the retail level we have revenues at the moment in these areas that
will be put at risk to some extent by the deployment of an Openreach fibre access network.
That is one of the things we have to factor into our business case.
Q473 Earl of Selborne: You heard in the earlier session how we were discussing some
of the issues that arise when local communities seek to extend the services which, quite
frankly, are not commercial for BT and others to provide, with self-build and extending local
access networks. I think we all understand that BT would be reluctant to take over a local
access network on which it was not sure of the standards of construction and technology.
You would not wish to take over something that was an unknown liability. Equally, you have
explained to us very fairly that you are operating on a 12-year payback, and some of these
remote areas are clearly not even going to deliver that, so something that would help to
extend the network to an acceptable standard for BT would be desirable. Is there an
opportunity to harness the evident enthusiasm in local networks by ensuring that BT can lay
down very clear criteria as to what would be acceptable and what would not be acceptable,
and indeed how many people would have to be connected to those networks in order to
make it desirable either for BT to take it over completely ultimately or simply to use it to
sell its services over that same network without ever acquiring ownership?
Sean Williams: Sure. We are very supportive of trying to find a range of community
broadband solutions to get to these hard-to-reach communities which have a willingness to
share in the risks and the investment. There are a number of ways we can do that, all of
which we are actively trialling and seeking to pilot. We can, for instance, ask communities
for self-dig, where essentially they do the digging but we do the rest of the installation. We
can provide communities with a set of standards for duct, fibre and electronics that they
could seek to fulfil to those standards and do some of the installation themselves. Or we
could simply provide them, in a sense, with a kit of parts, “This is the fibre we use, this is the
duct we use, go and install it”. We could do all of the work ourselves, but in response to
community subscription; in a sense, the local community gets together to provide the
necessary further gap funding in order for us to do the installation. We are totally open to
any or all of the above solutions, and I think what we are finding at the moment is that we
are making some progress with this.
As you have heard from Rory, we have made some progress in the pilot projects we have
had in Cumbria, but there is more to do to find a solution that works in a consistent way
across the country. We are totally open and positive about trying to do this. We are just
working on it with communities.
Q474 Earl of Selborne: You may be aware that we had a number of people giving
evidence, not just today, to say that in fact in practice it have proved difficult sometimes to
interact with BT. After all, if the farmers can dig a trench, if the community can buy fibreoptic, which is not in itself expensive, and then of course leave the cabinet or others to BT’s
specification, you would have thought that would be quite simple, but as I understand it, it is
very difficult for a farmer to be even allowed to dig the trench.
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Sean Williams: I think there have been a number of hurdles we have had to get over in
order to make this part of the whole programme work effectively. We need to have clarity
about our various different solutions, we need to have clarity around the funding solutions,
and we need to have clarity about the state-aid solutions. All of these things need to be lined
up to get this thing going well.
I cannot say that it has been without its obstacles along the way. Indeed, I cannot hand on
heart declare that this has been at the top of our list of priorities, either. We are keen to do
this, we are willing to work with local communities, but at the same time we are trying to
roll out our fibre network to as many people as is possible. Again, going back to the main
point, we are trying to deliver here an industrial-scale, mass-market solution to as many
people as possible as quickly as possible, and while we are very keen to engage with local
communities and getting local solutions is part of that, I think there is a timing issue about
when that is going to come to fruition relative to the main project.
Q475 Earl of Selborne: We are impressed, or certainly I am impressed, by the number
of residences that you have been able to connect, but even with the 10 million residences
that you referred to--perhaps I should declare an interest as somebody who lives at the end
of a lot of copper wire: there is no way that I can see that you are going to be able to afford
to connect me--we are going to have to think of our own solutions, as indeed we have had
in Cumbria.
It is a matter of some social importance to rural communities. If they cannot operate a
business and they have to drive to a nearby town in order to get connectivity, that is
effectively dooming those rural communities. There is a responsibility. There is no
competition. BT is in the position, effectively, of a monopoly in this area in the
infrastructure. Is it not incumbent on BT to demonstrate that it is open to as many of these
flexible options as possible? Are you satisfied that you have indeed given that impression to
the community at large?
Sean Williams: I cannot speak for the impression, but I can speak for our willingness to
embrace all kinds of solutions. We are considering not just the community solutions that I
previously described, but also finding new ways to re-engineer our own networks so that
our fibre cabinet solution can be made as widely available as possible. We are also trialling
wireless solutions as well. You heard Rory speak a moment ago about the TV white-space
solution that he has. We have a trial of TV white space operating on the Isle of Bute and in
Cornwall, so we are looking for wireless solutions as well. We also have an LTE trial running
in partnership with Everything Everywhere in Cornwall. I am clearly of the view that wireless
is part of the solution to get the uplifted broadband speeds across the universality of
premises. To get it everywhere, we are going to have to have some wireless solutions. We
are very actively trialling wireless solutions. Again, we want to make sure that they are built
into the network in such a way that it is a seamless experience for our communications
provider customers, other ISPs, so that they can access this network if it has a wireless tail
just as easily as they can if it has fibre all the way to the end user premises. We are trying all
of these different solutions in the field. We are actively pursuing and trialling to give us the
best possibility of getting to every single premise with at least 2 Mbps broadband and, I hope,
quite a bit better.
Q476 Baroness Bakewell: We are confronted with conflicting information here. Your
clear statement about your open willingness to work in every possible, conceivable way to
bring broadband to the British public is at odds with the evidence we hear that really you
are not flexible enough and that there are “if”s that you put in the way of people trying to
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do this. You hear them, you listen, and in the end there are too many hurdles over a period
of time. I just wonder how you feel we should sort out that contradiction.
Sean Williams: I think there are basically two issues there. One is about timescale and the
other is about size-scale. We are delivering a mass-market, industrialised solution for as
many premises as possible so that every household will be able to access every single ISP
which wants to provide them with a broadband service. That requires not just a network
but systems, interfaces, operational processes, connections between networks and systems
for other providers. There is a lot of complexity that goes into delivering that kind of
industrial-scale solution.
The second issue around timescales is that I believe we can find a very plausible range of
solutions for local communities to integrate that appetite in the community within this
industrial-scale solution that we are building, but it is a matter of time. We have to develop
these things with communities, we have to get funding sorted out, we have to get state aid
sorted out. There are obstacles along the way. We are not always an easy organisation to
deal with because we are flat out delivering as many premises as we can.
Q477 Baroness Bakewell: But, you see, you use the phrase “industrial-scale”. It may be
incompatible. I mean, it is not sausages out of a machine, is it? It has to be tailored to the
market out there. Laudable though your objective is—every home in the country—the
systems available at the moment are not yielding that possibility. I acknowledge that you are
working at it, but others are working at it and coming up with other solutions that they feel
perhaps you are blocking.
Sean Williams: I think an industrial, universal solution is possible. We deliver it already in
telephony, in copper access lines, and in the copper broadband solution. We basically cover
almost all households with the copper broadband solution, and all retail ISPs are able to
deliver over the entirety of the country off the back of the Openreach network. So an
industrial solution is possible, and we can do the same in a fibre world.
That ability to bring the whole of the broadband value chain to every single premise in the
country is the unique thing that we can bring to this. We can at the same time integrate local
solutions to get the network to every last place in the country. It will take a bit of time to
innovate with those solutions, as it took a little bit of time to get fibre broadband out as far
as it has gone.
Q478 The Chairman: Before I go on, I will ask you one or two slightly more detailed
technical questions. It sounds a silly question, but it may be relevant. If the Government
produced more money, could you roll it out quicker and better?
Sean Williams: Do they need to be—if they did—
The Chairman: No. If you had more resources, could you go quicker and better than you
are now, or is it effectively rolling out as fast as is reasonably appropriate?
Sean Williams: As far as our commercial deployment is concerned, we are rolling out as
fast as we operationally and financially can. As for the final third, which is effectively that part
of the country that is beyond the commercial footprint, we do not really know yet because
the money is not widely available. We have to complete the BDUK framework. We have to
complete state aid. None of these things is yet finalised.
Q479 The Chairman: How close do you think you are?
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Sean Williams: I think we are very close to a final framework. We are still a way off getting
state aid clearance.
Q480 The Chairman: Is that going to be a serious blockage to the progress of this
rollout, do you think?
Sean Williams: It has that potential, but we are hoping we can come up with some solutions
to resolve the state aid questions as well.
Q481 Lord Clement-Jones: Is that a macro question about the whole scheme, the
whole programme?
Sean Williams: Beyond the ones that are already being deployed—namely, the four that
pre-date the BDUK framework--all others are dependent on clearance for state aid, and we
do not have that yet. It is delayed. We had been hoping that it would be available by now
and we are working very hard with the Department for Culture, Media and Sport and with
BDUK to get that resolution as soon as we can.
Q482 The Chairman: The Commission is obviously—
Sean Williams: The Commission is very focused on it as well, at all levels, but it is not
resolved yet. I think those are the items on the critical path, rather than whether the cash is
available. Our view of the situation is that, given our expectations about funding from
BDUK, funding from local authorities, funding at the European level, plus private sector
investment, ours and by our competitor Fujitsu, there is enough money on the table to get
to 90% of the country with a superfast broadband network.
Q483 The Chairman: One more thing, before we go on to these more technical ones.
The problems posed by the BT pension fund deficits are quite widely described in the media
and so on. Is that in practice having any impact on your ability to roll this all out?
Sean Williams: No, it is not. BT is one of the largest infrastructure investors in the UK. We
invest £2.6 billion a year in our networks, systems, platforms and products, and about £2
billion of that probably is in the UK every year. There are clearly some competing choices in
how the organisation deploys its resources between the pension scheme, investing in the
business, dividends, debt repayments, but the business is performing well. We had our
results not that long ago and we are content that our capital expenditure programme is
sufficient for all the investment we want to put into business. That includes all of our fibre
investment and the likely future fibre investment to match public funding. I do not think that
is a constraint.
Q484 The Chairman: Thank you very much. Ofcom’s Virtual Unbundled Local Access
standard is not the same as your GEA, Generic Ethernet Access. Can you explain why they
are not the same?
Sean Williams: Yes. The Virtual Unbundled Local Access, or VULA, is a regulatory
obligation and Generic Ethernet Access is an access product. The GEA product fully
complies with and fulfils our regulatory obligation to provide Virtual Unbundled Local
Access, so it is kind of apples and pears. VULA is a regulation; GEA is a product. GEA fulfils
the regulations.
Q485 The Chairman: So GEA fits VULA, full stop?
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Sean Williams: Yes. It fully complies with the regulation, VULA. I think it is important to
understand, given that we have got to this point, that Openreach is a unique creation in the
UK--this operational separation of the access business. It is subject to the most extreme
regulation of any telecoms company in the world, which is called equivalence of input, which
means that Openreach has to sell exactly the same thing at exactly the same price by exactly
the same systems and processes to everybody, whether they are BT Retail or TalkTalk or
Sky or Virgin Media. That is important to understand, because that is the foundation of fully
effective competition in the retail broadband market and for industrial-scale deployment
across the UK.
Q486 The Chairman: We have heard about active line access. GEA departs from the
ALA standard, does it not?
Sean Williams: Yes. Again, it is important to understand the difference. ALA is a set of
technical standards. GEA is a product. GEA predates ALA, so one of the reasons it does not
comply with ALA is that GEA was out in the market before ALA was finalised.
Q487 The Chairman: ALA was finalised by Ofcom, or was it the industry?
Sean Williams: The technical standards of ALA are agreed in the NICC, the national
industry body for technical standards. We are very supportive of ALA. We are active in
supporting the development of ALA standards. We are involved with the working groups in
which they continue to be developed, so we do not have a problem with ALA. GEA happens
to predate ALA. The point about GEA is that we have to deliver a product that really works
well for end users. It has to be robust and it has to be a good customer experience. It has to
be completely compatible with the regulation, which means it has to be available to all
downstream retail communications providers. Thirdly, it has to be cost-efficient and support
a very challenging and ambitious business case. GEA does all of those things.
Whether there are other product developments that our customers would like, whether
they are within the ALA development standards or whether they are outside them, is
something that we continuously talk about with our wholesale customers in the Trialist
Working Group and in the various industry fora. Openreach makes its product choices very
much in consultation with its customers. If some of those are further applications of the
ALA standard to the GEA product set, that is absolutely fine with us. But I think it is
important also to remember that those need to be positive and supportive for a very
challenging business case. We are not going to come along and do some things that basically
undermine the business case for fibre investment.
Q488 The Chairman: You deployed GEA in advance of the ALA standard being agreed
by the industry body?
Sean Williams: Yes.
Q489 The Chairman: Why, then, did the industry body decide on a standard that was
different from the one being deployed by you?
Sean Williams: To be honest, we often get this. In the history of BT, BT has often been out
in the market and the standard has come afterwards.
Q490 The Chairman: Fujitsu, I think, does offer a product that meets the ALA standard,
does it not?
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Sean Williams: May be, but Fujitsu does not have a fibre access network in the UK, so it is
difficult. It no doubt will do when it wins a BDUK bid.
The Chairman: If and when it does, yes.
Sean Williams: When it does, no doubt that will be compliant with ALA standards, and that
is all fine. But Openreach is subject to a different set of rules and regulations. We have
obligations around how we consult our customers on the products that they want us to put
in the market, so we will have to develop the GEA product set in line with our regulatory
obligations and our industry processes.
Q491 Lord Clement-Jones: So you are saying that you will have to?
Sean Williams: Yes, we will have to consult with our customers in the development of
GEA, and they may bring GEA more into line with other aspects of ALA. GEA, by the way, is
obviously an ethernet product. Ethernet is about the most generic standard in telecoms
networks that you could point to, so it is not as if it is a radically different thing. It is a
mainstream solution.
Q492 The Chairman: Yes, I appreciate that. If you could just go back and talk about
VULA for a moment, you have virtual unbundling there. Under the European Commission
state aid rules, if I understand the position correctly, the conditions in the EU state aid rules
on the granting of public funds ensure that only pro-competitive interventions take place.
Under VULA the active infrastructure aspects that are put on to your network have to be
basically yours. Is that correct? I am not a scientist. I am finding difficult to be clear that I am
asking the right question.
Sean Williams: Let me step back one step; just to note that in addition to VULA we are
also obliged to provide PIA, Passive Infrastructure Access.
The Chairman: That means the ducts and everything. You have to allow people to—
Sean Williams: Ducts and poles. We do have in the market Passive Infrastructure Access
products, and a price list agreed with Ofcom has to be costs-orientated. It is available to
everybody on exactly the same terms. So, wherever anybody goes in the country they are
perfectly entitled to ask for access to our ducts and poles and to put their own fibres in and
do whatever they like. But as far as an active product is concerned, like our ethernet
product, GEA, that clearly has to comply with Ofcom’s VULA regulations. If somebody
else—Fujitsu—comes along and develops an alternative active line access product, they are
not subject to our VULA regulations so they can do what they like.
Q493 The Chairman: I think I am right in saying, am I not, that VULA has become the
child of derogation at European level? Is that not correct?
Sean Williams: No, that is not correct. I do not think that is correct. The way this works is
that—
Q494 The Chairman: Is VULA a temporary phenomenon or a long-term phenomenon?
Sean Williams: No, it is a long-term phenomenon.
Q495 Lord Gordon of Strathblane: Does Europe not say that it should only be
temporary?
Sean Williams: The matter is for the national regulatory authority to determine. The
European Commission sets the framework for regulation of electronic communications—I
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can see I have caused a bit of a stir with this one. But essentially Europe determines the
framework and it says there must be remedies in this market. Ofcom has to do its market
assessment and it will have to come up with the remedies that it thinks are appropriate in
the wholesale line access market. It chose VULA as the remedy for fibre access and also
Passive Infrastructure Access particularly with the view that Passive Infrastructure Access
would be very relevant where BT is not itself rolling out fibre networks.
So, Passive Infrastructure Access is very much designed to support competitive bidding in
the BDUK process. But it is ultimately for Ofcom to determine its regulatory policy in
relation to promoting competition. The UK is unusual, as I have already mentioned, in the
creation of Openreach as an operationally separate access business that has to provide the
same thing to absolutely everybody. That represents Ofcom’s strategy that it wants to
promote competition as deep into the network so far as it is likely to be effective and
sustainable and that that focuses them on exchange-based services, like VULA, to promote
competition.
Q496 The Chairman: Is it not the case—I may have misunderstood it—that the
European Commission has accepted that VULA implements its requirements in this country,
not least because we were probably ahead of it making the decisions because it was the
practical thing to do? Do you see that this virtual unbundling is going to be a long-term
characteristic of the UK network, or do you think as far as this part of it is concerned we
are going to move into a world where perhaps there will be more physical unbundling?
Sean Williams: I think that as a matter of regulation VULA is a long-term solution. Ofcom
has to do its market reviews every three years, and it is shortly going to have to do another
wholesale local access market review. Ofcom, at the time of the last market review, made
some quite strong statements that it was not minded to intervene to regulate the prices of
VULA, for example, and that it was supportive of VULA as its main strategic remedy for
wholesale local access in NGA markets.
At the same time, it did mandate PIA. It did mandate Passive Infrastructure Access, and we
think that that remedy will also have a long-term future here. The question is then a matter
of which one of those will get used in the market? Our expectation and our experience from
the networks we have already deployed, such as in Cornwall, is that there is strong demand
for VULA and there is no demand for PIA. There has in fact been no demand for it in
Cornwall.
Q497 The Chairman: Is that a function of the generality of the UK system, being that
the characteristic of virtual unbundling is that every internet service provider basically has to
do roughly what you do, so that is how they configure their businesses? Is the country
missing a trick, do you think, because it does not give the ISPs perhaps the flexibility they
might have under slightly different systems?
Sean Williams: No, I do not think so. Anybody who wishes to deploy their own fibre
network is able to do so on the basis of BT’s passive infrastructure access products. The
reason that they do not particularly want to do so is that it goes to the matter of Ofcom’s
basic strategy for promoting competition and its assessment of the basic economics of
networks, which is that it is very unlikely you are going to get much competition in terms of
competing access networks. You are much more likely to promote sustainable competition
by making sure that everybody gets exactly the same access to the single access network.
Q498 The Chairman: Is that not the crux of it: that the form of access can determine
what you can do?
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Sean Williams: No, I do not think so, because we have basically provided access at the very
deepest level, right down to the ducts and poles, as well as access at the active product in
the wholesale market level, so it is really a matter of the fundamental economics of the
networks. As you get further and further out into the network, the possibility of having
competing infrastructures is smaller and smaller because you are dividing an increasingly
small number of customers—
Q499 The Chairman: Basically what you are saying, then—and I am not agreeing or
disagreeing, just trying to understand—is that the further you get away from the centre of
the network, the greater and greater is the economic characteristic that the competition will
be between the brands, using exactly the same sort of applications on the infrastructure?
Sean Williams: Yes. Essentially, the more concentrated the economic activity, the more
space you have for competitors.
The Chairman: Exactly.
Sean Williams: As you get further out into the network, there are fewer sustainable
backhaul networks, there are fewer sustainable access networks. It is just a fact of life of
networks. So, Ofcom has a clear strategy developed at the time when I was at Ofcom and—
The Chairman: We are now talking to someone who has been on every side of the fence.
Sean Williams: We want to promote infrastructure competition as far into the network as
would be effective and sustainable, but there is a point beyond that where you are not
promoting the competition, you are promoting monopolies. That is why it is better to focus
on VULA, and that is why VULA is Ofcom’s strategic solution.
Q500 The Chairman: Some competitors have suggested to us that they would like
access to dark-fibre local-loop unbundling.
Sean Williams: A few points on that. The first is that we have a very challenging business
case, so we are not content to support remedies that would undermine the business case.
Q501 The Chairman: Which business case is that?
Sean Williams: The business case for fibre.
The Chairman: No, there is no mention here of BT Retail; you are talking entirely about
Openreach.
Sean Williams: About fibre deployment. We are committed to providing the two remedies
that we have, which are VULA, the wholesale product, and Passive Infrastructure Access to
ducts and poles, which is the very root of the value chain. But if you continue to salami-slice
the value chain with a whole load of different remedies, you destroy the business case for
the deployment of fibre. Essentially, you are taking a whole lot of revenues out of
Openreach so it cannot afford to make the same investments in the electronics that deliver
VULA and all the rest.
Q502 The Chairman: So, in terms of looking at this, the regulator has to take an
overview?
Sean Williams: Yes. The regulator has to decide what the regulatory strategy for the
promotion of competition is, and the answer to that is VULA is the primary remedy and PIA
is particularly relevant where BT is not rolling out its fibre network, so that others can do so
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instead. That is on the face of its wholesale local access market review document, which it
published last year.
Q503 The Chairman: Yes. So in deciding about the national interest in the context of
your network, you have to recognise if you are Ofcom—we may want to talk to Ofcom
about this—that the person who rolls the network out can make a return on it.
Sean Williams: Yes. I think it is extremely important we do not lose sight of that. We need
to be able to make a return on these investments, otherwise the investments will not get
made.
Q504 The Chairman: What follows from that, as I think someone said earlier, is that if
you the incumbent with a lot of the network, you are rather well-placed.
Sean Williams: People have access to the physical infrastructure that is there in the ground.
We do not have fibre there. I think there was a conversation a little earlier about, “If only
we could get access to the fibre in Cumbria, then we could plug things into it”. There is not
any fibre there because that is what we are in the business of deploying now. We are
deploying fibre now. We have an equal opportunity to deploy fibre if Fujitsu can deploy fibre
in the same ducts. It is not there yet.
Q505 The Chairman: Do you have any other plans in mind for the way in which these
kinds of things--the technical standards on your network--might develop in the future? Do
you think that VULA is probably the basis for the foreseeable future?
Sean Williams: VULA is the basis, I believe, of the regulatory obligation. We will continue
to work with all of the standards bodies, including NICC, to develop technical standards so
the product continues to get better. A good example of that is the innovation we achieved
at the end of last year in NICC for a change in the access network frequency plan, which
allowed us to double the speeds of our fibre access product from 40 Mbps downstream to
80 Mbps. That is a good example of how we promoted the development of technical
standards that improved the performance of the product. We will continue to do that. We
have a strong belief that our fibre to cabinet solution is a long-term solution for this market.
We are confident that further technical innovations, further technical standards, will allow
that product to deliver even more speed in going forward, and we will obviously be
promoting that very actively.
Q506 Baroness Bakewell: Can I hone in on this rigorous business plan for fibre, of
which you have spoken and on which you were so eloquent? Could you describe your
investment policy and whether there have been any internal challenges within BT to that
opportunity of going as far as you want to and as far as is possible?
Sean Williams: As I mentioned, we invest £2.6 billion in capital investment each year, and
there is a choice to be made within the organisation about how that money is deployed.
That choice is made by the senior committee of the organisation called the Design Council,
which it happens that I chair, and we review on a monthly basis exactly where our capital
expenditure is going each month and each quarter and each year, and we make the choice as
to the balance of the investment between superfast broadband, copper broadband, business
connectivity products, overseas products, our TV network, and our ordinary copper access
lines. So we make a very visible choice about exactly where we are deploying the investment
across each of these different competing priorities. But, as I said before, we do not currently
have a problem with finding enough capital investment resource for our superfast broadband
project. In a sense, the amount of money that we can afford to put into our superfast
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broadband project is really determined by the business case. We take a 20-year view of how
many subscribers we are going to get, what kind of timescales, the cost of deployment, what
that means in terms of payback periods, rates of return, net present value, and we provide in
a sense as much capital for that as we plausibly can to take the network as far as we can.
Q507 Baroness Bakewell: So, when you sit around this table, with the people from
retail, the people from wholesale, and so on, they do not begrudge you a penny of your
investment? They feel that you must have as much as you want?
Sean Williams: There is quite a debate, as I am sure you can imagine, among competing
priorities. We invest a certain amount of money in Openreach, we invest a certain amount
of money in BT Wholesale, in Retail, in Global Services, in our networks division, in BT
Operate and BT Innovate and Design. We have to make sure the whole network is
sustainable and performing well. There are lots of competing priorities. All I am saying is that
it is a very visible choice that we make as between whether the extra £10 million is going to
go on to more superfast broadband or on to something else.
Q508 Baroness Bakewell: Is there an overlap? Does retail overlap with your Openreach
programme?
Sean Williams: No, Openreach is completely separate, but it is a visible part of the overall
capital expenditure envelope that we manage across the whole group. But Openreach has a
very distinct capital expenditure budget. So does retail, so does wholesale, so does global
services. It is just a very visible choice. It is not without competing tensions, but we do not
think that that is a barrier in this instance.
Q509 Lord St John of Bletso: You have mentioned about the large amounts you have
spent on the rollout of your fibre-optic, and you have also mentioned the high risk of fibreoptic in terms of the business case. More to the specifics of the impediments to your rollout,
can you elaborate on the obstacles? Here I am talking about planning, wayleaves and other
factors that you think adversely affect your ability to roll out fibre-optic efficiently.
Sean Williams: Yes. I have four areas in which we could do with support. The first area is
about the set of obstacles to local deployment: planning, wayleaves, traffic management and
things like that. Under that heading I have three particular items. One is that the street work
guidance for permit schemes can result in councils designating the putting up of the street
cabinet as a major work, and if it does that then it causes all sorts of costs and delays, so we
could have that streamlined.
The second point—
Q510 The Chairman: Sorry, can you explain why?
Sean Williams: Why do they do that?
The Chairman: Why the costs suddenly go shooting up.
Sean Williams: It just takes a lot more time, we have to engage with the council, we have to
do various different surveys.
The Chairman: It is what you might call admin, bureaucracy and procedure.
Sean Williams: Yes. We ultimately end up with the same solution.
Q511 Lord Clement-Jones: It is not the physical works of doing it the cabinet?
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Sean Williams: No, I do not think so, although we might have to do some ancillary works
around surveys and whatever else in order to get the various permissions.
The second is around wayleaves. This is particularly important for multi-occupancy dwellings,
whether they are blocks of flats or retail centres with businesses in them, where it is very
often difficult and costly to negotiate wayleaves, and indeed there is no effective mechanism
for resolving wayleave disputes. We could very readily do with some support in that area, to
get a dispute mechanism, and also to put some obligations on landlords to make this
possible, as I think they do in other countries.
Q512 The Chairman: Can I ask one detailed question about that? If you have a wayleave
enabling you to put a telephone cable in, does that enable you to fibre it up if you want to?
Sean Williams: I do not believe so. One of the merits of our fibre to cabinet deployment is
that we are using that telephone cable so we do not have to go back and ask for new
wayleaves.
Q513 The Chairman: So you are wrapping it around?
Sean Williams: Basically, we are using the copper from the cabinet to the end user
premises—
The Chairman: Yes, but if you wanted to go on a fibre path—
Sean Williams: If you wanted to do all the way through the premises, then you need to
renegotiate the wayleaves. Yes.
Q514 The Chairman: Even under an existing duct?
Sean Williams: Not the existing ducts, no. It is only where you have to do additional works
to put in—
Q515 The Chairman: So you can use the duct that was put in for the telephone cables
without incurring any extra costs to put in the fibre?
Sean Williams: Yes, on the assumption that there are ducts all the way to the end user.
The Chairman: Yes, I appreciate that.
Sean Williams: We do not have to negotiate wayleaves to put them up on telephone poles,
either, but where it comes to digging through somebody’s garden or whatever it may be, or
across somebody’s field, we would.
The third area is around the telecoms code, which requires fibre, in some instances, to be
installed underground rather than overhead, and easing some of those requirements would
help speed deployment and reduce costs of deployment. There are several practical that we
could do to streamline processes, and we have put these to the department.
The second area out of my four is about pay TV. We need proper ex-ante regulation of pay
TV in the UK. In most countries in the world where fibre is deployed and being sold what is
actually driving the business case is the sale of pay TV. If you go to America and you see
what AT&T and Verizon are selling, they are not selling fibre; they are selling pay TV. If we
want to go further with fibre in this country, we have to find ways to monetise the
investment in fibre that we are making. By far the leading candidate for increasing the
monetisation opportunities in fibre is by selling pay TV. The problem we have in this country
is that the monopolisation of pay TV by BSkyB is a serious impediment to fibre deployment.
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It has 60% of the retail market. It has between 80% and 100% of the wholesale channel
market. It is not regulated and it is not giving access to its content. That is an issue that
needs to be solved.
Q516 Lord Clement-Jones: Surely that matter has just been addressed by Ofcom, and
as a result of the representation by Netflix it has decided that this is not any longer going to
be considered. Is that not so?
Sean Williams: Ofcom made an intervention requiring wholesale access to two of the
sports channels only, so that is a very small proportion out of the many dozens of channels
that Sky supplies. That is subject to appeal to the Competition Appeal Tribunal, and we
should hear the result of that in the next month or so.
The second process is around access to the movie content, which is being examined by the
Competition Commission. The Competition Commission has found that there is a problem
in competition in pay TV in the UK and is proposing to ask for a wider reference so that it
can look at the thing properly. It feels that it has not been given a sufficiently wide reference
so that it is able to take action right now.
Q517 Lord Gordon of Strathblane: Did it not factor in that there was already
intervention in the market by people like Netflix?
Mr Sean Williams: Yes, it did, that was one of the factors that it looked at during the
course of its inquiry. We have to remember that Netflix and LOVEFiLM are not competing
in the same market as Sky, and that was the Competition Commission’s finding.
The third broad area of support we could do with is around access to physical infrastructure
of non-BT networks, particularly the Virgin Media network. The final third is often used in
currency and it is defined by reference to the two-thirds deployment that BT will make. We
have to be aware that Virgin Media has a network in the final third, and in that Virgin
footprint in the final third there will not be any public money available. What you will have is
two-thirds BT network and every single communications provider can get access to that.
Then there will be a slice of Virgin Media where Virgin Media will be the only provider, the
monopoly provider of superfast broadband, and then there will be another section of the
final third, which will be competed for either by BT or Fujitsu, and you will get open access
and multiple providers. What we need to have is access to Virgin Media’s ducts so that
everybody can deploy their network across the Virgin Media footprint, because it refuses to
give any wholesale access to the network at the present time, and Ofcom does have the
power to do this with its article 12 procedure under the new framework.
Q518 The Chairman: You believe that it should use its power to achieve that?
Sean Williams: It should. The fourth area goes back to a remark you made about whether
VULA is a long-term solution. One of the most supportive things that Ofcom could do is
make a long-term commitment to its regulatory policy towards fibre networks. At the time
when we made our fibre investments, we had a conversation with Ofcom about how it was
seeking to regulate this risk investment that we were making. It made some very supportive
remarks but it did not feel the need to regulate this investment. In fact, it was so uncertain
that it would be very difficult to regulate, and we completely agree with that. But every
three years it has to make that choice again. That is a very difficult environment for us to
make a 20-year-view investment with a 12-year payback if the regulatory regime can change
every three years. It would be highly desirable if Ofcom could make a long-term
commitment to how it will regulate this investment, because it is a one-sided bet for BT. If
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we do not make the money, the shareholders will lose money. If we make more money, the
regulator will get hold of it. That is not an environment conducive to risk investment, so we
need Ofcom to make a long-term commitment to how it is going to regulate the sector.
Those four things are practical things we could do about local deployment. Monetising
opportunities for fibre deployment through pay TV regulation and access to other people’s
infrastructure. We are not asking anything we do not give ourselves. We give access to our
infrastructure. Fourthly, can we have a long-term regulatory regime to support the
investment?
Q519 The Chairman: Do you have any particular suggestions as to what the generality
of that long-term regulatory regime might be?
Sean Williams: Yes. It is not to regulate the price over an extended period of time, so that
there is a balance of risk between ourselves and the regulator, and not to intervene in the
product specification but allow market forces to determine what the right wholesale
product is for other communication providers to use.
Q520 Lord Gordon of Strathblane: You say not to regulate price. Are you looking for
differential pricing in different areas—
Sean Williams: No, I am not.
Lord Gordon of Strathblane:—in other words, you would be charged less in London
than you would in—
Sean Williams: No. We are obliged to provide the same product at the same price to
everybody. At the Openreach level that means we will charge the same price for fibre access
everywhere in the country, wherever it is, even if we have some public subsidy for that, even
if it is in the remotest part—
Q521 The Chairman: What you are saying is not, “Do not regulate the price”, but “Do
not change existing regulations as they relate to price”? Is that right?
Sean Williams: Both. We would like something more specific as well as the general.
Q522 The Chairman: What you are really saying is that you want the status quo in that
regard rolled forward for a period?
Sean Williams: Yes, because I think that would be highly supportive to a bunch of
shareholders who are making a very long-term bet here.
The Chairman: I can entirely understand where you are coming from; I am not saying that
I think your logic is faulty in that sense.
Q523 Lord Clement-Jones: Just thinking about future demand, are you laying sufficient
fibre when you lay it down now to cater for future demand, say, in 2020, and especially as
speeds rise, you might go to 1 GB, that sort of thing? Are you catering for that level of
future demand in what you are doing now?
Sean Williams: Yes, we believe so. We are, as I say, very confident that our fibre to cabinet
solution, which already delivers 80 Mbps, is ample for the time being for most users. If
people want higher speeds than that we are also able to deliver fibre to the premises on
demand to any premises in our fibre footprint. So once we have delivered fibre to the
cabinet and we are getting 80 Mbps, if somebody said, “Well, actually I would like 300 Mbps,
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please”, which we can deliver on our fibre to the premises product, we can deliver fibre to
the premises to them on demand.
Q524 Lord Clement-Jones: Pardon me if I am being stupid, but is that a wholesale
decision or is that a retail decision?
Sean Williams: The product is in development at the moment, our fibre to the premises on
demand. It is in development at the moment at the Openreach level. We are trialling it in
Cornwall. When it is available, it will be made available by Openreach, and all retail
competitors will be able to access that.
Q525 Lord Clement-Jones: So all service providers can go across that?
Sean Williams: Yes, and can use that product.
Q526 The Chairman: To be vulgar about it, you can get it if you pay for it?
Sean Williams: Yes, there will be a charge for that.
The Chairman: I am not criticising.
Sean Williams: There will be a charge for that and we are still working out the economics
and the pricing of that.
Q527 Lord Clement-Jones: It depends on how far from the cabinet you are, and so on?
Sean Williams: Yes, the costs are related to distance, because you put in more fibre, you do
more digging.
Q528 Lord Clement-Jones: But on fibre to the cabinet, for the foreseeable future, you
really have enough capacity?
Sean Williams: Yes. In our experience, once you put an 80 Mbps fibre to the cabinet service
into a premises, the broadband network is no longer the speed bottleneck. What you find is
that the home network is the thing that cannot cope with the speeds, or the home devices
cannot cope with the speeds, or the home wi-fi cannot cope with the speeds, or indeed at
the other end of the internet, that the server serving communications cannot deliver the
speed. We are very confident in the fibre to cabinet solution we are putting in at the
moment, but I do also emphasise that it is far from being at its limit. Technological
developments will mean that we will be able to deliver much higher speeds over fibre to
cabinet.
Q529 Lord Clement-Jones: And you can squeeze more out?
Sean Williams: Indeed, there are technology developments such as G.fast that promise to
be able to deliver a gigabit over copper, over a fibre to cabinet distance.
Q530 The Chairman: When might that happen?
Sean Williams: Who knows? We do not know the costs of the business case or anything
like that. I put it on the table only because I think people can get rather fixated that fibre to
the premises is the only solution. Fibre to the premises costs five times as much as fibre to
the cabinet and there is no business case to support it, however nice it would be.
Furthermore, it is not necessary, because fibre to the cabinet is a good solution for the
medium term and the long term as technological developments will make that an even
better solution.
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Q531 Lord Gordon of Strathblane: I hope this is not regarded as an unkind question.
BT is a PLC responsible to shareholders, and shareholders in all companies are not always
long-term thinkers. With regard to a universal telephone system in this country if we
adopted the payback model, in a way what we are probably looking for is a PLC responsible
to shareholders to mimic what Post Office Telephones did originally in providing telephone
services throughout the country, however uneconomic it was to do that, and doing that
through the intervention of public funds. The public funds come with a price ticket of open
access. You will not be surprised to know that some of your competitors think that open
access is there on the surface, but in fact the way that you do it means that they are going to
use your products more than they would like.
Sean Williams: A few remarks in that area. I think it is important also to remember that
there was a private-sector PLC called BT that deployed broadband to 100% of the country,
effectively 100%, so it is possible for a private sector company to make these kinds of
universal choices. We are very committed to providing universal service everywhere in the
country as far as possible. In relation to the fibre network, there is a limit to the commercial
viability of that. With the economics of network density, you do not get enough customers
at the end to make it pay off. That is why the gap funded model with public funding to get it
as far as humanly possible is a good solution to trying to get as far towards universal
broadband as possible, and especially not only the superfast broadband bit, but also the 2 Mb
bit.
Going on to your point around the products that people have to use, as I say, Openreach
has to provide, by regulation, the same product to absolutely everybody; to BT and to
everybody else. We are selling the GEA product, as our BT Infinity retail brand, very
successfully. We see no reason at all why others cannot do the same. They all have the
systems that could interface with Openreach. They all have the capability to market these
things. In fact, I would emphasise that we are very keen that they should. We want to have
our retail competitors like TalkTalk, Sky, Virgin Media, Orange and O2 selling our fibre
access product in volume. It is an important underpinning of our business case. That will
drive retail take-up. Retail take-up is an important part of getting the social and economic
benefits we want. We need to enlist their participation in this. We are not putting up any
obstacles to stop that happening. On the contrary, we are doing everything we can to bring
them on side as quickly as we can.
Q532 Lord Gordon of Strathblane: It is alleged that the GPON technology is less easy
to unbundle.
Sean Williams: In terms of unbundling, the VULA product is the unbundled product, and
people can do whatever they like with the GEA product, which is our VULA product. There
are eight different variants of VULA in the market already, and retailers can bundle those as
they like. They can do pricing bundles; they can put TV on it; they can put voice on it. They
can do any number of differing things with the basic input. The opportunities for
differentiation are fully there. If anybody was unhappy with that as a solution, they could
always go and invest in their own fibre network on the basis of our Passive Infrastructure
Access. Virgin is doing its own thing. It is an example of someone that is doing that.
Q533 Lord Gordon of Strathblane: I think we are talking of fibre network that will be
laid with public money, not with your shareholders’ money, as it were. The allegation is also
made that the GPON technology itself could become redundant in the medium term.
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Sean Williams: We do not see it becoming redundant in the medium term, or at any stage.
As I say, we think that the technology solutions we are putting in the ground are a good
customer experience, support the business case, and have a long-term durable technology
future. So I am not quite clear what the issue is, to be honest, because it is the foundation
for scale competition. What more is it they are looking for, other than a really effective,
robust, industrialised, high-scale, rapid deployment?
Q534 The Chairman: Are you going to be introducing WDM-PON in due course, do
you think? It gives you a much more of a reverse path, does it not? It gives the user the fibre,
the light stream, a great deal more freedom to do what he will.
Sean Williams: It is essentially trying to unbundle wavelengths, rather than unbundle the
active product.
Q535 The Chairman: Do you think that is going to be a feature of broadband in the
future and of your network in particular?
Sean Williams: Whether it is something that the regulator in the future seeks to mandate is
something I could not answer. Whether that is a good foundation for competition I really
would not be able to say. You would have to ask the regulator.
Q536 The Chairman: Do you think commercially it has potential?
Sean Williams: No, I do not, and I have to say that this is another example where we have
to be very cautious about interventions that basically undermine the business case. If you
start to unbundle all of these fibres, how are you going to recover the fixed costs of all of
the network we have put in already? We need to have some certainty about this and
somebody to commit, “No, they will not be intervening in these ways to undermine the
business case”. Otherwise it is a one-sided bet again. We are going to have people freeriding on the network that we have deployed in the hope that they are going to do that at
extremely low cost. We are making a sunk investment here, and we need to know that we
are going to be able to recover all of those investments.
Q537 Lord Gordon of Strathblane: Would it be better if the network in theory were
provided by another body, a sort of nationalised body providing this network throughout
the country?
Sean Williams: No. As I have mentioned before, when I was at Ofcom, I was on the board
of Ofcom, and I led Ofcom’s broadband strategy and also the separation of Openreach into
a separate entity. There was a very clear strategic view in Ofcom at that time that while we
wanted this operational separation, such that Openreach had to provide the same thing to
everybody, and so cut through the discrimination that could happen across the value chain, it
was nevertheless a good idea to keep Openreach within BT Group for three reasons. First,
it retained the strategic synergy; secondly, it retained the financial synergy; and thirdly, it
kept Openreach connected to the retail market rather than separating it off as a separate
monopoly. If Openreach was a separate business, I do not believe that it could take the risks
about fibre deployment that BT Group has done for the simple reason that this strategic
synergy allows BT Group to make two choices. One is that we are going to invest £2.5
billion in deploying a fibre network and the second is that we are going to market the hell
out of it and get as many customers on to this as possible. Openreach, if was a separate
business, could not make that second choice. It cannot know that there is going to be,
among its retail customers, an organisation which is going to sell as much of this as possible,
so I do not believe it could make that risk investment that BT Group is able to make.
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Q538 The Chairman: I understand what you are saying, but can you just elaborate a bit
further. Against that background, how is it that the independent BT Retail is going to go like
hell on marketing the network when other independent operators owned by different
people are not? Surely you are selling services.
Sean Williams: We are selling our—we are trying to—
Q539 The Chairman: When I say “you”, I was falling into the trap. I referred to BT
retail, which of course you are not. Surely, if the network is there and there is a potential
business opportunity to be had from deploying it, everybody will go hell for leather, not just
one.
Sean Williams: They should be. We would thoroughly encourage the major ISPs,
particularly Sky and TalkTalk, and we are doing everything we can to encourage them in
order to sell the GEA product. BT Retail is an organisation within the BT Group, and it can
make a strategic choice to go for selling this. It has made two or three major choices. One is
that it has done some very proactive branding of the BT Infinity superfast broadband
product. The second is that it has done a lot of marketing of that through advertising on TV
and so on. It has done a lot of engagement with local communities through its Race to
Infinity programme. In particular, it has essentially chosen a retail price for the superfast
broadband product which is the same headline price as for its copper broadband product.
The purpose of doing that is that it makes it very easy for end users to choose, when they
come to BT, to opt for the fibre product rather than the copper product.
The reason for doing that is, once you have made this fixed investment in these systems,
then you want as many customers on this network as you can possibly get, and as quickly as
possible, because that is what underpins the business case. It is about the numbers of
customers. Customer volumes are a really important part of the business case. So you want
to make it as easy for people to choose fibre broadband as possible. For customers coming
to BT for the first time, at point of sale, if they are eligible for superfast broadband, more
than half of them take superfast broadband.
Q540 Lord Gordon of Strathblane: In a way it means that people are paying fibre rates
for copper service, as it were, as well.
Sean Williams: Some of them, in some parts of the country, are paying for copper
broadband. In some parts of the country, they are eligible only for copper broadband and
they are staying on copper broadband, and in some parts of the country they could upgrade
from copper to fibre, and lots of them do. So we are encouraging that migration of people
to upgrade to the faster speeds if we can get them to do that.
Q541 The Chairman: I am frightfully stupid, I fear, but you have described all these
things that BT Retail is under pressure to do, but why does being owned by the same
company as owns Openreach make it under any more pressure to do that than it would do
if it was a freestanding commercial organisation?
Sean Williams: If BT Retail was a freestanding commercial organisation, it might make a
different choice, but the point of the matter is that it is part of BT Group and BT Group is
making a choice about making a significant fixed-cost sunk investment in fibre on the one
hand in Openreach. To make that pay off, BT Group needs to make sure that we get as
many customers on there as possible, so BT Retail is out there marketing this as much as
possible. That is the only way you can make the business case pay. The point of the matter is
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if Openreach was separate you could not do that—if it was structurally separate and owned
by different shareholders.
Q542 The Chairman: The structure is separate, but there is a common interest—
Sean Williams: There is a strategic synergy within the group.
The Chairman: There is a common interest, once you have the network there, because of
the way the ownership happens to fall, to drive it for all it is worth. Is that what you are
saying?
Sean Williams: Yes.
Q543 Lord Gordon of Strathblane: You made a point about the universal service.
There is a difference between a universal service obligation and a universal service
commitment. But in your evidence at paragraph 23, you quoted with approval that Europe
has decided that the universal service obligation was not appropriate for broadband.
Sean Williams: Yes.
Lord Gordon of Strathblane: In a way harking back to the telephone, I just wonder
whether Europe would have said that a universal service obligation was not necessary in
telephones either.
Sean Williams: We do have a universal service obligation in relation to telephony, and—
Lord Gordon of Strathblane: Yes, why not broadband, then?
Sean Williams: —in functional broadband access, which is not what we are talking about
here. The reason for not having a universal service obligation for fibre access is that it is
prodigiously expensive and who is going to pay for it? At the moment, BT incurs all the costs
of providing universal service telephony. Our shareholders pay for that. But if the European
Union or the UK Government decided that there should be a universal service obligation
for, let us say, 80 Mbps fibre broadband, it would cost billions. So who is going to pay for
that?
If you just put it on as a universal service obligation, you are essentially saying, “I am sorry, it
is over to you, BT shareholders. You have to cough up the N billion that is required to do
that”. We do not think that would be a fair obligation at all. The alternative of the universal
service commitment is to say, “We are all, with the benefit of public funding, committed to
try to get broadband out to every single household, to a new standard over 2 Mbps”. So in
those circumstances we are recognising that it is not commercially viable to do that; there
needs to be some public funding to support that commitment.
Q544 The Chairman: We are getting close to the end of our session. I apologise as we
have overrun, but certainly I have enjoyed it, and I think the Members of the Committee
have too. I hope it has not been too miserable for you. This is a much more general
question. For the purposes of regulation, do you first of all think that it is a commercial
reality that fixed-line and mobile access are different markets in the world we are in now?
Sean Williams: As a matter of commercial reality?
The Chairman: The reality. Do you think they are one or two markets?
Sean Williams: Are you talking about fixed and mobile broadband, or fixed and mobile
voice telephony?
The Chairman: Both.
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BT Group plc – oral evidence (QQ 466-549)
Sean Williams: I think that fixed and mobile voice telephony, as a matter of commercial
reality, are in the same market and should be demonstrably so by the mechanisms that
Ofcom uses for determining market definition, but I do not think that 3G broadband is in
the same market as copper broadband or fibre broadband inasmuch as we are not seeing
that level of substitution between those products that you see in telephony. Whether or
not, when 4G mobile comes along, it is in the same market as copper broadband, we will
really have to see in the future. I think there is a lot of marketing hype around 4G wireless
broadband. In countries where it is typically deployed, it is delivering in the order of 10 to
12 Mbps; so, it is equivalent of good copper broadband speeds rather than superfast
broadband speeds. In those circumstances, I can imagine a future in which those 4G and
copper broadband should be defined in the same market, but it is unlikely that 4G will be the
same market as superfast broadband, I believe.
Q545 The Chairman: Do you think that putting on a pedestal the idea of superfast
broadband as something that is qualitatively different from other applications for broadband
is the right way to look at it?
Sean Williams: I think it is materially different from what any wireless solution is able to
achieve. If we really have aspirations for delivering the kinds of connected society and
communications-enabled economy, then the fixed solutions are the only ones that can work
in the long run.
Q546 The Chairman: The long run is what, 25 years? How long?
Sean Williams: No, I think fixed broadband is the performance leader today and I think it
will continue to be for the foreseeable future—whether that is fibre or copper or other
technologies. Wireless has a role to play for mobility and access. It has a role to play in
reaching hard-to-reach communities, but it is not the performance leader.
Q547 The Chairman: We are in a world where we are moving into a completely
different era with regard to communicating with each other in all kinds of ways and the
network is being rolled out that will enable us to do something that in sociological terms is
going to be very different from what we were used to previously when we were all young.
Sean Williams: Sure.
The Chairman: When do you think we will get that infrastructure in place? We are rolling
it out now. If you look ahead, when do you think that you as a business may stop rolling out
the infrastructure in a substantial way? There was a time when they stopped building
railways.
Sean Williams: Yes. We are still building out copper broadband networks. We are still
repairing the copper network. We are still investing. We still attach households to the
copper network. We will continue to do that with fibre networks and copper networks for
the foreseeable future. But I think the mass rollout of the superfast broadband fibre network
is the work of the next decade, I guess.
Q548 The Chairman: I am just trying to think of where you would put the perspective
of the work we are doing as ending.
Sean Williams: I am not sure I could really answer that question. In relation to the
particular government objective that we want to have the best superfast broadband network
in Europe by 2015, I think we have a fighting chance of delivering that, and that by the end of
2015 I am very confident we will be at above 80%. Whether we go all the way to 90% or
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BT Group plc – oral evidence (QQ 466-549)
how close to that we will have gone will be largely about how the BDUK process unfolds,
how the state aid process unfolds, and how effectively all of that money is used to deploy
the superfast broadband. Our expectation is that, given the public money on the table, we
should be able to get to 90% of the country.
Q549 The Chairman: We have kept you a long time.
Sean Williams: It has been a great pleasure.
The Chairman: Does anyone else have any questions that they would like to put to you?
Do you have anything else you would like to tell us?
Sean Williams: I think we have covered a lot of ground, and I am very grateful to you,
especially yourself, Lord Inglewood, that we have had this opportunity. I think this is a very
exciting programme, and we are determined to do everything we can to do the right thing
for the country. Thank you very much for the opportunity.
The Chairman: On behalf of the committee, thank you for the forbearance you have
shown when we have probed you from sometimes different and inherently contradictory
directions, more or less at the same time. We are trying to get answers to questions that
we have in our minds, so thank you very much.
Sean Williams: Thank you very much.
109
Buckinghamshire Business First – written evidence
Buckinghamshire Business First – written evidence
This report represents a response to the House of Lords’ call for evidence on behalf of
Buckinghamshire Business First. As the strategic economic development organisation and
independent business voice for Buckinghamshire, we are working to deliver a programme of
activity which will provide substantial improvements in next generation broadband coverage,
driven by the need to stimulate enterprise and entrepreneurship, promote job creation as
well as enable public sector service delivery transformation and provider greater social
equity. With an approved Local Broadband Plan in place, this vision is clearly articulated and
we are in the process of working with the market to accelerate investment, allowing
businesses and consumers to enjoy the benefits of next generation access.
Given the collective focus on superfast connectivity, we are keen to provide a level of local
input, experience and to help influence Government broadband policy going forward. Our
interest in the Select Committee call for evidence is therefore central to this; this response
seeks to echo our support for a strengthened national connectivity policy, which will see
greater investment in wholesale next generation infrastructure and a more cohesive
approach to delivery, incorporating wireless technologies.
We would also note that this response aligns to our support of a campaign championed by
James Elles MEP; member for the South East of England. We fully endorse his commitment
to seeking additional Government investment in superfast broadband and a review of the
approach to delivery. The details of this mandate will be presented to the Prime Minister
shortly.
1.
What is being done to prevent a greater digital divide occurring between
people who can access superfast broadband and people in areas where the
roll-out of superfast broadband may not be commercially attractive? How does
the UK communications market vary regionally and what is the best way to
connect the areas that the market alone cannot reach? Is a universal service
obligation necessary to avoid widening the digital divide?
1.1
The main focus of the Government’s investment in next generation connectivity is via
the nation Broadband Delivery UK (BDUK) programme, local authority level
providing capital allocations to support the procurement of superfast infrastructure.
This is being delivered with Buckinghamshire via the Local Broadband Project, in
collaboration with our partners in Hertfordshire – together we intend to utilise
BDUK’s framework procurement process to secure substantial superfast broadband
investment across both counties. This will see a large number of premises receiving
improved connectivity, predominantly in rural areas and locations where the market
will not currently deliver. This will see substantial commercial and social benefits in
communities that are currently poorly served, as well as enhancing the counties’
competitive advantage substantially. This form the central component of a wider
programme of activity looking at market engagement and accelerating investment in
next generation access; this involves both fibre and wireless technology.
1.2
Using the Broadband Stakeholders Group as a guide to market engagement, it is
accepted that many locations will require additional subsidy and public investment to
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Buckinghamshire Business First – written evidence
deliver superfast broadband. However, there are noted limitations with the existing
BDUK procurement exercise which may limit the impact of investment in some areas
of the UK. In this respect, we would wish to see a platform which maximises
wholesale market competition, both in terms of fibre and wireless technology, whilst
also ensuring that Ofcom plays a necessary role in ensuring national coverage is
maximised as far as possible.
2.
The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
2.1
The Government’s commitment to the delivery of next generation infrastructure
should be applauded and this investment will see a significant increase in superfast
coverage across large parts of Buckinghamshire. However, whilst this is a good step
forward, indications are that the assigned £530m will not be enough to ensure that
the Government’s nationwide 90% target is achieved. It should be noted that this
investment is not entirely allocated to capital grants at a local authority level and a
proportion of this has been allocated to the running of the BDUK programme itself.
Indeed, current Local Authority allocations suggest that a proportion of this
investment is currently being held back within the BDUK.
2.2
Additionally, as set out below, there are question marks about the BDUK
procurement process, the market’s response to the framework and the capacity,
resource and cost implications of managing multiple procurement exercises across
England and the UK. A truly competitive wholesale response will be essential in
delivering next generation infrastructure across the UK; under the framework, wider
market engagement is currently restricted. We would also endorse an approach to
delivery which fully recognises the full importance of wireless and 4G as essential
superfast infrastructure.
3.
Will the Government’s targets be met and are they ambitious enough? What
speed of broadband do we need and what drives demand for superfast
broadband?
3.1
We feel the Government’s targets are ambitious and represent a strong policy
commitment to deliver superfast infrastructure across the nation. However, the UK
needs to go further if it is to be considered the best-connected nation in Western
Europe, thereby maximising competitive advantages and the benefits for its citizens.
This ambition is mirrored within Buckinghamshire as we strive to move towards
universal superfast access. Additionally, early indications suggest the BDUK
procurement model, alongside its devolved allocations, will make it very difficult for
the UK to achieve its overarching goals by 2015, both in terms of actual coverage
and procurement completion.
3.2
We also believe that broadband speeds should be truly defined as superfast – based
on Fibre to the Premise specifications of 100Mbps or more. This will ensure that
emerging and available technologies are capitalised upon whilst maximising the
opportunities for business and the consumer; IT, media, commerce, new ways of
working will all drive demand for superfast broadband.
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Buckinghamshire Business First – written evidence
4.
In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
4.1
Whilst speeds are important and do determine the actual availability of superfast
infrastructure, the Government needs to take a holistic view as to the value of its
investment in next generation connectivity. As such, this should include a greater
insight and assessment into the application of superfast services and the associated
benefits linked to wider policy objectives; this could include job creation, economic
development, social equity, local authority service transformation, emerging
work/travel patterns. The Government must ensure that it has a cohesive strategy
for delivering superfast infrastructure – fibre-based broadband is just one element of
this. The allocation of the 4G spectrum and associated auctioning, as well as other
investments in telecommunications will also have a significant role to play in providing
universal next generation access to consumers and businesses.
5.
How will individuals and companies use cloud services for distributed storage
and computation? What network properties are required to enable efficient
provision and use of such services?
5.1
We are already seeing evidence in Buckinghamshire of the increasing use and
adoption of cloud-based services for storage, computation and wider network use.
This trend is likely to continue as next generation access will enable a growing
number of users the opportunity to maximise the benefits associated with cloudbased services such as reduced costs, greater efficiencies and the ability to genuinely
transform working patterns and the need to travel.
5.2
A sufficient superfast network, both fibre and wireless, must be in place to enable
this wider adoption of cloud-based services. Government policy and action will need
to reflect this commitment with sufficient investment and cohesive infrastructure
delivery at the core of a 21st century broadband network, inclusive of all appropriate
technologies. We are working hard in Buckinghamshire to ensure that 4G is an
integral component of this strategy, for instance.
6.
To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such as
interactive TV, HD TV and 3D content? How will superfast broadband change
e-commerce and the provision of Government services?
6.1
We are already seeing the influence of superfast connectivity on technology and
interaction with digital media – the capacity of next generation access brings a wealth
of opportunity linked to the way we go about our daily lives, both socially and
commercially. New television formats such as HD and 3D represent a wave of
technological developments that will be fuelled by superfast broadband access; each
bringing new benefits and experiences to the new user. This is ably demonstrated in
Buckinghamshire where the development of tele-health products is at the forefront
of this technology, heralding a new age in patient care. Next generation
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Buckinghamshire Business First – written evidence
infrastructure, achieving genuine superfast performance, will be the backbone to
driving such media and technology forward.
6.2
Superfast broadband also brings new commercial opportunities, enabling greater
customer interaction, order processing capacity and the ability to become an
international e-trader. This is particularly important for rural businesses and those
who operate as home-based enterprises, removing the need for traditional costs and
overheads via cloud-based services. Evidence within Buckinghamshire already shows
the importance of online transactions to rural businesses – next generation access
will take this a step further. Additionally, Buckinghamshire’s Local Authorities are
already looking closely at the opportunity for enhanced online service delivery,
providing an enhanced customer service which is both more efficient and effective.
7.
Will the UK's infrastructure provide effective, affordable access to the 'internet
of things', and what new opportunities could this enable?
7.1
It is vital the wholesale superfast infrastructure, both fibre and wireless, remain
competitive marketplaces, with ample opportunity market entry and consumer
choice. Within the BDUK procurement process, the shortened list of preferred
bidders remains a concern, seemingly acting as a barrier to those wholesale suppliers
who may be well-placed to make substantial infrastructure investments whilst also
forging new relationships with retailers. It is hoped that that BDUK sponsored Local
Broadband Projects will see major superfast broadband investments, but not at the
cost of reduced market competition. Aligned to this desire, we would also seek to
ensure that the Government’s auction of the 4G spectrum provides ample market
competition, ultimately providing customer choice and further accelerating
technology and innovation.
8.
What role could or should the different methods of delivery play in ensuring
the superfast broadband network is fit for purpose and is as widely available as
possible? How does the expected demand for superfast broadband influence
investment to enhance the capacity of the broadband network?
8.1
As previously stated, the Government’s approach to superfast infrastructure must be
cohesive, viewing broadband coverage in terms of wired and wireless opportunities.
This commitment must be matched by a sufficient level of investment that is able to
deliver next generation access to as many premises and consumers as possible – in
effect, a statutory utility. Associated procurement process should be given the
capacity to secure superfast investment, achieving access to speeds well beyond the
EU mandate, whilst also ensuring effective market competition and the ability to
translate this choice to consumers via a variety of retailers. Buckinghamshire will
continue to approach its vision for connectivity in holistic manner, ensuring that the
fibre and wireless components are not viewed separately.
8.2
Investment in superfast broadband infrastructure, or indeed services of any kind, is
often driven by market forces and the economics of demand. We believe the
Government recognises this fact and this is translated via the BDUK delivery
programme linked to the importance of demand registration and stimulation. It is
essential that businesses and consumers are well-informed in relation to the
transformational effect of high speed services and the ever-emerging technologies
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Buckinghamshire Business First – written evidence
that will be based upon next generation platforms. This educational exercise forms a
core component of our programme of activity in Buckinghamshire and this will need
to continue as we move towards the adoption of new wireless technologies, such as
4G.
9.
Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what
actions could the Government take to ensure such a market?
9.1
We believe the UK has a healthy wholesale fibre broadband market; one which has
the potential to provide world-leading next generation infrastructure. However, the
BDUK-driven procurement process and the associated PIA negotiated to enable BT
telecommunication infrastructure access has been met with a muted response from a
number of wholesale suppliers, thereby reducing the opportunities at a local level for
a more competitive market response. We would, therefore, strongly urge the
Government to explore opportunities to enhance the existing procurement
framework, removing commercial barriers, thus enabling increased market
competition and, greater value for local broadband projects and ultimately, improved
consumer choice.
10.
What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of
online piracy? What is the role of the Government in assuring internet security,
and how should intellectual property (IP) best be protected, taking into
account the benefits of openness and security?
10.1
We believe that superfast broadband connectivity will have a major impact upon all
businesses. This is likely to be the case with media and creative sector enterprises;
both integral components of the Buckinghamshire economy. Digital technology is
likely to a key driver in terms of innovation and entrepreneurship, particularly as
media is increasingly broadcast over next generation communication networks; we
would welcome the Government’s recognition of this relationship.
10.2
Equally, we are aware of the increasing risks associated with online content and
commercial activity, particularly in relation to security, privacy and access. We
would hope that the Government is taking a central role in safeguarding the realm of
web-based activity, with a clear policy and mandate stating this intention. This should
reflect a balance which endorses the benefits of open access, as well as recognising
the role Government in regulating issues such as legal ownership, just as it would
traditional products and services. This would be of particular interest to businesses
in Buckinghamshire which are increasingly reliant on the internet for commercial
activity.
13 March 2012
114
Professor Peter Buneman – written evidence
Professor Peter Buneman – written evidence
I would like to make three simple points about the future of Internet delivery. My
credentials are that I have developed the Tegola network, which has brought fast broadband
to some of the most remote areas of the Scottish Highlands and that I have worked closely
with Professor Michael Fourman on broadband issues. Of the following three points, the
first two are based on my experience with rural broadband; the last is based on my general
experience as a computer scientist.
1. If fast, reliable broadband is important, it is doubly important in rural areas, where
other forms of communication are deficient. Our experience shows that uptake is
higher in rural than in urban areas. Without intervention to provide adequate
backhaul, communities and businesses in rural areas will be relatively worse off in the
future than they are now.
2. The Tegola project has demonstrated that communities and small businesses can
provide the “last mile'” -- in reality the last twenty miles -- at affordable prices where
centralised organisations cannot. The only technical obstacle to the development of
more of these access networks is the lack of backhaul.
3. Several computer experts have famously underestimated demand*. Right now I am
hard-pressed to come up with a reason for wanting more than 20Mb/s in the home,
but I am certain that there will be such a demand in the near future; moreover small
businesses (which are more numerous in rural areas) need higher speeds even now.
In any case, given that households even now, want speeds of about 10Mb/s
continuously for delivery of video, the only way we can meet this demand is to have
a fibre network that reaches every community of a few hundred. Since the capacity
of fibre is huge, once such a core network is in place, it is a relatively straightforward
matter to deliver much faster broadband to the home through a mixture of fibre,
copper and wireless (the Tegola project has demonstrated the last of these).
The consequences of planning based on an underestimate of the required bandwidth
could be catastrophic.
All three of these points indicate the critical need for a robust, open fibre infrastructure. I
am happy to elaborate on them if needed.
23 March 2012
* http://www.pcworld.com/article/155984/the_7_worst_tech_predictions_of_all_time.html
115
Francesco Caio – oral evidence (QQ 115-135)
Francesco Caio – oral evidence (QQ 115-135)
Evidence Session No. 3.
Heard in Public.
Questions 75 - 135
TUESDAY 27 MARCH 2012
Members present
Lord Inglewood (Chairman)
Lord Bragg
Lord Clement-Jones
Baroness Deech
Baroness Fookes
Lord Gordon of Strathblane
Lord Macdonald of Tradeston
Bishop of Norwich
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witness
Mr Francesco Caio
Q550 The Chairman: I gather that we are likely to have some divisions so I have
mentioned that to our witness, Francesco Caio, whom I would like to welcome here.
Mr Caio: Thank you very much.
The Chairman: Apologies for keeping you waiting a tiny bit. We are very much looking
forward to what you have to say. We have had a brief CV from you so we know your
background and the role that you played for the British Government in this in the past.
What I would ask is when you begin to speak, for the sake of the record and the
transmission, please identify who you are. If you would like to make any kind of introductory
statement, we would be very pleased to hear it.
Mr Caio: Thank you very much, my Lord Chairman. I am very pleased to be here and I was
glad to get your invitation. I am Francesco Caio, currently chief executive of Avio, which is in
the aerospace industry. We are not going to be there today, but I have had direct
involvement with the information technology and telecommunications industry throughout
my career. I would mention my time at McKinsey in London where I assisted a number of
clients in this industry and then as chief executive of Omnitel, which is now part of the
Vodafone Group, and most recently as chief executive of Cable & Wireless in this country.
As you mentioned, I was asked by the British Government in 2008 to lead an independent
review of issues in the development of next generation access broadband network. I did the
same a year later with the Italian Government.
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Francesco Caio – oral evidence (QQ 115-135)
My brief remark at the beginning is that if I look back to some of the conclusions of the
review in 2008, I would say that broadly the market has evolved and the country has evolved
along the lines that were quite clear three years ago. Penetration has grown, the world has
entered into what was defined in the report as a post-PC era where the number of devices
has exploded and the internet has reached many objects that were outside its reach maybe
five or six years ago, such as television, radio, cars and so on and so forth.
I think more importantly I would say that the kernel of the recommendation to the
Government at that time was that the competitive structure of the UK industry was pointing
to a likely increase in investment in network upgrade, particularly linked to the duopoly, if
you wish, of the two physical infrastructures that are in place in this country, one being
British Telecom, BT, and the other Virgin Media. Clearly, where the two networks coincide
in terms of footprint it was likely to predict that the competition between the two would
lead to an acceleration in investment. I think that has happened, broadly speaking, even
though in ways and pace that differ from area to area. But I would say that the decision of
Virgin Media back in 2008 to upgrade the access network through a software capability and
deliver fast broadband has been the primary driver of what we have seen in the last four
years. I would say that broadly speaking the picture that was emerging from that work has
been confirmed by market trends. The issue now becomes what happens next and where
the country should go.
The Chairman: I see from the television monitor we are about to go and vote so perhaps
that is a good moment to stop. Thank you. We shall be back.
[Meeting suspended for a Division in the House.]
The Chairman: Again, for the sake of the record, apologies for keeping you waiting.
Mr Caio: Not at all. I understand fully.
Q551 The Chairman: Perhaps I might start by saying that, when you wrote your report
in 2008 for BERR, you said that one of the key findings of this review is that it is a mistake to
believe the UK must have an NGA infrastructure tomorrow or suffer as a result. Clearly it is
a few years on since then but presumably the underlying point you were making is that you
must not rush at this like a bull in a china shop and that you want to get going and cannot
expect to have perfection immediately.
Mr Caio: Yes. As I was saying before, if you look at many statistics, no matter how you cut
it the UK does not seem to have suffered by a lack of a national publicly funded NGA plan,
which was the issue at stake, or one of the issues at stake, during the report. You may
remember that one of the questions that drew the report was the concern that with BBC
launching the iPlayer, the number of people demanding high bandwidth consumption
applications—namely the iPlayer—might have brought the internet to its knees. It became
apparent that that was unlikely to be the case not least because, as was mentioned in the
previous discussion, one of the issues was the availability of a backhaul rather than specific
access capabilities.
Again, if you look at how penetration of broadband has evolved and how the average
bandwidth available to citizens and companies in this country has evolved, broadly speaking it
is aligned with what we have seen in other parts of Europe and even perhaps, at least in the
first part of the last three years, in the US. That is to say that there was no need for
immediate massive public funding but, as was reported and some of you mentioned already,
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Francesco Caio – oral evidence (QQ 115-135)
there was an indication that the availability of a high-quality, world-class network
infrastructure is not for debate. It is something that the country will have to have and three
years down the road some of the trends that were at the base of that statement have been
confirmed and accelerated. We were just talking a second ago about where this whole
internet of things developed with microprocessors appearing everywhere in objects in our
homes or offices, or factories for that matter, the amount of bandwidth required is going to
continue to grow very much. If I look back at some of the areas that were covered by Virgin
Media and BT three years ago, the speed has gone up, but the big questions that we were
debating, even in the previous session, of how far you could push the upgrade of the
network and what kind of network the country will need in the long term are now very
much relevant.
Q552 The Chairman: Given that allowing our network to evolve is not a massive
dirigiste approach from the Government, do you think that the direction of travel that we
have gone is one that will enable us to get to a destination where we do have a general
provision that would be fit for purpose in, say, eight or 15 years’ time?
Mr Caio: It is difficult. I would say it is unlikely. I need to emphasise I have not been
following the details of the industry over the last year or so in this country, even though I
have kept in touch with some of the players that are running companies in this country in
this sector. I think that the speed of the rollout for fibre-based backhaul is likely to slow
down now that the two networks have completed the first round of upgrading their
network and therefore, if you were to just leave it to competition at work, it is unlikely that
the speed would continue to be the one we have seen in the last three years. That is the
first point.
The second one is perhaps this is an opportunity that I would welcome to invite you all, if I
may, to reconsider how you define the endpoint and the level of—how can I put it?—the
conviction and the belief you have for what that endpoint is going to be. Marginal
developments are fine, but I think it might be appropriate in this forum to be clear about the
discontinuity we are going through at this stage. I was only able to hear part of the previous
witness statement but I could not avoid echoing what he was saying. We are at a stage
where technology allows us to build networks that have very little to do with the networks
we have been building. One of the strategies and the strategic decisions to be made at
policymaking level is where you draw the line between protection of the incumbency versus
speed of travel to the new world.
More specifically, one point that may be helpful to raise here is that for decades the
development of the network as we know it has been funded under the fundamental
presumption that the company or the institution laying the cable was also the company
providing the service. For many years you have had a biunivocal relationship between
physical network and physical devices and services to be delivered on that device. That has
been true in telecommunications, it has been true in broadcasting, it has been true in radio
broadcasting and it has been true in information technology. You have different networks
wedded to different services. That relationship has been evaporating under the impact of the
internet, and therefore it is now possible and it should be preferable to have just one
physical network carrying all kinds of services as we know them.
In my view, that is one of the critical issues because if you look at BT and Virgin Media—and
I want to be clear and not misunderstood, as I am not saying that the solution is to get rid of
those companies—the logic with which they have developed their networks has been to
build a network, to sell services and to capture market share. That is no longer a necessary
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Francesco Caio – oral evidence (QQ 115-135)
model, and one of my concerns is that convenience could be described as necessity from a
technology point. Therefore, policymakers and regulators need to be very clear, in my view,
to understand where the endpoint is, to get back to your question, my Lord Chairman. The
endpoint, in my view, ought to be a world where anybody and anything can be connected to
anybody and anything, without limitation of speed, without limitation of latency in response
time and without limitation of symmetry.
Therefore, when you deal with these things it is important to recognise that people with a
vested interest—and I would add a legitimate vested interest—have very differing views and
it is difficult, perhaps naïve, to think that one country can go through transition without
some degree of perhaps heated debate on who is doing what and why. I think it is important
for me to have this framework in mind. We are going to a world where the economic role
for the companies that have been in place so far has been questioned and is being put in
question.
The Chairman: I can understand that point well.
Q553 Lord Gordon of Strathblane: Is there any merit in looking at the model of the
actual infrastructure being provided as a public utility?
Mr Caio: Yes. I think I have the good fortune of not being a politician and not running a
telecom company these days, and that somehow puts some kind of a free perspective. I
think of broadband as electricity. I am not sure that it is the right and the only way in which
you can think about it, but there is no doubt that the separation between physical
infrastructure and the services you run on that puts that kind of infrastructure very similar
to water and electricity.
Q554 Lord Gordon of Strathblane: The alternative of letting the market determine it
will give us increased competition and increased speeds in the 50% of the country that Virgin
and BT overlap but absolutely no progress whatsoever in the other parts of the country, or
very little.
Mr Caio: Back to the discussion you were having before, I think there might be more ways
that you can think in creating conditions whereby other forms of networks and other forms
of investment into those networks can flourish beyond the high-density regions.
Q555 Lord Gordon of Strathblane: There was also a point made earlier on. You
alluded to the BBC iPlayer and how everyone thought that was going to create huge
demand. There is another development that is due in the next few weeks, YouView, and we
understand the BBC are going to be playing 70 channels covering every event in the
Olympics, virtually. One thinks that might create a huge demand and certainly there might be
thought to be a sense of deprivation among some citizens who cannot watch because the
physical capability of doing so is not there.
Mr Caio: There is no doubt. I think that the notion of divide or differentiation across access
to this network is becoming, and will become, an increasingly visible issue.
Q556 Lord Gordon of Strathblane: Are we getting hung up on this idea of superfast?
Should we be concentrating more on universal provision?
Mr Caio: Three years ago I emphasised here, and to a certain extent in Italy, the notion that
again it is a policymaking decision. Do you want to go deeper with quality broadband, or
would you rather have universal access to provision? I think it is a function of the
policymaking objective. For instance, to have e-government applications and to have a real
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push for efficiency, for instance in public administration, I suspect is going to be very difficult
if you cannot guarantee universal access to broadband. At the same time, the
competitiveness of any given city is now increasingly linked to the quality of the broadband
you can get. Maybe while three or four years ago you had choices, I think these choices are
perhaps less today. I suspect you need to do both.
Q557 The Chairman: So you think the distinction between widening or deepening is
irrelevant?
Mr Caio: I think so.
The Chairman: Lady Deech?
Baroness Deech: I rather think Lord Gordon asked my question and that our witness has
answered it. Is not that the import of this one?
The Chairman: I think it possibly is, but I did not wish to deny you your moment of glory.
Q558 Lord Macdonald of Tradeston: Let me just put to you the statement of one of
the witnesses we had. He said what we are looking for with 20 Mbps, “is not superfast. It is
super-slow. The UK risk being frozen out of the next industrial revolution”. Can you make
those kinds of economic judgements yet? I know that there are great claims for what your
superfast broadband might do for GDP, but where is the evidence for that? Is it not possible
that by putting all people on to basic broadband you would get just as much of a kick for
economic growth as you would from superfast for perhaps a smaller elite?
Mr Caio: I have never come across any convincing studies that would articulate the case for
one or the other. It is important to go back to what I was saying before, and it might sound
strange coming from somebody in the business community. I think you need to apply a bit of
vision here because everybody, rightly so, is influenced by, for instance, the advertising
campaigns of the current players where speed or headline speed seems to be the name of
the game. There are other characteristics in networks that are equally important: symmetry
is very important; latency is very important; and, just to go beyond the use of iPlayer and
high bandwidth, you might want to think of distributed applications—robotics, for instance,
is leaving factories and is being distributed; home-working, which we heard about previously;
and elderly home care—which provide a new way of distributing activity that we know
requires quality networks that respond very fast and are symmetrical. Such networks may
also come with bandwidth but bandwidth is not the only game in town; the speed with
which you could seamlessly move activities in a ubiquitous way is the source of competitive
advantage of a country going forward.
On whether 20 Mbps is super-slow, I am not in a position to say that that is true or not
true. I would, however, add that the 20 Mbps that we have been sold is a bit of a theory
because 20 Mbps is perhaps available to people who live near a BT exchange, but it is not
the case for most users.
Q559 Earl of Selborne: Let me just follow up on your point, which I think must be fairly
correct, that you have to define the endpoint or what you are trying to achieve. You made it
quite clear that bandwidth is not by any means the only consideration. Would you believe
that the most successful communities or cities or other areas are going to be those that do
indeed have the most flexible service as well as the fastest service? If so, what is it that we
are trying to achieve for each community?
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Mr Caio: I am absolutely convinced that broadband will be one of the key features of any
community, to the point of driving attractiveness for demographics, property value and the
willingness of companies, and indeed families, to move to one area or not. I think you have
heard before there will be many alternative ways. This is also something that we have put in
the report. There will be a variety of ways to provide bandwidth going forward, but it is very
clear that communities without bandwidth and without broadband will be put at a very
material disadvantage going forward.
Q560 Earl of Selborne: Whether we like it or not, we have two providers of the
infrastructure at the moment—one for cities and one for everywhere else. This is not a
model that seems to suggest to me that rural communities are going to be able to compete,
or at least those rural businesses that need access to a large amount of data and need to be
interconnected around the world. You have suggested there might be alternative models
that do not require us to continue to try to get a share of the market for existing players.
Could you give us a clearer view as to what this alternative model might look like to us?
Mr Caio: There are many. I will mention a couple, again echoing some of the things you
heard before. If you think of the network today, you have the ownership of the network in
the hands of the provider until the very end, until the user. BT or Virgin Media owns it all.
One alternative way of thinking of ownership structure is if the network is what I would
define as the home with a tail, that is the household owns the last bit of fibre. Instead of
having competition among suppliers to serve those homes, the ones you have somehow
captured because services and the networks are together, you might think of a reverse
model where you have the household auctioning the ability to connect with the backhaul and
to the network, and then I, as a household, choose the services I want because I do not
need the network provider to be the service provider.
You can extend that model to the community. You could have a community raising funds
and digging the place to the closest and nearest backhaul and then deciding what they want
to do in terms of services. With the separation of network and services, once you have
optical continuity between point A and point B, the internet will do the rest for you. You
might have read recently that Sky will be available on the internet, which means that all the
efforts from Virgin Media and BT of bundling channels with the network is proving
increasingly sterile because once I get connectivity I kiss them goodbye and go and get the
services where I get them from.
The notion of reversing the model and saying that I am the owner of my own destiny when
it comes to the last mile of connectivity is possible with today’s technology. It has to be
enabled, though, because you want opening of that backhaul, and you want opening of that
optical continuity that is today in the hands of selected suppliers, BT, Virgin Media and
others.
Q561 Earl of Selborne: There is clearly a role for Parliament and a role for regulators.
Could you say what is the change in legislation that you would require in order to open up
this access?
Mr Caio: I wish I had the answer and perhaps was sitting on the other side of the table, but
I think one point that I am very keen in making, if I may, is: do not underestimate the value
of putting a vision out there that you strongly believe in. It might sound rhetorical and
philosophical, but it is important for the society and community to know that there is a
vision that the Government and the institutions care about. I am saying that because, in my
view, there will be the need to create an environment that encourages, for instance, Ofcom
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and other institutions to act boldly now. I think they need to feel the comfort of the support
from institutions like yours because the choices to be made are difficult and very
complicated.
I am afraid I cannot answer your question in terms of the specifics, but I wholeheartedly
believe that the view and the vision from a policymaking institution is very important at this
juncture. It is very important because the vested interests—and, I will repeat, legitimate
vested interests—will try to portray things that are possible and things that are not possible
in a certain way. A high degree of scepticism about what is possible and what is not possible
should be welcome from this House.
Q562 The Chairman: Can I go back to one of the responses you gave to Lord Selborne?
What in fact you are suggesting to us is that the last-mile connection is as much a part of a
house as, for example, the roof?
Mr Caio: Yes.
Q563 Lord Bragg: I asked this question of the previous speaker who gave a very
comprehensive answer, so I will try to ask it in a different way. Do you see a best model
anywhere and do you see this country anywhere near getting to it?
Mr Caio: When I was doing the report I bumped into a very high number of MPs who were
talking at that time about the Korean model. I dared to define it as the Korean syndrome,
because it seems to me that it is very easy to gain the support of your own constituency if
you promise bandwidth and fibre everywhere, as they did in Korea. However, I think the
reality is I suspect that different countries will be better off with different models and I am
afraid I do not have the model I would point to. But pragmatically, if I look at variables such
as the amount of economy or GDP that has moved to the new era, if I look at penetration
of minimum broadband in households, if I look at the creative industry and how fast it has
embraced the new world of IT, London is not a bad place. I am not sure about the rest of
the country, even though some statistics say very clearly that the UK is farther ahead than
many other countries in this type of application.
I would be careful before jumping to the conclusion that the UK has fallen behind and
everybody is in a fantastic place. Things are happening, however. I do not think there is much
room for complacency. The US have started the rollout of fibre with Verizon. There are
other countries that have the benefit of leapfrogging the development stage of the
incumbent because they are just late to the party and it is good for them, and clearly Korea
is one of them. It is difficult to say, “This is it: a pre-packaged model that we can parachute
into this country and it will do wonders”.
Q564 Lord Bragg: In many ways you concur with what Lorne Mitchell said before. Can I
ask you a supplementary? You and the previous speaker mentioned BT in various ways, and
not always in a complimentary way. Do you think that the BT-Virgin models that they are
pushing are now limiting the development of broadband in this country?
Mr Caio: I would say that is one model, and it has to be confronted, debated and
considered in the context of a variety of different models. This is one of the key issues. It is
the usual issue of policymaking and regulator: where do you draw the line between
incumbency and new models? These are big companies where pension funds have invested
and there are all kinds of things that you need to take into account. I would welcome at the
European level—I am not just talking about the UK—a more robust debate between
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regulators and incumbents. I think it is the time to consider more creative solutions and
perhaps more radical solutions than in the past.
Q565 The Chairman: That brings us on very neatly to the next question. The way you
have talked about a house with a tail—you have talked about reversal of the model—brings
us straight back to the question of access again, Mr Caio. It has been suggested to us that the
key ingredient in the establishment of a comprehensive national network would be
wholesale open access to both dark and active fibre. When you are talking about new
models you are talking, in a sense, about overriding the incumbents. Is that the direction of
travel that you want to see policy take?
Mr Caio: I think that is clearly a very important ingredient to make sure that the
environment fosters innovation and creates conditions for new investors, perhaps even
locally, to have a chance of building new networks.
Q566 The Chairman: Maybe this is a naïve question, but why do you think the
incumbents are reluctant to allow that sort of access to their networks?
Mr Caio: If you think of incumbents, or even mobile operators, both in fixed and mobile,
the way they came about, the reason for their birth and their development is they have been
built as organisations whose task was to build networks and connect people—and, perhaps
in the context of mobile, to open shops to sell subscriptions. Two things happened. One is
there is very little network to be built in high density and there are more masts than we can
cope with. The fundamental growth driver of new people on the network has come to a
halt; it is different usage for people having the network. So, that is the first bit. It is kind of a
separation, if you wish, of the first generation infrastructure. The second one, and this is the
one we were talking about, is separation of services and network. They are not in the
business they were in 10 or 15 years ago. I do not need Virgin Media or BT to make a
telephone call. I need that infrastructure to connect to a place and that place is for me to
choose, not for them to direct me to.
If you bring these two things together, a picture emerges where you could run the network
or run, without getting too technical, a national fibre network with, I am afraid, a small to
very small fraction of the people you employ now. I think here lies one of the issues: the
issue of overcapacity and overpopulation of an industry with the mix of skills that is not
relevant to the new world. I am not making it anybody’s fault; I am describing a trend. People
who have been trained to test electrical continuity for a switchboard that in the 1950s was
occupying an entire building are now replaced by software agents who navigate the net to
tell me where my connectivity has gone, in a switchboard that is as big as a shoebox. We all
have an issue here and it is that issue that also creates a tension that is reverberating in the
attention of Ofcom. But I think it should be clear that this is one of the topics.
Q567 Lord Clement-Jones: People may want to come back on that skills point, but can I
make one final point? One of the difficulties if we are talking about the access issue is
regulating, probably, for that access to be given but also allowing enough flexibility so that
there is a business incentive to roll out the trunk network, the fibre network, whatever we
describe it as. Can you see those two things being compatible?
Mr Caio: It is more difficult, and I think you need to be thinking about alternative
technologies to create some ability to create competition in access. From my perspective—
again, I would say something that might sound a bit controversial—if you think of fixed local
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access it is a natural monopoly and I think if you talk in these terms to incumbents they say
that is not true. I am not talking about the UK. I will come to the UK in a second. They say,
“Oh, no, no, there is plenty of competition in DSL and different providers”. It is not true.
Once you have a wire into a home there is barely the economic value to justify one; to
justify two is impossible.
If you do not start going back to the basics of the economics underlying that, it is very
difficult to have an open debate. This country, I say, has been blessed with the presence of
two physical access networks. One is the traditional copper network of the monopolistic
incumbent of voice services. The other is the result, unfortunately, of a series of
bankruptcies associated with franchises for cable TV, but this is now turning out to be a bit
of a blessing because competition at the access level is not something that you find in many
other countries, yet it is in this country and it has driven the upgrade of the network.
In going forward it must be clear that if physical access to the network is thought of as a
natural monopoly then there are a number of consequences. I am not saying that this is the
model—back to your question—but it is one possible model. It is perfectly technically
feasible to think of a monopolistic, partially public and partially privately owned utility—back
to your point—heavily regulated on RPIs and whose purpose in life is to provide optical
connectivity between point 1 and point 2.
I will probably need some bodyguards when I get out of this building and I have repeated for
the record this is not to say that this is the only and therefore immediate model that the
country ought to be going to, but it is important for regulators and policymakers to
understand that what is really needed to unleash the power of the internet and the creativity
around the internet is optical continuity A to B. The technology in the market will do the
rest but the market will not do continuity between A and B because 85% is creating the civil
engineering work for the duct. That is a monopoly.
Q568 Lord Macdonald of Tradeston: In terms of economic regulation, which model
would you use? In a natural monopoly like water you still have that divided into many service
companies, or if you take energy, again you have a lot in the National Grid but you have
another couple of companies in there. Would it be a single UK model or would you break it
up in a regional way?
Mr Caio: It is too difficult for me to answer. Put it this way: technologically, you could think
of it both ways. You could have regions of networks. One of the things I put in here is if the
Government were to decide to support and favour this utility local model with, for instance,
public funds it is very important to define a blueprint so that you can guarantee connectivity
at the civil engineering level, at the optical level and, if you want to push it forward, at the IP
level. I would stick at the optical level.
Q569 Baroness Fookes: In your report to the Government in 2008 you indicated that
you thought the market could deal with the next generation access without major
intervention from Government but that one needed to keep a vigilant eye upon it. I do not
know how vigilant your eye has been since then, but do you have any comments to make? In
particular, could you clarify for me—I confess I did not read the whole report—when you
said “major intervention”, was that to be of a regulatory kind or financial or both?
Mr Caio: First of all, you are absolutely right in asking about my eye being on the industry. I
follow it but not as closely as I did when I did the report, so you may want to excuse me if I
mention something that has happened and it has not, or vice versa.
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My observation on your first part of the question is that, although subsequent to my report
the Digital Britain project was launched, my sense is that the Government might have done
more in terms of keeping the debate going, in terms of checking what was going on in the
country when it comes to network rollout. I am aware that the Government has been very
active in publicising some of the local initiatives—maybe the local authorities more than
central government—but I would not mind knowing as a citizen that on a yearly basis there
is one broadband day where companies who have promised certain rollout in year minus
one come to the fore and articulate what they have done and why and what they have not
done and why.
I must say, if I may, that my perception walking away from the review was that there tends
to be—not just in the UK but in Europe—the notion that if the Government does not have
any funds to spend, then there is not really anything for the Government to do. I think that
is not the approach I would take. There are many things that the Government and public
institutions can do with our money, and I will go back to the notion of vision and control.
On the second point of your question, on the kind of interventions that the Government
might take, they may vary and they may be all of the types that you mentioned. Let me give
you an example, referring to the Italian debate, if I may, for a second. Bear in mind that in
Italy there is no cable television and therefore the country is not benefitting—only one area
in Milan—from the competition between two physical access networks. One of the possible
remedies was what is called network separation, which was at a certain point debated even
marginally in this country, which is to say you find a way of having two real incumbents. You
take Openreach, I think it is called here, and you turn it not just as a division but as a fully
listed company, the monopolistic utility we were talking about. That would have represented
a major intervention because the incumbent articulated a very strong view against that
option and I think the articulation of that view against that option goes back to the cultural
model they come from. They have been trying to develop new services but they know in the
depth of their heart that the source of profit is coming from the access network.
So, you might have a financial intervention. You say, “Okay, for these 15 cities we auction
availability of £500 million to the best private/public projects”. You have a regulatory
intervention, you mandate BT to separate the network and you mandate Virgin Media to
open the ducts. At the point of the report I thought that was not needed because of what I
had been told, and I was observing from an economic standpoint in high density areas. On
balance, history is pointing in that direction, but these are the kind of toolkits that potentially
the Government and the regulator have in their hands.
Q570 Bishop of Norwich: You have mentioned the need for vision quite a bit, so we
might begin our report with a Biblical quote, “Where there is no vision the people perish”.
Mr Caio: I will buy that.
Bishop of Norwich: I just thought I would get that in for the record. But vision needs
application as well, of course. One of the things that intrigues me is in your 2008 report you
said market supply and demand needed to be assessed in terms of progress, but it is where
market supply and demand are related in relation to everything to do with the internet. A
decade ago I did not know I could not live without an iPhone whereas now because it exists
I cannot live without it. It seems to me that market supply in this area creates demand in a
way that does not seem to apply elsewhere. Do you think that is true, or is it just the
strange experience of a bishop who cannot live without gadgets?
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Mr Caio: It is true that innovation is very rapid indeed and at the frontier of the possible
moves forward any single—[Interruption.]
The Chairman: I am sorry. This is democracy—although very rarely is that what we are
described as being—but the Bell will stop. If you could finish the question, we are just about
at the end. It goes on and off but we will have a gap and then we will all sprint.
Mr Caio: The frontier of the possible is moving forward and I think it is very difficult to
decide today what the applications will be and what the markets will be. I can only tell you
that there are things happening. For instance, we have not been talking about manufacturing
today. The requirement for connected manufacturing is about to explode and the issue of
creating jobs in places where you would not have thought jobs for manufacturing could take
place is an example of things that maybe we do not look at today as familiar and will be a
daily activity going forward. I am referring, for instance, to 3D printing where you have
plastics coming out of printing. Even if you think of the amount of data that will be produced
by individuals with personalised medicine, or indeed the application of very simple, very lowcost robots for elderly care at home, again you do not need enormous bandwidth for these
things, but you need an environment with digital connectivity. The Victorians did not really
know what electricity would do to the world, and it is impossible today to run a business
without electricity. I think we are in absolutely the same camp.
The Chairman: This is a suitable moment to say thank you. I apologise for the
interruptions. You have been very long-suffering about them. We have valued what you have
had to tell us a very great deal.
Mr Caio: Thank you very much indeed.
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Click4Internet – written evidence
Click4Internet – written evidence
1. What is being done to prevent a greater digital divide occurring between
people who can access superfast broadband and people in areas where the
roll-out of superfast broadband may not be commercially attractive? How
does the UK communications market vary regionally and what is the best
way to connect the areas that the market alone cannot reach? Is a universal
service obligation necessary to avoid widening the digital divide?
Until recently very little, if anything, was being done officially to address the digital divide
issue. Innovative local providers and groups have successfully deployed and operated
niche networks for several years and it is as a result of their efforts that many rural
communities already enjoy speeds in excess of those available from any central network
provider. The only way that the digital divide can be effectively addressed is to create a
program of targeted local and regional funding initiatives that embrace these solutions
rather than disregarding them.
Our own experience lies mainly within the Isle of Wight, Hampshire and Dorset. We
are a WISP with over 500 square miles of network coverage – an area containing over 1
million people. The geography of the area has meant that the terrestrial infrastructure
has received little improvement for commercial reasons, these being primarily the high
cost to reward ratio associated with rural infrastructure development. We have achieved
cost effective Superfast and above delivery to a diverse range of homes and businesses
who had no prospect of improved ‘phone line’ services. We use wireless technology to
achieve this and we have achieved 99% customer retention over three years.
We believe the implementation of a universal service obligation for Superfast internet
delivery that included specially hard to reach areas could be an effective way of
channelling commercial resources towards innovative local solutions provided the
structure of the USO accommodates this, and specifically provides for local solution
inclusion.
We have been continually frustrated in our efforts to attract any material assistance from
local authority or any other funding source. We are aware that the same story goes for
numerous other regional WISPs around the UK. We find it hard to believe that it is
legitimate for Government policy to require reference to inaccurate incomplete and
often distracting data where current broadband services are concerned. We have made
many attempts to alert the relevant organisations that we already offer above Superfast
connectivity across a wide area including around 70% of our county. Our information is
continually excluded. Our coverage is ignored and the LBP is openly drawn up without
reference to the coverage we provide. We have seen this result in government funding
being used to deploy far less than Superfast broadband systems in direct competition to
our own more than Superfast connectivity. We are horrified that in today’s world of
rapidly changing criteria the data sources that are prescribed are not only inaccurate but
old and stale. Although this is openly admitted nothing is apparently being done to
ensure that the deployment of a massive £530M of public money is done based on
accurate and up to date information. No commercial organisation would even consider
spending a sum like this if it was well aware that it its primary data was inaccurate and
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outdated. We fail to see how it can be legitimate for public money to be deployed in
these circumstances
The current structure and spirit of the entire process in many cases excludes the
valuable resources of local knowledge, technological innovation and entrepreneurial
activity and instead favours practically a single corporate provider. The specific exclusion
of all companies who are not major national providers from the existing framework is a
tragedy and will inevitability result in a loss of diversity and competition and will reduce
the extent to which Superfast services reach out into the rural communities who so
badly need improvement.
2. The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
Whether the £530 million allocated is enough entirely depends on the nature of the
solutions. The current approach of excluding competitive smaller companies is unlikely
to solve the problem with this budget, we believe that if applied effectively far more
could be achieved with this money.
3. Will the Government’s targets be met and are they ambitious enough? What
speed of broadband do we need and what drives demand for superfast
broadband?
The current targets for the government require Superfast broadband at up to 24Mb/s.
The fundamental problem is the requirement only appears to stipulate up to 24Mb/s with
over 2Mb/s being accepted as achieving this goal. This is clearly not ambitious enough.
We are finding that our 10Mb/s download speed product is very popular and that the
numbers of people choosing 20Mb/s or more tariffs is increasing. We estimate that
commercially speaking, in terms of capacity of backhaul/supply, our network needs to be
capable of delivering at least 30Mb/s to all users who demand it by 2015. We would
therefore suggest that 2Mb/s is certainly not a useful or effective target as within three
years will be insufficient and all monies invested would have been wasted.
4. In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital
economy? What communications infrastructure does the UK ultimately need
to remain competitive and meet consumer demand over the next 20 years?
The key to keeping pace with the rapidly changing demands over the next 20 years is
innovation of solution. This requires a blend of technologies to be developed and
deployed to ensure flexibility and sustainability. An investment exclusively in phone line
technologies that have proved traditionally they are an expensive an ineffective solution
to many, especially rural areas, is not a effective way forward and will simply move the
problem along by a few years at best.
5. How will individuals and companies use cloud services for distributed storage
and computation? What network properties are required to enable efficient
provision and use of such services?
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We see an increasing demand for cloud services from users in all sectors. Many of our
business users already use cloud computing. It seems as if the more rural and ‘cut off’ a
user is, the keener they are to adopt cloud computing. Upload speed is a key factor
required for effective cloud computing. There is a danger that various forms of DSL
technology will be used in the emerging Council’s LBP’s and general BDUK policy for
final mile delivery. Even over short distances upload speed capabilities of all forms of DSL
struggle to offer an acceptable cloud experience at the moment with no prospect of any
significant improvement being possible from this technology. The primary users to suffer
are those more than around 3KM from their source. There are other options that are
far more effective than DSL or terrestrial technologies at serving niche needs and
demands in commercially unattractive areas. What is needed is a policy that ensures
innovation and the inclusion of the variety of technologies and solutions that the UK has
developed so effectively and not a reliance on a cumbersome and inflexible ‘copper’
network. Where fibre optics can be deployed cost effectively wireless technology must
be used and embraced.
6. To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such as
interactive TV, HD TV and 3D content? How will superfast broadband
change e-commerce and the provision of Government services?
The average requirement (draw) for each connection is increasing sharply month on
month already. Many families already choose to watch their media content on internet
TV’s, Laptops and hand held devices. In addition multiple devices within a single
household all demanding their own individual streaming content is becoming common
place. This completely changes the viewing experience form a content fed model to a
content demanded model.
Networks have to make provision for massive increased capacity and in the case of niche
rural solutions this may mean improvements to county and national backhaul supplies to
ensure that they can feed the networks as demand increase.
7. Will the UK's infrastructure provide effective, affordable access to the
'internet of things', and what new opportunities could this enable?
8. How might superfast broadband change the relationship between providers
and consumers in other sectors such as content? What aspects of this
relationship are key to enabling future innovations that will benefit society?
9. What role could or should the different methods of delivery play in ensuring
the superfast broadband network is fit for purpose and is as widely available
as possible? How does the expected demand for superfast broadband
influence investment to enhance the capacity of the broadband network?
The role for terrestrial fibre technologies lies in urban areas and anywhere close to a
major national or regional backbone. The role for wireless technologies lies in extending
the reach of terrestrial systems into expensive to reach or commercially unattractive
areas. The meteoric increase in demand over the past five years coupled with the fact
that today’s demand already exceeds supply and availability in many areas, will hopefully
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ensure that investments in continued speed improvement are considered an attractive
proposition by government and industry alike.
10. Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what
actions could the government take to ensure such a market?
11. What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of
online piracy? What is the role of the Government in assuring internet
security, and how should intellectual property (IP) best be protected, taking
into account the benefits of openness and security?
13 March 2012
130
The Coalition for a Digital Economy (Coadec) – written evidence
The Coalition for a Digital Economy (Coadec) – written evidence
The Coalition for a Digital Economy (Coadec) is a non-profit organisation that works to
support legislation and other government policies that foster a vibrant, innovative and
sustainable digital economy for Britain. We are made up of a wide range of members of the
UK innovation community, including entrepreneurs, leaders of tech-driven startups and
SMEs, inventors and developers, and many others who believe that the future of Britain lies
in the success of its digital economy.
In responding to the call for evidence of the committee we do this as representatives of
some of the tech-driven startups, entrepreneurs and SMEs developing services dependent
upon broadband, and so in the interest of brevity we have responded on the issues most
pertinent to the individuals and businesses we work with.
Growth
The potential of the UK’s digital economy is huge. In 2009 the Internet was already worth
7.3% of GDP and it is predicted to grow to 10% within 3 years 20 . Both businesses and
consumers have been able to benefit from access to services and content delivery methods
provided on the Internet, and most importantly the Internet has benefited society by
providing greater access to information and communication.
The numbers of devices within a home that utilise the Internet are increasing. While just as
there used to be only one phone line in a house there are now multiple computers, laptops,
smart phones, tablets and many other devices connected to the Internet. Tablets are now
becoming so common that they been added to the office of national statistic’s inflation
index 21 . As highlighted in the call for evidence, there is a growing development in the ‘ of
things’, or machine to machine communications. This is an emerging technology but is
becoming increasingly common with WiFi technology being incorporated into printers,
cameras, and fridges. In research conducted by Cisco they predicted that the bandwidth
occupied by mobile communication between objects, machines or sensors will increase 22fold between 2011 and 2016 22 .
As well as the number of devices there are many new innovative technologies that are
driving the demand for faster Internet connections. A core demand on bandwidth is content
streaming services. These are the services that deliver content like films, TV programmes,
games and music on demand through the Internet either on a PC, through a Smartphone, on
a games console or a number of other ways. These services often need a large amount of
bandwidth to deliver these, particularly when they are high definition. The BBC iPlayer was
introduced in 2007 and since then a number of video streaming services have developed
including Netflix, Blinkbox, Lovefilm, HMVon-Demand, YouTube, and YouView and BSkyB
are due to launch later this year. In music a number of services provide distribution services
for downloading music including Spotify, Last.fm, Mixcloud, We7 and others. Increasingly
20
21
22
Boston Consulting Group, 2010 http://www.bcg.com/documents/file62983.pdf
iPad and Galaxy added to inflation index, Financial Times, Tuesday 13th March 2012,
http://www.ft.com/cms/s/0/04f825d4-6cfa-11e1-a7c7-00144feab49a.html#axzz1p0JA58cu
Cisco predicts machine-to-machine traffic will increase 22-fold, ComputerWeekly, Thursday 16th February 2012,
http://www.computerweekly.com/news/2240117424/Cisco-predicts-machine-to-machine-traffic-will-increase-22fold
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The Coalition for a Digital Economy (Coadec) – written evidence
games are also being delivered solely in download format, with individuals who are able to
use the same consoles that are able to stream films and music, also able to purchase and
download a new game to their console without having to leave the home. All of these
demand high speeds to be able to access these services in a useable way.
A further pressure on current bandwidth levels is the growth of ‘cloud storage’. Cloud
storage allows individuals to store all their files remotely and access them not only on
multiple PCs but also on multiple devices. This technology is vital in an environment where
people are increasingly working on the move or from home. This is particularly pertinent
this year during the Olympics. Under “Operation Stepchange” which took place in February
this year, civil servants practiced working from home in preparation for the Olympics
utilising remote computer networks. As businesses increasingly provide flexible working
arrangements the speeds available to home Internet connections will need to compete with
those available in large inner city office buildings.
There are many emerging technologies that intersect across different aspects of commerce
and communication that rely upon the ability to obtain adequate bandwidth, and we have
run through some here, but the application of Internet technology is limited almost purely by
imagination and new innovations are frequently demonstrating this. However we do know
that the current speeds users are receiving are not sufficient for today’s needs. BBC’s iPlayer
requires 3.2Mbit/s of data to stream content, however rural areas are receiving average
speeds of just 3.6Mbit/s which leaves very little room for any additional devices utilising an
Internet connection, which is increasingly common and will grow with the development of
‘machine to machine’ communications.
It is important to remember that while there are larger platforms we have mentioned here,
there are thousands of other startups and entrepreneurs working on innovative
new ways to enter the market. To this end another measure the committee may wish
to consider in this discussion is preserving the principle of net neutrality. The European
Parliament recently passed a resolution which described net neutrality as “a significant
prerequisite for enabling an innovative Internet ecosystem and for securing a level playing
field at the service of European citizens and entrepreneurs” 23 . Startups and SMEs rely upon
an open Internet, in which businesses large and small are able to provide their content to
consumer on a relatively equal footing. This is crucial to innovation by digital businesses and
consistent with the role of the Internet as a marketplace and a communications system.
Some types of traffic shaping are unavoidable, but we oppose commercial discrimination in
traffic management by ISPs, whereby businesses pays ISPs to prioritise their traffic. In
increasing the speeds available to users we continue to preserve the principle of net
neutrality.
Copyright
Our core motivation in responding to this call for evidence was to highlight how improving
the provision of superfast broadband could contribute significantly to growth in the
economy due to the number of currently available services that utilise bandwidth, and the
potential for new ones to develop. Therefore, considering the nature of the inquiry, we
were extremely surprised to find the following question included in the call for evidence;
23
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-20110511+0+DOC+XML+V0//EN
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The Coalition for a Digital Economy (Coadec) – written evidence
What impact will enhanced broadband provision have on the media and creative industries in
the UK, not least in light of the increased danger of online piracy? What is the role of the
Government in assuring Internet security, and how should intellectual property (IP) best be
protected, taking into account the benefits of openness and security?
As the focus of this inquiry is on investment in superfast broadband, we will not run through
the discussions on copyright that are taking place elsewhere so as not to dilute the debate.
However we wanted to highlight briefly that contrary to the suggestion of the question, the
Internet and increasing access to superfast broadband presents no net threat to copyright,
and will facilitate its legitimate access through licensed services that will help to combat
piracy. Time and time again studies show that when legitimate access is made readily
available consumers will turn away from pirated material. Being able to easily access and
legally stream high quality content for a fair market price is far preferable to any user. Piracy
is only made appealing to consumers when it is more convenient than legally accessing
material.
This is not just anecdotal evidence and there are direct comparisons to when legitimate,
easy to access, services have persevered to obtain licensing agreements and deliver
consumers legal access to copyrighted content at competitive prices, they actively reduce
copyright infringement.
Within a year of Spotify’s launch Sweden saw a 25% drop in music piracy 24 . The
pie charts below indicate peak bandwidth consumption in the US and the EU. As the chart
indicates in the US the percentage of bandwidth that Netflix (a legal film and
television online streaming service) takes up the same bandwidth as the peer-topeer sharing systems do in the EU (despite there being no block or legislation against
peer-to-peer sharing in the US) 25 .
US Peak Bandwidth Consumption
EU Peak Bandwidth Consumption
We understand that there have been some strong discussions between those operating in
the Internet economy, and those who are holders of copyright but we feel that this is a
discussion that falls outside the realms of Government investment in broadband
infrastructure. To include it in this call for evidence implies that because some users abuse
24
25
Musiksverige Svenskarnas Internet Van Or Q2 20111, Available online
http://www.scribd.com/doc/66658516/Musiksverige-Svenskarnas-Internet-Van-Or-Q2-20111
Envisional, Technical Report: An estimate of Infringing Use of the Internet
http://documents.envisional.com/docs/Envisional-Internet_Usage-Jan2011.pdf
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The Coalition for a Digital Economy (Coadec) – written evidence
the privilege of Internet access the Government should reconsider investing in superfast
broadband, despite the benefits to businesses, consumers and the public as a whole.
Long-term
While we can speculate on the growth of current services it really is impossible to
accurately predict future demand on bandwidth, as it will not be dependent just on an
increased access from a number of users, but also on differentiated usage as new innovative
platforms are developed. Just 5 years ago we could not have predicted the popularity of
streaming services, but since iPlayer, now multiple players are quickly entering the market
putting more strain on the current bandwidth provision.
The current plans will ensure that the majority of the UK will be able to stream multiple
high quality videos. In the short term (which is very short in the Internet economy)
significant increases in demand are likely to be driven by bandwidth intense content delivery
systems such as high definition videos. Virgin Media are currently developing their TiVo
system which utilises an Internet connection. As they are also Internet Service Providers, it
is in their interest to increase the provision for this service. It would be logical that once a
basic level of provision is provided using government investment, this will encourage
providers expanding their services to also invest in improvements to existing infrastructure.
Indeed on the day of submission, BT and TalkTalk announced their intentions to launch
80MBit/s services 26 .
We are very supportive of the Government’s commitment to improving broadband speeds
across the nation, as this recognises the importance of the Internet not only as a facilitator
of communication and the dissemination of knowledge, but also as a facilitator of growth and
business development in many different sectors.
13 March 2012
26
TalkTalk launches 80Mbps service as BT plans the same, ZDNet, 13th March 2012
http://www.zdnet.co.uk/news/networking/2012/03/13/talktalk-launches-80mbps-service-as-bt-plans-the-same40095248/
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Dr Peter Cochrane OBE – oral evidence (QQ 29-74)
Dr Peter Cochrane OBE – oral evidence (QQ 29-74)
Evidence Session No. 2.
Heard in Public.
Questions 29 - 74
TUESDAY 20 MARCH 2012
Members present
Lord Inglewood (Chairman)
Lord Clement-Jones
Baroness Fookes
Lord Gordon of Strathblane
Bishop of Norwich
Lord Razzall
Lord St John of Bletso
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witness
Dr Peter Cochrane OBE, former Chief Technological Officer, BT
Q29 The Chairman: I welcome Peter Cochrane here. Thank you very much, and
apologies for having kept you kicking your heels outside. We had a vote, and that got in the
way of the timetable of the previous bit, so thank you very much.
We have in front of us a brief CV of your background, which you have helped us by
providing, so thank you. The meeting will be broadcast, so I hope that that will not pose any
problems for you. When you start, will you briefly, for the benefit of all those listening, tell
us who you are? Then, if you would like to make a brief opening statement, please feel free
to do so. With your permission, I would like us to go on for about an hour.
Dr Cochrane: It is a pleasure to be here. I am rather pleased that you have invited me. I
have been working in this area for a long, long time. My name is Peter Cochrane. I have two
doctorates in technology and am also a visiting professor in the UK. I have spent all my life,
from a being a young man, in telecommunications: and IT. To give you a perspective, I was at
one point a line man, as a young man, so I used to climb and dig holes. I went into research
and development and became head of research at BT, and ultimately CTO of the company.
In 1979, my PhD was instrumental in BT making the decision to go fibre everywhere. In
1986 I got fibre into the home cheaper than copper at 2 Mbps. I left BT in 2000 and my
company now is a consultancy. I travel the world continuously, so the evidence that I am
going to give this afternoon is not based on the UK or Europe, but is a global perspective.
To give you a rather interesting view, we completed a project recently in which the island of
Jersey has installed fibre to every office and home at 1 Gbps; that is, 1,000 Mbps both ways.
It is cheaper than copper, and it is there to enable a new economy. They have a
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Dr Peter Cochrane OBE – oral evidence (QQ 29-74)
monoculture of banking, and they need to change the economy of the island. That has got to
be founded on the ability to communicate globally. They have already completed all of the
offices, and every company has access to 1,000 Mbps, and they are now rolling out the
homes.
I would like to position my afternoon with you along the following lines. Starting from the
point of an ambition to give people 2 Mbps is like giving our population a Morse key. You
might as well not bother. In Columbia recently, I was getting 100 Mbps both ways from my
hotel. In America, I regularly get between 50 Mbps and 100 Mbps. If I go to Korea, China or
Japan, I get above that level. For me, the starting point for this nation is 100 Mbps. Providing
20 to 50 Mbps will not give us the entry on which rests the next phase of industry,
commerce and the generation of GDP.
From a professional point of view I am quite relaxed. I have no axe to grind, and I have no
vested interest. But as a citizen of this country, I really am quite worried as I watch the
positioning of this nation on the back foot. To give you some perspective, on fibre to the
home this nation is number 36 in the world league. When it comes to broadband in the EU,
we are number 25. If we look at the UK on a global grid, we are number 33 in terms of
broadband provision. That does not bode well for our population and our ability to compete
in world markets, it really does not.
When people use the word “superfast” about broadband in the UK, I have to smile. It is
neither super, nor is it fast. One aspect of this is that it is asymmetric. The world is not an
asymmetric place. If we are going to communicate, it tends to be rather symmetrical. If we
are going to stop driving vehicles, travelling an awful lot and flying in aeroplanes, then videoconferencing is an obvious technology—which we cannot access because we do not have a
symmetrical service. That is just one aspect. There are many others. I would like to see us
with a programme that brings us up to a world standard in a reasonable time. I have some
formulas and suggestions for doing just that. It means changing the way that we think about
the problem and stepping outside of the shoes of a 200-year history that spans telegraphy
and telephony. We need to think differently.
Q30 The Chairman: Thank you. From what you have just told us, you have no
equivocation in saying that internet access at a high speed is a sine qua non of success in the
modern world. As such, you would argue that it was a strategic utility and an overriding
economic requirement for the future well-being of this country. Is that correct?
Dr Cochrane: Correct, probably even more so than road and rail.
Q31 Lord Clement-Jones: Do you think that there is some complacency about adopting
that view within government?
Dr Cochrane: I think that there is a lack of understanding. There is a perception afoot that
has come out of industry and is in the interest of certain industries but not in the interests
of the population at large. In my time in industry, I have seen phenomenal change in
everything from honesty to ethics to positioning. I came into industry and it was clear cut.
We were the servants of this society. Our job was to put into place products and services
that actually satisfied the need of the developing nation. There seems to have been a swing
of the pendulum away from that to, “I am here to benefit the company; I am here for the
benefit of the shareholders”. That loss of perspective, of a duty to society, is really quite
damaging.
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Q32 Earl of Selborne: You are very clear that superfast broadband is a strategic
necessity. You said that Jersey was going to have 1 Gbps into business. That seems to me to
make sense, but what are you expecting the benefits of that amount to be to a household
unless they are running a business from it? What happens in societies where they already
have large access to superfast broadband, in countries like Korea? Is it not the case that that
is used for downloading films, very often illegally? What other benefit is there for the
household?
Dr Cochrane: Let me approach that from this direction. Very often the view is put in this
country that if everybody cannot have something then no one can have it. If, for example,
the company that produces my mobile phone had started with the question, “How do we
make this so affordable that everybody in the country can have it?”, they would have failed.
All commercial products start at the top end of society. They start at a high price and low
volume. The amortisation of R&D takes place at the cost of the people with money, the
early adopters, and gradually the price comes down. We now have a situation, because of
that effect, where there is no excuse for someone not being online. The cost of a mobile
phone and a laptop is so low that, believe me, everyone can afford one. They may have to
buy a second-hand one, but even the new devices are quite low in cost.
So what are people going to do in the home with this broadband? In the United States, for
example, they are rapidly adopting IBM Watson technology in medicine. Let me break that
down. IBM Watson started off as a challenge. Deep Blue took on the human race and won:
it became the chess champion. Watson took on all human players in a game show called
“Jeopardy”. It wiped out the human race. It is now wiping out human MDs—doctors—on
diagnoses by a good measure. The reason is that it is able to analyse and put in perspective
all the case histories that are available to it, whereas most MDs and most specialists in any
topic, including my own, are really struggling to read the literature and keep up with the
leading-edge technology. So when I go to see my specialist, I go to see him with the latest
research papers because I have a vested interest in staying alive. He does not have the time
to keep me alive. I have to look after myself. Let us run a scenario where you are ill. The
doctor comes to visit you. Unfortunately, you do not have broadband so he cannot access
the database. You are depleted of the very finest care, because the artificial intelligence is
not there to help you.
If you move on from entertainment and ask what is going to happen in education for our
children, the model of education that we have right now is vested in an old industrial
revolution which was about getting a population of people to read and write and know a
little bit about geography pertinent to producing goods that we would ship worldwide.
Nothing has changed, but education has to change. We are moving from a world of
stovepipes, where we have physics, chemistry, biology, technology and engineering and
history, to one where there is science. The interdisciplinary nature of industry means that
we have to change the way that we educate our people. We are not going to do this in the
future in the way that we have done with the sage on the stage and a whiteboard. We are
going to have to do it much more on an individual basis. To do that, children will need
access at speed to a machine that will help them learn and understand.
On top of that, you have to recognise that understanding a lot of complex things is now also
beyond the world of the mathematics that you and I enjoyed. It is inter-computer simulation.
If you cannot get through on a broadband link to the computing power to allow you to do
that simulation, then education is going to suffer. On the media side, you have to think in
terms of television and radio being moribund. The notion that you will sit down with an
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actual timetable and watch and listen to programmes at the behest of the broadcasters is
nonsense. People are now time-shifting all of this content to when they can.
However, there is an absolute desire to participate. I see the world moving from passive
consumption to active participation. After World War Two, I was born in 1946. At 11 years
old I got into electronics and drove my parents mad by doing electronics on the kitchen
table. We now have a new genre, and they are doing bioengineering on the kitchen table.
These are young people who are opting out of our universities because they are so dull.
They are not getting the leadership and it is not adventurous enough. You can buy known
genetic strings of material for $5. They are doing experiments at that level, and the only
thing that worries me about this is what they are flushing down the sink.
It turns out that things of that nature, including 3D printers, are giving rise to new industrial
models. These are not the mighty workshops that we are used to today; they are dispersed.
I know that it is a far stretch right now, but you have to think in terms of shipping designs
and solutions instead of shipping product. That is the world that we are gearing up to. I do
not want to engineer for today. I want to engineer for tomorrow with my sight on the
future. There is a huge cost in getting this wrong. If we go fibre halfway, we will have to
upgrade at some point. If we put 20 Mbps in, we will be re-engineering it within a couple of
years.
Q33 Lord Gordon of Strathblane: I suspect that I know the answer from your previous
sentence, but what sort of infrastructure would you put in place to deliver this?
Dr Cochrane: I have no religious conviction here. I worked on optical fibre. I was
responsible for the team that put the first fibre across the Atlantic. It was a terrific
technology, but the reality is that you cannot always get fibre in. The mainstay of the future
network has to be fibre. There will no doubt be some places where we will have to use a
wireless drop to reach people. Let me give you a slightly bleak view. People are getting very
excited about 4G. How would you feel about at least four or five times more towers around
the countryside to service the nation with that technology? It makes no sense. On Jersey,
when we put fibre into the home, the box that we put there has 3G in it and will be
upgraded to 4G. Now we have automatic infill of the network. When we get a room like
this, when we all suddenly want bandwidth, it can be serviced from a box in the corner, as
opposed to a mast a 1-10 km away. The only way that we can engineer a network that
allows for the clustering of people and things is to put bandwidth out there on the end of
fibre.
Q34 Lord Gordon of Strathblane: But is it fibre to the cabinet or fibre to the home?
Dr Cochrane: Fibre to the cabinet is one of the biggest mistakes humanity has made. It ties
a knot in the cable in terms of bandwidth and imposes huge unreliability risks. Once the local
bandits have recognised that there is a car battery in the bottom, you can bet your bottom
dollar that a crowbar will be out and the battery will keep disappearing. It is a shame, but I
understand why people have made that decision. They have made it worldwide, by the way.
Q35 Lord Gordon of Strathblane: I imagine that cost plays a large part. My
understanding is that it is abut a quarter or fifth of the cost of fibre to the home.
Dr Cochrane: Let me give you an alternative view. I live out in the country. We have 420
households and I am trying to get fibre into the village. All I am asking a company to do is
put a fibre into the middle of the village and walk away. I know that it is going to work
because on the island of Jersey we have taken housing developments where there is an
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underground or on-surface garage with six or 12 apartments above. We put a box with a
fibre in it into the basement. We open up the wi-fi and 3G. We leave all the Cat 5 sockets—
the RJ45s—open, go away, come back a month later and the apartment block is wired up.
What a miracle. Think about it. You buy a washing machine, a television, a hi-fi or a
computer and you install it yourself. What is the magic about this fibre to the home?
Answer: none. You can put copper cable, Cat 5—LAN cable, if you will—in yourself. If you
cannot—
Q36 Lord Gordon of Strathblane: Forgive me, are you allowed to?
Dr Cochrane: I always take the view, in everything, that I will beg forgiveness later. In my
previous home, when I worked for BT, I asked them to put fibre to my home and they
would not. I arranged for a drum of cable to be dropped off one night, and my sons and I
pulled the cable in ourselves using my car instead of a winch. Some friends spliced it in and I
had eight fibres into my home. That is an alternate model.
Just a month ago, I was in Munich giving the opening address to the fibre-to-the-home
conference. I stood and watched in amazement a gentleman from 3M jointing single-mode
optical fibre with snap connectors in less than two minutes. The last time that I did that in
the laboratory it was taking half an hour; it was a precision job. I looked at that and thought,
“I think that I could find geeks in just about every housing development and village in the
land who would take about an hour to train in doing that, and then they would do it”. In my
community, I have a farmer with a plough and a JCB, and he is happy to cut me a trench.
When I go to BT, they say, “We need £140,000 to put the fibre in”, and you can bet your
bottom dollar that that is £130,000 for the trench. But they will not accept my trench. I am
looking for a company with the imagination to say, “Dig me a hole, I’ll put it in, you cover it
up and we’ll take it from there”.
Q37 Lord Gordon of Strathblane: Just so that I am absolutely clear, you would go for
fibre to the home?
Dr Cochrane: Yes, wherever possible, without a shadow of a doubt.
Q38 Lord Gordon of Strathblane: At the moment we have a lot of copper, in which BT
possibly wishes to recoup its investment. Is there any future for copper in even the medium
term?
Dr Cochrane: Let me give you an interesting statistic. Even when I was in the company, 85%
of all homes were within one kilometre of a BT fibre that was dark; it was not being used.
From my home to the nearest fibre is 500 metres to the east and 500 metres to the west. I
can get access to neither. The easterly fibre belongs to the railway, and the westerly fibre
belongs to BT. The whole village is surrounded by fibre, but we are not allowed to drink.
Q39 The Chairman: Is your point that across the UK there is a considerable amount of
fibre that is either dark or used in private networks that could, and you would perhaps argue
should, be deployed more generally with other people tapping into it?
Dr Cochrane: Correct. I have a line I have tried on Ofcom from time to time, which goes
like this. If they are powerful enough to regulate the air we breathe—by which I mean the
radio spectrum—surely they are powerful enough to regulate the wavelengths on the optical
fibre. A single fibre can carry all the conversations of humanity at the same time twice over.
It is an immense amount of bandwidth. Their ability to carry data is a lot less, of course, but
there is quite a lot of space on the fibres that are in the ground now that could be accessed.
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As we go along, liberating and unbundling the duct network, there is a case for unbundling
optical fibre and the wavelengths.
Q40 Earl of Selborne: It is clear that you wish to see every household connected to
optical fibre, and that the cost at the moment, if you get a quote from the operators to
install it, as I would—like you, I live in a remote, rural community—is fairly staggering. What
is the cost of the cable itself, if I were to buy it?
Dr Cochrane: The cable is trivial. The fibre costs pence, the plastic that goes around it costs
pence. It is a very low cost. The fantastic costings that you get are entirely due to civil
engineering. It is always the civil engineering that gets you.
Q41 Earl of Selborne: I have got a JCB, so that is not a problem. What problem am I
going to have getting somebody to accept that work? They are not, are they?
Dr Cochrane: In BT’s case, it is not in their business model to do that. Before they can do
it, they have to modify their business model. However, I was with a company this morning
which is coming to have a look. Right now, for my village I have two contenders who want
to come into the village with wireless from the church tower, and one contender who wants
to bring in optical fibre. My solution for my particular village is that there are quite a lot of
houses side by side. That makes it relatively easy to dig a trench right across the gardens if
people want to join. The get-out is to have small antennas on the church tower to beam into
people’s homes. I can get about 100 Mbps to people’s homes within reasonable range doing
that.
Q42 Earl of Selborne: What should the Government do to break what appears to be
something of a cartel which allows these massive costs to be foisted on the consumer?
Dr Cochrane: My recommendation would be to put some money into an investment called
“The New Players”. The £560 million that is being talked about, I have to tell you, is petty
cash in this game. For getting the country up to fibre to the home for everyone, we are
probably talking something in the range of £10 billion to £15 billion. If we want to leverage
for the nation the best we can out of that £560 million, I would invest it in the small players
so that there is a third force. In all successful commercial markets there is a rule of three,
possibly four. Right now we have a rule of two. We do not have enough competition, and
we need more competition in the market. If we were to bring in new players with new
business models, with the flexibility to come to you and me and say, “You dig the trench and
we will provide the terminal equipment and the fibre”, that would transform it. It would also
change the attitude and the approach of the incumbents. That is what it is going to take.
Why would you change if you control the market?
Q43 Lord Clement-Jones: I do not think that I am digressing, but are these new players,
particularly one of the two that you were talking about—you dig the trench, they lay the
fibre—not still going to have the issue of connecting to the BT fibre? How do you regulate
that? Are you saying that that is what Ofcom should be specifying and so on?
Dr Cochrane: In a lot of cases, that is the problem. The charges are entirely commercial; by
which I mean “for business”. There is no breaking up of the charges for domestic use, or
even SME use. It becomes prohibitive. But there are cases where a number of companies
have actually got their own fibre. It will need the will of government and probably a change
in regulation and operating licences to make sure that that national investment in fibre,
which has been amortised this past 20 years, should be accessible to other players. We need
a little bit more of a level playing field. The worst thing that I see is start-up companies that
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get into this space to service people like you and me, which are then observed making a
success and purposefully wiped out by the incumbents. I do not think that that is a healthy
marketplace. It is unbalanced. We need three strong players and, probably, one or two
boutique players. That is the sort of market mix you usually get.
Q44 The Chairman: You make a point there about small companies growing and then
being wiped out. Do you have any evidence on that for us? It is difficult, and I am not
pressing on it.
Dr Cochrane: Yes. If you look at Cambridge, for example, there have been several start-up
companies, like Cambridge Wireless, which set up purposefully to serve the villages in
Cambridgeshire. The inhabitants went to the incumbents and said, “We would like
broadband” and were told that it was not cost-effective. Cambridge Wireless went out
there to put in wireless broadband. As soon as they went out to the households, there was
an announcement by the incumbent: “We are coming”. Once that happens, people say, “Oh,
we will wait for the incumbent, then”. Then the market is taken away. You do not need too
much of that to destroy a small start-up.
The Chairman: When did this happen?
Dr Cochrane: This has happened within the past five years. It is repeated behaviour.
Q45 Lord St John of Bletso: You mentioned in your opening remarks the UK falling
woefully short of the world standard for superfast broadband. Could you define that world
standard? What criteria would we need to satisfy in order to have the best superfast
broadband in Europe? I think that we are 25th in Europe.
Dr Cochrane: Yes. What are the leaders doing? There is Sweden in greater Europe, and in
the Far East you have Korea, Japan and China. They have a minimum level of 100 Mbps. That
is where they start. They are rolling out 1 Gbps, but they are planning for the next phase of
10 Gbps. To return to an earlier point, if you have got fibre to the cabinet and you are
relying on copper, I can tell you that the network is going to collapse on copper when you
get to 1 Gbps. It will collapse much earlier. You may do 200 to 300 Mbps over a very short
distance, but you are not going to do anything with a reasonable reach over 1 Gbps, and you
are certainly not going anywhere at 10 Gbps. So you have immediately got this knot in the
bandwidth. The only question is how fast all this occurred. That is almost entirely down to
the rate of industrialisation and growth.
A lot of people see Japan as something of an economic basket case in south-east Asia. I do
not. It has been a roaring success. They have done rather well at fending off the Chinese and
have held on to the high-tech ground. Compared to the Western economies they have done
quite well. They are investing in the next round of supercomputers and robotics, and the
next round of industries that will be based on nanotechnology and biotechnology. I
sometimes have this dream: if I could go back to being 20 years old, where would I go?
What would I target as an industry? It would be at the cusp of nano, bio, ICT and artificial
intelligence. That is where the action is for the coming 50 years. That is very much a
bandwidth-hungry sector. If we do not invest in those areas, we are going to lose out
significantly.
Q46 The Chairman: In the case of these south-east Asian countries, where did they get
the money from in order to do what you have described?
Dr Cochrane: Well, there are several models. One of them is, of course, government
intervention. Another is much lighter taxation. They see fibre to the home or bandwidth
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rollout as much of an infrastructure as water, sewerage, electricity, gas, road, rail and air. It
is a necessary infrastructure, and if you have not got it, then your economy suffers in the
same way that the British economy suffers because of the road network. They see the next
phase being heavily dependent on the transport of bits—period.
Q47 Lord St John of Bletso: Within that context, you were saying that the amount that
the Government have set aside, £560 million, is petty cash.
Dr Cochrane: Correct. There is a zero missing off the end.
Q48 Lord St John of Bletso: Are you then suggesting tax breaks to smaller operators
who can fill that third space which you talk about?
Dr Cochrane: Here is the problem. I work in the start-up sector here and in the United
States. It is quite upsetting. If you go for funding in the UK, people start talking about
£50,000 or £100,000, possibly £1 million. You go to the United States, and they start with
$10 million, or $100 million to $200 million. Ask this question: what contribution has
Europe made to internet technology? What revolutionary technology and industry came out
of the internet for Europe? There is only one. It was Skype, and that was bought by the
Americans. All of the innovative technologies in the internet came out of the United States.
We do not have an Intel, an Apple, a Microsoft or a Cisco. We do not have anything
remotely close to those industries. Why? We have spent an awful lot of money in R&D in
Europe, mainly funding academic exercises. They have not resulted in big industry. Where
we were really good in manufacturing was in things like aerospace and pharmaceuticals. That
is where we have scored. But there is nothing coming out of Europe that would excite you
about the internet. That is not where the innovation is. Partly, that is due to the fact that
you cannot get funding—period.
I listen to government Ministers and I watch the market. I watch people trying to change the
funding regime, but it is extremely difficult to get funding for anything innovative in Europe. If
you fail in the United States, someone will immediately ring you up and offer you a job; you
must have learnt something. In the UK, if you fail, you will not be given a job. If you fail in
Europe, it is a real black mark, a social disgrace. If you fail in south-east Asia, loss of face will
probably mean that you will commit suicide. Those are the social inhibitors. In this country,
we have got some super people and really good start-up companies. But they cannot get the
money to succeed. If you are up against someone who is not as clever or smart as you are,
but they have got $200 million and you have got £1 million, guess who is going to win.
Q49 Lord St John of Bletso: On the current model in the United Kingdom, the strategy
for superfast broadband, you mentioned the rollout of 4G. Are you saying that that is not
going to be a viable rollout?
Dr Cochrane: I am saying that it will not do what it says on the tin. One of the things that
amuses me greatly is “up to 20Mbps”. It is like “up to 5,000 cornflakes” in my box, but there
are three. It does not help. It is an absurd product description. If anything needs deleting
from the English language, it is “up to”. If 4G is rolled out, for sure, if you are close to the
base station, you will get bandwidth. The further away you go, the less bandwidth you will
get. That is a function of physics; you cannot beat that. The only way to get a lot of
bandwidth everywhere is to have more and more and smaller cells. That is really what the
wireless future is about. To do that, you need more fibre.
Q50 Baroness Fookes: Dr Cochrane, I was going to ask you if you thought that the
Government could deliver on their campaign and effort to have the best superfast
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broadband network in Europe. I get the impression from your previous answers that you do
not think so on present policy.
Dr Cochrane: Correct – there is not a chance.
The Chairman: I am told that we have a Division in three minutes, so do not think that it
is discourteous when the Bell goes off. We will either finish or not within three minutes.
Q51 Baroness Fookes: So, if you had to give advice to the Government—maybe you
have—what three things, or even one thing, would you say that they should be doing?
Dr Cochrane: Funnily enough, I have got three things on my list here. First, pursue the
unbundling of the duct network. Secondly, unbundle the dark fibre and make capacity
available. Thirdly, empower Ofcom to regulate the wavelengths on fibre as they do the
frequencies in the radio spectrum. If I can have a fourth, please push some money towards
the start-up companies that have a new and refreshing business model that will allow us to
do something in the rural areas as well as in the cities. In the village where I live, the number
of creative people is quite phenomenal and the number of businesses that have failed is also
quite phenomenal.
The Chairman: Can we temporarily retire and come back and listen to the rest?
[Meeting suspended for a Division in the House.]
Q52 Baroness Fookes: What you are really saying is that we are dealing with a monopoly
which has to be broken.
Dr Cochrane: Yes. “Monopoly” or “cartel”, it is a protected market.
Q53 Baroness Fookes: What would be the best way of bringing about the four good
things that you thought should be done? Does it need a lot of legislation? Could it be done
by regulation? Would the forthcoming communications Bill—we understand that there will
be one—be a suitable vehicle?
Dr Cochrane: Yes to all of the above. I am great believer in the light hand of management. I
never saw a bureaucracy problem solved by even more bureaucracy. I suggest that it is the
Government’s role to present a playing field on which the players can play an even game,
and the nation can benefit.
Baroness Fookes: They can be a facilitator.
Dr Cochrane: Absolutely. The Government’s role is to be the guardians of the society, in
my view, to protect the citizens in every sense of the word. We need to have in place laws,
regulation and investment that bring about a levelling of the playing field so that the nation
can get broadband at a reasonable speed. I am also very much in favour of self-help. Being
identifiably from BT can be quite alarming sometimes. Everybody in my village knows that I
am from BT, ergo I have suddenly had the finger pointed at me and they say, “Why can’t you
fix it?”. So I am suddenly the man in the chair for my village and am doing everything that I
can. What I have been entrusted with doing there, by the way, is creating a new model and
then advertising that model as an exemplar to say, “This is the way that it can work”.
Let me give you an idea of a similar community in the United States. Occasionally, I go to a
geeky conference in Woods Hole on the east coast of the United States. Verizon said that it
was not cost effective to put broadband into this small village, so the community started a
company, raised $30 million and put up broadband themselves. Every home in that village
now has 100+ Mbps and the wi-fi has to be left open so that everybody can use it. You can
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walk down the street and pick up a huge amount of bandwidth for free all over the village. It
has the advantage of being a rather hi-tech community because there is an oceanographic
institute there. They have 53 Nobel prize-winners living there, or whatever. However, it is
an exemplar which says that if citizens take, if you wish, the law into their own hands and
form a company or corporation, things can change. I am willing, where I live, to go that far if
I can muster the support. I cannot afford to do it on my own, but I am willing to chip in my
time and some money to create a smaller model of that exemplar.
Baroness Fookes: Sounds like a lucky village.
Dr Cochrane: Well, I am not the only one. Everywhere I go in this country, I find
remarkable people living in the rural areas, such as the farming community. Where I live,
there are people who are world famous for restoring vintage cars, yacht designers, sail
designers, and people who work for the BBC and the media. We even have an exgovernment diplomat in the village. These are smart people. It is up to them to lead the rest
and solve the problem.
Q54 Lord Clement-Jones: I will pursue that a little. It seems to me that you are not
saying that there should be government money. That is the sine qua non of this. If you
opened it up and allowed investment to take place, obviously subject to that predatory
competition point that you mentioned earlier, that could do the trick.
Dr Cochrane: Yes. There are two dangers with government investment. It is either spread
too thin and has no effect or it just impacts one place. The trick is to do exactly what you
said: to put in place a legal and regulatory situation whereby small start-up companies that
are willing to raise investment and move into this area stand a reasonable chance of survival.
If they do not, investors will not put their money into the pot. So we need a situation where,
clearly, these new companies stand a fighting change of survival. That is what I would like to
see.
Q55 The Chairman: Can we move on before we go back to the Bishop of Norwich?
When you talked about the three measures, one of those you recommended was that dark
fibre should be unbundled. Was that a shorthand way of saying, “Obviously, active fibre
networks would equally be unbundled and people given access to them”?
Dr Cochrane: Yes. While you were out in the Division, we had a short discussion about the
parallel situation with mobile. What happened in the UK was that five mobile operators each
put up 30,000 towers costing £2 billion for each operator, so £10 billion was spent when
they could have all shared the same tower. The country could have spent £2 billion. The
competition was not about towers and coverage, it was about services. Only now, as
competition and costs are really biting, do we see the mobile operators coming together. I
am always interested in the way that we leverage technology to the benefit of humanity; that
is, this society. That parallels exactly what you said.
Q56 Bishop of Norwich: Before I get on to my main question, I am interested in your
comments about towers. I have about 648 of them in my diocese and you mentioned them
in relation to your village. You have focused quite a lot on fibre, but do you think that
wireless has enormous capacity for meeting some of the challenges about which we have
been talking?
Dr Cochrane: Yes, but it depends on a number of things such as the geography and density
of the population. Something as simple as a wet tree between you and the antenna can wipe
out a signal. You have to remember that the laws of physics cannot be got around. The
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distance from the antenna is critical. Any obstructions in the way are quite critical. You are
quite right that we can do a lot with wireless, but if we are going to get 100 Mbps then the
wireless is going to be a relatively short distance. You are not going to be doing 100 Mbps
over 10 kilometres; you really are not.
Q57 Bishop of Norwich: Going back to some of the things that you said earlier, you
described what sounds like a combination of market failure and political failure. Do you think
that the political failure is more to do with a lack of understanding of what the potential of
superfast, or super-superfast, broadband is? How is it that other countries have not
experienced the same combination of market and political failure?
Dr Cochrane: Let me relate to you a very sad story from my past. In 1986, I got fibre to the
home. By 1990, BT, with DuPont, had built two factories, one in Ipswich and one in
Birmingham. The Ipswich factory employed nearly 1,000 people manufacturing the
components. The Birmingham factory was manufacturing the systems. We were rolling out
fibre to the home as an active programme. It was stopped by a little problem called the
Thatcher Government and Sir Keith Joseph. They wanted the American cable companies in.
The programme was stopped, and who was right behind us? Who were we working with?
The Japanese and the Koreans. They looked on aghast as we stopped and they carried on.
They have had the benefit of a lead since about 1991, where they have rolled out fibre to the
home and we went backwards in time. That is the political failure.
This could also be a commercial and an engineering failure. Technologists have a wonderful
habit of rolling out technology without telling society what it means and what the
implications are. I have fought all my engineering life to try to explain to lay people that the
implications of the technology are very important. To my mind, that failure was, first,
catastrophic; secondly, it was partially political; and, thirdly, it was an industrial failure: a
failure to come to the Government and explain the implications and why that investment
should not have been stopped. It could be that bringing in more competition was the right
thing to do, but it could have been done without forestalling the fibre rollout at that time.
That happens all the time, by the way.
Q58 The Chairman: Can I just get back to the point about the business that was stopped
in 1986—was it called BT then?
Dr Cochrane: It was BT engaged in manufacturing. Right up until that period, we had been
manufacturing for undersea cable systems, so we had an established manufacturing arm. By
the way, in its GPO past, it used to be called the factories department and refurbish
telephones, switching equipment and things like that. What actually happened was that
Hewlett Packard bought the Ipswich plant, and that was then dismantled and sold into southeast Asia; this was all the clean rooms and the fabrication equipment. Fujitsu purchased the
plant in Birmingham, and that is still in operation.
Q59 The Chairman: Do you think it is a general proposition, therefore, that where there
is fibre, there should be open access?
Dr Cochrane: Yes.
Q60 The Chairman: Presumably, the same basically will follow with mobile and satellite.
So the key to it is open access to whatever infrastructural means of delivery.
Dr Cochrane: Yes. One of the things that I have engendered in Jersey is that 3G, which is
built into everybody's home, should be operator agnostic. The incumbent, Jersey Telecom,
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which is providing the 3G service, can carry a competitor's mobile signals and make a little
money out of that.
Q61 The Chairman: So it is a bit like the railways. Providing that you can buy a ticket,
you can get on the train.
Dr Cochrane: Yes. That is exactly right. But it is difficult sometimes to convince people that
this is a sensible argument and a sensible way to operate. In my past, when competition
came up against BT in the UK, I argued strongly for opening up the ducts and cables and
using our strategic resources, which were things like buildings, telephone exchanges and
computer stations to house the equipment of the internet service providers and the
competition. We could provide them with power because we had diesel generators and
batteries and all the people. We could sell that as a service. But that was not seen as a good
business plan.
Q62 The Chairman: The idea was to squeeze the other guys out rather than to make a
profit.
Dr Cochrane: That was the alternative, but that does not play to the benefit of the nation.
To my mind, it is not a very clever business model.
Q63 The Chairman: But then, if you have fibre trailing across the countryside in various
ducts, is it difficult where there is no access point to make an access point to tap into it?
Dr Cochrane: If it is dark fibre it is extremely simple. You and I could go and do it one
afternoon with a pen knife and a few bits and pieces.
Q64 The Chairman: You speak for yourself: I am pretty cack-handed. To go back to the
point that you are making about self-help, if you could get access to the nearest piece of
fibre, whoever it happened to be owned by, that obviously makes self-help easier and more
attractive.
Dr Cochrane: Correct.
Q65 The Chairman: If you have dark fibre or private intranet stuff nearby, if you could
get in, would it transform it or is it just at the margins?
Dr Cochrane: No, it would be absolutely transformative. By the way, this is exactly the
history of the cable TV industry in the United States, the telegraph industry way back and
the telecom system way back in the United Kingdom. In the United States, on the prairies,
people could not get a television signal. It was not cost-effective to build more transmitters
so the community banded together and put up a 300-foot tower with a huge antenna and an
amplifier and then wired up the community for what was called community antenna TV. That
later became an industry called cable TV. In my mind, this self-help ultimately will become
another industry. Believe me, the last thing that any of us want to do is to run a network.
But once the network is established, players will come in and say, “We will manage it for
you”. The key thing is getting that network installed. That is where all the cost is. The
running cost after that is relatively low. In our communities—believe me, the farming
community is wonderful—if you mention that you need a trench, someone will turn up with
a huge tractor, a plough and a JCB and that will be that. It will be done.
Q66 The Chairman: In my experience, they normally dig up the water main at the same
time.
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Dr Cochrane: They certainly do in the towns. In the villages, they tend to be a bit more
careful. The sorts of problems that a large corporation would have are with wayleave, and
that sort of thing. And yet there are vested interests here, because the landowners want
broadband—and if you want broadband, you have to let us put a trench across your
property.
Q67 The Chairman: Are there potential difficulties with calculating the costs of carriage
in respect of the inputted wireless network? Somehow or other, you have got to agree a
price and, if you cannot do so, you need a regulation to set it.
Dr Cochrane: A long time ago, I came to the conclusion, which by and large is true, that the
delivery of bandwidth is independent of both the bandwidth and the distance. That is the
reason why your telephone call to North America is worth relatively nothing. It is just the
sheer quantity of calls that makes it a viable business. Let me give you a couple of figures that
pop into my mind. When I came into this business, it was with the old analogue cables
across the Atlantic, which used thermionic valves. A system would be put in which would
cost about $300 million and would take something like five to seven years to pay back.
When the first optical system was put in, it was filled inside about six months and paid back
in less than 18 months. Today those systems cost $350 million and the cost of the
installation and the project pays in in a matter of months, not years. So the money to be
made in that provision is huge. In terms of talking about thousands of circuits across the
Atlantic, we are now talking about 2.5 million speech circuits across the Atlantic, because
the majority of communicators on this planet now are machines, not human beings.
Q68 The Chairman: If that analysis is basically correct, why is it that people who have
either dark cable or exclusively use cable are not falling over themselves to encourage other
people to tap in?
Dr Cochrane: Because they are hanging on to grim death, to old thinking and to an old
business model—period. They have to think again. My analogy would be something like the
old steel industry as against the new steel industry. If you have bought all the old
infrastructure and have thousands of people running it, it is very difficult to say that you have
to get rid of all that. Let me just recall some numbers. When I was in BT there were 7,600
telephone exchanges—small buildings in villages all over the land. We came to the
conclusion that with optical fibre, because of the greater reach than copper, we could get
well below 100, or something like 60 buildings. Now 60 buildings versus 7,600 is an awful lot
of reduction. There was also the possibility of going down from 10,000 or more “man in
van” crews to fewer than 1,000. The number one fault problem with copper is water
ingress. Fibre does not care about water. There is not a lot that you can do about the JCB
driver who hooks a cable and rips it up—but that is the minimal case. The fault level in an
optical network goes down very low. You can reduce manning, buildings, power
consumption and everything.
Q69 Baroness Fookes: When you speak about trenches, forgive me but I am not really
familiar with trenches. What depth are you going down to, and what is the size of the trench
into which all this is laid?
Dr Cochrane: The trick in digging a trench is not how much earth you take out, it is how
much earth you do not take out. Let me give you a couple of examples. In Scotland and
Wales, for example, rock saws are used, with a trench about 2 inches wide—this is done in
Sweden also—and about a foot deep. The cable is put in and then they put cement in back
further, so you just get a line in the rock. Where I live, in a sandy location, the cables are
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typically 1 metre or possibly 2 metres down, depending on the other services there. You
have to imagine in 3-D that services are layered, and you try to avoid things like power
cables, for example. So if it was a trunk cable between London and Birmingham, the answer
to your question is that it is about 3 metres deep, the duct is taller than me and about 1
metre wide, it has a lot of holes in it, and it is earthenware all the way. It is set in reinforced
concrete and covered in shale and sand, and occasionally a JCB digger will hit it and keep
going, despite all the indications that there is something valuable there. So it depends. The
big infrastructure between major cities is buried very deep. It is a lot closer to the surface
when you go between town and village, and when you get to your home, it can be a foot or
two feet down, depending on the terrain.
Q70 The Chairman: As we are getting to the end of the session, I would ask you, first of
all, whether there is anywhere you think it is particularly beneficial for us to have a look at
around the globe. You have a very wide global experience in these matters. If you are
interested in the topic that we are talking about, where should we look to see what you
think is as good an example as there is?
Dr Cochrane: I think you should go to Scandinavia, because there are a lot of self-help
examples there. I think if you went to south-east Asia, you would be both surprised and
shocked. Germany is another good example.
Q71 The Chairman: When you say surprised and shocked, can you elaborate?
Dr Cochrane: It goes like this. The engineering is neither elegant nor particularly secure. I
always describe it to students that, if there is a tree or anything standing vertical, they just
nail the cable to it and continue. It is extremely crude but very low-cost. So if you go to the
United States, one of the things that immediately strikes you is the amount of cable that is in
the air. This country is wonderfully clean by comparison. Any town, any village, relatively
speaking, is free of cable in the air. In the United States, major cities have huge cables
dragged on poles right into the centre, which is always a bit of a shock. The Japanese do the
same thing. I believe that the Germans are much more tidy-minded, as are the Scandinavians.
The Germans have an incredible social pride about their towns. They do not have them
cluttered; they engineer well. A lot of people would say that they engineer to the extreme.
Another place is Singapore, which is also engineered well. So on my list would be a few
extremes, and I think Japan and Korea are at one end and—
Lord Gordon of Strathblane: The Baltic states?
Dr Cochrane: There are a few places there, yes.
But from an engineering point of view, the costs, roughly speaking, if you dig a trench and it
is at all hard work, like you are putting through Tarmac, concrete or any kind of stones
inclusions, are about £80 a metre or thereabouts. If you are in sand, you can get down to
about £15 or £10 a metre. It is of that order. So if it is 100 metres to your home, you are
talking the top side of £1,000 just for the hole. So that is the order of the problem.
However, very often you are not coming to one property; you can fan out to several. If you
can get to one place, you can get to several others and share that cost.
Q72 The Chairman: That is interesting. Finally, if you were in charge of writing a
national superfast broadband strategy, what would be its core principle?
Dr Cochrane: The core principles would be founded on access for all companies and all
people at a rate of 100 Mbps and above, with an eye on fair competition and an economic
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framework and a regulatory framework that encourage people to help themselves and
encourage start-up companies to provide the competition that is necessary.
Q73 The Chairman: Thank you. And if you were starting today, when do think it would
be realistic to suppose that you might have managed to have achieved what you just
described?
Dr Cochrane: If we put everything in place, you have to be thinking in terms of a 10-year
programme. It has to be of that order. One of the most significant difficulties now is the lack
of physical skills. Getting enough people to actually go out there and do this is a problem for
the established industry, let alone the new. So part of this has to be training up people with
sufficient dexterity and technical skills to do this work. But I do think those people are
there. It is a question of identifying them and getting on with the job.
Q74 The Chairman: Thank you very much indeed, unless there is anything more you
wish to say to us.
Dr Cochrane: I wish you luck in your endeavour, and I look forward to reading your report.
Should you require any more information or any help, if you cannot find it on my homepage,
which is cochrane.org.uk, just e-mail me or call, and I will help you all I can.
The Chairman: You have been very generous. Thank you very much.
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Communication Workers Union (CWU) – written evidence
Communication Workers Union (CWU) – written evidence
SUMMARY OF CWU WRITTEN EVIDENCE
1.
More public investment is needed to ensure the ‘final third’ of the UK’s population will
receive superfast broadband on a fibre-to-the-home (FTTH) network within the
Government’s set targets.
2.
Only those telecoms operators which possess ‘significant market power’ (SMP) can
successfully utilise their economies of scale to deliver a truly FTTH national network
not prone to interconnectivity problems.
3.
A Universal Service Obligation (USO) placed upon all telecoms operators is necessary
if the digital divide in the UK is to be closed sufficiently within the Government’s
timeframe.
4.
The UK is lagging behind its foreign competitors in terms of FTTH broadband
deployment and unless additional public investment is granted the full social and
economic benefits to the UK will not be realised.
5.
The Government’s targets are not ambitious enough to ensure the UK’s economy
remains globally competitive; faster speeds are required if demand is to be increased
for internet services.
6.
The level of internet media literacy in the UK must be a key target and indicator if the
Government is serious about achieving a more inclusive, prosperous and fair society.
7.
The various ways to access media content through enhanced technology will only
succeed if the Government seriously addresses the issue of traffic management and
capacity through the provision of minimum standards on quality and performance.
8.
The Government should end unfair competition and monopolistic practice in the payas-you-view market to provide consumers with greater choice.
9.
Profits by successful bidders resulting from the sale of 4G spectrum licenses later this
year at knock-down prices, estimated at £1 billion, should be re-invested back into
superfast broadband FTTH deployment.
10.
A truly competitive market in wholesale fibre connectivity releasing benefits to the
consumer will only develop if all telecoms providers with significant market power are
obliged to provide open access to their physical infrastructures.
The Communication Workers Union (CWU) is the leading trade union in the
communications sector and represents over 200,000 employees in the postal, telecoms and
related industries. The union represents members in companies including Royal Mail Group,
BT, Telefonica O2 UK, Virgin Media, Everything Everywhere and Santander.
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Communication Workers Union (CWU) – written evidence
1.
What is being done to prevent a greater digital divide occurring between people
who can access superfast broadband and people in areas where the roll-out of
superfast broadband may not be commercially attractive? How does the UK
communications market vary regionally and what is the best way to connect the
areas that the market alone cannot reach? Is a universal service obligation
necessary to avoid widening the digital divide?
1.1
The CWU is concerned that both the geographic and educational ‘digital divide’ is
closed as quickly as possible. To do this broadband access needs to be extended to the
rural and remote areas of the UK and internet literacy must be increased. The
Government’s target is to reach 90% of UK homes and businesses with superfast
broadband - with a speed faster than 24Mbps and 100% with a speed of at least 2Mbps
- by 2015 27 . The Government has committed funding of £530 million (through
Broadband Delivery UK) along with a £20 million rural broadband fund, £100 million
of super-city funding between now and 2015, and a further £300 million earmarked for
spending between 2015 and 2017. The CWU believes this level of funding is insufficient
to achieve the Government’s goals for two prime reasons. First it is a low sum
compared to the amounts the UK’s competitors are spending on broadband
infrastructure within existing networks as they are upgraded and second the market
cannot provide a robust business model to complete end-to-end connection.
1.2
At a Westminster eForum 28 event in 2010 it was pointed out that around 10% of the
UK (the most remote and rural areas contained in the ‘final third’ of premises for
whom a market-led approach will not deliver next generation broadband access) will
not be able to receive superfast broadband in the next decade and that the funds set
aside by Government are insufficient to address these ‘not spot’ areas. Fujitsu who
originally promised in April 2011 that it would offer a fibre-to-the-home (FTTH)
network to those homes bypassed by commercial broadband roll-outs and has now
reversed its commitment for both the Scottish Highlands and Islands and for Wales
stating that the sums did not add up to make the business case work even with
Government funding. Similarly Cable & Wireless has also withdrawn from the pilot in
Cumbria and GeoNetworks has withdrawn from previous commitments in Wales on
the same basis. The CWU considers that the Government ought to consider speeding
up the pace of broadband roll-out by making the process more cost effective through
increased public investment and by making the bidding process for licenses easier and
less cumbersome.
1.3
Given these recent developments it is manifestly clear that the market alone cannot
provide the ‘final third’ with superfast broadband fibre-to-the-home (FTTH) access if
left to its own devices. Only those telecoms operators who possess ‘significant market
power’ (SMP) can utilise their considerable economies of scale supported by public
investment, to deliver a truly national FTTH network that is not prone to
interconnectivity and operability problems. By contrast the Government’s preferred
solution to reach its objective of a 100% of homes with a broadband speed of at least
2Mbps by 2015 is to allow mobile operators to plug the gap so that superfast
broadband can instead be accessed via mobile and satellite technology rather than
27
28
Britain’s Superfast Broadband Future’, December 2010, Department for Culture, Media and Sport (DCMS).
‘Delivering the UK’s Broadband Future’, 10th November 2011, Westminster eForum.
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Communication Workers Union (CWU) – written evidence
FTTH. This is evidenced in Ofcom’s current consultation 29 which posits two options:
the first to increase the service obligation on the license holders to 98% coverage of
the UK by population; and second to require that one 800MHz operator provides 4G
coverage that not only matches existing 2G coverage but also extends into mobile ‘not
spot’ areas of the UK and must be in place by 2017.
1.4
The CWU is concerned that the Government’s proposals for investment in the new
high-speed broadband internet structure and mobile phone ‘not-spots’ still assumes
high levels of private investment for which there is no guarantee. Most significantly this
affects Scotland where the not-spot areas account for 15.5% of the nation’s total.
1.5
The CWU considers that a Universal Service Obligation (USO) is necessary to avoid
increasing the digital divide between those parts of the UK that have superfast
broadband and those that do not. If left with only a commitment and not an obligation
to universal service, the market will concentrate only on profitable and niche areas,
with remote areas suffering greater economic disadvantage. The Federation of Small
Businesses (FSB) supported this objective by calling upon the Government to make
minimum broadband speeds a universal service obligation rather than merely a
commitment. 30 Similarly the International Telecommunication Union (ITU) reported31
that of 82 countries around the world that had adopted a national broadband strategy,
over 40 include universal service/universal access as a requirement (e.g. USA, China,
India, Brazil and Spain) through a FTTH network. Finland for example became the first
country in the world in July 2010 to adopt a USO with legal force. This is why the
CWU has consistently argued that there should be a USO which builds on the current
USO for basic fixed line services and introduces a legal requirement for universal
availability of broadband services.
2.
The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
2.1
The CWU does not consider that the Government’s strategy for the rollout of
superfast broadband is being applied in a way that will develop maximum social and
economic benefit. The Government’s ambition is to create thousands of jobs, to add
to GDP, build a fairer and more prosperous society, and for the UK to have the best
broadband system in Europe by 2015. However in comparison with other countries
the money committed by the UK Government is meager. UK Broadband deployment
ranks sixth in the world behind China, USA, Japan, Germany and France according to
Broadband Forum. 32 It cites India as investing £8.13 billion to extend superfast
broadband to rural areas by 2014 all of which will be paid for by Government funds
and loans. The French Government has invested £1.7 billion already with a further
£570 million each year until 2025, and the US Government is investing £7 billion until
2018. Unfortunately the UK has been ranked 14th in the world in terms of broadband
29
30
31
32
‘Second consultation on assessment of future mobile competition and proposals for the award of 800 MHz and 2.6 GHz
spectrum and related issues’ – 12th January 2012, Ofcom.
‘Broadband: Steps for an Incoming Government’ - November 2010, FSB.
Yearbook of Statistics Telecommunication/ICT Indicators 2000-2009 - February 2011, ITU.
‘India in Top Three Countries for Global Broadband Growth’ – March 2011, Broadband Forum.
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Communication Workers Union (CWU) – written evidence
and telecoms infrastructure. 33 This is primarily because the other countries are
investing more in a FTTH network.
2.2 The Government has already recognised the insufficiency of its own investment in a
letter sent to MPs on 14th June 2011 by the Culture Secretary, Jeremy Hunt MP. In the
letter Mr Hunt stated that: “We will then provide 50% of the public funding required to
make the necessary investments viable to commercial providers. Local authorities and the
Devolved Administrations will need to provide the remaining funding from their own resources,
European programmes, or other funding sources.” We do not believe that this is a realistic
expectation, especially at this time of economic downturn, cutbacks in local authority
funding and turmoil in the Eurozone.
2.3 A study for the Organisation for Economic Co-operation and Development (OECD) 34
found that through a fully funded FTTH network financial savings of between 0.5%1.5% could be made over a 10-year period particularly in the electricity, health, energy
and transportation sectors. The benefits of higher productivity, increased innovation,
improved access to new markets and new business opportunities will be lost without
sufficient public investment. It has been estimated by the London School of
Economics 35 that increased employment from investment in superfast broadband
would be 280,000 jobs. The EU Digital Agenda Commissioner Neelie Kroes has made
it abundantly clear that universal broadband offers benefits well beyond the telecoms
sector (such as reducing the number of car journeys made, both through home
working and areas like online shopping) and as such there is a significant role for public
sector funding to ensure a rapid deployment of a universal service.
3.
Will the Government’s targets be met and are they ambitious enough? What
speed of broadband do we need and what drives demand for superfast
broadband?
3.1
The Government’s targets might well be met if more public money is invested. The
CWU considers that the current targets are not ambitious enough if the UK is to
remain globally competitive. The EU targets by comparison for 2020 are for 50% of the
population to enjoy 100Mbps and 50% to have 30Mbps or over again primarily on a
FTTH network. The total of up to £830 million of UK public funding could be spent on
networks that deliver only half the minimum speeds of our European competitors.
Recent research by Akamai 36 (the US computer technology company) revealed that
the UK is placed in 17th position for broadband speeds in Europe with an average
connection speed of 5.1Mbps. In February 2012 Ookla (a web-based speed testing and
diagnostics firm) found that the UK came in 32nd place globally for downloading speed
and 57th place for uploading with an average of nearly 12.4 Mbps and 2.11 Mbps
respectively. This leaves the UK lagging behind countries with faster speeds such as
Rwanda, Kyrgyzstan, Kazakhstan, Russia and the Ukraine.
3.2
Demand is driven by the services on offer and a good level of knowledge of what is
available; demand will increase when speeds are faster and more content can be
accessed over those services. This can only be delivered through a FTTH network; the
33
34
35
36
‘2010 Digital Economy Rankings’ – June 2011, Economic Intelligence Unit.
‘Developments in Cable Broadband Networks’ – March 2010, OCED.
‘The UK’s Digital Road to Recovery’ – April 2009, LSE and The Information Technology and Innovation Foundation.
‘State of the Internet Report 3rd Quarter 2011’ – 1st February 2012, Akamai.
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Communication Workers Union (CWU) – written evidence
role of e-Government is crucial in this process as a driver of content and content
availability.
4.
In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
4.1
The CWU considers that there are other targets and indicators the Government
could use primarily in relation to internet literacy and usage by vulnerable people, such
as those on low incomes and with disabilities. It is paramount that to achieve all targets
the deployment of superfast broadband takes place on a cohesive basis throughout the
nations and regions of the UK. The promotion of media literacy is a key driver that
gives people the opportunity to develop competence and confidence to participate in
digital society and informs and empowers people to manage their own media activity.
It is by increasing internet fluency amongst consumers that further demand and usage
will be generated. That means positively addressing the profile of digital content users
to ensure it encompasses a higher profile of users from DE socio-economic groups
rather than an over-concentration amongst ABC1s. It is also important to monitor
access for those with disabilities and recognise the importance of access to facilitate
social interaction and easier access to goods and services. More generally, those on
low incomes and those living in remote rural areas also need access to affordable
broadband services through a FTTH network in order to fully participate, as the
Government wishes, in a more prosperous and fairer society.
5.
How will individuals and companies use cloud services for distributed storage
and computation? What network properties are required to enable efficient
provision and use of such services?
5.1
With the passage of time it is not unreasonable to assume that Communication
providers will market Cloud Services for digital storage and access to the latest virus
free computing applications. This will require a broadband network not only with
significantly greater capacity than is the case but networks capable of speeds far
greater than the governments target of 2Mbps. Yet again from a cohesive efficient
market place as well as a digital inclusiveness there will be large swaths of the UK and
Northern Ireland that will not have access to these products and services due to the
current Government’s Superfast Broadband Strategy
6.
To what extent will the advent of superfast broadband affect the ways in which
people view, listen to and use media content? Will the broadband networks have
the capacity to meet demand for new media services such as interactive TV, HD
TV and 3D content? How will superfast broadband change e-commerce and the
provision of Government services?
6.1
The CWU considers that the roll-out of superfast broadband has the potential to both
change and increase the use of new media services but only if the issues of traffic
management and capacity are effectively addressed. Traffic management is currently
performed through the differentiation of services, on the basis of the prioritisation of
traffic through pricing mechanisms. However other forms of prioritisation currently
takes place such as slowing of download speeds for the streaming of video content and
for content downloading between users. Capacity restrictions only exacerbate the
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Communication Workers Union (CWU) – written evidence
problems of offering a high standard quality of service. Therefore the CWU would
wish to see the introduction of minimum standards based on the ‘end-to-end’ principle
through regulatory enforcement. A minimum prerequisite is for network wholesale
carriers to demonstrate that they are not favouring their retail operations in the
priority and carriage of network traffic. This will support an increased number of
internet services and will work to further reduce cost.
7.
Will the UK's infrastructure provide effective, affordable access to the 'internet
of things', and what new opportunities could this enable?
7.1
No response.
8.
How might superfast broadband change the relationship between providers and
consumers in other sectors such as content? What aspects of this relationship are
key to enabling future innovations that will benefit society?
8.1
In relation to content the CWU recognises that network providers and
communication providers have more potential with superfast broadband to increase
and expand their range of content provision. Already BT through BT Vision and Virgin
Media through its Tivo product are offering customers a greater variety of choice to
access content. What is currently lacking in the industry is a level-playing field
especially for premium content. The CWU is concerned in this regard about the
potential for unfair competition or market share abuses by Sky TV through the
monopoly power it exercises through Pay-As-You-View television.
9.
What role could or should the different methods of delivery play in ensuring the
superfast broadband network is fit for purpose and is as widely available as
possible? How does the expected demand for superfast broadband influence
investment to enhance the capacity of the broadband network?
9.1
The CWU’s preferred delivery method for superfast broadband is FTTH deployment
by those telecoms operators who possess significant market power and are able to
realise considerable economies of scale and deliver a truly national network. The
CWU is concerned by the Government’s preferred option of the sale of 4G spectrum
licences, as mentioned in response to question one, which proposes to implement
‘spectrum floors’ which allow each bidder to emerge from the auction with a
reasonable amount of new capacity. This will allow bidders to acquire spectrum at a
knock-down rate which Ofcom itself has estimated as a cost to the taxpayer of £1
billion.
9.2
The Government is giving winning bidders a public subsidy by driving down prices, a
move which is anti-competitive against fixed broadband technology. The House of
Commons Culture, Media and Sports Select Committee argued on 22nd June 2011
that following Ofcom’s decision to allow network operators to trade mobile airwaves
the money realised from such sales should be invested in the FTTH deployment of
superfast broadband to rural areas. This is because companies such as Everything
Everywhere benefited from having these airwaves given to them for free back in the
1980s and they stand to make a profit of over £300 million. This profit should instead
be re-invested into superfast broadband FTTH deployment.
155
Communication Workers Union (CWU) – written evidence
10.
Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what actions
could the Government take to ensure such a market?
10.1 The CWU does not consider there to be a properly competitive market in wholesale
fibre connectivity because obligations are placed only on those telecoms providers that
have significant market power across the whole market. However the CWU strongly
argues that obligations ought to be placed on other providers and executed through
commercial contracts recognising a reasonable rate of return for the assets used. For
example Virgin Media (as its cable network now covers just under half of the UK) and
other providers should have to provide open access to their ducts and infrastructure,
as BT, if competition is not to be distorted in their favour and against BT’s or any
other operator.
11.
What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of online
piracy? What is the role of the Government in assuring internet security, and
how should intellectual property (IP) best be protected, taking into account the
benefits of openness and security?
11.1 No response.
13 March 2012
156
Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249)
Communications Chambers and FTTH Council Europe – oral
evidence (QQ 136-249)
Evidence Session No. 4.
Heard in Public.
Questions 136 – 249
TUESDAY 24 APRIL 2012
Members present
Lord Inglewood (Chairman)
Lord Bragg
Lord Clement-Jones
Baroness Deech
Baroness Fookes
Lord Gordon of Strathblane
Lord Macdonald of Tradeston
Bishop of Norwich
Lord Razzall
Lord St John of Bletso
Earl of Selborne
Lord Skelmersdale
________________
Examination of Witnesses
Mr Chris Holden, Chair, Policy and Regulation Experts Group, FTTH Council Europe; and
Mr Robert Kenny, Founder, Communications Chambers
Q136 The Chairman: Well, good afternoon, and a warm welcome to Chris Holden and
Robert Kenny. Thank you both for coming along and talking to us this afternoon. As I think
you know, we are adopting a slightly unusual procedure here in having two witnesses whose
perspectives are, I think, different in some respects—although perhaps not as different as
they may look at first blush—giving evidence simultaneously. I trust the experiment will
work smoothly, and please feel free, if you think something is going slightly out of sync, to
interject.
First, before we start, I will just ask each of you, if you would—and I will take you in
alphabetical order, to start with anyway, for as good a reason as any—to introduce who you
are and your background. That is as much for the benefit of those who will be reading the
transcript. We are on the internet, we are on the feed, and there will be, I suspect, many
more people watching outside than there are inside the room.
Perhaps without any further ado—we have had CVs from you and we have read the
evidence that has been submitted already, so I hope you can take that background as read—I
could just start with Chris Holden, if you could just tell us all who you are and make any
opening remarks you might wish to make, and then we can go on into the hearing proper.
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Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249)
Mr Holden: Okay, fine. Up to last month I was President of Fibre to the Home Council for
the last two years which is a member organisation containing 150 member companies, all of
which are in the telecommunications industry. After two years we have to change
presidency. In those two years, I was doing quite a bit of work with the European
Commission as well as looking at funding issues and regulation and policy. Now, at the end
of that term, I have moved on to the regulatory and policy advisory group within the Fibre
to the Home Council of Europe to carry on moving those things forward.
The Fibre to the Home Council is really there to accelerate the adoption, promotion and
communication of fibre to the home networks. It is not unsurprising, because it is the Fibre
to the Home Council, that our main raison d’être is fibre to the home rather than other
solutions, so you will have to excuse me for that one, but I think we have good reason for
saying that. Every year we complete a panorama of the whole of the world. There are three
other key Fibre to the Home Councils in the world. There is the APAC Council and the
North American Council, which includes South America, and the Middle East. Together we
look at what the environment is like.
It is interesting as of the end of last year the US have 9.7 million subscribers to fibre to the
home; APAC has 58 million, and Europe in total only has 5.7 million, so we are falling behind
a reasonable amount. But if we also look at other areas, what we see actually is Eastern
Europe is growing faster than Western Europe for a number of reasons. In particular, Russia
now has 4.5 million subscribers. They have leapt up the league chart very rapidly. The Middle
East is starting to grow now where they have seen a recognition, so they now actually have
just over half a million subscribers.
What is also significant in Europe—I know we are about the UK, but just to put the climate
around it—is when we look at that league there are some countries that are not doing very
well. In particular, there are three countries that have not actually made the ranking yet.
Now, if you take the ranking is any country with more than 200,000 households and actually
more than 1% penetration, if you do not meet that you do not actually hit the target. Three
countries in particular—Germany, Spain and the UK—are still not on that ranking, which is
very disappointing, but actually we see Spain probably will be on the ranking the next time,
we do them every six months.
So, how is the UK doing anyway? We also think it is slipping a little bit behind on upload.
We have a target of being the best country in Europe by 2015, but if we look at upload
targets and capabilities then actually we rank 56th at the moment in the world, which is a
long way behind everybody else. That is based on driving out targets based on what the
European Commission has set in what they call their digital agenda. In that they have set two
targets. They have set a 30 Mbps target available to all households by 2020, but the more
significant one is the 100 Mbps target for 50% of households subscribing to that by 2020.
Now, we believe there are a few things missing. One is it is a very open target and there is
no reference at all to upload. Upload we see as being significant in the future when you look
at some of the new services that are coming along.
There is also one extra thing I am just going to mention, and that is the fund that the
European Commission has talked about of basically setting out capabilities of funding for
Europe for building networks. It is effectively state aid. That has been talked around at the
moment. It is €7 billion probably to infrastructure; €9.2 billion is the fund. The Commission
have been talking of leveraging, using financial instruments, pushing that up maybe to 50
billion. At one time they talked of €100 billion, but let us say €50 billion. That is also
additional funding that could be available to meet infrastructure. Subject to it being approved
in Europe, then one of the things to get that approved in Europe is obviously going to be the
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Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249)
ability of them to get it through the parliaments and then the national Governments
themselves need to actually endorse that as well. We see a reluctance from national
Governments to endorse telecoms. They would rather spend more money on other
infrastructures, which we think is perhaps a little bit short-sighted.
Q137 The Chairman: Thank you very much for that very helpful opening statement, and
if I can now turn to Robert Kenny and give you your opportunity to do whatever you would
like similar.
Mr Kenny: Thank you. My name is Robert Kenny. I am a founder of a telecoms and media
strategy and policy consultancy called Communications Chambers. I have spent pretty much
the entirety of my career in the telecoms industry working for companies such as Hong
Kong Telecom, which was one of the first companies in the world to take fibre to the home,
though not at that time for the internet. I also worked for Level 3, the largest internet
backbone provider in the world, and I worked for Reach, which at the time was the largest
internet backbone provider in Asia. I was also founder of a venture capital fund that invested
in the internet, so despite my views on superfast I am in general quite an internet enthusiast.
I guess my particular interest in this topic of superfast broadband and Government
interventions around it crystallised in a paper I wrote with my brother, who is an economist,
about 18 months ago called Superfast Broadband—is it really worth a subsidy?, which set out
our stall as to why we felt perhaps it was not. The paper ended up attracting quite a lot of
attention and, indeed, quite a lot of citations and good reviews. The relevant journal named
it the paper of the year yesterday, which was very flattering. That is just very briefly how I
come to be interested in this topic.
Let me just pick up a couple of things in what Chris just said. First of all, I should say I am
grateful to the FTTH Council for those annual surveys they report. They are some of the
solidest data on what is going on internationally with FTTH and are very helpful in that
regard. He said he was not entirely happy with the Commission’s targets. Nor am I, although
perhaps for slightly different reasons. I am not happy with them because they are mad. They
are mad for two reasons. Firstly, because they are completely unrealistic. There is an
infinitesimal chance that we will have 50% of households subscribing to broadband speeds in
excess of 100 Mbps, which is the target. It is just not going to happen by 2020. We can
certainly talk about why I think that in more detail later if that is of interest to you. Secondly,
they are mad because they are a completely technology-out view of the world. It is a
besetting sin of the telecoms industry, of which I have been a participant, that we tend to
start with technology and work back to what consumers or end users might actually like.
The companies that have been really successful have worked the other way round. That is
companies like Apple, for example.
A hundred megabits per second is a completely arbitrary target and I have not seen anything
solid that says why 100 Mbps is the target. If somebody were to make me an EU
Commissioner—perhaps not imminent—I would start with thinking about what do we
actually want to be able to do with the internet and then say, “Okay, given that set of
ambitions for the internet, for applications for the internet, I think we need a bandwidth of
X”. For what it is worth, my number probably would be closer to 10 Mbps than 100 Mbps.
Again, I can perhaps talk about that in more detail later. But that does not seem to be what
has happened. We have just been given this 100 megabit number, which sounds good but
does not seem to be anchored in any particular set of applications; in particular, any
application with externalities.
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Communications Chambers and FTTH Council Europe – oral evidence (QQ 136-249)
I will say one final thing before I stop. In considering Government intervention in the realm
of superfast, for me there are three acid tests. I think we can all quickly agree it is not
actually about a physical connection to the home; it is about the applications that ride on top
of it and what you can actually do with that connection, not the fact that you have an
arbitrary amount of traffic moving back and forth. For applications to justify Government
intervention, if you are subsidising superfast to the home, that application must pass three
tests.
Because you are subsidising it, it must bring externalities. For instance, you cannot be talking
about HDTV or 3D TV when you are trying to justify Government intervention because it
does not bring externalities. There is no particular reason to expect the taxpayer to pay for
that rather than the consumer end user. Secondly, if you are subsidising superfast, it has to
be an application that absolutely needs superfast broadband in order to work. You cannot
be talking about applications that work on superfast but would also work on basic
broadband. This is an error that is made time and time again. Indeed, I am afraid the DCMS
paper, Britain’s Superfast Future, is rife with this muddlement, where they talk extensively
about the things that basic broadband can do and say, “That is why we need superfast”. That
is just bad logic. Thirdly on subsidising superfast to the home, if you are subsidising telecoms
networks to the home, it has to be applications that take place in the home. You cannot fold
in wonderful things that hospitals may be able to do with great connectivity or wonderful
things that schools may be able to do with great connectivity because there is no earthly
reason to wire up suburban residential streets because you can do something wonderful in a
hospital. Hospitals, many of them, already have fibre connectivity. It is quite separate.
As you all wade through the voluminous material that there is on this debate, I would
encourage you to have those three acid tests in mind as you read justifications for fibre. Is it
an application that truly brings externalities? Is it an application that not just can ride on
superfast but depends on superfast? Thirdly, is it an application that depends on connectivity
to the home?
Q138 The Chairman: Thank you both very much. Perhaps it would just be helpful to the
Committee if each of you just say quickly what your background is. You described your
brother as being an economist and you have said you have worked in the industry a long
time. Are you scientifically based or economically based? Just where do you come from, like
that?
Mr Holden: I have been 20 years in telecoms, basically, starting with the copper side of the
telecoms and then moving to the optical fibre midway. Most of that has been in technology,
so it is technology driven as far as passive infrastructure is concerned.
Q139 The Chairman: You are a scientist, are you, by background?
Mr Holden: I am an engineer, not a scientist. It is the practical implementation of the passive
infrastructure mostly. I worked for Corning, which is on the list, and Corning obviously is
the inventor of the fibre, and so are the leader in this field.
Q140 The Chairman: Robert Kenny, are you an engineer as well?
Mr Kenny: I have no such expertise, I am afraid. No, my background is strategy, so the
commercial side and also the policy and regulatory side of telecoms.
Q141 The Chairman: All right; fine. Thank you very much. If I could just get the debate
we are going to have underway by asking each of you—we talk about superfast broadband
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and I know that is a very arbitrary description. It is almost, in a sense, a random figure, the
100 Mbps, but thinking about the world we live in today and bearing in mind that there are a
number of other forms of civil infrastructure that acquire the characteristics of utilities,
what, if any, characteristics of the broadband network do you think will meet the definition
of being a utility? What is, as it were, the minimum requirement that you would think was
appropriate to have generally available across society as a whole given its current
characteristics and the way things are moving? Do you want to start there?
Mr Holden: Okay. Can I just come back to one other point before I start? One hundred
megabits was really set by the Commission, we believe from conversations we have had with
the European Commission, on the basis that they were looking at a future-proof solution.
They did not really see extending copper and trying to squeeze it a little bit more as being
future-proof. But they are bound by the rules of technology impartiality, so they set a target
that they assumed would drive fibre rather than copper. Unfortunately, they did not specify
it well enough so actually you could squeeze a little bit of copper into 100 megabits if you
only considered download.
Q142 The Chairman: But it would not work on upload?
Mr Holden: But it would not work on upload at all, no. This is a problem here that we say
is technology neutrality gone mad, really. You need to set a target for something you want
to aim for rather than doing it the opposite way round.
To come back to your question, we still think 100 megabits but with some symmetry is what
should be a future solution set that would be sensible to look at all things. It is not just
speed, it is latency as well, as I know you said in some of your responses. Latency is critical,
and upload is going to be critical as well. When we see things like cloud computing coming
around now—there are already cloud computing services, and I know you have mentioned
some that have been around a long time—but I know a lot of people who have actually
taken out cloud computing services and cancelled them, basically, on the simple premise or
fact that they cannot upload fast enough the data they want to upload now. That is just
looking at uploading data on to the cloud without everything else that happens in the home
simultaneously. We still think 100 megabits is maybe okay, but maybe by 2020, which is the
target that is set, it will be nowhere near enough, because something else could come along.
Q143 The Chairman: Anyway, Robert Kenny, what do you feel about that?
Mr Kenny: Well, it depends a little bit what we are going to do with this, having decided
that that is a utility level, what is behind the definition of utility.
The Chairman: Do define it in terms of your answer.
Mr Kenny: Yes. I think if you wanted to go for a basic lifeline level, what is minimum as
opposed to desirable, I think the Government’s number of 2 Mbps is perfectly sensible. It is
worth just a very brief recap of how we got to where we are today. The first wave of the
internet was dial-up in the late 1990s—I am talking consumer internet here—which was an
incredibly cheap upgrade to the telecoms network, with about $150 of equipment at either
end of the existing telephone lines. You got amazing stuff with dial-up. None of us would go
back to it now, but you got amazing stuff with that. That got Amazon going, it got social
network going, it got eBay going and a whole set of applications were possible over dial-up.
We then come to DSL and its great surge in, in particular, the first half of the last decade,
where again an upgrade of about the same cost brought a whole wave of new things. It made
the existing stuff better, but it enabled YouTube and so on. It enabled a plethora of services.
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The worry about the next upgrade is that it is going to be fundamentally more expensive
because you are not just putting new equipment at either end of existing copper. You are
actually digging up the roads, and it is the roads that are the really expensive bit. Corning’s
products are extremely good value and are not expensive at all; it is the digging up of the
roads in order to blow Corning’s fibre through the ducts that is really expensive, which has
not been necessary in previous upgrades but will be in the next one. Pick a number—it very
much depends on geography and so on—but instead of spending, as it might be, 150 bucks,
you are in the realm of spending $1,500. You are looking at a much more expensive
upgrade.
I think the problem particularly in making the case for the upgrade is that the internet is so
good today. So much is possible even through a 2 megabit connection, which I described as a
kind of lifeline service. You can get basic YouTube through a 2 megabit connection. A lot of
those videos run at 500 kilobits per second. Now, I could see a case to say, “Let’s be a bit
more ambitious than that and let’s set a target for most of the country of, say, 10 Mbps”,
which is enough for two people simultaneously in the same household to be using quite high
quality video through a 10 Mbps connection. But beyond that, in particular if you are looking
at things that would justify Government intervention, applications that bring externalities, I
just do not see much material past 10 Mbps. I know Chris will disagree with me, but that is
my view.
Q144 The Chairman: On a quick point, can you upgrade from your 2 Mbps to whatever
it is—10 Mbps or whatever you think is appropriate—without a lot of capital expenditure
on the infrastructure itself?
Mr Kenny: I am doing my best not to introduce complexity, but I am afraid the answer is it
depends. It depends how far you are from the exchange. If you are a long way from a
telephone exchange and, therefore, there is a long twisted copper pair between you and the
exchange, it will not be an easy upgrade from 2 to 10. The performance of DSL, while it has
improved year by year, does drop away with distance. If you are relatively close to the
exchange, it will not be expensive at all. If you are a long way from the exchange, it will be
more expensive and likely, if you are going to do it in a fixed way—that is, not wireless—will
involve taking fibre closer to the customer because the effect of that is to shorten the
amount of copper in the circuit and, therefore, it is as if you were closer to the exchange
again because you have fibre doing the kind of heavy lifting on at least part of the distance.
Of course, if you are in very rural areas the answer may actually be a wireless solution
rather than a fixed one, which gets you into a whole set of economics. As I say, I am afraid
the answer is: it depends.
Q145 Baroness Deech: Is it the case—and I am no scientist—that Britain has always
made the mistake of lagging behind when it comes to pure science? I think this is the issue
between you. Should we not just go ahead anyway in blind faith and wait for the applications
to come later, which I think is what Mr Holden is saying, rather than what Mr Kenny is
saying, which is, “Let’s see what people want to do and then provide it for them”? The only
bit of science I know about is lasers, and people went ahead developing lasers not knowing
what would happen. I think in medicine Britain has often invented something, others have
taken it and run with it, and we have not used it. Is not this a kind of philosophical debate
that one should go ahead in faith and then wait for the applications to come later? No one
would have known 10 years ago what they would be doing with broadband now. Would we
not be making a fundamental error if we took the Kenny line, if I can so describe it?
Mr Holden: Perhaps you can go first on that one.
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Mr Kenny: To disaggregate your question a little, it depends what kind of technology we are
excited about here. There is the physical telecoms technology—the smart and ever smarter
bits of equipment that sit at either end of the fibre or the copper as it may be—in the
physical connections themselves. The fibre itself is also quite sophisticated technology, so all
sorts of stuff, if you like, in the physical layer of the network is one kind of technology. Then
the other side of it is the applications layer, which is the stuff that is going on on top—
everything from Facebook to Spotify to doing your taxes online—which involves quite
different kinds of technology with quite different drivers. Now, the UK does not have a
particularly strong position in the first, given that the big manufacturers are Alcatel out of
France, Corning out of the States and Cisco out of the States. For a lot of the stuff that is
about moving packets from A to B, it is a big challenge for us to capture a market-leading
position in that particular market, and there is no particular reason, even if we threw a lot of
money at fibre, that we would. We would create a UK customer for that kind of product,
but would we as a matter of industrial policy say, “Build that fibre, oh and by the way, buy
equipment from a nascent UK industry in that sector”? That seems like a surprising
approach to take and, even if we did, we would still be a small part of the market overall
globally because this is a fundamentally global market. These technology companies work
globally. I am not sure it brings much benefit there.
On applications, one of the ironies here is we worry about how good we are on the access
network, but on the applications level we are actually doing very well. There is work by
BCG—and I will try to get these rankings right but forgive me if I am just slightly astray—
which, from memory, looked at 34 OECD countries. They rated them in three different
ways: how they were doing in various elements of telecoms infrastructure, including
broadband; how they were doing in economic use of the internet, so the level of
e-commerce and the level of online advertising and so on; and, thirdly, how they were doing
in what I think they termed “engagement”, which was kind of a catch-all category for just
how much stuff the country does on the internet. There was a range of applications. It was
civic, government, social, a whole set of things. We did pretty rubbish on access speeds,
upload and download. I will check the numbers, but let us just say we were about 23 out of
34. We were down the bottom of the pack. That sounds pretty bad, but that is an input—it
is an input. The reason you have the telecoms infrastructure is not so you can admire your
shiny bits of telecoms equipment but so you can do stuff with it. On those other two
dimensions, the economic and engagement ones, we were, from memory, second in both.
We are doing very, very well in our use of the internet.
There just is not a simple correlation between quality of fixed-line broadband connectivity
and how much a country is getting out of the internet in terms of its applications. That link is
just not there. To take another example, in the US, which I think we could all agree leads
the charge on internet applications—Facebook and Twitter and Google and all the amazing
stuff that many of us use—the internet actually does not have a particularly good fixed
broadband infrastructure. Again from memory, they were around about 13th, I think, in the
rankings, behind countries like Latvia and Belgium. Indeed, Silicon Valley itself, even within
the US, does not have a particularly good broadband infrastructure. There is no simple cause
and effect where, if you have great internet infrastructure, you suddenly get great
applications coming.
The final thing I will say on this is: take a look at Korea and Japan. The two countries that
fibre enthusiasts have greatest superfast envy of are Japan and Korea. How many global
internet application companies can we name out of Japan and Korea? It just has not done it
for them. It has not delivered that kind of technological advantage in the applications layer.
Indeed, one of the fascinating things—and this is from an Informa report I saw this week—is,
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if you look at the actual usage of the internet for the amount of traffic that travels across the
internet in Japan, even though they were one of the first countries in the world to push fibre
and they have quite high penetration of fibre, with a lot of people on 100 Mbps and so on,
their actual usage, in megabytes per household, is lower than ours. We are using it more
heavily than they are. On this “build it and they will come”—or “trust that the killer app will
appear”—it is worth having a chat with the Japanese about how they feel that is going.
Q146 The Chairman: Now, Chris Holden, I am sure you have some thoughts about this
before we move on to Lord Macdonald, but if you have not, do not—
Mr Holden: Yes. Just to come up with what Robert was just saying, if we look at Boston
Consultancy Group this week, the UK is top in G20 internet apps to gross domestic
product. If it was a sector, it would be fifth in the sector and it would be ahead of health,
education and construction, so it is big money for the UK. What a shame if it disappears,
when suddenly services come that need bandwidth and we have said, “Two megabits is fine
for us; we don’t need it because there is no requirement here”. That would be a real
tragedy.
But standing back from that, as far as the industry is concerned, I do not think necessarily
the active providers of telecoms are a reason for putting in networks. It is certainly not the
reason why I am here. I am here because I am passionate about fibre, to be honest. But
there are a lot of jobs involved in building networks, and that is the civil infrastructure and
the passive element where there is a lot of work necessary that provides people with good
money and boosts the economy. The actives actually are quite a small part—a very small
part. They will be constantly changing as technology changes, but they will not be constantly
changing if the basic infrastructure behind it is not in place. So, yes, I think we are crazy if we
just say, “Look, we cannot see anything for it at the moment, let’s not do anything”.
Then if we look at the US, which we mentioned, the US actually has an enormous gigabit
network that connects all universities. There is a number of what they call gigabit projects
ongoing. There are a number of organisations doing a lot of work at universities, with
something like 17 gigabit projects being worked on by one of those organisations already
with various universities looking at every area—health, transport, health and safety, services,
communications. All those areas are looking at gigabit services now that are going to come
in the future. They can do that, and the reason they can do that is there are a number of
gigabit cities. Google is building theirs; Chattanooga is another one. There are a few others
that already have gigabit capability and a university link, which means they can try out their
software. When this is available, it will be something people want. If you do not have
infrastructure in place for it, then you will be in trouble, basically, and, yes, we will lose out
in the future.
But one other point, just to come back to what you have just mentioned, is the fact that we
are talking here of whether we should spend money to build a network. What we should
not forget is at the moment we are already spending money to build an extension to the 10
Mbps, the 20 Mbps and the 40 Mbps. We are already driving fibre out to the cabinets, so a
substantial part of that work is already happening anyway. We are a strong believer in
competition, so in the main cities where competition will take place let us not put
Government funds in. No, we should not spend our money on that. Competition should
drive bandwidth, which it is doing. We can see that between the cable people and BT. BT
are doing a mixture of VDSL and fibre, fibre where they have to, where they cannot
compete.
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But when it comes to rural communities, this is one chance to update the network. We have
to update it. Do we update it so someone has something that is going to run out of steam
straight away, or do we spend a little bit more money and actually give them a future-proof
solution? I think Government funds, if they are spent, should be spent looking into the
future, not looking at sunk investments in a very short period of time.
Q147 Lord Macdonald of Tradeston: Just to pick up on how Government money is
spent, obviously the Government is putting a great deal of emphasis at the moment on
infrastructure investment generally. We were interested in the relativity of broadband and
its importance to, say, investment in water, which is probably taken care of by the regulatory
regime. Similarly, energy is probably being looked after by two national monopolies.
Telecoms—well, if we take broadcasting, that has its towers already in place with Arqiva,
and it has the satellite. Probably one of the areas you would look at for relativity would be
transport. If you are going to spend £33 billion on a high-speed rail line as compared with
putting the money into broadband, when we asked a Finnish politician about this, she said—I
think she was a former transport minister—“Definitely put it in broadband”. That is because
of the impact on the gross domestic product. That is what is generally argued: that you will
get the biggest boost from broadband as opposed to putting it into surface transport. Do
you, Robert Kenny, have a view on your priorities among infrastructure of systems?
Mr Kenny: I know nothing about transport, so I shall keep my mouth shut on that. I do have
a narrower view within the internet, which is you use broadband there. I think if you are
looking at what pays dividends, what gives bang for the taxpayer pound in terms of where
you might spend money in the area of the internet, I would absolutely spend it first on
getting people who are not online online before I would spend it on getting people who are
already online and enjoying all the benefits on to superfast. In this country, it is between 20%
and 30% of people who are not yet online. To me, if you look at the step-up in both quality
of life but also the externalities from taking somebody who is not online to being online,
they are massive—the ability to access Government services online, or the ability to do your
shopping online. There is plenty of research that says once people have access to that they
save a lot of money because they are no longer dependent on local suppliers, the ability—
and, in particular, it is the aged who are not so much online—to be in touch with friends and
family easily around the world. I probably do not need to belabour this point, because I think
it is obvious that there is a massive benefit to getting somebody online. Now, there are
various reasons why people who are not online are not online, but it is definitely not that
they say, “I would go online if there was more bandwidth”. That is not their answer. They
say they find it confusing or they do not quite see what is in it for them. A few of them say
price. But if you can help people over that hurdle and get them online, I think that brings
fabulous benefits.
Q148 Lord Macdonald of Tradeston: How much would it cost to get people up to,
say, 10 Mbps if you wanted that generality you are talking about, universal provision?
Mr Kenny: At this point I am not talking about anything that is to do with infrastructure. I
am talking about training and mentoring and that kind of educational programme, so
somebody who may be living right in the middle of London but just does not have the
technological savvy to get online.
The Government has encouraged some efforts in this. There is a programme called Race
Online that does exactly this. One of the things, if I am reading it right, that is a tragedy
about the current policy is that Race Online, which has very little funding from the
Government, is being encouraged to divert its resources from helping people who are not
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online at all to instead doing demand building, pre-registering people who might be
interested in superfast, to help the economics of superfast provision. That to me is a gross
misallocation of resources, and it is one of the problems I have with Government
intervention with superfast, not the commercial rollout that, as Chris rightly says, is going on
particularly in big cities—and more power to their elbow. But once Government starts
intervening, Government intervention with superfast to my eyes is deeply, deeply regressive.
The households who will benefit most from very high-speed connectivity are the households
with a lot of gadgets, multiple TVs, multiple computers. The only way you can fill up 100
Mbps is by having a lot of people doing a lot of high-powered stuff simultaneously.
Q149 Lord Macdonald of Tradeston: Sorry, I am still not clear. Would it not cost
quite a few billions just to get a universal application of 10 Mbps? How much would that
cost? Would you be in favour of that one?
Mr Kenny: No, we do not need 10 Mbps. I think the benefits of—my first scenario is not
about changing the infrastructure at all. It is about helping the people who have access to 2
Mbps or 10 Mbps or maybe even 50 Mbps today to start using it who at the moment are not
online at all. There is no investment in infrastructure; it is purely investment in training and
mentoring.
Q150 Lord Skelmersdale: Sorry, does that not mean that it is dependent on the
individual in the household or in the office or whatever to make use and be properly
mentally, if you like, equipped to use this particular technique? What investment is required
to achieve that?
Mr Kenny: Yes is the answer to the first part of your question, though I think Governments
can help. Indeed, in places like Portugal and Korea there have been quite active programmes
to do exactly that, training and mentoring. It is indeed what Race Online is doing. Race
Online works with community champions—I believe that is what they call them—who are
basically local enthusiasts. They may well be retirees—in the jargon “silver surfers”—who
have become familiar with this stuff and are enthusiastic about it, and on a volunteer basis go
out and help people in their neighbourhood and say, “Look, it is not that hard, let me show
you how it works”, and hand-hold them through it.
It is also getting easier because user interface is getting much better. If you think about
something like the iPad, whereas once upon a time getting online was a really complicated
job, it involved securing a broadband subscription from some provider, having a modem and
keeping it working, having a computer, knowing how to use a computer—a whole set of
hard stuff if it was not an area you were familiar with—now, if you have an iPad that has
come with connectivity pre-installed, it is so intuitive. I have to say personally I find it quite
inspiring. There is fabulous footage of people who have never used a computer before in
their late 90s being given an iPad that they have never seen before and just getting it because
it is so intuitive and starting to use it. If I could spend money, I would spend it on that side of
things, helping those people get online, not on super-serving the more prosperous
households with ever faster broadband so they can watch 3D TV.
Q151 Lord St John of Bletso: You make a very good point about the uses of
broadband, but if I can go back to Lord Macdonald’s question about the cost of putting in 10
Mbps or 100 Mbps, we have heard a raft of different numbers from our witnesses as to what
the real cost is going to be whether you are putting in 50 or 100 megs, but with the
advances in technology is that cost likely to come down in the future? Is it likely to go up?
What is the realistic cost, because right now it is unlikely that the money that has been put
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aside by Government is anywhere near to what we need to put in the infrastructure
required?
Mr Kenny: Sorry, I did inadvertently duck Lord Gordon’s question—my apologies. Again, it
depends where you are talking about, because the answer is different in rural and urban
areas. Ofcom’s view is the difference between fibre to the home and fibre to the cabinet is
roughly three or four to one. It is at least three times more expensive to take fibre all the
way to the home rather than to the cabinet. If you take fibre to the cabinet, you get a lower
speed. However, what BT has this last month rolled out is a fibre to the cabinet service that
is 80 Mbps down, 20 Mbps up. That is a lot. You have to work quite hard to fill up 80 Mbps
down, 20 Mbps, and obviously it is pretty close to 100 Mbps that is a standard benchmark
for fibre.
Now, Chris will say, and I agree with him, that fibre is in a physical, fundamental sense
superior, that while 80/20 for copper is at the current technological limit of what is
deployable—there is other stuff in the lab but in terms of what is deployable 80/20 is the
limit—100 Mbps is by no means the limit of fibre. You could have easily gone way beyond
100 Mbps. The trouble is there is diminishing returns with each incremental megabit: the
step from zero to 56 kilobits per second, up to dial-up, fabulous, with huge returns per
megabit for that step; from 56 to 2 Mbps, pretty good return per megabit; from 2 Mbps to
80 Mbps, diminishing; from 80 Mbps to even 100 Mbps or to 1 gigabit per second, really
marginal. Because the cost of enabling that 100 Mbps is three times the cost of enabling the
80 Mbps, you have to be very, very confident you will deliver the incremental benefits.
Q152 The Chairman: Are you done with this—
Mr Kenny: I think I had better shut up because I think Chris—
The Chairman: Well, Chris Holden and then Lord Gordon.
Lord Gordon of Strathblane: Well, I could save it for my question later, but I will try to
remember about cost.
Mr Holden: I had almost forgotten the question there, but I have not. Yes, there is going to
be a cost for doing VDSL rollout to 10 Mbps. Yes, BT are offering an 80 Mbps/20 Mbps
service and, yes, probably 15%, maybe 10%, of the population can actually get that. It is an
“up to” service. It is an “up to” as long as you have a very short copper link to your home. It
is “up to” based on the fact that you are using bonding, probably, which means—
Q153 The Chairman: When you say “short”, one of the things that a lot of the
discussion about using copper is how much you can use it for and how far from the cabinet
it is going to give you decent volume of access.
Mr Holden: If you are talking about an 80 Mbps service on copper, then 400 metres, I
believe, is the maximum limit now using the latest technologies that have not actually been
deployed yet.
Q154 The Chairman: Do you anticipate that is going to improve or not?
Mr Holden: No, I think you are pretty much getting near the end of the line. That is the
point. This is the whole crux of the matter, really. Are you going to spend money? Are you
going to spend money to do that? This is new technology you are going to have to install in
the cabinets. It is a capital expense and you know you are going to spend three times the
amount later to put it back to fibre. You will have sunk costs into cabinets, this seems like a
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waste of money to us. There are technologies called bonding and vectoring that are driving
these upgrades, but they are state-of-the-art technologies. When you talk to people who
have tried it, you still need good-quality copper in the right place for the right length to be
able to obtain the best performance.
To me, the tragedy in the UK is this “up to”. We have to get away from “up to” and be
honest. If you got away from the “up to” and were honest about what the capacities were,
then it would look a completely different picture. I am one of the fortunate ones. I actually
have fibre to the home and I have my 100 Mbps, which is actually more like 96 Mbps, and I
have a 13 Mbps upload. I can tell you from the public’s point of view I would not go back to
copper. I would pay more money for it now I have it.
Q155 Earl of Selborne: Could we know what you use it for?
Mr Holden: I am not sure I can tell you that. It might be confidential.
The Chairman: Do you want to follow his lead?
Mr Holden: I do not download videos and I do not play games; there is one thing I do not
use it for. But actually I work from home a lot and part of my role is marketing and
communications. There is many a time when I have tried to work from home and upload
some work I have done overnight and actually not had time to complete it. I have ended up
going into work and downloading in the office because it took so long and it was so complex
to do it at home. I have a standard-size family who use downloading—they use iTunes, and
they use iPlayer. I am doing work at the same time, and actually it takes quite a small amount
of people to use the bandwidth now. Interestingly, when you talk about the iPad, the latest
iPads now need 4 Mbps to download their HD video service, so even those are above the 2
Mbps. They are using 4 Mbps now.
Mr Kenny: Just to clarify, I described 2 Mbps as a lifeline, absolutely essential service. I
accept that most consumers are going to want more than that. I do accept that. But let me
just say everything you have said about your household, Chris, I could say about mine
exactly the same. I work from home all the time, I do not even have an office, and I use
cloud services all the time. I have multiple people in my household watching video. I have the
option of faster speed because I am on Virgin, on the cable network. I take their 10 Mbps
down/1 Mbps upload package, and I actually have not felt the need. Maybe I am just not
adventurous enough, but anyway, it sounds like we both practise what we preach, so that is
good.
Q156 Lord Clement-Jones: I might as well put my two pennyworth in because it just
means that I do not have to ask the whole question because we have gone to and fro. It is
the cloud point. Are not we all going to be storing information on the cloud eventually?
Therefore, is not the speed of the upload going to be very important, and is not that one of
the reasons why more than your package will be ultimately desirable and, therefore,
superfast should be desirable?
Mr Holden: Yes, and superfast then needs to have the upload as well. I think you are right.
There is talk with Google bringing out notebooks and the notebooks will not have the hard
drives in them; you would use the cloud. When you get on a notebook, even when you are
working at home I am sure, and you are doing some work, you expect to save a file and it
saves pretty quick. I get frustrated now with 100 Mbps/13 Mbps up when I am waiting for a
file to save on the file server via VPN back in my office. If you imagine that everything was
done like that and there was no local saving, people would get very frustrated very fast if
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they did not have a better latency and a better speed to do this type of work. But I am not
saying that I need 100 Mbps now because I utilise all of it all the time. What I am saying is
that the principal point I am making here is things are developing all the time. Higher
bandwidths are being used. As they are used, if you are going to put in new infrastructure,
put in the right infrastructure. Really spend your money wisely is what I am saying.
Mr Kenny: Yes, there are a couple of things to pick up on there. Cloud services is a very
important point, as is, I guess, future growth in usage. I will come back to that in a second.
A way to think about cloud services is: at the moment, you have a keyboard, you have a
screen and they are both connected to a local box—all in one, obviously, if it is a laptop—
and then you have a pipe that goes out to the internet and all sorts of stuff happens on the
internet. One way to think about the cloud is that the box moves out to the other end of
the internet connection. The actual processing of whatever the data is—the presentation of
a picture—now sits out on a cloud server somewhere rather than in your home. You have a
connection that is from your keyboard and mouse to the cloud, up to the cloud, and you
have a connection to your screen that is down from the cloud. Now, that actually is a world
in which everything exists in the cloud. If the files you are manipulating are in the cloud,
nothing needs to be uploaded. I am going to come back to some important caveats, but
nothing needs to be uploaded except the keyboard and the mouse clicks. You control the
document or whatever it is that sits in the cloud. You do not need to upload the document
to the cloud because the document is already in the cloud. That is the very nature of cloud
services.
With something like Gmail, for instance, if you are working on an e-mail or on a
presentation with Google documents—to take another cloud service—all that information
sits in the cloud. You manipulate the information via your keyboard, but you do not need to
upload. Ironically, at maturity cloud services actually arguably decrease the need for upload,
not increase, because you are not creating a local file that you craft lovingly over weeks, as it
may be, to create your beautiful presentation or video, and then you suddenly upload it. It is
there uploaded in the cloud the whole time from the get-go and accumulates there.
An example of this or a parallel to this is online gaming services that exist entirely in the
cloud. All they do is take keyboard and mouse clicks up from your computer. In the cloud
they do all the figuring out about whether you have shot space aliens or whatever it may be
and then present the result back to your screen. That is an incredibly intense application.
Latency matters a lot, otherwise you might shoot the wrong space alien. It all has to happen
very quickly. It is highly visually rich because that is the nature of these games. There is a lot
of rich detail in the video, so it is a very demanding application. What these companies
specify is their need for bandwidth is 5 Mbps down, and they do not even bother specifying
an upload requirement because they do not need it.
Q157 Lord Clement-Jones: But what about the back-up if you are going to back up
from the cloud? Is that not going to—
Mr Kenny: Back-up from the cloud? If you have created your documents in the cloud, they
are already backed up. They are in the cloud. None of us who use Gmail worry about
backing up Gmail, because it all sits in the cloud and Google backs up Gmail for us. With my
accounting service, which is a cloud-based service, I do not worry about backing that up
because it sits there with FreeAgent. The data is in the cloud, and FreeAgent are worrying
about backing it up.
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Now, there are occasions in which you will want to upload things from home, even in a
future scenario. Let us say you have just come back from holiday with a video camera full of
video images, and you want to get those up to some cloud-based site. That absolutely does
require upload. You might find it a bit annoying to have to wait for your holiday videos to
upload over time, but that is quite a specific-use case, and it does not feel like it is worth
rolling out a whole specific infrastructure for. Moreover, I would say as wireless networks
mature, more and more of these things are going to upload in the background.
It is already starting to happen with photos. Photos are another example where you might
come home from holiday with a whole lot of digital photos you have taken and you want to
upload them. More and more as you take the photos, as soon as you have taken it your
camera or your iPhone or whatever it might be starts uploading in the background. Off it
goes, and next time you log in it is already there. It has happened wirelessly. Because it has
happened in the background while you were off doing other things—eating the next gelato
on your holiday or whatever—you do not worry about the upload time because you were
doing something else. I think it is not at all obvious to me the cloud says we need much
greater upload speeds.
Q158 Lord Clement-Jones: Chairman, can I just take this opportunity to declare an
interest—which I inadvertently failed to do so on previous sessions—as a member of the
International Advisory Committee of Huawei.
Mr Holden: Yes, I know. They are a member of our organisation, by the way.
The Chairman: Thank you for declaring that.
Q159 Baroness Fookes: I think this is directed more to Mr Holden, please. I came
across the term “externalities” for the first time reading up for this. I thought it was the
most hideous piece of jargon I have seen in a long time.
Mr Holden: I agree.
Q160 Baroness Fookes: I take it that means a benefit that goes beyond the immediate
recipients or givers of a benefit to other people, other parties. Can you give any specific
examples of these third-party benefits, as I would prefer to call it, which come from having
the superfast rather than basic broadband?
Mr Holden: Okay. There are a number, actually. E-health is starting to use higher
bandwidths if you want to take it to its limit. I was at an interesting conference, actually—in
Greece, funnily enough—a year ago with some of the people thatwere developing software.
What they are doing now is looking at remote diagnosis, looking at people who are ill and
aged. One of the things you need for that is very high-definition, live feed because, as a
doctor, to diagnose them remotely, you need to have a pretty good view of what they are
like—their colour, and whether they are shaking etc.—which is not very easy on a lowdefinition screen. This requires using higher bandwidth. This also helps society as well
because it means that more people can live at home.
In fact, interestingly, the other one where you see the benefit of high bandwidths is,
obviously, in remote communities. We always assume that the people in the city are going
to get high bandwidth because they are greedy and they have a lot of money, but the people
who would probably benefit the most are probably the people in the rural communities that
need to try to keep their community together. That is what I call a real externality as well.
You see people using things that people have said do not work such as remote schooling.
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There are places in Scandinavia where this already happens and it is pretty good quality, with
real one-to-one interaction with a whole class. Now, in a sense each activity does not need
huge bandwidth, but if you are going to start getting high-definition pictures and content
coming through as well, then it might. If you go into 3D and into new scientific advances, you
are looking at much higher bandwidth.
But there will be, we are sure, more services that come out that need high definition. With
the aged, where you are having to try to monitor lots of rooms and see if they have fallen
and are they really unconscious, these are elements where you are looking at high-definition
cameras. Many of these early services that are being developed are based on low definition
because they cannot do anything else because there is no infrastructure to support it, but
they are not gaining the real benefits they might.
I mentioned earlier the gigabit cities in the US where they are looking at services in
universities and looking at gigabit-based services that will help communities. These are not
necessarily developed yet, I will be honest. I cannot say you must have 100 Mbps because
you are going to use this bandwith. There is an element of faith in here, but new advances
are coming along all the time. These things are being worked on.
Q161 Baroness Fookes: But they sound to me—perhaps I am being simplistic—like
direct benefits, not one that spins off.
Mr Holden: Well, the externality, I guess I would say here, is if you can keep more people
in a remote village in Scandinavia, then the whole community spirit improves. You have
more people, so the externality is greater. People come back home, then they can work
from there as well. There is one of our case studies in the Fibre to the Home Council where
a film director used to spend something like 80% of his time travelling to major cities to do
film work with film studios in the US, but now he has fibre to the home in his village and he
spends most of his time at home with his family. Now, I know this is not a case for putting
fibre everywhere—
Q162 Baroness Fookes: Which we assume to be a benefit if they all get on?
Mr Holden: Yes, precisely. If they do not, you would not do it, I am sure.
Mr Kenny: Let me partially agree with Chris, but you will not be surprised to hear there is a
sting in the tail. I think remote medicine is an example where there can be real externalities.
Clearly, there is a direct benefit to the aged person living at home, but there can also be
cost savings potentially for the healthcare system, which benefits us all as taxpayers. I do
believe there are real externalities there. But the aged woman living alone is someone who
inherently is going to have low-bandwidth usage because she is perhaps less likely to be using
the internet anyway, and she does not have lots of kids running around watching video and
so on. For that high-definition video feed requiring 5 Mbps, we are a long way from that
delta between 5 Mbps and 80 Mbps—and I accept Chris’s point that not everybody can get
80 Mbps from FTTC, but even if we say 40 Mbps, which is a much safer benchmark—or 100
Mbps, which is the typical benchmark for fibre. That is the first thing to say.
The second thing to say is there is quite a lot of evidence that basic broadband can bring big
benefits to the medical system. Indeed, there has been quite a lot of evidence that the
internet can bring benefits to the medical system for over a decade now. The interesting
thing is that despite that evidence the medical system has not leapt at this with open arms.
They have not said, “Gosh, that’s fantastic, we’re off, we are going to start keeping the aged
at home and monitoring them remotely. We’re going to start monitoring diabetics”. There
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are a lot of reasons, not least that the medical systems are big, complicated and slow to
change, and there are human factors and a million things.
Indeed, the healthcare sector is, I think it is fair to say, notorious for being really bad with
the big technology projects. We just have to look at some of the struggles they have had
with even making electronic patient records, which you might have thought was a thing
more in their control. Another thing to keep in mind when we talk about these potential
things is that—and I know this is not what Chris was saying—it would be hubristic of the
telecoms industry to say, “Ah, we are the centre to this problem. If we just provide fibre, all
these things will follow”; not at all. There still needs to be a major re-engineering of how the
medical system works, which is by no means a given. There is huge downstream risk. One of
the things that suggests that is a real risk is, despite the fact that a lot is possible with basic
broadband and the potential is proven to be there, it has not happened. I do not see more
bandwidth being the answer there; there is something more complicated within the NHS or
the national health system.
Mr Holden: Can I just plug into that one? I agree with you 100%. One of the tragedies I may
put to you, is the fact that what we see is the European Commission has a vision. They have
a vision to where the future goes and, to be fair to Neelie Kroes and her cabinet, they are
saying, “Look, we want 100 Mbps, and then you can do all kinds of things in the future”.
One of the things we talked about among the benefits and externalities here is making use of
the health service, making use of unemployment, making use of schools and remote teaching
and learning, and even—coming back to your first point—basic internet skills. The tragedy is
the Commission put out this target and said, “Now national plans should be developed to
set out how they are going to get there, where they think they need to go, and what else is
going to come on top to utilise these services”. Most national Governments have done
nothing yet that really does anything substantial. The possibility and the benefits that could
be had by utilising this internet space and high bandwidth, for the other services, could give
enormous savings, particularly at times of recession. But nobody is doing anything about it,
and that is a real tragedy, I think.
Q163 The Chairman: Can I use my position as Chairman to ask a question that I think is
relevant in terms of the inquiry we are conducting? If you have a network that certainly has
copper at the end of the line, and if you are going to upgrade it, is it a sort of step-change:
you are either on copper and you have relatively low bandwidth, and then on the
assumption that if you changed it—forget about radio and all these other things—but if you
have copper you presumably would upgrade copper to fibre, would you not, if you have that
sort of physical link? Would you go straight from copper to fibre when you are upgrading, or
are there intermediate steps, because if you have fibre, it seems you have potentially almost
limitless capacity? So is in a sense the discussion about if you stick with copper, and
equivalent-type things, you are constrained to have a relatively low bandwidth—relatively—
and then if you move you are going to jump up to something with much, much more
potential?
Mr Kenny: I think Chris and I can agree on this one. If it is a fixed connection for, as it were,
a given metre of the fixed connection, it is copper or fibre—there is no other technology.
The Chairman: Exactly, yes.
Mr Kenny: That said, there are still some interesting wireless technologies in the States, but
set those aside for a minute. Where the non step-change comes is: how far out do you push
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the fibre from the exchange? So you actually have a reasonable amount of discretion: you
can do none; you can stick entirely with current copper; and—
Q164 The Chairman: But if you have a fibre node and you roll copper out, it is not all
that far before the amount of bandwidth you can get reduces very substantially. Is that not
right?
Mr Holden: It is a function of length.
Mr Kenny: It is a function of length.
The Chairman: Yes, but it is quite short distances.
Mr Holden: If you want the high bandwidth, yes.
The Chairman: Yes, if you want high bandwidth.
Mr Kenny: Yes, but that is true if it is a measure of distance. Let us say you have a house
that is—I do not know, but this might be the typical number in the UK—about 3 km from
the exchange, and you say, “We’re not getting great bandwidth over our 3 km of copper.
Let’s push the fibre closer to the household”. There is not a fixed cost per kilometre as you
get closer to the customer households, because it is like a branching tree. It is relatively
cheap to replace the trunk because you just dig up one bit of road and that gets you a third
of the way. As you push out, there is more and more capillarity in the system. The further
you push out fibre the more expensive it gets, and that is why fibre to the node—which
actually, just in terms of meters, goes quite close to the home—might, say, take you from
having 3 km of copper down to 400 metres of copper, or less even. It costs you a third of
the cost of taking fibre all the way, because so much of the expense is in those last few 100
metres.
Q165 The Chairman: It is in the digging and the burying and the—
Mr Kenny: It is in the digging. That is one of the reasons, by the way, why we should not
expect costs to necessarily come down a lot.
Q166 The Chairman: Yes. But it also follows, does it not, that where for some reason
or other copper needs to be replaced, for whatever reason, the opportunity cost of putting
in fibre instead of copper is pretty well nothing, but the benefit that accrues under the
circumstances I have described is very considerable, is it not?
Mr Kenny: Depending what bandwidth the copper was delivering, but if it was—
Q167 The Chairman: Most copper is relatively restrictive compared to what you can
get on fibre. If you want to get 10 Mbps, could you get 10 Mbps basically with fibre to the
cabinet and then—
Mr Kenny: Fibre to the cabinet will give you 40 Mbps easy and 80 Mbps—
Q168 The Chairman: Yes, but then you have to go from the cabinet to the home or the
works.
Mr Kenny: Sorry, the 40 Mbps or 80 Mbps for fibre to the cabinet is an end-to-end
connection. From the exchange to the cabinet you will have some vast amount of bandwidth.
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Q169 The Chairman: Limitless capacity?
Mr Kenny: That is right, because it is fibre, and fibre has huge—
The Chairman: Yes.
Mr Kenny: The constraining bit of fibre to the cabinet is the copper.
The Chairman: It is the end section—the end bit.
Mr Kenny: That is what sets the 40 Mbps or the 80 Mbps number, depending on the
equipment at the other end and the quality of the copper and so on.
Q170 The Chairman: You would agree basically with that, do you?
Mr Holden: Pretty much, but the point you made is a valid one. It is cheaper to install fibre
than it is to install copper these days. So if you are going to replace the copper, for heaven’s
sake, do not do it; replace with fibre.
Q171 The Chairman: Yes. But then if you have the copper connections at the end of
the network, and you wanted—for want of a better word—to put in 50 Mbps through to
most houses, is that a runner?
Mr Kenny: You can always push the fibre a bit further out. I must admit this is not a
question I have looked at in detail, and it will get more expensive. But the constraint is the
length of copper, and if you push fibre further out into the network, then you lessen that
constraint, and you can get higher speeds. Before—
Mr Holden: You are putting more cabinets out because you still have—
Mr Kenny: Yes.
Mr Holden: Remember you are designing a network here. So the cost rises because you are
looking at the density of the population: how far do you push it and how many people can
you cover? If you push it out further then you are probably going to need another cabinet
somewhere, and then you have doubled the cost of the cabinets.
Q172 Lord Clement-Jones: What length of copper can you have and get 50 Mbps, as
the Chairman has said?
Mr Kenny: It is a moving target.
Mr Holden: It is a bit of a moving feast at the moment.
Mr Kenny: Yes.
Q173 Lord Clement-Jones: So there is no definitive answer to that?
Mr Kenny: No.
Q174 The Chairman: Is it easier to get more bandwidth from copper than it used to be?
Mr Kenny: Absolutely, yes, and we have been through these generations DSL, ADSL—
Q175 The Chairman: Do you concur with that?
Mr Holden: There have been generations, like you say, ADSL, ADSL2+, VDSL and VDSL2+.
Then there has been bonding, which is actually using spare copper pairs when you have
them, which gives you some extra performance. Then there is vectoring, which can be used
if there are no spare pairs, and now they are talking of phantom mode.
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Q176 The Chairman: Sorry, phantom what?
Mr Holden: Phantom mode, which is a combination—
The Chairman: For the uninitiated, could you please explain what that amounts to?
Mr Holden: No, frankly, I do not think I can to do it justice. Basically, it is combining
bonding and vectoring to get very high bandwidths. But the costs and the risks are extreme,
and you will not find any guarantee of performance.
Q177 The Chairman: Is all this commercially realistic in the world we actually live in?
Mr Holden: No, not at the moment.
Mr Kenny: Sorry, all which?
Mr Holden: Phantom.
The Chairman: The increasing capacity upgrade in the copper to give you—
Mr Kenny: It has been going on for a decade. I mean, we started—
Q178 The Chairman: Is it going up to meet the sort of requirements? In a sense, I think
both of you agree that somewhere in between 2 Mbps and 100 Mbps there is a point where
sort of—
Mr Kenny: Where that point is is incredibly important and so, if I may, let me spend a
minute on that. Usage per household has been going up over time at a fairly brisk clip. There
are a number of reasons for that. People are spending more time online, so just the average
household is moving more traffic back and forth because people are plonked in front of the
computer more often. More people per household are online, so there is more
simultaneous usage now. Thirdly, they are doing more bandwidth-intense activities for every
minute they spend online.
The first two of those clearly have a natural limit. You reach a point where there are no
more hours in the day, or at least no more waking hours at home in the day to spend online
and, given the amount of time people in the UK are spending online already, we may be
approaching that. The second is the number of people online. Again, there are only so many
people in a household, and the point they are in online growth must stop along that
dimension. It is worth bearing in mind that the average household size in the UK is about 2.5
people per household, including infants, so two people on line simultaneously is a kind of an
average number. Of course, there will be households with higher. So those two dimensions
we are going to hit a natural limit; maybe not today or tomorrow, but we are going to hit a
natural limit.
The third dimension is the intensity of usage—the bandwidth-intensity usage—where we
have been on a steep upward curve: e-mail at an incredibly low intensity; streaming audio a
bit higher, at 64 kbps perhaps; YouTube, higher again; and iPlayer, higher again. But this, too,
is a thing with a natural limit, because humans are only capable of processing so much input
from whatever is coming down the pipe. We have talked about whether the weak link is the
copper or the fibre, but there comes a point where the weak link is actually the human eye
and brain.
People used to joke about extreme audiophiles, where we were investing in hi-fi equipment
that was of such quality that the human ear can no longer distinguish. Well, we are going to
get to that point with video imagery online. The bandwidth of the human eye is—and I am
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certainly not qualified to judge—according to the medical literature, 9 Mbps. The amount of
information an eye can process is 9 Mbps. So if you are asking me, “Where is it between 2
Mbps and 100 Mbps?”, I think at the point at which the two or three people in the
household are all online, all using the natural limit, which is the capacity of their eyesight.
That feels to me like the natural limit.
Q179 The Chairman: But is there not—and I come back to Chris Holden—a point here
that, as we have talked about the tree and the branches, if it is a tree between the cabinet
and the household, in fact, one of the constraints on what you can get is the trunk further
down, and as part of this process you do not get houses by themselves and businesses by
themselves? In fact, they are all scattered together and mixed up. That has an impact on the
capacity that you need to go on the fibre to the cabinet model out from the cabinet.
Mr Kenny: From the exchange to the cabinet is not a bit of the network where people
worry about the capacity—
The Chairman: No, because that is, on the whole, fibre.
Mr Kenny: Because that is on the fibre and you—
The Chairman: Yes, the bit beyond when you have—
Mr Holden: That is not actually true.
The Chairman: Oh dear.
Mr Holden: You will find already that BT are throttling sometimes some of the services
they have because their backhaul is not capable of taking the capacity.
Mr Kenny: I think we are saying the same thing. The backhaul from the exchange into—
Mr Holden: Yes, but also sometimes running from the cabinet. If there are a lot of
businesses on there they can be given—
Q180 The Chairman: Even the fibre is getting overwhelmed by the—
Mr Holden: The fibre can take as much capacity as you like. It is how you then split it out
and break it out to the different customers. So it could be that it is the other technology
that is the limiting factor.
Q181 The Chairman: So in other words, it is the middle-mile stuff is copper, but it is a
different—
Mr Holden: It is fibre. Most of the middle-mile stuff is going to fibre now.
Q182 The Chairman: Let us get the terminology right. From the exchange to the
cabinet, we are talking about.
Mr Holden: Yes.
The Chairman: Is that the final mile or the middle mile?
Mr Holden: A final drop is from the cabinet to the customer. If you take the part from the
cabinet from the exchange, what BT are doing a lot of now is driving fibre to these cabinets.
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Q183 The Chairman: Yes. So you have almost limitless capacity into the cabinet. So lots
and lots of stuff can go into the cabinet, go out of the cabinet, but you have the copper
constraint between the cabinet and the end-user?
Mr Holden: The copper constraint is the constraint from the fibre to the home for the
individual users.
Q184 The Chairman: Yes. But when you have a cabinet with copper coming out of it, it
starts off being a wire, as it were, and then it subdivides, because it is going one to a house
that way and one to a house this way, it divides again, there is a business off here, and so on.
So the characteristics of the copper are quite complicated. It is not what goes into each
house that matters; it is in a sense what goes into the cabinet or out of the cabinet, and the
use collectively over the whole of that that is the pinch point, is it not?
Mr Kenny: I think Chris will agree with me. That link between the cabinet and the exchange,
it is certainly possible that that can be congested at any particular point in time if they
overuse it, but if it is it is fundamentally BT being cheap rather than any fundamental
problem.
Q185 The Chairman: It is not the fundamental problem that we are talking about; it is
the last bits, really?
Mr Kenny: No.
Mr Holden: It is the actives on either end that tend to throttle the service. The fibre is like
you say—on a piece of fibre you could do the whole of the UK, probably, as far as
bandwidth is concerned—but it is the actives on either end that limit what you can do and
the splitting capabilities.
Mr Kenny: Since we are in this area, it might be worth talking for a second about what
happens from the exchange off to the rest of the network, because that is an area where
almost all ISPs apply what they call—sorry, another bit of ugly jargon—contention ratios,
which basically means they assume not everybody will be online at the same time, and so
even though they have offered in aggregate a sum total of whatever it might be, 200 Mbps to
their customers, their link in from the exchange to rest of the internet is not 200 Mbps, but
10 Mbps. That is completely standard telecom planning, statistical planning, because you
know not everybody will be online at the same time. However, in the busy hour, the time of
day when most people are online and for residential users it is about 11 o’clock at night,
there can actually be some congestion there, and at least some of the time when people
complain about the quality of their internet connection, the problem they are experiencing is
not with this last mile that we have all been very focused on, but actually with the stuff in
from the exchange because their ISP has not invested enough capacity there.
If we are coming up with applications that mean that people do need tens of megabits per
second, not only will we have to spend to upgrade the access network but also that backhaul
network. I am happy to say it is a smaller part of the puzzle, but there will be another spend
there.
Q186 Earl of Selborne: Just to follow up the Chairman’s last point on this, we have
agreed, I think, that fibre optic cable to the cabinet is not the constraint and it can take as
much information as you want. It is the branches beyond the cabinet that are the problem. If
you do away with the cabinet and you have fibre optics straight to the individual houses, you
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are going to run into a problem that, as you have more and more branches, so the cost of
trenching increases.
We had evidence a few weeks ago from somebody who had effectively set up a sort of
village co-operative, and they were appalled at the monopoly that BT exercise. Because we
are talking BT here; we are talking about rural areas, where if they were allowed to do the
trenching themselves they could do the installation at a fraction of the cost. That was the
evidence we were given. But BT are not regulated in that sense. Ofcom have no authority to
scrutinise the cost of the trenching that is charged by BT. Is this an area that you think could
be usefully regulated by Ofcom in order to bring the cost down, because this seems to be
the critical expense?
Mr Holden: Ofcom obviously are limited for—they can only regulate someone who has
SMP, which in this case is either Hull, which has its own little network, or it is BT. Outside
there they do not have the powers to regulate anybody at the moment, so that would be a
change. We are looking at Europe where there have been discussions that up to €300 billion
is how much it would cost to meet the digital agenda with fibre.
We have done our own modelling in the council, with various consultants as well, and think
it is more like €192 billion. That €192 billion to do Europe as a complete overlay—in other
words, a brand new greenfield site. There are enormous opportunities for infrastructure
sharing, and the tragedy is there have been missed opportunities that have come up. You
may have spoken to one of the companies that wanted to build a lot of the rural network
with Fibre to the Home, and were prepared to do that provided they could get access to
share the infrastructure at a reasonable price.
I know later on in the questions you have PIA systems, so BT have reduced their price a
little bit, but there are still discussions going on with some of these companies about
whether it is too high. But the discussion is all around using the BT infrastructure. There is
the cable out there as well. There is a cable industry that has probably better ducts and
infrastructure and free space than, say, BT has. So there are lots of other opportunities to
use sharing of infrastructure.
Then, particularly when you come to the rural communities, why are we not sharing
infrastructure with the other utilities like the power companies, when you have poles? I
know we do not like putting things on poles, but actually modern cables are pretty small.
Often you cannot even see them they are that small now. So sharing some of those
infrastructures would greatly reduce the cost.
Q187 Earl of Selborne: Would it be practical to put fibre-optic cables on poles?
Mr Holden: Yes. They do it in America, they do it in Japan and they do it in many countries
around the world. Interestingly, when you look at the cost to do the final drop, I think the
UK has 40% of its households covered by poles to the final drop. So there are potentials for
saving: ducting is expensive; civil engineering is expensive; hanging on poles is not necessarily
so, as long as you can get access at a reasonable rate, from more than just BT from the
other utilities and the other telecoms businesses as well.
Q188 Earl of Selborne: If trenching is the cost, as I think we have established from the
questioning, why do we bother to trench? Why do we not use overhead poles and get on
with it?
Mr Holden: A good question. Many people have asked that, but again it is how do you
regulate it and where are they available.
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Q189 The Chairman: You can use sewers as well, can you not?
Mr Holden: You can use sewers, yes. There is a company in the UK that was going to do
that in Bournemouth.
Q190 Lord Macdonald of Tradeston: Who is stopping the poles and the cables? Why
has it been stopped in the past?
Mr Holden: BT has certain rules and certain regulations and the PIA now is opening up the
BT poles with access to other third parties. I was looking at—
Q191 Lord Clement-Jones: Sorry, who is opening up?
Mr Holden: British—Openreach. Sorry, Openreach, not BT.
Lord Clement-Jones: BT’s wholesaler?
Mr Holden: Yes. Well, no, BT’s infrastructure arm, really. Openreach was structurally
separated from BT.
Lord Clement-Jones: Yes.
Mr Holden: But there are other utilities, like the power companies, but they are not
regulated in the same way, so Ofcom cannot do very much. If Ofcom had more rights to go
out and actually look holistically and say, “How can we reduce the cost of deploying fibre to
the home in the UK?”, there are lots of examples and lots of models from around the world
that could be used. There are a lot of communities that are actually laying their fibre. If you
look at—I think, it is the B4RN project—the farmers there are so desperate to get fibre
they are laying fibre in their own ground. They are buying fibre and taking it right to an
interface so they can be connected, and they are willing to do that.
In Scandinavia people are paying to build their own network. The municipalities are building
the network, using contractors, and then connecting in.
Q192 Earl of Selborne: But is it not the case that if farmers in this country try to do
that, they are told by BT that the specification is not compliant? Is there any way it can be
demonstrated that they have met the adequate standards? BT at the moment seems to have
the power of veto.
Mr Holden: I cannot speak definitely for that. I know that some of the rural communities
are looking at other suppliers, other than BT, to link their networks into. There is a
problem, to be fair. You can make too much of it, but the problem is: if something goes
wrong with a connection, who is responsible and where is the failure? It is very difficult to
manage a network with a multiplicity of different techniques and solutions, and actually
building into that network. So there is a real problem there. But there is no reason why
there could not be a standard and a recognition you do it in the standardway.
To be frank, if a farmer has put a fibre connection through his field, why does BT care?
Because if the failure is in his ground, it is the same as if your pipe fails for your water main
in your house—it is your responsibility—and BT would very quickly find that is the issue and
say, “You fix it”. So I think there are ways around a lot of this. We could really reduce the
cost of rural and villages—I am thinking here of installations—if we utilised the resources
that are already available by sharing ducts, poles and sewers possibly. Although sewers have
their issues.
Lord Razzall: Rory Stewart.
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Bishop of Norwich: Rory Stewart is going to give evidence to us to this effect. This is all
part—
Lord Razzall: I imagined he would, yes.
Bishop of Norwich: In which he wrote a piece the other day.
Lord Razzall: Yes.
Q193 The Chairman: Robert Kenny, do you have any points about this before we move
on?
Mr Kenny: Some small ones, but on this I am broadly in agreement with Chris. My sort of
beef with FTTH is not that it is inherently bad, just that it is expensive for the incremental
benefits it delivers. But if you can make it cheaper, great, and there are lots of situations
where fibre can definitely be the right answer. Certainly if you have a greenfield site, I would
definitely be building that greenfield site with fibre not copper. That is clearly the right
answer.
Q194 The Chairman: From your perspective, do you think it is the case that there are a
lot of constraints on putting fibre in that are essentially artificial? They are regulatory. They
are bureaucratic. From the perspective you are looking at this, do you think that if you
actually enable people who had get up and go to get on and do it, you would find a lot more
could be laid than has been the case?
Mr Kenny: I do not claim great expertise in this area, but what I will say is that the things
that look great in PowerPoint end up hitting real problems on the ground that are nothing
to do with regulatory issues, bloody-mindedness by incumbents or any of those. The sewers
were being used in Paris, but the glow rather went off that. Mercury, when it started rolling
out its network here in London, had this cunning idea of using the former hydraulic pipes
that were used to operate lifts and so on in London, which seemed like a great idea at the
time, and they brought the London hydraulic company. When you get down there it
suddenly gets really messy when you are on the ground.
There is a relatively recent Ofcom study about BT ducts, where they looked at the practical
issues with end-to-end availability, because of course what you want to be able to do is get
fibre from your exchange to the node or the house, as it may be, and you need all the ducts
in between to work just to be able to quickly blow fibre through. But there are a million
problems. The key to the manhole cover will be lost, the manhole will be flooded, a
particular duct will be jammed halfway down, or it will not have enough kind of apertures in
the wall. I mean there is just a lot of stuff. So I absolutely think it is worth exploring these
things and keeping BT honest. I think it is absolutely worth—for instance, when new roads
are built—the marginal cost of laying a good-sized duct along the road so that, if later you
wanted to put something down that pipe such as fibre, we would have no marginal costs.
Great. Why not? It is cheap to do. It creates option value for the future, even if you do not
need fibre today. So I am all for that if you can bring the costs of this stuff down.
Q195 Bishop of Norwich: Why is wireless not a cheaper and more straightforward
answer, given all these complexities about laying trenches or poles or fibre all over the shop?
In many cases it surely must be cheaper and more straightforward.
Mr Holden: So in the council we are kind of mixed on this because, as I said, I am in the
Fibre to the Home Council so therefore I talk about fibre. But actually we see 4G mobile
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phones and wireless as being complementary to fibre. The two go hand in hand. The
problem when—
Q196 Bishop of Norwich: Do you need both?
Mr Holden: Inevitably you are going to have to, because if you look at 4G services, already
the first thing they are desperate to do is get it off the airwaves and get it on to a fixed line,
and those lines—nearly all antennas now are fed by fibre not by copper because of the
bandwidth and capacity. So what we foresee is when you have everybody in a village with a
4G phone, and they have their graphics and they are watching their movies on them, for
some reason—I do not know why, but children do that—then the available bandwidth
reduces enormously, much faster than is claimed, and the first thing you have to do is offload
on to a fixed line. So you are going to see fibre actually driven closer and closer to the
home. If you look at an MDU, large buildings like that, you are probably going to need fibre
to feed the wireless service as well. So you are almost at fibre to the home anyway, so the
two actually go hand in hand.
Q197 Lord Razzall: Moving on and looking at the discussion from a slightly different
perspective, this is really to both of you and I suspect that you will disagree. Clearly there is
a balance the Government has to strike in allocating resources between stimulating basic
broadband and stimulating supply of superfast broadband. Do you think that the
Government currently has that balance right or wrong? Just as a slight supplemental to that,
what do you think of the idea that, rather than having targets for superfast broadband, which
many people think will not be met realistically by 2020, it would be better to have the USO
for improved levels of basic broadband at this stage?
The Chairman: Can I just interject? We seem to be going relatively slowly through our
agenda, so can everybody try to be concise, both with questions and answers?
Lord Razzall: We may be about to have a vote as well.
The Chairman: We shall see. Anyway, on we go.
Mr Kenny: All right, a brisk answer: universal service obligation of 2 Mbps? Yes. Is the
balance right? No, because, essentially, near zero is being spent on encouraging adoption as
opposed to hundreds of millions on shiny superfast.
Mr Holden: A 2Mbps universal service? Waste of time. Two megabits is dead already.
Nobody wants that. You speak to all the rural communities, 2 Mbps is absolutely—
Lord Razzall: Yes, it could be 10 Mbps, or it could be 8 Mbps.
Mr Holden: Could be 10 Mbps, or could be 8. Are we spending too much money on nextgeneration networks? We are not spending enough money doing next-generation. It is the
future, we should be spending more money as well on education. We are spending no
money on education of telecommunications, the benefits, or the services that run on it.
Lord Razzall: I think on that point you both agree, I gather.
Mr Holden: Yes, we do.
Q198 Bishop of Norwich: I think I read somewhere in one of the submissions that in
Korea, where there is the wide availability of very high levels of megabits per second—
Mr Holden: Gigabits.
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Bishop of Norwich: Well, whatever.
Mr Holden: They drive in gigabit now.
Bishop of Norwich: Right. There is only about 30% take-up in households, and it has
levelled out. Does that not give evidence that people will not actually pay for superfast
broadband while there are no real applications that would require such high speeds?
Mr Holden: I think one of the big issues at the moment is take-up. Take-up is used by the
incumbents, and everybody else is saying there is no need to drive fibre out because people
will not take it. They are quite right. I have a 100 Mbps service. I am not using 100 Mbps
most of the time, so why should I pay for that extra service? But the question is I know, I am
very confident in my own mind, that when services come along now I have 100 Mbps service
and I am going to be able to use them. I will not be disadvantaged. So yes, there is an issue
that not everybody is going to pay.
I would suggest 30% take-up is quite a good model, and if you look at the business models
for where they built you would probably find 30% is profitable. The other way to do it is to
build out to homes (passed) and then connect customers on demand. Where the models
work very well is when they go out and canvass and say, “Look we’re coming into your area.
We’re going to give you next generation fibre. You sign up now you’d (probably) get the
installation for free and you get this performance”, and when the take-up is about right, then
we build it.
Q199 Bishop of Norwich: These are quite major subsidies that we are talking about,
which will come from the taxpayer as a whole, which for the foreseeable future are going to
benefit the wealthier members of the community. What are the social externalities of that?
Mr Holden: I find it hard to understand why you are only benefiting the wealthy part of the
community. Are you suggesting that farmers are wealthy? Some of them may be.
Bishop of Norwich: I think some are.
Mr Holden: I did answer that some may be. A lot of farmers are really hard-working and
struggle to make a living, but they find fibre essential.
Q200 Bishop of Norwich: What would be the social make-up of those who are using
the majority of the gadgets that are around?
Mr Holden: Mixed, I would suggest. You need to look at who buys 3D 50-inch plasma TV
screens. If you look at the market for that, you will probably find it goes across all people
even those who should not have the money to spend on them. They buy these types of
machines, perhaps because they cannot afford to go out and they spend all their time at
home. So I would be very careful in saying it is only for the rich. I do not personally believe
that is the case.
Mr Kenny: I am very glad you have raised this issue because it is an important one. One of
the great ironies here is that collectively all of us involved in this debate are figuring out ways
to fund something that companies say they cannot make a profit out of, in many
circumstances, and which consumers—the great majority—say they do not want. It is an
odd starting point that we are trying to square that particular circle.
On the Korea thing, for penetration of 100 Mbps the curve is absolutely flattened. It is about
30%. I think they made about 1% progress in terms of penetration in the last year. Even that
is illusory because in Korea 100 Mbps is actually, for most people, cheaper than 10 Mbps.
The people who rolled this out have found they absolutely cannot charge a premium. They
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have to give it away at exactly the same price as the lower bandwidth in order to get any
uptake at all. It is a rational decision to do that, because once you have put the money down,
once you have rolled it out, that is sunk cost. You are stuck with that. There is no way you
can get that back. So even if you have to give it away cheap as chips, that is a commercially
rational thing to do, and it is one of the things we are highlighting about the risk of this
investment. All the cost is upfront; the money back—if it comes—comes over decades.
So, Korea is saturated at 30% even though it is offered cheaper. In Japan, 43% of people who
have taken those superfast services say they did so because it was cheaper. Again, they have
had to price very aggressively on those superfast services to get any uptake. In Europe JP
Morgan said only 5% to 25% of customers seem to be willing to pay a €10 per month
premium for superfast. €10 per month is trivial in terms of funding these investments.
In the UK—coming closer to home—Virgin Media has been out with superfast services
since, roughly, 2008 from memory, and they have had until relatively recently, effectively, a
monopoly of that. The penetration of their 50 Mbps to 100 Mbps services, after all that time,
in their own covered areas, is 1.6% of households. To give you a third party, Graham Finnie
of Heavy Reading, a respected commentator—indeed, he does work for the FTTH Council,
as I understand it—gave his view as: “There are no really compelling applications that
require a fibre connection. There has been painfully slow new customer acquisition in many
countries, and overall forecast is down significantly on last year”. That was in a presentation
he gave just a couple of months ago.
Q201 Bishop of Norwich: I am interested that the money all has to be provided upfront.
We have had, over the past 10 years, endless private finance initiatives where the money is
not upfront. If this is such a good bet for the future, why is private finance not being
invested?
Mr Holden: I think it can be, and there are plenty of funds available. As long as you get the
right regulatory framework with the right frameworks, they are happy to invest. At one time
there was a rash, or perhaps I should say a lot, of pension funds that were very happy to
fund the passive infrastructure—not the actives, but the passive infrastructure—of a
network because it is a long-term investment, and some of that funding is still available. I
think the answer is: where do they spend that money? It is fraught and it is very complicated
at the moment with state aid rules that are not easy. So things are slow, but I think you will
see investment models coming up, where you will see these funds being used.
Q202 Lord Razzall: Presumably, one of the reasons is because there is some doubt as to
the revenue model, so people do not want to invest. Most of the PFI schemes—and Lord
Macdonald knows better than most—are based on a robust revenue model with a long-term
revenue flow. Well, where is it?
Lord Macdonald of Tradeston: The Government decided over 10 years ago that you
should not get involved in IT for a PFI because the technology changed too quickly, so you
could not have a long-term 20, 30, 40 year financial model with disruptive technologies
coming in so quickly.
Mr Holden: That is the reason you notice I was very careful in what I said. Pension funds
were happy to fund the passive infrastructure—in other words, the civils, the fibre in the
ground—but not the actives, because the actives were changing rapidly. For instance, now if
you drive fibre out and then put a cabinet in and you know it is going to be replaced pretty
soon when the bandwidth needs to be bigger, that is sunk cost. Actives either end are
changing. They are the limiting factor that control what is happening now on the fibre, so
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they can change. But if you can fund the passive infrastructure, which is actually getting most
of what you need in place, then maybe obtaining funds for that will be easier.
Lord Macdonald of Tradeston: Pension funds are among the most cautious capital that
you would find as well.
Mr Holden: Yes. They are. That is right. The other thing is risk. At the moment where do
you go? Is the UK Government going to give more than the £540 million or are they going
to remove it? When they put the infrastructure in, is it going to be overbuilt by somebody
else who is going to take away their profit? There is no co-investment at the moment. The
European Commission may provide up to €100 billion, now maybe €50 billion—in financial
support? Is that coming? If I am going to get a share of €50 billion, do I want to spend my
money at the moment? So there are all kind of reasons not to invest at the moment, I think.
Q203 Lord Gordon of Strathblane: Could I take us back to costing just very briefly? It
seems to me that we are not comparing like with like. We are comparing the cost of doing
things to the end of copper connections with laying fresh fibre optic cable. I think, Mr Kenny,
you would agree if we were starting from scratch, as all third world countries are, we would
lay fibre not copper?
Mr Kenny: Yes.
Q204 Lord Gordon of Strathblane: I think you would also agree—and I think you have
already said—if you are replacing copper, you would replace it with fibre. So I am struggling
with finding your cut-off point and what the reason for the cut-off point is. You were saying
that we are better continuing to improve copper, as we have done quite remarkably, rather
than investing in fibre?
Mr Kenny: As it were, the copper is already there. In the same way that we might say,
“Well, if we didn’t have an underground system here in London, what we would build is one
that looks like Hong Kong”, we do have the one we have, and it works pretty well, so we
live with it.
Lord Gordon of Strathblane: Yes, but it has limitations at some point.
Mr Kenny: Yes, but the issue is that the benefits are inevitably incremental because we have
something that works to a level and we can only look at the incremental benefit. The costs,
absolutely; you have to take into account all the costs.
Q205 Lord Gordon of Strathblane: Can I just suggest something is not only imminent
but is already happening, which changes the ballpark a bit, and that is internet broadcasting? I
only become conscious of megabit speeds when you are trying to download something in
iPlayer and you suddenly get jumping. Now, if somebody is doing a live broadcast and that
happens while Usain Bolt is crossing the line at 100 metres, I am not going to be best
pleased. BBC are now doing broadcasting, particularly during the Olympics, using broadband.
That is going to show up any deficiencies in bandwidth speed, would you agree?
Mr Holden: Yes, absolutely.
Mr Kenny: As a technical statement, yes, but what the iPlayer says is the necessary
bandwidth—and I speak from memory here—is in the realm of 2 to 3 Mbps.
Lord Gordon of Strathblane: Absolutely.
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Mr Kenny: As I think I have already indicated, I have a lot of sympathy with the people who
are struggling on less than 2 or 3 Mbps. I just do not think that is a very large part of the
population.
Lord Gordon of Strathblane: I think you might find it is much larger than you think.
Mr Holden: They call it blocking; you are watching a video, and it blocks, it stops and it
freezes. I get that sometimes, and I have 100 megabits, but my 100 megabits is not constant;
it also varies when there is a lot of traffic.
Q206 Lord Gordon of Strathblane: This also brings in the point you mentioned earlier
about contention ratios. You can afford to promise people a lot on the basis that a lot will
not want it at once, but if it is a television programme, they might all want it at once.
Mr Kenny: If it is a live broadcast and it is, say, Usain Bolt running the 100 metres, there is
something called simulcast, which means that rather than sending everybody in the country
their own specific video you branch it out. As it were, you have one version per branch of
the tree. So that need not be a problem.
Mr Holden: It still can be on a copper solution.
Mr Kenny: The copper solution, as it were, is specific to the household. It may be a
problem, but multicast shifts the problem—if there is one—out to the copper—
Mr Holden: Multicast works by broadcasting one thing, but when you are doing multiple
channels, which you would in the Olympics, it is a different situation.
Mr Kenny: Yes. But the other thing worth saying—
Mr Holden: At the Olympics everybody wants to watch something different, not everybody
is watching the same thing.
Mr Kenny: Yes.
Q207 The Chairman: But if you want to watch Usain Bolt run, it will not matter
watching it 10 seconds later, will it?
Lord Gordon of Strathblane: For the avoidance of doubt, BBC are using conventional
technology for the 100 metres, I think.
Mr Kenny: Yes. At the risk of getting too technologically sophisticated, we have a solution
for getting live broadcast of Usain Bolt to all the population in the UK. It is called television.
We do not necessarily need a new one.
Lord Gordon of Strathblane: Yes, that is what I say.
Mr Kenny: But to pick up on your point about how many people have 2 Mbps, if I recall,
Ofcom says that the average speed in the UK—and of course there will be variations—is
about 7 Mbps these days. So I think again I have a lot of sympathy with people with less than
2, but I think that is an increasingly rare case.
Q208 Lord Gordon of Strathblane: One of our witnesses who came I think from
Kent—was it not?—most of his county, or an area around about him, was under 2 Mbps.
The Chairman: They had a particularly bad problem. That is right.
Mr Holden: Can I just say we should be looking at the future. Everybody thinks that mobile
is the future and wireless. None of us can do without our phone, wherever we go. I cannot
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live without this. They need to get that signal back into a fixed line as fast as possible. What
they need is more spectrum. So you could foresee where your BBC broadcasting actually
could be put on fixed line, releasing that spectrum for more mobile use, and then you would
have a huge opportunity. But you cannot do that if the fixed line is not capable of taking that.
So who knows what could happen in the future; that is the point.
Q209 Earl of Selborne: What would be the opportunity cost to the United Kingdom
awaiting for killer applications to emerge; in other words, waiting for demand to stimulate
market investment in infrastructure?
Mr Holden: If you mean the opportunity costs of not building the infrastructure in place and
then this demand comes along—is that what you mean?
Earl of Selborne: Yes—waiting, yes.
Mr Holden: Yes. What you are going to do is you will continue to build out the copper and
do the extension to it, and then you are going to have to pay three to four times as much
money later to go to fibre, and you will have missed the time slot, probably, when other
people have advantage of that capability and your population do not.
Q210 The Chairman: Robert Kenny, what do you think?
Mr Kenny: With respect, I think it is a slightly odd question. Say you said—oh, I do not
know—“We need a new road between London and St Albans, and we were thinking we
would build a two-lane road, but actually there might be a killer load of traffic, and a huge
number of people want to travel back and forth on that route, so to be on the safe side we
will build a six-lane motorway to St Albans”. That is a bad example—there is one; it is called
the M1—but you know what I mean. The idea that you can invest hugely just in case demand
materialises later—yes, you avoid the risk of slightly delayed investment if there does turn
out to be a demand. On the other hand, you take on a potentially massive waste of cost if
there does not turn out to be demand. I would contend that the evidence from markets that
have rolled it out, and have found that essentially consumers have blown it a bit of a
raspberry, suggests that the risk is much more investing too early than investing too late.
I particularly think that, given that the uses there might be for the really fast speeds need to
be ones—to use the ugly jargon—with externalities. You know, it may be a bit sad that a
given household cannot get 3D “Avatar” on demand this year and has to wait a couple of
years for it, but I do not think we would see that as kind of a market failure or a failure of
Government. So I am not too worried about the—
Q211 Earl of Selborne: Can I just propose to you what might have happened had we
not done just this for the universities? We had this JANET network and then the
SuperJANET network, and what of course that did is enabled higher education and research
to grab an opportunity that probably had not been identified. You now have it in the hospital
service, in the National Health Service; you have genome sequencing, a vast amount of data
that has to be captured and moved around, and again I suspect that without dedicated
networks this is not possible. Are there other such uses that we have not yet thought of but
which are going to be needed by other users, maybe businesses and maybe even the farmers,
who we have heard about, who are nowadays using an enormous amount of data in order to
determine where to put their spraying, what square metre of ground? This is a sort of highdata network system that of course will not be possible if we do not have the infrastructure
in place or the network rather in place.
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Mr Kenny: I suspect—and I do not speak from great knowledge here—the issue with
farmers is not so much that they have a desperate need for a lot of bandwidth but they are
really annoyed by having very little bandwidth. So by definition farmers are rural. They are
likely to be further from the exchange. They are probably in that category of people who
have been struggling by on sub-2 Mbps, and if you are running what is effectively a small
business, I can see that is very frustrating and the solution is to bring fibre closer to you. But
the fact that farmers are interested in solving that current copper problem does not
necessarily mean it proves there is huge demand for superfast.
I come back to the issue of how many people sit within an individual home and how much
can they possibly use. If you are already delivering an HDTV stream to every individual in a
house, and let us say it is quite a big house—it is five people—that is 6 Mbps for an HDTV
stream, so that is 30 Mbps for HDTV simultaneously for every user in the house. What kind
of information flow can a given the individual in the house absorb that is more than an
HDTV screen? How much information can a human process? For universities and for
hospitals, where you have a lot of people and potentially really big data sets, it is a very
different thing, and I would be the last person to argue against high bandwidth for those
kinds of premises. But for me that does not carry over to saying, therefore, there is likely to
be superfast demand in homes.
Q212 Earl of Selborne: Going back to the rural communities, most villages try to keep a
primary school going. A primary school is going to need an enormous amount of data
crunching. You look surprised, Mr Kenny, but is that not correct?
Mr Kenny: I smile only because the empirical data from the rollout of broadband to schools
in the US is that actually quite often it has had—and indeed to homes— a negative impact on
test scores. When you look at what broadband is primarily used for, in a way it is not
surprising because huge amounts of time that teenagers spend online is Facebook and online
gaming. That has to come from somewhere. TV consumption has not particularly dropped.
So it is not beyond the realms of possibility that where it has come from is homework.
There is no great empirical data that says bringing broadband connectivity to home and
schools has positive educational outcomes. If anything, the evidence is slightly the reverse.
Mr Holden: I would agree to differ. I think it is very naive to assume that we are not going
to progress at the rate we have progressed in the last few years. Who would imagine that
the mobile phone would have taken off the way it did? Who can imagine when iPads came
out that people would buy them? The new iPad 4 that is hardly any different, apart from the
fact it needs twice the bandwidth, has sold millions over the first weekend. It does not take
very much to suddenly bring something out that is going to use more bandwidth.
Mr Kenny: The iPad is a great example of precisely my point, actually.
Mr Holden: But if you then look at houses and homes, you look at all the other things that
are going to be connected. While it sounds quite small, add them all together—then you can
end up getting quite a large bandwidth. I go back to all these university projects that are
going on with services that have externalities; in other words, services that give benefits to
society, or big projects using big bandwidth. A lot of projects going on at the moment—I
cannot believe none of these are going to come into fruition.
Mr Kenny: The reason the iPad is such a useful example here is the reason the new iPad
requires more bandwidth is because it is a much higher-resolution display. It can display
much higher-resolution video, and that requires more bandwidth. Apple’s name for that
display is the retina display, and the reason they call it that is because the resolution of that
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display is as good as the human eye. So where do we go beyond that? Is the next version of
the iPad going to have an even higher-resolution display that the human eye cannot even
determine? If not, if we have arrived at our destination with the retina display, how is the
next iPad necessarily going to use more bandwidth?
Q213 Baroness Deech: I am sure they had a similar debate 90 years ago about radio, but
anyway.
Mr Holden: And the railway.
Baroness Deech: Absolutely. Absolutely. “This electricity, what are we ever going to do
with it?” Yes. If the demand for superfast emerges, how do you evaluate the current
Government rollout plans in terms of the ability to upgrade in the future?
Mr Kenny: I think it is perfectly sensible to create the option value to upgrade to FTTH
later because while I strongly feel it is unlikely to crystallise, I claim no crystal ball, and it may
do so. In particular, if we are doing things like rolling out ducts in support of fibre to the
cabinet, to make sure there is plenty of space so that you could if you wanted later add
more fibres to that, that is perfectly sensible.
The estimates are that if you invest in FTTC—and this is a Value Partners’ view—roughly
half of that investment is redeployable to fibre to the home. Not all of it is. That investment
that goes into the cabinets would be lost investment, if you subsequently upgraded to FTTH.
The fibre between the exchange and the cabinet, and in particular the dealing with the ducts,
is potentially redeployable. But anything you can do to ease that upgrade path I think is well
worth doing.
Mr Holden: You are not talking of much there. You are just talking about the fibre and the
duct for upgrading. I think it is a bit unfortunate, in a way, the way the money is allocated—a
lot of people have been waiting a long time to get projects rolling. The money is being put
out to different counties, which is probably a good idea, but what it means now is each
county is responsible for putting bids together as to how they are going to spend that
money and what projects are going to go ahead. It just misses, I think, the holistic approach.
So maybe BDUK has lost an opportunity to say, “Let’s have a look at the whole country.
Where do we want the country to be? What is our vision for it in the future? How do we
get there and how do we make this work?” What they tend to do now is throw some
money at different counties and say, “Off you go, you decide what you want”.
Q214 Lord Macdonald of Tradeston: The Broadband Delivery UK is the agency
obviously with oversight of rolling out this whole policy and of spending the Government’s
£500-plus million here. You mentioned it is probably rather a good idea that they were
basing it on counties. But we have had evidence that says counties are so varied in their
nature that they do not really make up useful economic units if you are trying to get people
to invest in them, and it would be much better rather than being stuck with archaic county
boundaries—as a definition—to go for franchise areas that would be marked out in terms of
what would be affordable for all the peculiarities of geography and demographics, and
everything else in the franchise area rather than the county. Would you agree with that?
Mr Holden: Yes, I do.
Q215 The Chairman: Robert Kenny?
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Mr Kenny: Yes, also. The key dimension here is crudely population density. In highly dense
areas copper is likely to work better, but also you are likely to have Virgin already there and
BT running out its own stuff, and there is no need for Government intervention. In the
super-rural areas, FTTH is going to be fantastically expensive. I think we both agree, and
wireless is probably the solution there. That middle ground is the interesting area; I think to
look at it through that prism rather than through county boundaries is certainly right, and I
think it is particularly puzzling that the Government was investing in superfast cities, because
that feels like people who already have quite a lot being given even more rather than
focusing on the places where the Government investment could have the highest marginal
impact.
Q216 Lord Macdonald of Tradeston: It may be a bit unfair of us to ask this of you, but
what do you think the possibilities are that the Government or BDUK will change its policy
from counties over to franchise areas?
Mr Kenny: I have absolutely no idea. Pass.
Q217 The Chairman: But you would not say it was a bad idea?
Mr Kenny: I would not say it was a bad idea.
Q218 The Chairman: Would you, Mr Holden?
Mr Holden: I would not say it is a bad idea. I cannot say how difficult. It seems to me they
have only just moved—they were struggling to allocate the funds and get agreements in
place and it seemed like—
Q219 Lord Macdonald of Tradeston: You are not close enough to the process to
know whether there ought to be change?
Mr Holden: Correct. It just seemed to me like using the counties was an expedient way of
saying, “We’ve now released the funds”.
Q220 Lord St John of Bletso: We have heard that at least 85% of the UK has access to
fibre optic within one mile. Is this the case?
Mr Kenny: Pass—no knowledge.
Mr Holden: Possibly. I would not like to promise.
The Chairman: One of the great things nobody knows is how much dark fibre there is,
where it might be.
Q221 Lord St John of Bletso: Yes. A supplementary question is: is there a
comprehensive inventory? How could one find out? We know that the fibre optic is under
the motorways and railway lines, but how can one find out an inventory about where that
fibre optic is?
Mr Holden: It is extremely difficult at the moment, I think is the answer. There was a lot of
discussion, again when we came back to Ofcom. Does Ofcom have a role here? I know it
has been debated in the past: why do the regulators not have a role of actually being
responsible for mapping out what fibre is where, how it is utilised and who owns it?
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Q222 Lord Skelmersdale: On that subject, we have been told that electricity companies
have a fibre optic loop between their miscellaneous power stations and substations. Is that
right? Do you know?
Mr Holden: Some do. I am not sure if they all do. Some do. That is why in some parts of
Europe the people that have built fibre infrastructure are actually utility companies, not the
incumbents. In fact, if you look at most of the fibre that is laid and built in Europe it is not by
incumbents, it is by utilities and municipalities.
Q223 Lord Macdonald of Tradeston: It is quite an important security issue in not
making public where a lot of those fibre connections could be, because they are obviously
essential to your basic utilities.
Mr Holden: Is it? Why?
Lord Macdonald of Tradeston: I think after 9/11 one of the concerns was that there
were nodal points that could be attacked, and so much of the traffic on the internet went
through just a few nodes that we would not want people to know where they were, and I
hope that since then they have been dispersed.
Mr Holden: But frankly I am sure if a terrorist wants to upset a network he has plenty of
means of getting into the power utility to find out where that is.
Q224 Lord St John of Bletso: The obvious question has to be: what measures can be
taken to get better use of that dark fibre, and not just that but what are the technical
constraints to getting access to that fibre?
Mr Kenny: What problem are we trying to solve with this dark fibre?
Mr Holden: I guess you are saying if there is fibre there, why should we not use it better
rather than build it new.
Lord St John of Bletso: Exactly. Yes.
Mr Kenny: Yes. But where there is no fibre, if you like, is in the last half kilometre, generally.
Where there is fibre is in BT’s network and Cable & Wireless’s network, the mobile
networks and power utilities, but that is all trunk-of-the-tree stuff. The trunk of the tree is
not where the cost issue is for FTTH. It is out at the leaves and tips of the branches. You
may get lucky and it may happen that a particular fibre strand goes past a particular building
you are interested in, but it is going to be absolutely marginal in terms of really solving the
edge problem that drives the cost issue.
Q225 Lord St John of Bletso: We have heard so many different cost estimates, to go
back to my original question about what it is going to cost to lay out this grand superfast
infrastructure, and the real question I am getting at is, if we have part of that solution at
hand, surely there has to be a better way. You mention the economies of scale, of getting it
into households with telephone wires and sewerage. There have to be other ways of doing
it, and that is what we are trying to discover here: how we can get our arms around it all.
Quite clearly in the future, for the better infrastructure we can provide, despite what you
are saying about what the applications are, the long-term solution is to provide something
with your existing infrastructure.
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Mr Holden: Yes. I am not sure how bad the dark fibre is. I would imagine most of the dark
fibre is owned by somebody and they have a very good map of it. You are ex-Level 3, so you
have better knowledge than I do.
Mr Kenny: Absolutely. All of these companies will have incredibly sophisticated inventory
systems that map it, so it is not that the data does not exist; it is just that it is fragmented,
and it is in all of these companies, so you need to somehow persuade them to disgorge it. It
is not that those companies are necessarily unwilling to release that fibre. Indeed, they make
their living by selling their services, so that is why they have it—for the telcos at least. You
can phone up Level 3 today and have a conversation with them about using their dark fibre,
so certainly for the telcos it is not necessarily a problem of access there. It is possible the
power companies who are not in that game are sitting on fibre they laid a while back and
have found no use for. Even if you solve that problem you are dealing with a tiny percentage
of the total cost problem of fibre to the home, because the cost problem is out at the edge,
not in the core where the dark fibre is needed.
Q226 The Chairman: Absolutely. I think the crucial point, and you are both saying it, is
that in terms of getting to the last mile, the dark fibre is probably a mere irrelevance,
because the places where the last mile is problematic are places where the dark fibre is not
going to be. Is that correct? We did hear evidence about effectively a main fibre running very
close to a lot of areas where otherwise connection was more or less impossible. This was in
rural Kent.
Mr Kenny: Definitely yes to the first part of that. There would be no reason for a fibre to
be running down Acacia Avenue in Northampton, and that is where you need the fibre to be
if you are going to provide superfast to the householders.
Q227 The Chairman: The example we were given was rural Kent, where it was said
that a main cable of fibre was running surprisingly near to this community but it was not
possible at that point, rather like a motorway junction or railway station, to get on it.
Mr Kenny: That is true. You would want to solve that problem, but you still have the big
cost problem of wiring up the particular community, and I take the point that you may solve
some particularly egregious circumstances like Kent, but in terms of what you then have to
go and do, all that does is bring Kent to a situation where it has the same problem that
everywhere else has, if you see what I mean in terms of the cost.
Mr Holden: I see the point you are taking here. I am not sure of the village, but I believe it
was a village community that were prepared to put the infrastructure into the village to
cover all households, but then they have to get back to an exchange and that was the big
cost. They were saying when they came out of their village on to a main highway, that is a
major route for fibre network, so if they could link into that they could get to the exchange
economically and be more viable. I am sure there are situations like that.
Q228 The Chairman: Do you think in the overall scheme of things they are relatively
immaterial?
Mr Kenny: Yes. I have not seen the numbers, but I suspect so.
Q229 Lord Skelmersdale: It seems from what you have said over the last almost two
hours, for which many thanks, that you both agree that there is nothing regulatory which
will help this particular situation. However, if in its forthcoming Business Connectivity
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Market Review, Ofcom was to compel BT to allow its PIA customers to sell fibre back on to
businesses as well as domestic users, would that get your approval?
Mr Kenny: Sorry, that is not a topic I have knowledge of. I go back to your opening
comment, that there is nothing regulatory to be done. I would not be as strong as that. I am
not aware that the major problems are regulatory, but to say there is no regulatory thing
that could make it better I could not claim, although I do think the main problem is that
customers do not want it very much.
Q230 Lord Skelmersdale: Would you agree?
Mr Holden: No, I could not agree.
Lord Skelmersdale: Agree with your colleague or agree with me?
Mr Holden: We sometimes agree. No, I could not agree with the statement that you made
that there are no regulatory issues that would make an improvement. I think there are a
number of regulatory issues that could make an improvement.
Q231 Lord Skelmersdale: Such as?
Mr Holden: There are two things. One is the way in which the regulator sets the rules. One
of the things that is stopping some deployment is probably incumbents are very keen on
deploying PON networks, and PON is very difficult to unbundle, which is not helping
competition.
Q232 The Chairman: Sorry, what sort of networks? Pond?
Mr Holden: PON.
The Chairman: PON. Can just explain that to us?
Mr Holden: Basically it is a splitter type solution where you have a small number of fibres
that split to feed the customers. What that means is it is harder to unbundle, so you have to
unbundle basically with a bitstream product, which means other people who at the moment
unbundle on the copper infrastructure where they can add value can no longer add value
because they are beholden on the infrastructure that is there. Whereas a point-to-point
you can completely unbundle, then people take individual fibres and provide services on
those. Then you get a more competitive situation where competition drives down prices.
There is a thing called a ladder of remedies and regulation where you can have more choice.
Ofcom have also put in place a thing called VULA, which is a new way of putting a physical
attribute into a bitstream product. The regulator at the moment is limited on SMP so he can
only regulate BT and Hull.
Q233 The Chairman: Do you think that regulatory scope ought to be enlarged?
Mr Holden: No, I am in a fixed mind here. At the moment most of what is driving fibre is
competition, and the competition usually comes from the cable company. If cable had
DOCSIS3.0, they could do the 100 Mbps, so the likes of the incumbents have to upgrade to
keep on a par to offer the same services.
If you open regulation to everybody, then everybody gets regulated heavily and maybe the
competition from cable goes away as well.
Q234 The Chairman: Quite a lot of the country, as we have heard, is not subject to the
coverage by the cable company, so it is a BT monopoly on the infrastructure.
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Mr Holden: I would suggest that one of our favourite models is Portugal. Portugal also has
cable as a competitor which made them drive what they drove, but they had a regulator
there that drove effectively duct sharing. They have a very good duct-sharing product, and
they do not offer a bitstream product at the moment. The European Commission would like
them to do that because they would like to see a full set of remedies, but that has driven
competition because by giving a duct product it means you get more than one infrastructure
built, which means you then get competition, which is good for everybody.
Q235 The Chairman: Do you think that is the way around it?
Mr Holden: I think that is a potential way around it. I think it depends where it is. It only
works where there is competition so it is only in what they call the black (urban) areas.
Q236 The Chairman: Yes, but in order to have competition you must have at least two
potential players in the game, and one of the problems I sense about quite a lot of what we
are talking about in this country is that we are not necessarily in that position. Certainly not
in terms of the infrastructure; there may be in terms of wireless and other things.
Mr Holden: We are, because we have cable and we have—
Lord Gordon of Strathblane: It is only in about 50% of the country; that is the problem.
Mr Holden: Yes, but it is the black areas still. If you remember, when I started what I said is
that you have the black zone which is the cities where we have competition because of
cable, and that is driving growth, innovation and prices. Then what we are talking about here
is the funding, because the funding is effectively state aid; state aid only applies where there
is no competition. Then there are still things the regulator could do, and I come back to the
sharing of infrastructure and being able to share infrastructures other than just BT’s. It
would be an enormous advantage in reducing the cost of deployment. So that is why I do
not necessarily agree with what you said.
Q237 Lord Skelmersdale: The trouble is, it is not in the current regulatory strategy’s
armoury to do that.
Mr Holden: Correct. That is up to the British Government. If they wanted to give them
that, they can do it. If you take France, ARCEP have a certain mandate from the French
Government, and they are the most innovative regulator probably in the whole of Europe at
the moment.
Lord Skelmersdale: We will have to see if we can put that into paragraph 130 of our
report.
Q238 Lord Macdonald of Tradeston: Your presence today is an embodiment of the
arguments that are still going on internally in all of this. It is an early stage of our inquiry, and
we usually start off fairly confused, but in this one I feel probably more confused as things go
on, which alarms me a bit. Do you think that there is a coherent strategy here that has been
followed by Government or industry, or is it so fragmented that people really have to go
back and have a very fundamental look at all of this before they stumble on spending
hundreds of millions of pounds?
Mr Holden: Do you want to lead that one, while I think of an answer?
Mr Kenny: The fundamental problem here, the nut of this issue that makes it so hard—and I
have done in the past projects for clients, before I became such a cynic, about how this
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could be co-funded; it is really, really hard—is that consumers will not pay for it. All of this
would be easy if there was real consumer demand there and people willing to pay a good
premium for broadband. None of us would need to have this conversation; BT would be
busy rolling it out; other people would be busy rolling it out. The fundamental problem is
that the cost to do this is a lot more than consumers want to pay—a lot more.
You can do stuff at the margin about the cost and in particular geographies that may help,
but the reason the problem is so hard is because that evil problem lurks at the heart of it. In
time that may change. Perhaps these applications will come along, and perhaps consumers
will see the light and suddenly start saying, “Great, I want it.” But what is not at all clear to
me is why you have to wrestle with that black, evil problem today rather than waiting a bit
and seeing.
It is not as if there is going to be no opportunity for that demand to crystallise, because
there is going to be some superfast. There is going to be superfast in other parts of the
world. We have had the better part of a decade to see if some applications emerge in
Korea. They have not yet, but maybe they will, and then we can import them. Even in the
UK we are going to have superfast because Virgin is busy rolling it out, and sooner or later
perhaps a few more customers will be persuaded to buy it.
That we are rushing to force superfast out elsewhere while there is still no consumer
demand for it creates this devil of a problem, and it means it is really hard and you go round
in circles trying to solve it. That is why I think it gets more confusing as time goes by and not
less, because that is the fundamental problem.
Q239 Lord Macdonald of Tradeston: So it is not a strategy that can add up? So it is
unlikely that whatever the target is of this strategy, it is not going to be met?
Mr Kenny: That is my view.
Q240 The Chairman: That seems to be the view you both thought at the outset, is that
right? Whatever is going to happen, the Government strategy is not going to be
implemented?
Mr Holden: Frankly, I am not sure the Government has a strategy. What is superfast
broadband, can you tell me?
The Chairman: We have been told by them it is 100 Mbps.
Mr Holden: No, you have not because what they say is it is anything above 24 Mbps, which
is Ofcom’s definition of superfast, and I understand the Government say 25 Mbps.
Q241 The Chairman: Would you say that 25 Mbps was superfast?
Mr Holden: No; superslow, I would suggest.
Q242 The Chairman: Where would you put it?
Mr Holden: I would say you want 100 Mbps at least, and you want a certain element of
symmetry if you are looking at a superfast network.
Q243 The Chairman: What do you think?
Mr Holden: Bearing in mind the superfast definition, a superfast network, not whether you
need 2 Mbps or not.
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Mr Kenny: I think we are starting from the wrong end of the telescope. To begin the
discussion about how many megabits do we want and how technically do we get there
seems perverse to me, because megabits are only a means to an end. It is as if you started
the debate about should we build a particular road by discussing what kind of asphalt it was
going to be. Start with what we want to be able to do.
I think what you have heard from Chris and I, and I do not want to put words into his
mouth, is that as of today we have no idea what we would want to do with a higher bit rate.
I would start with looking a few years ahead. I am not saying there is going to be no further
growth and we should just stand pat where we are. Look ahead a few years, see what we
think in a few years the demand will be, and then say, “Okay, fine, our need is for 10, 24,
whatever the number is”, once you have started from applications. Then say, “All right, we
want to plan to be able to deliver that set of applications”—which by the way is a bit of
boring Excel work—“we have figured out it is 24 Mbps and now we will design a network
around that”, rather than starting with megabits per second. That is a really odd place to
start the conversation.
Q244 The Chairman: It is a very easy way for politicians, though, to present their case,
is it not? That is a different point.
Mr Kenny: Well, there is a meta-question about why we have arrived where we are in this
debate, and that is because big numbers sound better. Big numbers sound better. If 2 Mbps
is good, 10 Mbps must be better, 100 Mbps must be fantastic and a gigabit, gosh, that is the
second coming. That is pretty exciting. There are diminishing returns to the numbers,
severely diminishing returns, so I would start from applications and work in. The reason why
I say look a few years ahead is we have had a bit of a conversation about the potential waste
of rolling out FTTC and later over-building with FTTH. FTTH is so much more expensive
than FTTC that even if you push it out just a little bit, the time value of money means it is
the right answer.
There are some numbers on my blog, if you are interested. The back of the envelope says,
for the people who know finance in the room, at a discount rate of 10%, if rolling out the
FTTC delays the need for FTTH by just three years, it will be worth doing. Even though you
will write off some of that investment, pushing out the huge amount of money that it costs
to roll out FTTH today is worthwhile, not because FTTH gets cheaper, but just because you
do not have to spend the money now; you can spend it later. So, three years is not very
long. It is one thing to say, “At some point in the future something will come along that will
need FTTH.” It is quite another that says, “We will definitely need it within three years.”
Three years is not very far out, particularly when FTTC can already do full—
Q245 The Chairman: Would it be fair to say, going back to the tree metaphor, that you
are for shortening the length of the branches?
Mr Kenny: Roughly speaking, yes.
Q246 The Chairman: I think we are coming to the end. We have overshot our time.
Mr Holden: Just to say I disagree, obviously. I think competition works in the cities, and it
will drive the technology as necessary. I think the target of 100 Mbps is forward-looking, and
it is partly set to say, “Where is the next technology that is going to drive us and be futureproof and does not sink costs that are going to be wasted?”—in other words, go to a fibre
network rather than a copper network and keep on trying to squeeze a bit more out of it. I
think the services will follow. We should be looking at systems that mean you can deploy
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that as cheaply as possible. We should have joined-up thinking from the Government so you
are sharing facilities and infrastructure wherever possible, and you should have a roll-out
model that says, “Let us drive fibre to this village”, but you get the providers to sign up.
They are prepared to commit so they will pay some extra money to take on that service—
and you will be surprised. People will take it up. There is a huge education gap.
Q247 The Chairman: What sort of timeframe do you see this approach delivering?
Mr Holden: There is a 2020 target set out there from the European Commission and the
Government has to have a—
Q248 The Chairman: We heard your views on the European Commission’s policies
earlier on, and I did not get the impression that you thought they necessarily had it all right.
Mr Holden: No, because they do not have any uploading.
Q249 The Chairman: I am not interested in what other people think. Where do you
think in the real world it is realistic, if we do what you suggest, that we get it effectively
complete? I am not interested in the minutiae.
Mr Holden: Probably 2020 is a very hard target to hit, because of the volume that would
have to be deployed. The big point I am making as different here is that if you spend that
money now and squeeze a bit more out of something else, it is going to cost you a lot more
in the future and take even longer, and is that something you should do with state money?
The Chairman: That is the big question which inter alia we are all going to have to
address. So all I can say to both of you is a very big thank you very much. Thank you for
going head to head. The fact that we have gone on a bit longer and everybody is still cheerful
is a sign that we have had a successful session. Thank you.
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Communications Consumer Panel – written evidence
Summary
¾ The Panel believes that everyone should have access to a good level of broadband
service so that consumers and small and medium-sized businesses (or SMEs) in all parts
of the UK have equal opportunity to carry out essential online activities in a reliable and
consistent way. A robust broadband infrastructure must be inclusive and aim to
maximise digital participation;
¾ The Panel has developed a Consumer Framework for Digital Participation that brings
together all the different elements that are needed to provide the help and support that
people need to get online, stay on-line and get the most value and benefit from the
internet;
¾ 20% of UK adults say they do not use the internet at all. The most frequent reason for
not getting the internet at home relates to a perceived lack of need. 16% of respondents
from the Federation of Small Businesses report that they don’t use current generation
broadband - 27% of those respondents reported that they had no business need;
¾ The drive to attain greater speeds must be complemented by work to convince people
who are currently offline of the benefits of going online and to enable them to gain the
necessary skills;
¾ There are a number of important safeguards required if the Universal Service
Commitment (USC) is to be implemented in a way that meets the needs of consumers;
¾ There is particular concern for SMEs that fall within the 10% likely to be unable to
access speeds significantly greater than 2MB and that 2MB may be insufficient for
consumers in future as new, bandwidth hungry, services become the norm;
¾ Around 5% of residential UK broadband connections had a headline speed over
24Mbit/s in November 2011. Enders Analysis estimate that only 15% of households with
a broadband connection would be willing to pay an additional £5 a month for higher
connection speeds;
¾ Value for money and concurrency were the most important reasons for consumers
choosing their current super-fast broadband service. New services will drive uptake but
this also requires empowered consumers. People will need to understand what these
new services offer and their potential to improve their lives compared to current
generation broadband;
¾ The Panel’s current research looks at how people in low digital participation groups
across the UK can get the most out of being online and how they might increase their
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breadth of usage. This will specifically look at the issue of low uptake in areas of
Glasgow.
¾ In-home hardware and set-up will also affect the speed experienced by the end-user;
¾ Enabling consumers to make an informed choice between the packages and service
offered by different providers, and making it easier to switch between them, encourages
competition and investment; and
¾ Effective mobile coverage is essential for growth in rural communities and businesses.
Introduction
1. The Communications Consumer Panel welcomes the opportunity to contribute to
the House of Lords Select Committee inquiry into the Government’s superfast
broadband strategy.
2. The Communications Consumer Panel 37 is an independent group of experts
established under the Communications Act 2003. Its role is to provide advice to
Ofcom to ensure that the interests of consumers, including small businesses, are
central to regulatory decisions. The Panel also provides advice to Government and
champions consumers' communications interests with industry. The Panel has
members representing the interests of consumers in Scotland, Wales, Northern
Ireland and England.
3. In this response we address levels of take-up in the UK, the Panel’s work on a
consumer framework for digital participation and communications services for the
future.
Broadband availability
4. The Panel believes that everyone should have access to a good level of broadband
service so that consumers and SMEs in all parts of the UK have equal opportunity to
carry out essential online activities in a reliable and consistent way. The UK
Government’s aim for 90% of UK homes and businesses to have access to super-fast
broadband by 2015 and the commitment to ensure that virtually all homes will have
access to a minimum level of service of 2Mbps by the same date provide a sound
framework for progress. While 2MB may provide an adequate baseline residential
user experience, there is concern for those SMEs that fall within the 10% likely to be
unable to access speeds significantly greater than 2MB. Also 2MB may become too
low for acceptable service to consumers as new, bandwidth hungry, services become
37
http://www.communicationsconsumerpanel.org.uk/
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widely available. As the strategy notes, the European Commission target is for all EU
citizens to have access to a basic level of broadband (2Mbps) by 2013, 100% access
across Europe to at least 30Mbps by 2020, and for 50% of EU citizens to subscribe to
100Mbps services by the same timescale.
5. However, in order to benefit from these advances, the drive to attain greater speeds
must be complemented by work to convince people who are currently offline of the
value of going online and to enable them to gain the necessary skills to exploit fully
the advantages of staying on-line.
6. The Panel is also clear that there are a number of important safeguards required if
the Universal Service Commitment is to be implemented in a way that meets the
needs of consumers. The Panel has developed a set of principles to guide
implementation.The Panel's principles are as follows:
•
The Universal Service Commitment should enable consumers to carry out the
online activities that they consider to be essential or will soon.
•
The Government should define the Commitment in a way that ensures quality
and reliability of service.
•
The Government should help consumers to do what they can themselves to
optimise their broadband connections.
•
The Universal Service Commitment should benefit people in all parts of the UK,
using different types of broadband connection where necessary.
•
The Government should be proactive in identifying the parts of the UK that
would benefit from the Commitment.
•
Consumers who benefit from the Commitment should ideally have a choice of
service providers.
•
The Government should ensure that the Commitment keeps pace with
consumer demands over the years ahead (especially given the growing take up
and reliance on smartphones. It needs to be future proofed. And it needs to be
capable of providing essential government services such as connected health
even in remote parts of the UK.)
•
The Government should deliver the Commitment using next-generation
broadband where practicable.
7. The Panel has emphasised the need for the implementation of the Commitment to:
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•
•
•
be in line with consumer needs, as set out in the Panel’s principles;
be equitable across the nations; and
be future-proofed so that consumers are not left behind.
8. Ofcom published information relating to national broadband measures in its
Infrastructure Report 38 in November 2011. The key metrics are summarised in the
table below.
9. The information in Figure 4 is based on data collected from the UK’s broadband
infrastructure providers (BT Openreach, Virgin Media and Kingston Communications
and from the largest retail ISPs) about modem synchronization speeds – and as such,
represents the line capabilities, or maximum speeds which consumers are able to
receive.
10. In Ofcom’s research on actual broadband speeds published in February 2012 (and
based on data collected in November 2011), the average actual UK residential
broadband speed was 7.6Mbit/s. 39
Broadband take up
11. A robust broadband infrastructure must be inclusive and aim to maximise digital
participation. It must ensure that disadvantaged groups can access and utilise digital
communications, particularly as more and more public services migrate online.
12. The Communications Market Report (CMR) data from Ofcom 40 show that compared to
2010, broadband take-up across the UK has increased from 71% to 74%. Latest
38
39
40
http://stakeholders.ofcom.org.uk/binaries/research/telecoms-research/bbspeeds2011/infrastructure-report.pdf
http://media.ofcom.org.uk/2012/02/02/jump-in-uk-broadband-speeds/
Communications Market Report, Ofcom 2011 http://stakeholders.ofcom.org.uk/market-data-research/marketdata/communications-market-reports/cmr11
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Communications Consumer Panel – written evidence
data 41 shows UK take-up at 76% (October – December 2011 fieldwork). However,
the CMR highlights that there are significant variations in levels of take up across the
UK - 61% of Scottish homes have broadband access (either fixed or mobile),
compared to 71% in Wales and 75% in Northern Ireland.
13. Broadband take-up is not evenly distributed throughout the population. Looking at
groups that have lower levels of broadband take up across the UK:
•
•
•
Of the over-55s, 55% have broadband at home in the UK
Among DE socio-economic groups across the UK, 55% have broadband at home
Of households with incomes less than £17.5k per annum, 52% in the UK have
broadband at home
14. According to the Communications Managers Association/Federation of Small
Businesses Internet Opportunity Survey, 16% of respondents from the Federation of
Small Businesses report that they don’t use current generation broadband. Although
this is partly explained by geographic availability, the survey found that there was also
a lack of knowledge of the benefits of broadband – 27% of those respondents not
using current generation broadband reported no business need.
15. The Panel’s concern therefore focuses not so much on issues of availability, which
are nonetheless important, but rather on take-up. These lower levels of broadband
take-up mean that people are at an increased risk of exclusion from the social and
economic benefits of being online, particularly as more public services are put online.
Take-up of super-fast services remains low
16. Despite the growth in availability of super-fast services and the range of services that
are available, Ofcom research into broadband speeds found that in November 2011
only around 5% of residential UK broadband connections had a headline speed over
24Mbit/s.
17. Ofcom analysis indicates that a premium of at least £5 a month is generally charged
for super-fast broadband services. Enders Analysis42 estimate that only 15% of
households with a broadband connection would be willing to pay an additional £5 a
month for higher connection speeds.
18. At present, concurrency appears to be a key driver of the take-up of super-fast
broadband. The CMR notes that “The range of internet-connected devices available
to consumers has increased significantly in recent years. Indeed, our research into
the reasons for taking super-fast broadband services found that the desire for “good
41
42
http://stakeholders.ofcom.org.uk/binaries/research/statistics/2012jan/Ofcom_Technology_Tracker_Wa3.pdf
UK residential high speed broadband outlook: leading the horse to water, Enders Analysis July 2011
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Communications Consumer Panel – written evidence
simultaneous performance on different devices” was the most common
performance-related reason cited by consumers (second overall after “the deal I was
offered provided good value for money”)”.
19. Currently, 40Mbit/s allows consumers to experience concurrency, multiple HD
streams, video chat and gaming whilst allowing for spare capacity. It is estimated that
by 2015, 40 – 50Mbit/s will be required by consumers. It is also worth noting that inhome hardware and set-up may affect the speed experienced by the user – from the
wireless standard employed to connect to the router, to the wiring or placing of the
router within the home.
20. An Ofcom/YouGov survey of superfast users reported in the CMR found that while
over 90% used their broadband connection for sending/receiving email, purchasing
goods/services/tickets and web browsing, and over 80% used their broadband service
for banking, just 47% said that they used their connection to download large files.
Comparing these results with usage among all internet users revealed higher use of a
number of services; some of the biggest differences were: watching short video clips
(76% compared to 40% for all internet users), banking (84% compared to 60% for all
users) and purchasing good/services/tickets (91% compared to 71% for all users). It is
pointed out however that these differences are likely to be due to higher levels of
digital engagement among these consumers, as well as differences in the demographic
profile of super-fast broadband users compared to all internet users 43 .
21. The CMR notes that Ofcom/YouGov research into users of super-fast broadband
services indicates that the largest increases in reported use relate to streaming TV
programmes or full-length films; nearly two-thirds of respondents said that they had
increased their levels of streaming high-definition content and more than half had
increased their streaming of standard-definition content (Figure 5.13). There were
also notable increases in some services which are less mainstream, including filesharing and online gaming. The lowest increases were for those services where use
was already high, and which typically benefit less from having faster speeds: sending
and receiving email, purchasing goods/services/tickets and banking.
43
Super-fast broadband users in the survey were more likely than all internet users to be male and to fall into the
ABC1 social group; they also tended to be older and were less likely to have children living at home.
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22. The development of new services that allow consumers to take advantage of the
opportunities offered by increased bandwidth will undoubtedly drive uptake.
However this also requires empowered consumers – who understand what these
new services offer compared to current generation broadband.
23. According to the Internet Opportunity Survey, 7% of respondents from the
Federation of Small Businesses report that they use superfast broadband. Amongst
those that don’t, and have no plans to, the stated main reason preventing them is
geographic availability (35%). However 22% of these micro and small businesses that
don’t and have no plans to use superfast broadband, state that they don’t know
enough about superfast broadband.
Mobile broadband access
24. The CMR reports that the proportion of UK households relying on mobile as their
only means of voice telephony was 15% in Q1 2011. One percent of households have
neither fixed nor mobile telephony.
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Communications Consumer Panel – written evidence
25. Ofcom’s recent Infrastructure Report 44 states that the use of mobile networks for data
is increasing, driven by the take-up of mobile broadband ‘dongles’ and smartphones.
It reports that there are now 33m subscriptions to 3G services and 7% of homes in
the UK rely solely on mobile broadband services (rather than a fixed line).The CMR
notes that of the 17% of households that had a mobile broadband connection in Q1
2011, the majority (10% of all households) also had a fixed-line broadband
connection.
26. Recent Ofcom data 45 shows that 40 per cent of UK adults now own a smartphone.
Some 34% of UK adults use their mobile phones for internet access. The CMR found
that a third of smartphone users agreed that their smartphone was more important
to them for accessing the internet than any other device, with the proportion rising
for younger users.
27. According to Ofcom’s media literacy research 46 , only 2% of adults in the UK who go
online only access the internet by a means that is not a PC/laptop at home.
Therefore, the majority of mobile internet usage is complementary to home access
rather than replacing it.
28. Take-up of mobile broadband lies at 17% in the UK overall – although again there are
significant variations across the UK.
People who remain offline at home
29. The CMR found that 20% of adults in the UK say that they do not use the internet in
any location.
30. While costs are undoubtedly a barrier to take up for some, the most frequently
stated reason related to a lack of perceived need. The table below examines the top
four main reasons given by people in the UK who said they would not get the
internet at home in the next 12 months.
No need
Too old to use the internet
Don’t want a computer
Don’t know how to use
computers/the internet
44
45
46
UK - % of those not intending to get the internet in
the next 12 months.
29%
15%
15%
14%
http://stakeholders.ofcom.org.uk/binaries/research/telecoms-research/bbspeeds2011/infrastructure-report.pdf
http://stakeholders.ofcom.org.uk/binaries/research/statistics/2012jan/Ofcom_Technology_Tracker_Wa3.pdf
http://www.ofcom.org.uk/static/stats/MLAudit2010Adult.pdf
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What consumers say they need to get online
31. The Communications Consumer Panel has developed a Consumer Framework for
Digital Participation 47 that specifically addresses the issue of what consumers
themselves have said they need to get them online.
32. Targeted at governments and industry, the framework brings together all the
different elements that are needed to provide the help and support for people to get
online and get the most benefit from the internet. It is intended to be used to identify
the gaps and overlaps in provision, target new provision and can be used to assess
progress. We would encourage government and providers to continue to use the
framework to assess progress made and address gaps.
Consumer Framework for Digital Participation
33. In an update to this work, the Panel has recently commissioned a research project to
understand how people in low digital participation groups across the UK can get the
most out of being online and how they might increase their breadth of usage. The
study will also examine whether there are key barriers to digital participation
amongst people offline in an area of extreme deprivation (other than financial
deprivation). Fieldwork for this element will take place in areas of Glasgow. The
47
http://www.communicationsconsumerpanel.org.uk/smartweb/digital-participation/the-consumer-framework-fordigital-participation
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Communications Consumer Panel – written evidence
Panel would be pleased to share the results of this work with the Select Committee
when it is published in Spring this year.
Decision making
34. Broadband users must also be able to easily switch between services and competing
suppliers. Enabling consumers to make an informed choice between the packages and
service levels offered by different providers encourages competition and investment.
Consumers can make such informed choices only if they can easily compare the
different packages and providers. However, the Panel does have a concern that
greater transparency is too often seen as a panacea to meet all kinds of consumer
concerns. Whilst transparency is very important, there are a number of limitations to
transparency for both consumers and citizens. Transparency relies on consumers
being able to access, understand and compare information about actual broadband
speeds (as opposed to advertised “up to”) and traffic management weigh this up
against other information relevant to their purchasing decision and potentially switch
their communications provider. If successful, transparency (although not by itself)
facilitates individual consumer choice. However, the aggregate of individual choices,
while possibly appropriate for each individual concerned, may not result in outcomes
that are beneficial for society as a whole.
35. It is important that research is carried out to examine the way consumers and
citizens make decisions about broadband services and the extent to which they
understand the information provided to them about such services. It is important
that policy makers take into account the way consumers make decisions and use
information about broadband generally, to ensure that any remedies are useful to
people in the round. In considering how best to present information to consumers,
policy makers should bear in mind that consumers need clear explanations about the
content and services they will – or will not - be able to access and when. Small
businesses are also likely to experience many of the same issues as consumers. Both
need a clear understanding of post-sales service commitments and provision.
36. The Panel has welcomed the improvement in average broadband speeds reported by
Ofcom in new research, but remains concerned that many people with ADSL-based
broadband connections continue to experience much lower average download
speeds than the headline “up to” advertised speeds. New advertising rules 48 were
issued in September (and will come into force in April) relating to broadband speed
claims and the use of “unlimited” claims in telecoms advertising with a two-fold aim;
to help advertisers comply with UK Advertising Codes, and to protect consumers
from misleading claims. The guidance requires that at least 10% of an internet service
provider’s (ISP) customers achieve the ISPs speed claims. Only where a significant
48
http://bcap.org.uk/Media-Centre/2011/Changes-in-advertising-of-'unlimited'-and-broadband-speed-claims.aspx
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Communications Consumer Panel – written evidence
proportion of people are unlikely to receive a speed close to the one advertised will
further qualifying information be included.
37. The Panel believes that the additional qualifying information should be equally
prominent to consumers when they are thinking about which broadband package to
buy. The Panel will continue to monitor developments in this area closely.
Communications services for the future
38. The Communications Consumer Panel is campaigning for major improvements to
mobile and mobile broadband coverage. The two go hand in hand and the Panel
argues that effective coverage is essential for the growth of rural communities and
businesses. The Panel has been concerned for some time about poor or non-existent
coverage creating significant problems for small businesses, as well as for people
living in not-spots, the people passing through them and passengers on the rail and
London tube networks. This concern embraces broadband availability and usage.
39. To tackle the problem, last year in response to Ofcom’s consultation on the 4G
mobile spectrum auction, the Panel asked Ofcom to consider setting coverage
obligations for each of the UK nations and some English regions, or for money to be
retained from the spectrum auction and a reverse auction run to upgrade rural
coverage. Earlier this year, Ofcom set out a number of new proposals for making 4G
mobile spectrum available in the UK. This includes introducing new measures
expected to extend coverage to at least 98% of the UK population (coverage
obligations relate to indoor coverage by population). The Panel also welcomes the
Chancellor’s recent pledge to inject up to £150m of new funding into extending
mobile coverage, but waits to see the detail of how the intervention will work.
Depending on the extent of this first intervention, it may still be necessary to use
some of the money raised by the 4G spectrum auction in order to raise mobile
coverage in the UK to a level that satisfies the reasonable aspirations of citizens and
communities.
40. Research from the Communications Consumer Panel found that consumers and
small businesses in the UK have persistent problems making even basic voice calls.
Over half of consumers questioned (56%) had difficulty with mobile coverage – 33%
on a regular basis 49 . Almost all small business 50 respondents in the UK overall (91%)
had experienced problems with reception, over a third of them (34%) regularly.
Conclusion
41. In summary, the Panel would highlight that:
49
50
http://www.communicationsconsumerpanel.org.uk/Mobile_coverage_consumer_perspective.pdf
http://www.communicationsconsumerpanel.org.uk/Mobile_coverage_small_business_perspective.pdf
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Communications Consumer Panel – written evidence
¾ The Panel believes that everyone should have access to a good level of
broadband service so that consumers and small and medium-sized businesses (or
SMEs) in all parts of the UK have equal opportunity to carry out essential online
activities in a reliable and consistent way. A robust broadband infrastructure
must be inclusive and aim to maximise digital participation;
¾ The Panel has developed a Consumer Framework for Digital Participation that brings
together all the different elements that are needed to provide the help and
support that people need to get online, stay on-line and get the most value and
benefit from the internet;
¾ 20% of UK adults say they do not use the internet at all. The most frequent
reason for not getting the internet at home relates to a perceived lack of need.
16% of respondents from the Federation of Small Businesses report that they
don’t use current generation broadband - 27% of those respondents reported
that they had no business need;
¾ The drive to attain greater speeds must be complemented by work to convince
people who are currently offline of the benefits of going online and to enable
them to gain the necessary skills;
¾ There are a number of important safeguards required if the Universal Service
Commitment (USC) is to be implemented in a way that meets the needs of
consumers;
¾ There is particular concern for SMEs that fall within the 10% likely to be unable
to access speeds significantly greater than 2MB and that 2MB may be insufficient
for consumers in future as new, bandwidth hungry, services become the norm;
¾ Around 5% of residential UK broadband connections had a headline speed over
24Mbit/s in November 2011. Enders Analysis estimate that only 15% of
households with a broadband connection would be willing to pay an additional
£5 a month for higher connection speeds;
¾ Value for money and concurrency were the most important reasons for
consumers choosing their current super-fast broadband service. New services
will drive uptake but this also requires empowered consumers. People will need
to understand what these new services offer and their potential to improve their
lives compared to current generation broadband;
¾ The Panel’s current research looks at how people in low digital participation
groups across the UK can get the most out of being online and how they might
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Communications Consumer Panel – written evidence
increase their breadth of usage. This will specifically look at the issue of low
uptake in areas of Glasgow.
¾ In-home hardware and set-up will also affect the speed experienced by the enduser;
¾ Enabling consumers to make an informed choice between the packages and
service offered by different providers, and making it easier to switch between
them, encourages competition and investment; and
¾ Effective mobile coverage is essential for growth in rural communities and
businesses.
March 2012
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David Cooper CEng MIET – written evidence
David Cooper CEng MIET – written evidence
1. The evidence referenced in this document is derived from data and observations
within Surrey. The author is submitting this paper on an individual basis and has a
telecommunication engineering/technology management background mainly in the
electricity supply industry, with more recent experience with the South East England
Development Agency, working on broadband policy and funding related to economic
development. Since leaving SEEDA in September 2010 the author has worked as a
freelance broadband consultant; now retired but maintaining an interest in local
broadband matters.
2. Not all questions raised by the call for evidence are addressed by this short paper.
However, reference is made to other documents that do address most issues raised
by the call for evidence.
What changes in the use of digital communications can be anticipated over the
next 20 years, and how should these affect strategic investment in our digital
infrastructure?
3. We can already see that the future of digital communication will need to be a two
way affair by, for one example, the rise in the use of social media applications in the
business world as well as for personal use. The current asymmetric infrastructures
favour data download with limited data upload capability thus stifling innovative
applications, some existing now and some unknown now, but certain to require
symmetrical capability. This key requirement always seems to be overlooked in most
policy statements, including the brief for this inquiry and is being “overlooked” by the
current commercial infrastructure deployments with the high likelihood that it will
not be included in the public procurements.
Is the Government’s investment being effectively applied to develop maximum
social and economic benefit?
4. The investment being implemented by individual local authorities does not seem to
be an effective process. Press releases from local authorities have already raised
expectations of superfast broadband to high proportions of their populations. This is
only based on them having securing the funding with procurement yet to finalise, so
the claims seem to be politically driven ambitions rather than being based on practical
well engineered plans. This approach from the politicians may be just for public
consumption as it is clear that in some local authorities officials are gathering data to
prioritise deployment for a maximum social and economic benefit, although these
may be defined differently in different areas. This prioritisation seems to
acknowledge the real world difficulties (e.g. insufficient funding, low demand,
potential “white elephant”, mismatch to supplier business models etc.) in procuring
near ubiquitous superfast coverage and therefore the likelihood is that the stated
coverage and Government targets will not be met, or more likely will be fudged.
5. The key to effective investment is that any deployment should be future-proof.
Current Fibre-To- The-Cabinet (FTTC) asymmetric services are very poor short
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David Cooper CEng MIET – written evidence
term solutions with severe limitations and no practical upgrade path. Given the poor
condition of rural telephone lines from the cabinet to the premises in many of these
areas, those who already have sub 2Mb/s download speeds will not see a significant
improvement. This conclusion is based on evidence for Surrey here 51 , in particular
Section 3.
6. Given the tactics that BT have used to put their business in a good position to secure
the public funding (current limited deployment locking out any other company, cosy
NDAs to protect their commercial position at the expense of smaller providers and
other tactics) there is every possibility that the current round of public funding will
serve to reinforce their monopoly position rather than provide true future-proof
infrastructure with an upgrade path.
7. Further evidence in the attached letter (Annex 1) of April 2011 to Jeremy Hunt and a
related update note (Annex 2) for a subsequent meeting with him indicates the
concerns relating to the progress of a local project and the ramifications on
Government policy. Unfortunately, it seems that these predictions are becoming
reality.
The Way Forward
8. Remove barriers such as fibre tax, unreasonable wholesale charges, etc. This is
probably best achieved for the long term by a separate “Openreach” company
completely divorced from the BT Group. Functional separation is not working.
9. Regulate a separate Openreach in the same way as other asset based “wires”
businesses to ensure that adequate investment is maintained in the network.
10. Take a holistic approach to the “value for money” equation. Currently savings across
all public sectors are not included as part of the ROI of the public funding, instead
taking too much notice of the inflated estimate for true future-proof infrastructure
based on the preference of the telcos to retain their asset sweating strategy.
11. Someone needs to take a national leadership role. The telecommunications network
is a national strategic asset and policy needs to ensure that the network does not
fragment into many different local networks thus jeopardising future economic
development. The current policy which devolves responsibility to local authorities is
high risk and on current progress stands every chance of hindering rather than
helping economic development.
51
http://www.texp.co.uk/downloads/Superfast%20Broadband%20in%20Surrey.pdf
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David Cooper CEng MIET – written evidence
Annex 1
The Right Honourable Jeremy Hunt MP
2 Royal Parade
Tilford Road
Hindhead
Surrey
GU26 6TD
Dear Mr Hunt,
Broadband in Ewhurst, Waverley and the UK
I write as someone who lives in your constituency and an observer of the broadband agenda.
I am a chartered engineer having until last September worked for SEEDA and therefore I
understand how important good quality broadband is to economic development. I now
work as an independent telecommunications consultant and have recently worked with
Waverley Borough Council to help them to understand the options available to improve
broadband, especially in rural areas.
Your policy to bring fibre hubs to each rural community and to allow the community to
decide how they connect themselves to the national fibre network is admirable. However, I
am writing to make you aware of what is going on in your own backyard, as this could
jeopardise the policy nationally.
The broadband infrastructure in parts of Ewhurst is very poor with some properties
receiving no service and many others sub-standard. This is because the local telephone lines
are very long, of extremely poor quality and poorly maintained by BT. They are an example
of the 2% of premises in the South East with no service and at least 15% with less than
2Mb/s (SEEDA research). A community group in Ewhurst, using their own time and money,
put together an innovative project to provide a Fibre to the Premises solution to replace the
worst telephone lines. This attracted a written offer of EU RDPE funding from SEEDA that
has subsequently been hi- jacked by BT, who have manipulated the public sector by the use
of Non Disclosure Agreements with a promise of deployment of their solution. This is after
BT had refused over many years to work with the local community to reroute the local
telephone lines and stated in writing that they had no plans to invest in improvement of the
infrastructure for broadband. When the Ewhurst group went out to tender, the solution
they chose was that offered by Vtesse. BT did not even bother to submit a compliant
tender.
SEEDA are now unable to reinstate their grant offer because of a continuous delaying tactic
by BT, who initially promised to confirm their intentions for Ewhurst by an announcement in
February 2011, then mid March, then end of March and have extended this a further two
weeks from now until sometime in mid April 2011. My previous experience of this tactic
relating to other broadband projects when I was with SEEDA is that there will be a long
delay and that ultimately BT will not provide a solution for Ewhurst unless a subsidy is
provided.
Despite DEFRA, and in your department BDUK, taking the view that this is a local issue, I
believe that there is a bigger national impact. BT’s tactics are already leading to a realisation
by local communities that the “Big Society” policy in the case of broadband is not working
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David Cooper CEng MIET – written evidence
and communities are therefore loosing enthusiasm. Other infrastructure providers, who are
already trying to operate on an uneven playing field, are unlikely to bid if BT continues to
obstruct in this way. Further, the BT solution of Fibre to the Cabinet, once deployed is not
expandable to Fibre to the Home for technical and commercial reasons. Therefore, taking
Ewhurst as an example, such a BT solution will not improve the service sufficiently for the
outlying properties, especially as BT do not include any Universal Service Obligation for
broadband nor have any replacement or refurbishment strategy of their ageing local network
infrastructure.
BT treatment of projects such as Ewhurst is killing off the potential competition, killing off
innovative solutions and this will put the nation even further behind in the broadband league
table.
I hope that this makes some sense for you and that you appreciate that I am writing with a
passion derived from the frustrations of almost 10 years of watching the lost opportunities
for the development of improved broadband infrastructure in the UK, much of which relates
to the way the industry is organised and regulated.
I am sure that anything that you could do to free up the Ewhurst situation would at least
demonstrate to local communities across the UK that the “Big Society” is for real and will
provide an incentive to commercial operators to bid into the larger scale projects being
developed by local authorities in collaboration with BDUK.
Yours sincerely,
David C Cooper CEng MIET
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David Cooper CEng MIET – written evidence
Annex 2
Ewhurst update:
BT (Openreach) published information dated the 6th April 2011 that puts FTTC for Ewhurst
as some time in 2012. This announcement was in a new format to previous phased
announcements with Ewhurst included on a new format list titled, “Future Exchanges (firmer
dates to be provided nearer the time)”. ESHB had been pushing for March 2012 and have
currently accepted BT’s announcement in good faith.
However, confidence that BT can deliver is already decreasing, given the slip to other
exchange areas, observations of slow progress in Guildford (believed to be in phase 5b now
due in June 2011, was March 2011) and the fact that Ewhurst is programmed for the last
phase in the last announced programme, believed to be phase 7b.
In any case, regardless of timescales, BT’s proposed FTTC solution will not significantly
improve the Ewhurst outliers, who currently have no service, where long poor quality lines
connect them back to the cabinets. This is of great concern as BT (Openreach) has said that
once they have invested in FTTC they will not invest to improve or replace with fibre the
cabinet to premise lines. The solution proposed by Vtesse is designed both from a technical
and commercial aspect to be able to upgrade cabinet to premise lines as necessary.
Impact on policy:
BT are finding that take-up of their Superfast Broadband service is low. This is not surprising
as they have decided to compete with Virgin Media and not to invest in areas of pent-up
demand on the edge of towns and in rural areas that have always been poorly served.
Where BT do invest they do not enable every green cabinet in an exchange area nor do
they provide full capacity for every line in each cabinet seemingly ranging from 25% to 65%
of lines. This tactic blocks opportunities for other commercial operators. BT’s FTTC and
GPON FTTP solutions are limited stop-gap designs that will require expensive replacement
with point-to-point FTTP within 10 years.
With other broadband infrastructure companies finding it difficult to make a business case
given BT Openreach’s wholesale prices and restrictive practices, BT is likely to secure
significant public money to bring their FTTC solution to rural areas. Their solution is not a
flexible fibre hub as described by the policy that offers a community any choice in how they
wish the final leg to be delivered and further, will block progress to faster solutions for at
least 10 years. This scenario could see the benefit of public money being short-lived by just
reinforcing BT’s flawed business plan rather than provide a future-proof infrastructure to the
benefit of businesses and residents in rural areas.
Options for Ewhurst:
Wait for BT, with the inevitable delays and poor solution.
Reinstate SEEDA funding, or provide other funding, for the Vtesse solution unless BT can
provide a detailed programme of their intentions immediately including the provision of an
adequate upgradable solution.
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David Cooper CEng MIET – written evidence
Seek other alternatives to ensure a solution is available this year.
12 March 2012
215
Cotswold Community Networks Ltd – written evidence
Cotswold Community Networks Ltd – written evidence
1.
Background
Cotswold Community Networks is a Wireless Internet Service Provider (WISP) established
in 2004, with the trading name Cotswold Wireless.
Our networks cover large areas of Gloucestershire, North Wiltshire, parts of Oxfordshire,
west to the River Severn and east to areas around Chipping Norton.
These networks have been providing fast broadband in rural areas for the last eight years by
extending the reach of conventional copper and fibre networks using wireless links to
remote communities. We use OFCOM Band C for Fixed Wireless Access in the 5GHz
band, supporting wireless bandwidths up to 300Mbps. We currently serve over 400
residential and business customers with ongoing support provided by two persons working
on a part-time basis.
Our customers currently receive an average speed of 10Mbps, this is only restricted by
available backhaul capacity and could easily increase to 20-30Mbps Next Generation Access
(NGA) speeds as extra backhaul capacity is added.
2.
Technology
Fixed Wireless Access involves putting an external wireless receiver (the CPE) onto the
customer premises which receives a service from a local base station. The base station can
service a cell covering a 5-10km radius. Each base station can be located several wireless
'hops' from the wired point of presence, allowing a service to be cascaded over a
widespread area around the origination point.
We use technology developed by manufacturers in Eastern Europe and the Baltic states
where wireless has always been a fundamental part of the network infrastructure due to lack
of legacy wired networks. The equipment is fast, secure, reliable and low cost. A typical CPE
costs between €50-€70. A fully equipped base station/ router costs approx €250.
3.
BDUK
When the Government announced the BDUK project we were encouraged by early
indications it would go hand in hand with the Government’s Big Society ambitions. The
concept of the 'Digital Village Pump' or Community Hub was promoted, and we have
already seen examples of communities digging fibre, unbundling roadside telecoms cabinets
(PCPs) and installing fibre networks, assisted by private sector providers.
Our vision is that BDUK will fund wholesale suppliers to provide fibre points of presence
within local communities which are then distributed by local providers using a mix of dug
and blown fibre, wireless or existing copper lines through roadside cabinet unbundling
(FTTC).
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Cotswold Community Networks Ltd – written evidence
We have been greatly encouraged by projects in Cumbria and North Yorkshire (NYNET)
where existing public sector data networks are being opened up to supply residential and
business customers. Public sector networks used by councils, libraries, schools, fire services
and surgeries operate at a fraction of their potential capacity and are often located in areas
which would be uneconomic for BT or Virgin Media to invest in NGA networks.
4.
Funding Models
We do not intend to duplicate the content of the very detailed study published here:
http://www.culture.gov.uk/images/publications/BroadbandPilots_lessons_learnt-Dec2012.pdf
This report outlines the two funding models being adopted by local authorities - namely Gap
Funding and the Demand Aggregation or Community Based approach. Instead, we seek to
illustrate how both may work in practice by referring to locations we have researched and
budgeted for and present these as case studies for each funding model.
5.
Public Sector Networks
We have recently made Freedom of Information requests to Gloucestershire, South
Gloucestershire and Wiltshire County Councils to discover the location, capacity and usage
levels of public sector fibre networks operated by these councils. These networks link
schools, libraries, surgeries and other public buildings within the Local Authority area.
So far only Wiltshire has provided a thorough and detailed response. From the figures
supplied we see that average usage across the council's fibre infrastructure in the towns of
Melksham, Trowbridge, Salisbury, Devizes and Chippenham amounts to no more than 6.5%
of the available capacity.
We believe that NGA can be best delivered to rural communities by employing a community
based approach using a variety of technologies and will provide evidence to support this.
Unfortunately, we are disappointed that the BDUK pilots in the Gloucestershire and
Herefordshire Borders and other South West local authority areas seem to be steering
towards the gap/match funded model by commissioning large providers such as BT, rather
than involving a mix of public and private sector resources as Cumbria and North Yorkshire
seem to be doing.
Public funds being made available subject to equivalent private sector match funding will
eliminate all but the biggest providers and will still fall short of the funding requirements to
provide NGA in rural areas. The £8.6m of BDUK funds made available to Gloucestershire
for example is targeted at 150,000 premises. This equates to £53 each. Even with match
funding, £106 per property is less than the cost of running in a single conventional BT
telephone line. Far short of the amounts needed to replace swathes of old aluminium cabling
in the BT network and dig and distribute fibre.
With many rural properties served directly from the exchange or many kilometres from
their local cabinet (PCP) it is likely that FTTC will only bring marginal improvements in these
cases. If NGA speeds are defined as 20Mb and above, then FTTC will not qualify once
distances from the PCP or exchange exceed 1km.
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Cotswold Community Networks Ltd – written evidence
We are also discouraged to see that consultation excercises and administrative bureaucracy
seems to be absorbing large amounts of the BDUK funds and that some providers have
already dropped out due to frustration with the procurement procedure.
http://www.bbc.co.uk/news/technology-16085823
6.
Case Study 1
FTTC Gap Funded Model in a typical rural location
Didmarton, Gloucestershire. Local exchange serves about 700 premises, Market one
exchange BT only. No upgrade since 2006.
From BT’s SLU database we see that 220 premises are connected via three local PCPs
(street cabinets) the remaining 480 are connected directly to the exchange with no potential
benefit from unbundling due to line length.
In order to implement FTTC, fibre links would be required from the exchange to a DSLAM
in a new cabinet adjacent to each of the three PCPs:
1500m to Didmarton village centre. Cost to rent about £1500 p.a.
3100m to Badminton cost to rent about £3100 p.a.
3400m to Hawkesbury Upton cost to rent about £3400 p.a
A DSLAM costs about £60 per connection. For 220 connections DSLAM cost = £13,200.
For 3 cabinets + power supplies + engineering works allow £30,000. BT charges £78 per
connection for jumpering existing subscriber lines to the DSLAM - allow an additional
£17,600. Add £10,000 for equipment at the exchange and connection to the national
backhaul.
100Mb backhaul to London and data transit from this exchange would cost approx £25,000
per annum. So, looking at the impact on the 'gap funded' model being favoured by the Local
authorities and BDUK:
Capital costs approx £70,800 ( £13,200 + £30,000 + £17,600 + £10,000 )
Opex costs approx £8000 p.a. fibre rental, £5000 exchange rackspace annual rental,
Backhaul & data transit £25,000 p.a.
Funding = 220 x £53 from BDUK = £11,660 + MATCH = £23,320 Subtract capital cost of
£70,800 leaves a GAP to be funded of £46,680 + £38,000 for backhaul, fibre rental,
exchange space etc.
The monthly cost per subscriber based on a 5 year depreciation model is £17.50 p.m but
480 (70%) of subscribers will not benefit.
7.
Case Study 2
Community Based Approach
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Cotswold Community Networks Ltd – written evidence
Cherhill, Wiltshire. Population approx 900, number of premises estimated at 300.
Connected to Calne exchange (LLU enabled) Current broadband speeds ADSL < 1 –
1.5Mbits. Distance from Exchange > 4616m
Cherhill has a CE primary school that benefits from a 100Mb EAD point to point fibre
connection provided by South West Grid for Learning (SWGfL). There is a PCP by the
school which supplies 114 subscribers. The remainder are connected directly back to the
exchange.
A wireless network here would therefore be able to supply >20Mb broadband to those
houses and businesses in and around the village whose lines are not connected to the PCP.
We estimate a 'cell' radius of 5-10km could potentially benefit up to 200 more properties.
For national backhaul, allow £25,000 p.a which would serve both fibre + copper connections
and fibre + wireless connections. Split the cost on a pro rata basis for each connection type.
This approach gives 294 connections and backhaul costing £7.08 / month / subscriber.
Eliminating the costs per km of duct and fibre by using the School's connection, the PCP
could be unbundled at the cost of a DSLAM, electrical and ground work and a tie cable to
the school's connection. Allow approx £20,000 plus £78 per connection x 114 = £19,000.
On a 5 years depreciation model £39,000 capital cost equates to £5.71 p.m for 114
subscribers.
Fibre + copper cost / month /subscriber is £12.79 inc backhaul.
For 180 premises connected via wireless an estimate of £2000 for wireless network
infrastructure and £12,600 for connection charges (based on £70 per subscriber) gives us a
total monthly cost per subscriber depreciated over 5 years of £8.43 inc backhaul. No gap
funding is required and if subscribers pay a market rate of £15 - £20 p.m this will adequately
fund fibre to the premises over time.
8.
Spectrum
To deliver effective wireless services we use frequencies in the 5.8GHz Fixed Wireless
Access (FWA) band that are lightly regulated by OFCOM, subject to payment of a £50
annual licence fee. However FWA has effectively only 4 discreet 20MHz channels. With the
growth of road traffic monitoring, CCTV and other wireless applications, this spectrum
could become rapidly overcrowded in semi rural areas.
It is essential that any process to deliver rural NGA comes with protected but affordable
wireless spectrum, and that creative solutions are put in place to reuse analogue TV
spectrum as well as the 2.6GHz frequencies. The process of auctioning to the highest bidder
should be dropped in favour of an expansion of the OFCOM FWA frequencies, or the
registration process suggested by OFCOM where a database is kept of frequencies used in
particular areas to avoid one operator’s service from interfering with another.
OFCOM issued a spectrum consultation document 12 months ago to which we responded,
taking the above position.
9.
Community Interest Companies
219
Cotswold Community Networks Ltd – written evidence
Taking a Big Society approach to delivering rural NGA will require a formal framework that
community groups must follow. We envisage the use of community interest companies
which will be formed by local communities to manage and purchase high-speed network
services. A community interest company exists in a niche between a charitable organisation
and a normal for-profit business. A community interest company can be constituted in any of
the forms that a normal company could take, so for example it could be a cooperative or be
a limited company.
The key differences appear in the articles of association. These limit certain things that the
company can or cannot do, chief amongst these is the requirement to reinvest any profit
generated into the local community.
In terms of the use of these organisations in bringing high-speed networking to rural areas,
we envisage that they will be formed to undertake three tasks:
Firstly, to give some concrete expression to the demand in the community for high-speed
services by registering interest and potentially taking deposits for the provision of services.
Secondly, to provide some economies of scale, which should allow the purchase of goods
and services at realistic prices that the community can afford.
Thirdly, to enter into agreements for the supply, implementation and maintenance of highspeed data networks for their communities with providers such as ourselves and others.
10.
Conclusions
We have concluded that BDUK is failing to deliver an effective solution due to the following:
•
Local Authorities are engaged in lengthy consultations leading to duplication of effort
and unnecessary costs.
•
Local Authorities are taking a conservative approach by offering match funding to
large incumbent network providers (BT, C&W, Fujitsu etc) rather than encouraging
them to deliver wholesale points of presence to supply local providers who deliver
the ‘last mile’, where costs are highest for the traditional fixed line network providers
in sparsely populated areas.
•
The BDUK approach was too open and market driven, which led to local providers
being excluded from the process early on. Now we have the big companies pulling
out of difficult areas, putting the whole process in doubt, or the scenario looked at in
case study 1 where the majority of subscribers get no benefit from the NGA project,
thus worsening the digital divide.
12 March 2012
220
The Country Land & Business Association – written evidence
The Country Land & Business Association – written evidence
Summary
•
•
•
•
•
•
•
•
•
•
The Country Land & Business Association (CLA) is the only organisation
representing rural business and lobbying for effective and affordable universal access
broadband of at least 2Mb/ps;
There is a clear and undeniable business case for broadband for rural communities;
However, the rural-urban digital divide is still very much in evidence which the CLA
believes is completely unacceptable;
Rather than seeking to implement a Universal Service Commitment (USC) there
should instead be a Universal Service Obligation (USO) which has the force of law;
It appears likely that the Government’s objective of providing 2Mb/ps to all will not
be met by the 2015 deadline;
The CLA does not believe that the broadband strategy adopted by Government –
where funding is allocated to local authorities and then to a successful procurer – will
actually achieve its set objective;
Even with match-funding from local authorities, it is likely that the Government’s
commitment of £530m will be insufficient to build a future proofed superfast
broadband network, fit for purpose;
The CLA believes that Defra’s Rural Community Broadband Fund is targeting the
wrong objective of superfast broadband in rural areas and is a missed opportunity
(some rural areas will never get superfast broadband);
The CLA is advocating a patchwork quilt model where different broadband
technologies are deployed where they are needed in order to meet the 2Mb/ps
objective;
The strategy of allocating funds to local authorities has been cumbersome and not
without its difficulties, particularly where there is little knowledge of broadband in
the local community; and
The CLA believes that the broadband strategy should have been centrally
coordinated to prevent mis-allocating funding at the local level which will invariably
lead to delay.
Introduction
1.
The Country Land & Business Association (CLA) represents over 34,000 members in
England and Wales. All of the CLA’s membership will have an interest in, and be affected by,
the Government’s strategy to put in place a superfast broadband network.
2.
The CLA has been at the forefront of the broadband debate for the last ten years.
Indeed, we have played a pivotal role in the first rollout of broadband to rural areas and we
have been instrumental in lobbying both government and the industry to put forward a
coherent strategy for the rollout of superfast broadband. We believe that the House of
Lords inquiry is timely and we welcome the opportunity to engage in the debate.
3.
The CLA’s submission will focus on a number of areas identified by the Select
Committee as they affect rural areas.
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The Country Land & Business Association – written evidence
Background
4.
The need for an effective and affordable broadband network for all rural areas is now
widely recognised. Indeed, the business case has been put and accepted that broadband does
and will act as an economic driver for both rural businesses as well as acting as a social
dynamic for rural communities.
5.
Broadband can be provided via a telephone line (Digital Subscriber Line [DSL]), via
cable, via wireless and via satellite; and allows the user the ability to access the internet in
real time. Broadband for rural areas can have several advantages:
•
•
•
•
•
•
The connection to the internet is always on, allowing for continuous internet
access. Using DSL means that the telephone line can be used at the same time,
unlike a dial-up connection;
Its ability to handle large amounts of data. A large file that might take 10 minutes
or longer to download with a conventional narrowband dial-up connection of 36
kilobits per second (kb/ps), can be downloaded in less than a minute using
broadband;
Broadband makes it much easier to upload information or update a company
website. This has a direct impact on productivity and makes it easier for the
company to operate and remain competitive. Uploading files to the company
website via a narrowband connection can be painfully slow and time consuming –
and often frustrating when the connection is lost;
It helps Small and Medium-sized Enterprises (SMEs) achieve cost savings. Without
broadband, costs can be incurred through the postal service, particularly if
overseas customers are involved. Broadband can cut costs by enabling large
amounts of information to be transmitted quickly and easily;
Using a Voice over Internet Protocol (VoIP) system allows telephone calls to be
either free (through the broadband connection) or at a significantly reduced cost.
For example, a fish business that imports stock from Thailand requiring at least
two telephone calls a day is actually able to save £15,000 a year in costs through
using VoIP; and
Finally, staff will also see the advantages of using broadband by being able to work
more effectively and efficiently. More time can be spent online, such as
researching new products, or looking for new sales leads.
6.
These advantages depend on a reliable, adequate and cost-effective broadband
connection, a situation with which many in rural areas still struggle. Three sectors illustrate
why broadband is essential to the economic prosperity of rural Britain: food, farming and
agriculture; rural business; and the rural community.
7.
Given the current economic situation, a key government policy is to increase the use
of online resources. It is calculated that this could save at least £1 billion per year. However,
such savings cannot be achieved if rural business is not able to access and return data online
due to the lack of a suitable broadband connection. The line adopted, for example, by HM
Revenue & Customs regarding the completion of tax returns and PAYE online is that those
without a suitable broadband connection should use an agent. This misses the point entirely
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The Country Land & Business Association – written evidence
as using a third party increases costs to the business. This means that there are likely to be
additional costs without online provision.
8.
Broadband should help rural businesses to compete on a more equal footing with
their urban counterparts. However, the lack of an infrastructure for fixed-line broadband
simply accentuates the rural-urban digital divide.
9.
There is an argument that, in fact, everyone can access broadband through the use of
satellite. In the main this is true, but invariably the costs involved tend to be far higher.
When compared with other forms of broadband, satellite is still significantly more expensive.
Once more, this cost has to be borne by the business.
The Rural – Urban digital divide
10.
Ever since the advent of broadband there has been a significant rural-urban digital
divide. This is based on those in rural areas who are unable to secure an effective and
affordable broadband connection. The CLA calculates that, currently, between 15 per cent
and 20 per cent of those who live in rural areas are unable to receive anywhere near the
Government’s stated benchmark of 2Mb/ps. Indeed, this has been confirmed by OFCOM’s
digital mapping process 52 . Such a situation is unacceptable.
11.
The CLA has always advocated the adoption of a broadband Universal Service
Obligation (USO) and we remained concerned that the Government is only promoting a
Universal Service Commitment (USC) which has no legal sanction. We did not agree when
the previous Government advocated the USC and we remain concerned that a USC
provides government with a get out clause in the event that the 2Mb/ps benchmark cannot
be achieved by the stated deadline of 2015.
Government broadband strategy
12.
The Government’s publication “Britain’s Superfast Broadband Future” in December
2010 set out their vision as to the best way of developing a future proofed superfast
broadband network. As part of that strategy, £530m (plus an additional £300m after 2015)
was made available to meet the Government’s two objectives:
•
•
To put in place a Universal Service Commitment of at least 2Mb/ps by 2015;
To put in place a superfast broadband network (with a minimum speed of
24Mb/ps) by 2017.
13.
This money was to be allocated by Broadband Delivery UK (BDUK) to local
authorities where it would be match-funded. The local authorities were then tasked with
identifying those areas where there was no or little broadband connectivity and to put
together a local broadband plan to meet the Government’s objectives. Following this, a
procurement exercise would then invite infrastructure providers to tender for the monies
available and to build an effective and sustainable broadband network.
14.
In practice it may prove to be very difficult for local
authorities to meet the
imposed deadlines. In effect, it is very unlikely the USC will be met by 2015. Of underlying
52
OFCOM digital mapping process (http://maps.ofcom.org.uk/broadband/).
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The Country Land & Business Association – written evidence
concern is the perceived lack of understanding as to the needs of rural areas. The CLA
believes that the key is universal coverage. Whilst many rural businesses, at present, do not
need speeds associated with superfast broadband in order to operate efficiently, this will
change in the future and this is why it is essential that any broadband network is future
proofed.
15.
The CLA’s goal is to help ensure universality by 2015. We do not believe that the
strategy advocated by Government through BDUK will work. The policy is too fragmented
and there is a strong argument that the contracts awarded by local authorities will actually
go to the biggest and most powerful players in the market. Irrespective of whether there is
adequate transparency, by the very nature of the procurement process and the methods
used by local authorities, the system appears badly skewed.
16.
The CLA also remains to be convinced that the £530m committed (or £1.06 billion
when including match funding) is sufficient. Government and industry studies agree that the
costs of putting together a superfast broadband network are closer to £15 billion and this
indeed may be a significantly optimistic figure. Given this, too great a pressure is being placed
on the private sector to finance a superfast broadband network when broadband needs to
be regarded as a benefit to all in society.
The future needs of rural areas
17.
The CLA accepts that greater speeds will be required in the future. The increasingly
sophisticated applications that are available today will undoubtedly increase in the future
meaning that more bandwidth will be required. In a sense, the concern is not so much speed
as to adequate infrastructure.
18.
One of the CLA’s primary concerns relates to access. Even if superfast broadband
was made more widely available, there is every likelihood that rural areas will miss out
simply due to the costs of putting in a superfast broadband infrastructure. Infrastructure
providers will not fund projects in remote rural areas because there is no economic return.
Even the Government has recognised that 10% of rural areas – those living in the remotest
rural areas – will never be able to gain access to the superfast network. This means that
alternative broadband provision will need to be developed but the CLA sees no evidence
that this is being considered.
19.
The CLA is not wedded to the idea of solely relying on a universal fibre network as
the best solution although we do accept that this must be considered the ultimate objective.
What is required today is a patchwork quilt model whereby other technologies, such as wifi
and satellite become widely available and widely used. As we have stated above, the essential
objective must be the availability of at least 2Mb/ps. We are not unduly concerned that this
has to be delivered through a fixed broadband network – what we want to see is that all in
rural areas have the opportunity to be connected.
20.
It is on this basis that the CLA has serious misgivings regarding Defra’s Rural
Community Broadband Fund. We believe that it has missed a major opportunity by its
reliance on seeking only a superfast broadband solution. Quite simply, the effect will only be
to reduce the numbers in rural areas who have no connection rather than considering how
to ensure universal coverage.
224
The Country Land & Business Association – written evidence
21.
The CLA believes that providing a stable platform for infrastructure providers who
are seeking to develop superfast broadband networks in rural areas is crucial and we fully
recognises that the industry has to play its part. That is why we are engaged in discussions
with the National Farmers Union, subject to agreement from the Office of Fair Trading, with
regard to putting in place a national broadband wayleave agreement as soon as is possible.
Conclusion
22.
The CLA’s key objective is to ensure that all rural areas receive at least a 2Mb/ps
broadband connection that is both effective and affordable as soon as possible. That is why
we have supported the Government’s principles set out in its broadband strategy.
23.
However, the CLA believes that, although progress is being made, there is still no
cast iron guarantee that the Government’s broadband objectives, both in terms of superfast
broadband and the Universal Service Commitment, will be met on time. We remain
concerned that the actual mechanics being employed to roll-out superfast broadband will
not be fit for purpose and the aim of Britain having ‘the best superfast broadband network in
Europe by 2015’ will not be realised.
13 March 2012
225
Creative Coalition Campaign – written evidence
Creative Coalition Campaign – written evidence
1. Introduction
1.1. The Creative Coalition Campaign (CCC) welcomes the chance to respond to the
Committee’s call for evidence on this important issue. We particularly welcome the
Committee’s decision to explore the potential implications of superfast broadband
roll out on the creative content sector in the UK, especially in light of continued
high levels of online copyright infringement.
1.2. By way of introduction, the CCC is a partnership comprising trade unions
representing workers in the creative industries and businesses in the music, video,
film, TV, publishing and sports sectors. We have come together to articulate our
member organisations’ shared view of the threat that online copyright infringement
poses to jobs in the creative industries.
1.3. The UK has the largest creative sector in Europe and probably the largest in the
world in GDP terms. 53 It accounts for 1.5m jobs and contributes more that £36bn
to the economy in terms of value added. 54 However, a report by TERA Consulting
found that up to a quarter of a million jobs will be at risk in the UK by 2015 if
nothing is done about copyright infringement. 55
1.4. We fully support the roll out of superfast broadband as it presents huge
opportunities for content creators. However, there is a risk that a failure to take
action against online infringement in parallel with superfast broadband roll out could
exacerbate the risk posed to jobs and growth in the creative sector.
1.5. Below we have outlined our response to some of the questions raised in the
Committee’s call for evidence.
2. How might superfast broadband change the relationship between providers and
consumers in other sectors such as content? What aspects of this relationship are
key to enabling future innovations that will benefit society?
2.1. The internet is one of the fastest and most exciting growth areas in our economy. It
allows creators to reach entire new audiences in innovative ways and the content
sector is embracing these possibilities with a wealth of legal content available online.
2.2. The UK is one of the world’s most advanced markets for digital music and video
with well over 70 services legally offering music and almost more than 50 digital
video and TV catch-up services including iTunes, Blinkbox, Xbox Live, Netflix,
Lovefilm, BBC’s iPlayer, and 4oD to name a few. These services provide consumers
with access to a huge library of material at a reasonable cost through a number of
53
54
55
CBI report: Skills in the creative industries http://www.cbi.org.uk/media/1055419/2011.09-cbi-creative-skills-brief.pdf
Department for Culture, Media and Sport Economic Estimates: http://www.culture.gov.uk/publications/8682.aspx
TERA Consulting: Building a Digital Economy: The Importance of Saving Jobs In The EU’S creative Industries
http://www.iccwbo.org/uploadedFiles/BASCAP/Pages/Building%20a%20Digital%20Economy%20-%20TERA(1).pdf
226
Creative Coalition Campaign – written evidence
different devices including smartphones, tablet computers, internet connected TVs,
set top boxes and games consoles.
2.3. Increased household penetration of superfast broadband has the potential to
provide a further boost to legal content offerings, making them more viable in
themselves and greatly improving user access and experience, which would stimulate
the demand for paid-for services. However, content providers need the right
regulatory framework and technological tools to flourish. They simply can’t compete
when illegal sites steal their content and offer it for free. If the continuing problem of
online copyright infringement is not addressed alongside the transition to superfast
broadband, the threat to jobs, growth, investment and innovation across the
creative sector will continue to grow.
2.4. Without the continued investment and innovation of content creators, the very
content which drives consumers’ demand for superfast broadband is put at risk.
3. Will the Government’s targets be met and are they ambitious enough? What speed
of broadband do we need and what drives demand for superfast broadband?
3.1. One of the key drivers of demand for superfast broadband is creative content.
Consumers increasingly expect to be able to access their favourite content online,
whether that be films, music, books, games, sport or television drama. The
expansion of superfast broadband will greatly expand the opportunity for consumers
to easily access high value audio-visual content. This will be one of the key areas
driving demand for internet services. This is illustrated by a report by ATKearney 56
which predicted that by 2014 video applications will account for 74 per cent of all
internet traffic. Much of this video traffic is from illegal sources which take up
valuable bandwidth to the detriment of quality for legitimate services.
4. What impact will enhanced broadband provision have on the media and creative
industries in the UK, not least in light of the increased danger of online piracy?
What is the role of the Government in assuring internet security, and how should
intellectual property (IP) best be protected, taking into account the benefits of
openness and security?
4.1. The internet is a vital engine for economic growth and the creative industries
embrace its huge potential to reach new audiences and promote innovation. Our
members do not just make movies, music and television shows, they innovate to
create content using ground breaking technology in formats which consumers want.
However, while criminals continue to steal the work of others and offer it for free
online, the creative sector will never achieve its growth potential.
4.2. The advent of superfast broadband will make it easier and quicker for consumers to
access content, both legal and illegal, more easily and quickly. This is a huge
opportunity for content creators, but also has the potential to exacerbate the
problem of online copyright infringement if decisive action is not taken by all
56
ATKearney: A Viable Future Model for the Internet http://www.atkearney.com/index.php/Publications/a-viablefuture-model-for-the-internet.html
227
Creative Coalition Campaign – written evidence
relevant stakeholders, including internet service providers, search engines,
advertisers and other intermediaries.
4.3. Online copyright infringement harms investment and costs jobs – from the CGI
experts to scriptwriters and sound engineers who make British skills admired
around the world. Without decisive action, infringement risks choking off continued
future investment and innovation in new creative content.
4.4. The Government is committing £530m of public money to stimulate the roll out of
superfast broadband, which will offer considerable benefit to internet service
providers (ISPs). This significant public subsidy should be conditional on a strong
commitment from ISPs to live up to their responsibilities to help ensure a fair and
sustainable online environment.
4.5. This responsibility should include actively engaging with Government and content
creators to implement the notice sending provisions of the Digital Economy Act as
soon as possible and to take action against illicit websites which provide access to
copyright infringing material. We are not asking ISPs to police the internet but
simply seeking their assistance to deal with a major problem, which if tackled, will
help drive the development of a sustainable internet for the benefit of society as a
whole.
4.6. In addition to this, it is important that search engines, credit card companies and
internet advertisers also play their part. Search engines in particular frequently direct
consumers overwhelmingly to illegal websites in preference to legal services. Rights
holders have suggested a code of practice to address this issue which is currently
under discussion. Such a code would require search engines to live up to their
responsibility to help ensure a sustainable internet. In addition to this, work is also
continuing between industry and the Internet Advertising Bureau to reduce brand
advertising which funds illegal websites.
4.7. Full implementation of the Digital Economy Act is estimated to cost in the region of
£20m. This represents less than five per cent of the public money the Government
has allocated for investment in superfast broadband.
5. In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
5.1. Most Government targets currently focus on the reach of broadband infrastructure.
However, an environment where criminals are able to make other people’s content
available for free for their own profit is not a healthy or sustainable situation. Under
the provisions of the Digital Economy Act, Ofcom is required to monitor the levels
of online copyright infringement. Implementation of the Act has so far been delayed
but once Ofcom commences this function it should be used as one of the key
indicators of the health of the digital economy.
13 March 2012
228
Creative Coalition Campaign – written evidence
The membership of the Creative Coalition Campaign includes the following organisations: The
Association of British Orchestras, The Alliance Against IP Theft, BECS, BECTU, BPI, British Video
Association, The Cinema Exhibitors’ Association Limited, Design and Artists Copyright Society,
Directors UK, Entertainment Retailers Association, Equity, Federation Against Copyright Theft,
Federation of Entertainment Unions, Film Distributors’ Association, Independent Film and Television
Alliance, Incorporated Society of Musicians, Motion Picture Association, Musicians Union, National
Union of Journalists, Pact, Personal Managers Association, PPL, Premier League, PRS for Music, The
Publishers Association, UK Screen Association, UK Music, Unite and The Writers Guild. It is also
supported by the TUC.
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Cumbria County Council – written evidence
Cumbria County Council and partners, through the Connecting Cumbria Partnership Board,
welcomes this opportunity to contribute to the Select Committee’s work on superfast
broadband. Please find our submission below.
We have unique experiences of the opportunities and challenges of implementing the
Government’s “Britain’s Superfast Broadband Future” through being one of the 4 national
pilots.
The learning we are capturing as a pilot area will be valuable to all those areas that follow.
We ourselves have learnt from the experiences of other areas such as Cornwall and
Northern Ireland. We are already sharing our learning with others and hope that we can
play a key role in the future in providing advice based on our experiences to Government
and others.
Our vision is that everyone in Cumbria – every resident, business, organisation and visitor to
the county – has access to superfast broadband. Our vision for this is formally manifested in
our role as Accountable Body, and through our strategy which has been in place for nearly
six months. We are entering the final stages of our procurement to identify a delivery
partner. We are currently ahead of other pilot areas in the process of putting in place the
delivery arrangements.
I hope that the Committee finds our unique contribution based on our experience so far
valuable to their work and would be happy to respond to any further requests from
Members of the Committee. I would anticipate that we will have further useful input to
contribute as we complete the procurement phase over the next 3 to 4 months both in
terms of the process undertaken and the work in readiness for implementation and roll-out.
Councillor Elizabeth Mallinson
Cabinet Member for Organisational Development and Chair of the Connecting Cumbria
Partnership Board
1.0
INTRODUCTION
1.1
As one of the 4 pilot areas at the forefront of the delivery of the Government’s
strategy “Britain’s Superfast Broadband Future” Connecting Cumbria is progressing with an
approach based on a clear ambitious strategy, ambitious but achievable key objectives, wide
and effective engagement with all stakeholders and robust procurement. We have unique
experience of the opportunities and challenges to share with the Committee based on our
learning so far.
2.0
KEY MESSAGES
2.1
The Government’s strategy and the funding provided through BDUK have provided a
springboard for the development of an ambitious programme to deliver access to the
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benefits of superfast broadband to those people in Cumbria who otherwise wouldn’t have
access. Our programme and all underpinning activity is focussed on the delivery of long-term
outcomes including digital inclusion, economic growth and public sector efficiencies.
2.2
We have been able to make progress on our procurement process quickly and
efficiently with the full engagement of the market and individual bidders to be the most
advanced of the pilot areas across the country announced in 2010 in the process to roll-out
our strategy (attached).
2.3
We consider the key success factor for our Connecting Cumbria programme is
wide and deep engagement at the local level blended with a county-wide procurement
approach to secure the best value for money possible. Unified political support has also been
important.
2.4
We’ve placed communities at the heart of everything we do, making sure that
we engage with the widest range of stakeholders possible.
2.5
It is important that Government promotes this inclusive approach as other areas
put their programmes into place. We have a network of hub co-ordinators in place in
communities across the county working with their neighbours to identify what their
communities need and how it can be delivered. Students from schools in the county have
also been part of the Board’s work – sharing their experiences, the online services they use
and what they need to be able to use them.
2.6
Businesses are also central to the Connecting Cumbria work with representation
on the Connecting Cumbria Partnership Board and proactive support and engagement.
We’ve also recently surveyed 676 businesses to obtain their views on superfast broadband
as an obstacle and opportunity for growth – this will be part of the information we will use
with our provider to plan what happens next.
2.7
Identifying the appetite within the wider community is a key aspect of supporting
bidders to achieve the best for Cumbria. We are gaining wide experience of this through the
network of business and community groups.
2.8
The key challenge we have to achieving value for money is the operation of the
market. We would ask the Government to consider what they and the regulator, Ofcom,
can do to maximise competition in the market. Technology is moving faster then regulation
and will lead to a restricted and less cost effective solution for the country unless work is
undertaken to update the regulatory framework which our experience suggests would be to
the long term advantage of the market, providers and customers resulting in choice and
value for money.
2.9
Access to existing infrastructure and related investment plans, and the limited
removal of price regulation, would create a competitive market. We have seen some
encouraging moves by the regulator but discussions with bidders suggest that it is vital that
the Government’s aspirations for opening up duct and pole access are followed through.
Access to dark fibre would also negate the need for parallel infrastructure, which would be
wasteful of money and resources, and would have a significant benefit to our project.
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2.10 The rules around European Commission approval of state aid applications are
also lagging the technological developments. DCMS are instigating an umbrella application for
all UK projects which is welcomed, but probably a little late for us. Our experience of
working through the process is that it is a slow process as perceptions on what is eligible
have been informed by our dialogue process with bidders.
2.11 It is important to recognise that the ambition set out by the Government in its
strategy and the funding provided through BDUK and other public sources, partnered with
private sector providers, will not necessarily provide the benefits of superfast broadband for
everybody. There are real risks that a ‘digital backwater’ could still result from this work
despite the public investment and extensive community engagement in developing and
delivering solutions. Even with communities taking on a significant amount of the work
themselves, it is those of the greatest geographical isolation with some of the greatest need
for superfast broadband connectivity that could be left behind.
3.0
FURTHER INFORMATION
Engagement
3.1
Communities were placed at the very centre of Connecting Cumbria from day one.
There is in place a network of volunteers acting as community hub co-ordinators who work
in their communities raising awareness and engaging the whole community in the planning
for their area. Hub Co-ordinators are represented on the Connecting Cumbria Partnership
Board influencing decision-making and are being actively supported by the County Council in
its role as Accountable Body.
3.2
They work with broadband champions linked to parish councils and elected
representatives in their area to establish and represent the views of their community on
broadband services. This includes engaging with, and informing, the procurement process
ensuring the needs and views of communities are reflected in the process.
3.3
The unified support of MPs in Cumbria has played a significant role in raising
awareness and in promoting the communities who are already piloting solutions.
3.4
In addressing market failure, community resources are proving the vital tool. The
£17.1 million of funding secured from BDUK, and the other public funding, totalling a
proposed package of approximately £40 million is not enough to deliver access to superfast
broadband to everyone in Cumbria.
3.5
It is estimated that approximately £200 million would be required to deliver access
to all in Cumbria; however, we are aiming to achieve as close as access to all as possible.
Increased funding at this stage would allow more infrastructure to be put in place that would
meet future needs driven by technological developments, however, this funding gap, in stark
figures, highlights the importance of creativity in developing solutions to achieve our vision.
That is why we are working closely with communities across the county to develop
solutions using a mix of technologies to meet their needs.
3.6
However, even with a high level of community involvement in delivering solutions
there remains the risk that a significant percentage of those in areas that suffer market
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failure and the greatest geographical isolation could be left behind becoming a ‘digital
backwater’. This poses a risk to the national and local strategies focused on digital inclusion.
In Cumbria this ‘digital backwater’ could see the 10% of premises which arguably are in
greatest need of digital inclusion and public investment because of geographical isolation and
the lack of commercial incentive for connection miss out on the benefits of superfast
broadband for the foreseeable future.
3.7
A robust, competitive market would enable an increased focus, nationally and locally,
on addressing complete market failure through public investment.
3.8.
The approach being pursued in some communities in Cumbria is a build and benefit
model with the community doing the work themselves, e.g. digging the trenches, and
working with the provider to ensure that a backhaul point is placed in the community to
which dwellings can connect through a choice of Internet Service Provider.
3.9
A community-centred approach can also be important in respect of efficiency and
value for money. For example, engagement of landowners can help bring down costs related
to use of land for infrastructure.
3.10 The Connecting Cumbria Partnership Board has recently been visited by groups of
students from 2 local secondary schools to set out what their issues are. They gave video
presentations to the Board highlighting how faster and more consistent connectivity at home
would help them:
• Carry out research for their school work
• Save time travelling to the library to do work
• Access moodle to sit interactive tests and upload work
• Access online advice services and blogs
• Set businesses up online
3.11 The students emphasised with the Board the importance of social media for
communication, and of students in rural areas having the same access as those in urban
areas. They confirmed that due to the connectivity issues they have many of the students
choose to access the internet via mobile because its faster. Better and faster connectivity
would also mean more of the students would consider going on to study at the University of
Cumbria rather than re-locating outside of the county. Of crucial importance here are the
opportunities which the provision of superfast broadband bring to young people and the
long-term impact on outcomes including educational attainment.
3.12 The Cumbria Chamber of Commerce represent businesses on the Partnership Board
and were directly involved in developing the Cumbria’s strategy for superfast broadband.
We have directly engaged with the Large Employers in the county through their network,
and with the county’s Local Enterprise Partnership.
3.13 In the Cumbria Business Survey 2010, 23% of businesses reported a need for higher
speed broadband. The need for higher speed broadband is greatest within the
accommodation and food sectors (32%). This highlights the tourist industry as one of the
key sectors driving demand in Cumbria. Recent work on the Destination Management Plan
has re-emphasised the importance of superfast broadband in enabling better and wider,
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global marketing of Cumbria and its businesses, and in improving the visitor experience for
tourists who now expect high speed access.
Outcomes
3.14 It is important that social and economic outcomes are not forgotten. Elements
missing from the Government’s strategy include employment and training opportunities
through the building of the infrastructure and pricing mechanisms to promote social and
economic, as well as digital, inclusion. While we require our provider to demonstrate
strategic fit with our policy objectives, and to demonstrate innovation in the way in which
superfast broadband can contribute to improved outcomes, this is not formally reflected in
the Government strategy.
3.15 We intend to ensure there’s a backhaul point in each community; however, we
recognise that there’s more that could be done to help everyone have access to superfast
broadband and that barriers are not just about provision of infrastructure to allow access.
Economic and social barriers are often the most significant barrier to access and need to be
fully considered as part of this strategy. A truly competitive market providing value for
money and choice for customers wherever they are in the country is one major way to
address these issues.
Ambition and Expectation
3.16 The Connecting Cumbria through Superfast Broadband strategy sets out the
ambition that everyone in Cumbria – every resident, business, organisation and visitor to the
county – has access to superfast broadband. 18% of properties currently don’t have access
to at least 2 mbps, whilst we aim to increase the number of properties with access to at
least 25mbps.
3.17 We are clear about using a mix of technologies so that those communities (we
estimate 10% of dwellings in the county) where it is impossible to fund fibre infrastructure
(either through the market on its own or with public sector and community support) expect
to be covered by mobile technology where possible. It is not possible at this stage to be
clear about the speeds communities can expect to receive until a contracted provider has
begun work.
3.18 It is important to be realistic and plan for the amount of time, resources
and effort it takes to secure and put in place the funding arrangements to deliver a project of
this size and ambition. One of the key risks at local and national level is the relationship
between ambition, expectation, and the realities of delivery. One aspect of this is the clear
communication of a single definition of superfast broadband – this has been missing from the
Government strategy so far – and clear messages about what different areas can expect and
when. Maintaining momentum is vital to continued
Public Services
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3.19 Cumbria County Council is committed to working with partners to take
opportunities to increase the efficiency of public services. This is clearly reflected in the
superfast broadband strategy for Cumbria. Some of this work has already started and we
aim to expand on this through the Connecting Cumbria project.
Alston Healthcare uses next generation broadband to enable the remote
diagnosis, treatment and monitoring of patients by medical staff. Patients can
use their televisions to book GP appointments and order repeat prescriptions.
Cumbria County Council and Cumbria Constabulary are using next
generation broadband technology to enable the sharing of networks on the
move. This means that Police Officers can access systems whilst on the move
meaning
that
they
can work in their cars rather than returning to their base,
Ambition
and
Expectation
work more efficiently and effectively and spend a greater proportion of their time
actively ‘policing’ rather than travelling.
3.20 The outcomes that have been set out in our strategy focus on achieving economic
growth, digital inclusion and public sector efficiencies. The ability of the market to support
delivery of these is being evaluated in the procurement process through seeking innovation
and application of technologies in, for example, telecare and educational attainment.
4.0
CONCLUSION
4.1
The opportunities provided by Cumbria’s pilot area status is welcomed and work is
progressing well in ensuring that the best possible outcomes are achieved in the county to
enable every individual, business, organisation and visitor to experience the benefits of
access to superfast broadband. It is important for us to maintain that focus through the
complexities of the planning and procurement processes.
4.2
We also recognise that being a pilot means that we are identifying and attempting to
overcome some challenges and obstacles that we can now highlight to the Government so
that steps can be taken to mitigate or remove these.
4.3
We hope this summary of our experience and some of the particular issues we have
faced is helpful to the Committee and would welcome any further requests for information.
13 March 2012
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David Hall Systems Ltd – written evidence
David Hall Systems Ltd – written evidence
Question
1) What is being done to prevent a greater digital divide occurring between people who
can access superfast broadband and people in areas where the roll-out of superfast
broadband may not be commercially attractive? How does the UK communications
market vary regionally and what is the best way to connect the areas that the market
alone cannot reach? Is a universal service obligation necessary to avoid widening the
digital divide?
Response
1.1)
We consider that there is a requirement for a universal service obligation though
detailing such an obligation may be difficult. However such an obligation is essential
to prevent any digital divide developing on the basis of speed or access to
connectivity. We consider that wireless and/or satellite connectivity should be used
to serve the areas that the market cannot reach. There is also an important role for
community groups to provide superfast broadband provision in areas where the
market finds it is difficult to meet the needs. A system of supporting and encouraging
such community groups needs to be developed. A possible complication is that the
cost of deploying superfast broadband is changing so that it is difficult to determine
the areas will not be served by the market and over time such areas should be
reducing.
Question
2) The Government have committed £530 million to help stimulate private investment
– is this enough and is it being effectively applied to develop maximum social and
economic benefit?
Response
2.1) It is difficult to determine an appropriate amount for the Government to invest in
superfast broadband though it is essential that any amounts committed by the Government
do not distort the functioning of the market. It is even more difficult to determine if this
Government funding is resulting in the maximum social and economic benefits and we
consider that further studies are required to answer this question. Additionally we consider
that the social and economic benefits will change over time and the implications of this need
to be taken into account.
Question
3) Will the Government’s targets be met and are they ambitious enough? What speed
of broadband do we need and what drives demand for superfast broadband?
Response
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David Hall Systems Ltd – written evidence
3.1) Speed appears to be an inappropriate indicator on a stand alone basis. With the
increasing use of mobile devices for accessing online content it appears that mobility is
preferred over speed as currently mobile data rates tend to be slower than fixed data rates.
We consider that this relationship between mobility and speed needs to be better
understood so that appropriate targets can be developed. The key drivers of demand for
superfast broadband are video and other forms of rich content and this demand is constantly
increasing. Additionally as we become more conversant with the process of online
communication new communication concepts will develop which is likely to increase
demand for superfast broadband.
Question
4) In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy? What
communications infrastructure does the UK ultimately need to remain competitive
and meet consumer demand over the next 20 years?
Response
4.1) Superfast broadband is just a segment of the digital economy and what are appropriate
indicators for superfast broad are unlikely to be fully appropriate for measuring the digital
economy and vice versa. Consequently separate indicators need to be developed for
superfast broadband and the digital economy. In the previous question we have suggested an
area where the current superfast broadband targets might be improved.
4.2) Currently fixed and wireless provision of superfast broad are treated as separate
markets though in future we consider that these should be integrated into a single market.
This will have a number of policy and regulatory implications which will need to be fully
understood to prevent the risk of unintended consequences. However integrating these two
market sectors will provide a much more appropriate communications infrastructure.
4.3) Currently most consideration of network capacity is related to the technical capacity of
the network but in future it might be more appropriate to use other means for dimensioning
the networks such as based on the value of information or the context of the information.
However this approach will raise many difficult questions particularly in the relationship with
net neutrality.
Question
5) How will individuals and companies use cloud services for distributed storage and
computation? What network properties are required to enable efficient provision
and use of such services?
Response
5.1) There has been an extremely rapid evolution of online computational concepts and this
evolution is likely to continue. Therefore it may be inappropriate to optimize the networks
for cloud services and in reality the networks should be capable of supporting any
technology, service or application that is developed. We consider that this is the most
appropriate means of developing a future proof network
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David Hall Systems Ltd – written evidence
Question
6) To what extent will the advent of superfast broadband affect the ways in which
people view, listen to and use media content? Will the broadband networks have the
capacity to meet demand for new media services such as interactive TV, HD TV and
3D content? How will superfast broadband change e-commerce and the provision of
Government services?
Response
6.1) This question raises many issues and it is likely that the situation will change significantly
over time which reinforces our previous point that the networks should be capable of
supporting any technology that may be developed. In future much more video content will
be delivered online but currently it is not clear if this will reduce the demand for over the air
broadcast services. If there is a reduction in conventional broadcast services then this could
result in the release of spectrum which could be used for other purposes such as the
provision of additional superfast broadband. However based on current trends it appears
that there will be little reduction in demand for conventional broadcast services so there is a
need to understand if this trend will continue and the longer term implications.
6.2) There is a need to consider the wider impact of e-commerce which could in some
circumstances reduce or change the role of shopping in the traditional high streets. Already
there is evidence that in some sectors the sales are greater online than in shops and the
implications of this need to be considered.
6.3) Similarly the provision of Government services raises a number of issues. A key one is
that many of these services could be targeted at the elderly who traditionally are less likely
to be active online so there is a need to consider the implications of providing such services
and the level of support required for these services.
Question
7) Will the UK's infrastructure provide effective, affordable access to the 'internet of
things', and what new opportunities could this enable?
Response
7.1) We are not fully convinced that the current communications infrastructure is
appropriate for the ‘internet of things’. We agree that the ‘internet of things’ will provide
many opportunities and change many established processes. Thus we consider that there is a
need to identify the resultant benefits so as to justify the required investment in providing
the appropriate infrastructure.
Question
8) How might superfast broadband change the relationship between providers and
consumers in other sectors such as content? What aspects of this relationship are
key to enabling future innovations that will benefit society?
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Response
8.1) Superfast broadband will significantly change the relationship between providers and
consumers in many ways but particularly in the area of content where consumers will also
become providers. Currently the relationships in this area are not fully understood and
further research is required to clarify the relationships. A specific aspect of this will be the
change in the economics of content provision and this may have implications for intellectual
property rights.
Question
9) What role could or should the different methods of delivery play in ensuring the
superfast broadband network is fit for purpose and is as widely available as possible?
How does the expected demand for superfast broadband influence investment to
enhance the capacity of the broadband network?
Response
9.1) DCMS is currently developing a policy regime that will allow the deployment of
overhead lines and we consider that such deployment could have a very significant impact in
rural areas. The role of wireless will become increasingly important in all areas and it is
essential that Ofcom makes the spectrum available to meet this demand. We also consider it
is important that this spectrum is made available to a wide range of organisations and not
just the current major mobile network operators. In the more remote areas satellite
connectivity will play a role. All these methods of delivery have different characteristics and
it is important to understand these characteristics so that the different means can be
combined to form a unified delivery network. Additionally when considering wireless
connectivity there is a need to consider the backhaul links required to support the wireless
network.
9.2) We have already referred to the relationship between speed and mobility and this
relationship will have an important impact on the distribution of demand for connectivity
between overhead lines and wireless links.
Question
10) Does the UK, for example, have a properly competitive market in wholesale fibre
connectivity? What benefits could such a market provide, and what actions could the
Government take to ensure such a market?
Response
10.1) We are not convinced that currently there is a fully competitive market in wholesale
fibre connectivity. However we consider that the wholesale market should include mobile
connectivity as well as fibre access and for fibre access it should include other networks in
addition to BT. We are concerned that the mobile operators have too great a control over
the way the mobile market is developing. If there is a more competitive market this will
allow additional service providers to enter the market which could extend the reach of the
market in more rural areas.
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Question
11) What impact will enhanced broadband provision have on the media and creative
industries in the UK, not least in light of the increased danger of online piracy? What
is the role of the Government in assuring internet security, and how should
intellectual property (IP) best be protected, taking into account the benefits of
openness and security?
Response
11.1) Enhanced broadband provision will significantly increase the market for the media and
creative industries and in addition change the way that these sectors work. At this stage it is
difficult to understand the full implications of these changes so a flexible system is required
to accommodate any future change. Internet security and the protection of intellectual
property are difficult issues and it is possible that a new framework is required. The report
‘Digital Opportunity: Review of Intellectual Property and Growth’ produced by Hargreaves
in May 2011 contains a number of recommendations for amending the intellectual
framework and these recommendations demand careful consideration and implementation
where appropriate.
13 March 2012
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Department for Culture, Media and Sport – written evidence
Department for Culture, Media and Sport – written evidence
The Government welcomes this inquiry into superfast broadband. The roll out of superfast
broadband is one of our top priorities, and a key part of our national infrastructure plans.
Our aim is to be the best in Europe by 2015, with 90% of premises having access to
superfast broadband, and universal access to at least 2Mbps. Our strategy for achieving this
is, covering both urban and rural areas, is set out in Britain’s Superfast Broadband Future,
published in December 2010. We are making significant investments, to be matched by local
authorities and the private sector, and we are reviewing the regulatory framework for the
sector in support of these goals. Good progress is being made but we are still facing
significant challenges, particularly in the context of the economic climate.
1. What is being done to prevent a greater digital divide occurring between
people who can access superfast broadband and people in areas where the rollout of superfast broadband may not be commercially attractive? How does the
UK communications market vary regionally and what is the best way to connect
the areas that the market alone cannot reach? Is a universal service obligation
necessary to avoid widening the digital divide?
Ofcom publishes data on the UK’s communications market in its annual Infrastructure
Report. Last published in July 2011, this showed that the UK average modem sync speed was
7.5Mbps. England and Scotland had higher average speeds of 7.6Mbps compared to Wales
and Northern Ireland, which had average speeds of 6.5Mbps and 6.3Mbps respectively.
However, Northern Ireland had a significantly higher availability of superfast at 97% than
England (61%), Scotland (41%) and Wales (31%). As at November 2011, England had the
highest broadband take up at 76%, followed by Northern Ireland (75%), Wales (71%) and
Scotland (61%).
The Government wants to minimise the prospect of a greater digital divide where some
households are unable to access the same level of services as others purely due to their
location. Currently, without any intervention from Government, the market is expected to
deliver superfast broadband to at least two thirds of the country. Investment becomes less
commercially viable in ‘final third’ areas due to costs of installing new networks and replacing
copper with fibre (which for the last 10% can be up to three times higher than for the first
two thirds areas 57 ), and lower population density. We are investing £530m of public funds
over the lifetime of this Parliament to stimulate private investment in high speed broadband
in areas the market alone cannot reach.
At least 90% of premises will have access to superfast broadband (24Mbps +) by 2015, with
the remainder having access to at least 2Mbps. Rural and remote areas will benefit from
increased service levels at the same time as more urban areas, bringing coverage to parts of
the country that are currently excluded. Communities and local authorities are being given a
say in how networks will be built so that community needs will drive the process, not
decisions made in Whitehall. We are also investing a further £20m through the Rural
Community Broadband Fund for the most remote areas.
57
Broadband Stakeholder Group
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Department for Culture, Media and Sport – written evidence
We are also investing £150million to improve mobile coverage for consumers and
businesses in areas where coverage is poor or non-existent. The Mobile Infrastructure
Project (MIP) is aimed at improving voice and basic data coverage, however, it is absolutely
clear that infrastructure installed will need to be forward compatible for the next generation
of mobile equipment which is expected to become available after the upcoming spectrum
auction. This project is based around bringing the benefits of mobile coverage to those who
do not currently have it, ensuring that a similar level of service can be accessed by all.
The market should be allowed to act, and only where the commercial investment case is
weak should the state intervene. It would be costly to impose a broadband Universal Service
Obligation and it may constrain private investment in networks. The current non-regulatory
approach to deliver universal broadband is the most effective means of stimulating
commercial investment while minimising costs to the public purse.
2. The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
Local Broadband Plans need to ensure that maximum benefit is created locally, reflecting
local needs. It is far better for this to be done at the local rather than national level. We
expect the creation of social and economic benefits to be central to these proposals. The
£530million figure represents the national public funding element of the investment needed.
This figure needs to be matched by local authorities, who will in turn need to secure similar
levels of private investment to deliver the coverage levels required. This level of public
funding is modelled on the level of investment needed to stimulate private investment to
extend superfast broadband coverage to 90% of premises and universal access to 2Mbps
broadband. The public investment will help bridge the gap where the commercial investment
case is weak. Local authorities are matching their respective allocations in full, and we will
be able to fully assess the impact of the public commitment once the procurements are
completed.
3. Will the Government’s targets be met and are they ambitious enough? What
speed of broadband do we need and what drives demand for superfast
broadband?
Content is key to driving demand for digital connectivity. Advances in technology enable the
provision of innovative services like high bandwidth TV centric services, online gaming and
entertainment, personal content exchanges and digital government in addition to current
activities including browsing, email, ecommerce and blogs. Higher data volumes and content
increases the demand for bandwidth to allow data transfer more quickly and efficiently. As
services and applications that take advantage of the greater availability of bandwidth emerge,
particularly those with data rich content like streamed video and large data files, demand will
be even greater still.
Our vision is of a world class communications network which can support economic
growth. Consumers will have greater choice and costs will be reduced. The delivery of
public services will be more efficient, cost effective and inclusive. Broadband is a top priority
for this Government. Our clear vision is for Britain to have the best superfast broadband
network in Europe by 2015: 90% of premises will have access to superfast broadband, and all
premises will have access to at least 2Mbps. We have estimated this to be the level of speed
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Department for Culture, Media and Sport – written evidence
we need to 2015 based on current projections. Beyond that we are working towards the
EU’s targets of universal access to 30Mbps and 50% of consumers subscribing to 100Mbps by
2020, countries across Europe will need to take great strides to achieve this. These are
challenging goals but ones that we can and must achieve.
In the Budget, the Chancellor will announce up to 10 Super-Connected Cities, with 80 to
100Mbps connectivity and widespread wireless connectivity. London, Belfast, Cardiff,
Edinburgh, and up to six further cities will receive support under our £100million Urban
Broadband Fund over the next three years to deliver these speeds. Transforming
communities into super-connected cities will enable them to compete with the world’s top
cities and help to ensure that the UK has a broadband network fit for the digital age. It will
help them attract new jobs and new investment and make the UK a place where digital
businesses look to come.
But our targets are not simply about speed. Our aim is to have the best network also taking
into account coverage, price and choice of broadband services. The Government will adopt
a ‘best network in Europe’ scorecard focusing on these four headline indicators, with Ofcom
expecting to publish its first annual assessment of the UK’s comparative position in the
summer.
Our goals are ambitious given the scale of the challenge, particularly in rural and other areas
where the investment case is weak. Our use of the internet means that we need significant
improvements to networks, and there are two million households that still cannot access a
sufficient level of service. Infrastructure deployments are a major undertaking requiring
significant investment and careful planning. Fibre to the home is particularly costly here, with
only Ireland having more dispersed housing among major European partners. 58 Although
local engagement in the plans adds complexity we see it as being is absolutely essential.
We are making good progress. In terms of local broadband plans, 45 have been received, 20
of these have been approved, of which eight are in procurement. All plans will need to be
approved by the end of April 2012, and procurement complete by the end of the year,
enabling all projects to be completed by 2015.
Overall, the UK is in a good position, with one of the most competitive markets in the
world, and 58% of households already have access to a superfast broadband service. The
market has been successful in delivering broadband at good speeds to much of the
population and accommodating high take-up of mobile services. Private sector investment in
superfast broadband is significantly increasing across the UK. BT has accelerated its plans and
will bring superfast broadband to two thirds of the country by 2014; Virgin is on track
deliver 100Mbps to its entire network by mid-2012; and Fujitsu is looking to make
substantial investments in the final third.
4. In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
58
IDATE 2011
243
Department for Culture, Media and Sport – written evidence
The whole of the European Union is striving for better connectivity, and like other Member
States we have committed to the EU’s target of all citizens having access to a basic level of
broadband (2Mbps) by 2013. Beyond this we are also committed to EU targets to ensure
100% access of at least 30Mbps by 2020, and 50% subscribing to 100Mbps services by the
same timescale.
Fixed and mobile broadband services are now found in 74% of UK households59 . The UK is
the largest online market in the EU with £44billion online sales in 2010.60 Over a quarter of
adults are smartphone users and almost half of all 12-15 year olds have a smart-phone. 44%
of people can now be described as next generation internet users, 61 people who routinely
access the Internet on the move through an increasing number of devices, including mobile
devices like smart-phones, tablets, and readers. These are all indicators of the health of the
digital economy. As technology and digital consumption habits evolve we will continually
review the way we monitor the health of the digital economy using a range of measures.
Future requirements are to a large extent lead by data transfer needs and growth in mobile
data traffic is currently exponential. Government has directed Ofcom to make spectrum
available, through auction, later this year to enable the deployment of mobile services.
However, fixed networks are still considered to be most effective way to meet the growing
requirements, but the cost of replacing legacy networks is very high (for the UK investment
of up to £29bn for fibre to the home has been suggested). Alternative technologies including
mobile, wireless and satellite all have a role, particularly where the cost of delivering fixed
networks is prohibitively high, like remote rural locations where it is expected the MIP
infrastructure will be focussed, but these are not necessarily better deployment options.
Each technology has its benefits and limitations. The key to keeping the UK competitive and
meeting future consumer demand will be the flexibility of the infrastructure and markets to
respond to emerging technologies and demands, a mixed provision is the key here. To
ensure the communications industry remains innovative and competitive, Government is
undertaking a wide-scale review of the regulatory framework for the sector, with a Green
Paper due to be published shortly which will set out the Government’s aim to make the UK
Europe’s technology hub.
5. How will individuals and companies use cloud services for distributed storage
and computation? What network properties are required to enable efficient
provision and use of such services?
Cloud services provide cost effective remote data storage and access to ‘software as a
service’ allowing individuals to access their data at no or little cost. For businesses, the
ability to buy-in extra capacity, without having to make large capital intensive investments in
hardware makes cloud computing a powerful tool with significant financial advantages. The
availability of “pay as you go” cloud data storage services can be very cost effective since
companies can scale up or scale down their requirements to suit their business needs.
However, given the greater demands on connectivity that this will bring, savings gained by
using these services need to be off set against potentially increased spending on broadband
services required to access the data. Government is also adopting cloud technology to
enable it to share commodity ICT products and services, enabling a move to low cost,
standard, interchangeable services.
59
60
61
Ofcom (2011), “The Communications Market Report”, Page 33
Centre for Retail Research
Oxford Internet Survey (2011), ‘Next Generation Users: The Internet in Britain 2011’, p4
244
Department for Culture, Media and Sport – written evidence
Robust and secure data links that are always available with sufficient capacity to bring users
items that they want to access quickly are essential to a good cloud computing experience.
These links are required both when users are static and when they are on the move.
Increased take up of these services will increase demands on network capacities, and is likely
to drive demand for more symmetrical upload and download speeds.
6. To what extent will the advent of superfast broadband affect the ways in
which people view, listen to and use media content? Will the broadband
networks have the capacity to meet demand for new media services such as
interactive TV, HD TV and 3D content? How will superfast broadband change ecommerce and the provision of Government services?
We are already seeing a shift in the way that people listen to and view media content –
services which provide on demand viewing giving the user control of what they watch and
when, and which device they use to access the service. Some services even make
recommendations about what content users might like to watch based on viewers’ previous
selections. Network capacity and speed are crucial to keeping apace with this developing
market. Of course these faster services will cost more, but there are cheaper options
available to those who are content with slower speeds for the time being.
Video underpins the tremendous growth in internet traffic, today equating to around a third
of traffic, this is expected to rise to 70% by 2015. 62 A 2Mbps connection is sufficient to view
standard quality TV. HDTV, 3DTV and Skype video calls drivers for higher bandwidths, 63 but
it will be devices with even higher resolutions, such as 4K services (which is the current
picture standard used in cinemas and can combine 3D content with HD picture quality),
which cannot be transmitted using traditional broadcast methods, that will drive up the
demands for greater connection speeds, and online video gaming is likely to be a key driver
for this. Content providers will need to ensure that they use appropriate levels of coding to
reduce data package sizes without compromising quality to reduce unnecessary burdens on
the networks.
Ecommerce is flourishing, and this growth, supported by superfast broadband, is set to
continue. Increased competition brought about by superfast broadband will deliver even
greater consumer choice, drive innovation and create efficiency savings. Companies
marketing or selling their goods and services online are seeing overall sales growth
significantly higher than those that do not. 10.7% of retail sales are now online in the UK
(compared to an EU average of 5.9%).64 The UK is the largest online market in the EU with
£44 billion online sales every year. Ebay predicts mobile shopping will deliver a £4.5 billion
boost to the UK economy by 2016, and a further £13 billion by 2021.65 The rate at which
consumers are adopting new technologies is increasing while the number of years new
communications services take to reach 50% market penetration has dropped by over half in
the last 10 years. 66 Ecommerce is intrinsically linked to a wide range of other sectors,
facilitating growth in them as it expands.
62
63
64
65
66
AT Kearney, The Internet Economy in the United Kingdom.
IDATE, FTTX Markets: Global Perspective Challenges and Drivers, 2011
Centre for Retail Research
eBay Inc.
Ofcom, Communications Market Report, 2011.
245
Department for Culture, Media and Sport – written evidence
The delivery of public services will be more efficient and cost effective, as well as more
inclusive. Superfast broadband can help improve the quality and delivery of public services,
particularly to people in more rural areas. It enables a whole range of services to be offered
online that were not previously possible, such as education, administration, law enforcement
and the Big Society initiatives. It can also help improve healthcare services, particularly in
rural areas where providers are coming under increasing pressure as the population ages
and requires access to more services.
7. Will the UK's infrastructure provide effective, affordable access to the
'internet of things', and what new opportunities could this enable?
Machine to machine communications is an important area of development that
manufacturers and suppliers are beginning to define. Cisco predicts that there will be 15
billion connected devices by 2015, including mobile phones, tablets, connected appliances
and other smart machines. 67 The Future Internet will have an infrastructure consisting of the
‘internet of things’ (IoT) and services, and will provide a network of converged services and
shared data that will link people and machines to provide an on demand service anytime and
anywhere in the world. It will be the engine for technologies like Smart Grid, Cloud
computing and data management. The Future Internet, which provides huge market
opportunities and has been described as the ‘socio-economic engine of mid-21st century’,
will rely on IoT to create a pervasive network of internet connections.
The new opportunities that IoT can bring are evolving technologies. But communications
providers understand that a greater the number of devices needing internet connections will
place a greater demand on networks. The key issue here is that each device connected to
the Internet needs a unique address to identify it. Based on current trends, it is expected
that the current scheme for this (Internet Protocol version 4) will not have any new
addresses after summer 2012. A new scheme (Internet Protocol version 6) exists and will
provide sufficient addresses for the foreseeable future, though it needs to be adopted more
widely and speedily to work well. The Government is aware of this issue and has supported
the creation of 6UK (6uk.org.uk) to stimulate this.
8. How might superfast broadband change the relationship between providers
and consumers in other sectors such as content? What aspects of this
relationship are key to enabling future innovations that will benefit society?
Superfast broadband allows consumers to do the things they already do online but more
reliably and quickly, and this encourages greater demand. Higher upload and download
speeds allow the provision of new services and encourage innovation. Consumers will be
able to choose more readily the type and time of delivery of services, such as video
streaming and other on demand services. We are seeing an increased ability to offer
individually tailored products giving consumers far greater control over the services they
enjoy. The consumption of content becomes a more individual rather than collective
experience. The concept of broadcasting the same thing to a large group of people could
become more like sending it to individuals with slight nuances for each, for example,
different angles and microphone pickups.
The provision of superfast broadband will also bring wider social benefits. It will help people
participate more in society and democracy and can bind communities together, regardless of
their location, through social networking and shared experiences. It will influence how
67
Cisco's Visual Networking Index
246
Department for Culture, Media and Sport – written evidence
people access and benefit from public services, helping more people access more services in
ways not possible before. Education and future government services, like remote healthcare
can also be delivered without the need to travel.
9. What role could or should the different methods of delivery play in ensuring
the superfast broadband network is fit for purpose and is as widely available as
possible? How does the expected demand for superfast broadband influence
investment to enhance the capacity of the broadband network?
UK internet traffic is expected to increase by 37% each year to 2015.68 World-class
connectivity - with higher bandwidth and more reliable fixed broadband services combined
with good coverage of high-quality, high-speed broadband to mobile devices – must embrace
a wide range of technology solutions. Fixed, fixed-wireless, mobile and satellite
communications networks all have a role as no single technology is suitable for all
circumstances. Each technology has its own challenges, including financial, geographic, and
capacity issues. The selection of technologies requires consideration of a whole range of
factors, and suppliers are best placed to identify the appropriate mix to deliver commercially
sustainable services. Our approach to delivery must be technology-neutral, although it
recognised that high-capacity fibre is likely to be a key feature of the UK’s network going
forward. Whether this is directly to homes, a street cabinet or to a mast will depend on
local circumstances.
10. Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what actions
could the Government take to ensure such a market?
Ofcom has a duty to promote competition and ensure that a wide range of communications
services are available throughout the UK. It does this by carrying out periodic reviews of
competitiveness in these markets, as required under the European Framework for Electronic
Communications, and by introducing remedies where competition is ineffective. In October
2010 Ofcom published its conclusions to its review of the wholesale local access market,
which aimed to establish a framework to promote competition and to support continued
investment and innovation in the deployment of next generation access networks that can
support super-fast broadband. In December 2010 it published the outcome of its review of
the wholesale broadband access market (which relates to the wholesale products that
communications providers provide for themselves and sell to each other), which concluded
that the market was not yet effectively competitive everywhere and regulation was imposed
to address this. By Easter, Ofcom is expected to publish its Business Connectivity Market
Review which examines the market for leased lines and backhaul circuits used by businesses
and communication providers.
11. What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of online
piracy? What is the role of the Government in assuring internet security, and
how should intellectual property (IP) best be protected, taking into account the
benefits of openness and security?
68
AT Kearney, The Internet Economy in the United Kingdom.
247
Department for Culture, Media and Sport – written evidence
Despite the significant benefits of increased broadband to the economy and individuals, it can
also facilitate unlawful activity. One of the chief concerns of many in the creative industries,
such as music, film, television and publishing, is the continuing high level of online copyright
infringements.
Intellectual property (IP) protection is an important consideration, regardless of broadband
speed, and so the Government’s approach is unlikely to change substantially because of that
factor. We are consulting on how we should take forward the Hargreaves Review (which
proposed a change in the direction of IP policy to ensure the UK has a framework suited to
supporting innovation and promoting growth in the digital age), and ensuring that we have
the right balance that will promote growth. We are also looking at ways in which copyright
owners themselves can work with others to make it more difficult for sites illegally offering
content to thrive. We are also working towards the implementation of the online
infringement of copyright provisions in the Digital Economy Act 2010. Rights holders
themselves have a responsibility to ensure that the legitimate offer is compelling to reduce
the attractiveness of illegal offers.
The Video Games industry, unlike music and film, operates within a controlled
infrastructure, and customers are more used to a need to accept digital rights management.
Nearly all games platforms now include an online element, which require authorisation.
Sharing the files alone does not provide users with access to play the game. Faster internet
connections on the other hand improve the experience for all players, encouraging more
online play. This leads to greater control for the industry and less piracy.
March 2012
248
Department for Culture, Media and Sport – oral evidence (QQ 748-809)
Department for Culture, Media and Sport – oral evidence (QQ 748809)
Evidence Session No. 9.
Heard in Public.
Questions 650 – 809
TUESDAY 19 JUNE 2012
Members present
Lord Inglewood (Chairman)
Baroness Bakewell
Lord Bragg
Baroness Fookes
Lord Gordon of Strathblane
Bishop of Norwich
Lord Razzall
Lord St John of Bletso
The Earl of Selborne
________________
Examination of witnesses
Mr Ed Vaizey, Minister for Culture, Communications and Creative Industries; and Mr
Robert Sullivan, CEO BDUK
Q748 The Chairman: Can I apologise to the two of you, the Minister, Ed Vaizey, and
Robert Sullivan? You are the Chief Executive Officer of BDUK, is that right?
Mr Sullivan: That is correct, yes.
Q749 The Chairman: I think you are doing a kind of two-man act, is that right?
Mr Sullivan: We are.
The Chairman: We are looking forward to it.
Mr Vaizey: Laurel and Hardy.
Q750 The Chairman: I will not ask which is which. I do not know if you want to make an
introductory statement—you obviously know where you are coming from—but in
responding to our questions, please feel free to range as widely as you like.
We are being filmed, so if either or both of you would like to make a brief introductory
statement, we would be very pleased.
Mr Vaizey: I am Ed Vaizey. I am the Minister for Culture, Communications and the Creative
Industries. I have responsibility within the Department for broadband policy, although it is
led very strongly by my Secretary of State, Jeremy Hunt. Rob Sullivan is the Chief Executive
of Broadband Delivery UK, which is an organisation that I think was in existence before the
last election to help us deliver broadband to rural areas using public subsidy and public
investment. Rob, you have been in post about 18 months, is that right?
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Department for Culture, Media and Sport – oral evidence (QQ 748-809)
Mr Sullivan: That is right, yes.
Q751 The Chairman: Just so we are clear, BDUK is actually a part of DCMS—is it
not?—although it has a different name.
Mr Vaizey: That is a very good question. Rob, what are you?
Mr Sullivan: Yes, we are completely part of DCMS. It is a specialised unit inside DCMS.
The Chairman: That is fine. Thank you.
Mr Vaizey: They were part of BIS originally.
Q752 The Chairman: In simple terms, how do you see the scale of what the BDUK
team is trying to do? Maybe you will wish to pass the second part of my question over to the
Minister; do you think you have enough people to handle the task?
Mr Vaizey: I am happy to lead off. I have read some of the evidence that your Lordships
have been given during the hearings, and it is not strictly accurate to say that BDUK is a
group of 10 people. There are 10 officials from DCMS based within BDUK, but the overall
staffing is about 53 people, which includes additional technical staff skilled in the art of
broadband rollout. So we have a pretty substantial body of people there.
Q753 The Chairman: Are these the consultants we hear about, or are these other
people on your books permanently?
Mr Vaizey: No. These are people brought in to staff up BDUK, to make this particular
project work effectively. There are 53 people working on that project under Rob’s able
leadership. I noticed that one of your witnesses indicated that 500 local authorities were
bidding for this money. That is also inaccurate. I think we have 46 procurement projects.
We have given money to the devolved administrations, Scotland, Wales and Northern
Ireland, and then within England 43 local authority consortia are bidding. We tend to do it at
a county council level, and some county councils have come together.
In that sense, in terms of the interface between people who are seeking the money and the
people who are responsible for awarding it, it is a smaller pool than perhaps you might have
imagined that BDUK has to deal with. I think they are doing an excellent job. It is very
effective and of course it is stretching, and the team works incredibly hard and very
effectively. In terms of our timeline and timescale, I feel we have not come to any bumps in
the road. As far as BDUK is concerned—and I will bring in Rob at this juncture—we have
certainly taken a position, as Ministers, that when BDUK come to us asking for additional
resource with a justified case, we are happy to ensure that that requirement is fulfilled.
Mr Sullivan: Yes, just to add to that. As the Minister says, we are essentially a specialist
procurement team inside DCMS. We have specialised skills around procurement, legal
aspects of procurement and then the technical aspects. There are three parts of the
programme. One part is what we call “the rural programme”, which is essentially looking at
the final third that you have been taking evidence on; the second part is around SuperConnected Cities; and then the third leg is what we call a “Mobile Infrastructure
Programme”. In the round, that makes up the Government’s approach on the delivery side.
Q754 The Chairman: I dare say we will have some questions about some of the
component bits later, but just before we get on to that, obviously on the one hand BDUK is
spending £500 million-odd on the rollout of infrastructure. On the other hand, what, if
250
Department for Culture, Media and Sport – oral evidence (QQ 748-809)
anything, is the Government doing to try to support the demand side for all this? We
gathered that, for example, about 8 million people in the country are not online at all.
Mr Vaizey: I think we have made significant progress on that. The last Government put
Martha Lane Fox in charge of a civic society project, Race Online 2012. It got its title from
the fact that she was aiming to get as many people online as possible by the time of the
Olympics. That has now morphed into Go ON UK because we obviously want it to
continue. Also, when the new Government came in we very quickly made it clear that we
wanted Martha Lane Fox to carry on doing that work. She has been absolutely superb as the
Government’s digital champion in terms of including people, and we want as many people to
get online as possible.
There are a whole range of different businesses. I know that you have heard evidence from
Three, where they have talked about some of the outreach projects that they do in terms of
encouraging people to go online. They have come to my constituency and parked a very
flashy bus outside Wallingford Library, and I have been to one of their shops in Oxford
Street to see them engaging with people who have got online through their efforts. Also, a
whole range of other civic institutions and charities, Help the Aged and so on, are also very
much involved in the project.
At the end of the day, you cannot necessarily force people to go online. For example, I did
buttonhole a pensioner in my constituency and tried to force him into this bus in order to
introduce him to the wonders of the Internet, but he had to catch his own bus home. But I
think a lot more people are online. There are also, in individual areas, demand-led projects.
For example, Cornwall is about to be one of the most wired-up parts of the country. Part of
the funding, a lot of which came from Europe, involves demand stimulation. Certainly as part
of the Super-Connected Cities Programme, demand stimulation is one way that the award
money will be used.
Q755 Baroness Bakewell: What do you think is the biggest barrier to this last number of
people that you cannot get online? Age?
Mr Vaizey: I think it is about whether or not you see it as essential to your life. For
example, I went on to Facebook. I am now off Facebook. I do not regard Facebook as being
an important part of my life. My wife, who scorned my entry on to Facebook, now cannot
live without it. If you can find a way—and I think it could be somebody of any age or
educational background who is not online—to make it relevant to them they will start to
use it. It is about having access to the Internet in community facilities. I know that another
part of Martha’s brief with Government is to make the interface with Government much
simpler on the web, so that you can transact more easily with Government. Certainly
Government is looking to how quickly it can move some of its services permanently online,
which again will—I would hesitate to use the word “force”—encourage people to see the
Internet as an essential part of their lives.
Q756 Baroness Bakewell: Do you think there is a hardcore of resisters?
Mr Vaizey: I would not call them “resisters”. I think they are people who go about their
daily lives and do not necessarily see why the Internet should be relevant to them. It
sometimes takes a particular trigger that will suddenly make them feel that this is an
important part of their lives.
Q757 Lord Gordon of Strathblane: All this would require universal availability as well,
would it not?
251
Department for Culture, Media and Sport – oral evidence (QQ 748-809)
Mr Vaizey: Yes. That is why we have this rural programme. We want to ensure that we can
get 2 Mbps to everybody by 2015, and we want to get superfast broadband to 90% of the
population by 2015. I hesitate to go down the road of whether or not the Internet is a
human right, or whether there should be, by legislation, universal access to the Internet. But
certainly it is the Government’s intention that everyone should have access to at least 2
Mbps by 2015.
Q758 Lord Bragg: Can you finally lay to rest the BDUK procurement process? In all the
evidence from BT last week we heard that none of our bids is contested, which is in
contrast to other evidence we have received so there is a bit of confusion now. In how
many of the BDUK procurement processes is Openreach effectively bidding uncontested, to
minimise cost to the public purse? In all of this might it have been more efficient in the first
place to procure a coherent national network from BT to begin with?
Mr Vaizey: I will leave Rob to deal with the actual state of procurement, in terms of
contested procurement.
Mr Sullivan: The answer to that is that in every area the procurements have been open,
transparent and strongly contested. There were existing procurements—Wales would be a
good example—that were in train before BDUK kicked off. Almost in every case they
started with quite a wide field, quite a strong field. It gradually narrowed down until there
were perhaps one or two bidders, and in many cases BT has won—not in all cases. I think it
is very simply that they have all been strongly contested.
Certainly the BDUK framework process, which you have taken evidence on and which is
what we run ourselves, that is also very strongly contested. I think 14 companies expressed
an interest originally. We qualified nine companies, and we remain with two companies on
the framework.
Q759 Lord Bragg: Was it ever a thought to give it to BT in the final stage and say, “Look,
this is a big company, really determined, lots of money. They will move faster. We will just
go with them”? Was it ever a thought? Was it on the table?
Mr Sullivan: One of the things that we started with, probably back in 2010, when the
Government first ticked off the policy, was to run what we called the “theoretical exercise”.
We brought in a very wide set. We had a wide industry day, with smaller companies and
larger companies, just to look through at how we were going to tackle this complex
problem. It has come through very strongly in the evidence that you have heard, and the
Baroness said this is a very complex issue. We knew that right from the start and we knew
this would be challenging. There were some stakeholders that said it would be a foregone
conclusion, but there were others who said, “If you set up the circumstances right, there is a
way through this that keeps open competition”. We took that on board. We did spend a lot
of time, including conversations with countries across the world that are at various stages—
we had a long teleconference with New Zealand and Australia—just to look at best practice
across the globe.
We felt that the right place with the framework was to have the benefits of, in a sense, an
intense national negotiation, a really robust conversation and negotiation with the
companies. Then this was allowed to essentially be delivered through the access of local
authorities and I am very confident that that was the right approach.
Q760 Lord Bragg: This is not sarcastic, but is it working out as well as you had hoped?
252
Department for Culture, Media and Sport – oral evidence (QQ 748-809)
Mr Sullivan: We have a very robust plan. I think the important point the Minister made at
the start is that BDUK are the specialist procurement team. We have a separate broadband
policy team, and of course we have the regulator that you have already heard from. We
work within that context, although, of course, we have looked very closely—and we work
with the policy team at Ofcom, our colleagues—at any barriers, whether they are policy
barriers or regulatory barriers to keeping strong competition in this market.
Certainly, for the scheme in 2015, I think we have found the right sweet-spot. What might
be the right approach, post 2015, for the final 10%, I think you have taken some very
interesting evidence around—
Q761 Lord Bragg: Yes, we have had 90% of the conversations on the part of the 10%.
Mr Sullivan: Yes, whether the exact prescription that we have inside the framework is the
right approach for the final 10% is probably open to further discussion. But the plan that we
have up until 2015, I am confident it is the right one.
Q762 The Chairman: In the context of the various contractors who “fell out of the
process”, has any kind of pattern or theme emerged? Is there an underlying reason why a
number of them decided not to go on, or was it all just individual circumstances?
Mr Vaizey: It was whether or not companies felt confident they could make the investment
and whether there was a business case for them actually being involved. You had a range of
people who came to our open days to talk about the issue. Then you had nine who wanted
to go to the next stage of it, a bit like the European cup, and they fell away. The closer you
get to being at the point of signing a framework tender document, the businesses themselves
have to think very hard, “Is this the game we want to be in?”
Just going back to whether it was right to procure, effectively, at the local authoritydevolved level or national, I was a very strong champion of the process that we are now
pursuing. That was for two reasons. One was for competition. Obviously, if we had gone
down a national plan, there would have been an invitation to tender and there would have
been a competitive element at the start, in the sense that some organisations might well
have bid. But I do not anticipate there would have been more than are currently involved at
the moment.
Secondly, I was very keen on community broadband, and I wanted to give community
broadband initiatives the chance to have a say and potentially procure for individual local
authority areas. For example, Lord Inglewood, from where you hail from in Cumbria, I know
there are very strong community broadband groups in Cumbria.
Thirdly, and what is not said often enough is that by bringing local authorities to the table,
we have actually leveraged an additional funding for rural broadband. I think almost as much
again, something like £500 million, has now been put up, both by the devolved
administrations and by individual local authorities.
With each broadband plan there is I think a strong sense of ownership, bringing in business
and local civic society to pursue this and to identify the areas where broadband is most
needed and so on. In effect, you have a sort of implementation partnership at a local level
between whoever wins the tender document and the local authority and civic society. That
will also be very important, that ownership at a local level within a national framework,
because, as you know, a lot of the costs are to do with engineering costs, digging up the
roads and so on. I think with the local authorities as a partner—they put money into it—that
process will also go much more smoothly than if it had simply been a national tender.
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Department for Culture, Media and Sport – oral evidence (QQ 748-809)
The Chairman: Just briefly to go back to an earlier part of your remarks, you said that
when people looked at it they fell out and that just left BT and possibly one or two others
standing. Some witnesses have suggested to us that somehow the way in which the tender
process was set up gave BT an inherent advantage. Do you think that is unfair?
Mr Vaizey: My instinct is it is. But I think Rob will have the facts at his fingertips as to why it
was not unfair.
Mr Sullivan: Yes. I think the evidence you heard from Ofcom is right, in terms of fairness,
from the point of view of a level playing field and the procurement being run rigorously. It is
important to remember there are two companies who remain. Fujitsu are a really important
player and perhaps we could say more about them. It is true to say that the investment case
here is challenging. We found both BT and Fujitsu made essentially a public commitment to
invest—I think in Fujitsu’s case, £1.5 billion to £2 billion—in the UK.
I come back to the question you asked before on the common theme. The most consistent
theme across the companies that dropped out was that they were not able to make the
business case for this level of complexity and risk and, in a sense, the long payback terms.
That is the really material point here. There remain two companies, and it is that context
that the companies need to work within.
The other thing I was going to say is that one of the things that was most helpful inside the
framework was that, as part of the bidding process, we did a lot of work, essentially, on due
diligence and there was open transparency for that with the companies who were bidding.
For example, we put together quite a detailed reference financial model that essentially pulls
together the business case for this investment. For some of the companies, this was the first
time they had seen this worked through and were able to see for themselves what the
financials looked like. At that point some of them said to us, “Thank you, but we have
actually decided we are better off going and working in business fibre markets”.
We also had some infrastructure companies who are very capable companies but in different
parts of civil engineering. It was their choice that they had, from their point of view, more
attractive business opportunities, and of course this is also quite complex and resourceintensive to bid for. Any of these major projects are. That was probably the key point, that
transparency on the due diligence.
Q763 Lord St John of Bletso: If I can just touch on Fujitsu: you mentioned that they
were prepared to invest between £1.5 billion and £2 billion, and their decision to withdraw
is a loss of the competition against BT, and their rollout of the ALA-compliant network.
How would you evaluate this loss? Clearly, it is a major loss. It is not just quantifiable in
terms of cost. What are the broader ramifications of this?
Mr Sullivan: Just to be clear, they remain as bidders on our framework. I am very pleased
that that is the case. I think the other point about Fujitsu that is quite important is, of
course, they are a major supplier on Australian contracts, which is I think around 40 billion
Australian dollars—probably the single largest investment in the world, and they are the
suppliers.
Some of the people giving you evidence have talked through, in a sense, the economies-ofscale advantage that BT have. Fujitsu have that, just not necessarily in the UK market, but
they do still have that. They have enormous expertise and part of that is in terms of ALA as
a standard. That is something that is part of the BDUK framework and it is a very important
part because, again, I think you have taken evidence.
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One of the important points about the business case is bringing in the major retail service
providers, TalkTalk, Sky and others. Part of the exercise that we ran in the very early days
to think about barriers was that the RSPs made it very clear that if there were any
impediments at all, or any additional costs of providing retail services over the infrastructure
that we were subsidising in the final third, compared with the first two-thirds, then that
would be a major impediment for them. Not only did we stipulate that the systems had to
be ALA-compliant—and both Fujitsu and BT have satisfied us that that is the case—but we
also contributed: my technical team participated in the NICC meetings. Again, very
correctly, you have uncovered that as an important principle, an important standard among
other standards that are important in knocking down some of the barriers.
Q764 Lord St John of Bletso: Thank you. You mentioned before how important
community broadband is to you. Could you possibly elaborate on what is being done to
promote community broadband?
Mr Vaizey: There is a community broadband network that meets regularly. The
Government supports that network with a small grant to cover their overhead. But my
original vision perhaps has not worked out as it could have done, I do not think for any
sinister reasons. I think these are major procurement projects, even at the local level, and
there are the odd small carriers that have been successful in winning the odd contract in
north Wales. The name of the particular company escapes me, but they have won a contract
to deliver superfast broadband in north Wales. While there are the odd community
projects, particularly in very difficult, hard-to-reach areas, there has not necessarily been the
opportunity for a community broadband network, say, to win a whole local authority
contract. I do not think that is a sinister development. I think that is simply because you have
two very large organisations that have—as Rob was indicating—this global expertise.
The community broadband network is alive and thriving and coming up with bespoke
solutions for different communities. It is supported by the Government. I go and speak to
them regularly and get feedback from them, and I think they have a very important place in
the ecosystem, not least in ensuring that, in some of the areas where it is perhaps difficult to
get your voice heard by some of the major organisations, community broadband provides an
alternative solution.
Q765 Lord Gordon of Strathblane: When you referred to your earlier dream of this,
Minister, are you meaning the statement about digital hubs being at the heart of the strategy?
Mr Vaizey: Digital hubs are a way of delivering broadband to villages—the idea that we
would get the fibre to every village.
Q766 Lord Gordon of Strathblane: Then the local people do it thereafter?
Mr Vaizey: Yes.
Q767 Lord Gordon of Strathblane: Do you think that, through nobody’s fault perhaps,
that is now slightly off the agenda?
Mr Vaizey: No. Perhaps I was a little naive at the beginning, when I first became the
Minister, that community broadband would play a major part in procurement projects of this
scale. But I have supported community broadband as and when I can. My door has always
been open to community broadband initiatives, where they have come up against obstacles
or difficulties, where they have wanted to see through a project. I think that community
broadband is viable in small local communities where people are prepared to put the work
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in and make the difference, but it is not necessarily the solution for a large-scale, countywide
project.
Mr Sullivan: Can I just add to what the Minister said? One of the things that the
Government decided to do to support the community piece was the Rural Community
Broadband Fund. That was a dedicated programme in conjunction with Defra, deliberately
targeted to try to give communities a helping hand. It is a dedicated pot of £20 million that
we co-fund. I do think that is important now and it will become even more important, in the
sense of going forward, in trying to address the final 10% and bringing in that part, as Ofcom
said earlier. I do not think even the experts quite know how to get the final 10% to superfast
levels. But we do know that community action will be a very important part of that.
The other thing that has probably been the most satisfying part of the job for me is working
with community groups. There is an enormous amount of interest.
Lord Gordon of Strathblane: And expertise.
Mr Sullivan: Exactly. As the Minister said, sometimes people can be dismissive of
community groups in terms of their technical capability, until you find that there is a retired
Openreach or Fujitsu engineer who happens to live in that village. We actually do have
examples of that. The other thing that has been quite interesting around digital hubs is that
the bigger companies are working with communities and I think they have struggled, as is
probably always the case. Look at what BT are now offering in terms of—I think they call
it—FTTP on demand; and, to be fair to the communities they worked with, they learnt a lot
from those communities in designing that product. I am not sure that communities always
realise the value that they give to companies, as well as what they would like to see back
from companies. There is probably a lot of IPR that is passed over to companies in
expertise. I would not say the digital hub concept exists in pure terms, but the philosophy of
getting fibre as deeply into the network as we can is still inside the system.
Q768 Lord Gordon of Strathblane: It would also encourage innovation, would it not?
Mr Sullivan: Absolutely. I think there is more to do there. That is a very interesting topic
around that.
Q769 The Chairman: Do you anticipate the community groups, when they have set up
their local networks deeper down the hub, will maintain them themselves in perpetuity, or
do you anticipate that some arrangement will be entered into and they will be taken over,
perhaps by the person who owns the fibre that goes into the cabinet in the hub?
Mr Vaizey: I think Rob will come in in a minute. My observation is that we tried, by working
with community groups, and by working at a national level in terms of the framework tender
and the technical standards, to ensure that for any organisation that receives public money—
clearly, we cannot do anything about anyone who wants to set up their own private network
with their own money they raise themselves—to take forward a broadband initiative or a
community initiative, it is an open standard so that it can be connected into the main
network. We would hope they would continue to run it but it is important as well that if,
for some reason, a community broadband group disestablishes a community network or it
falls by the wayside, it can be taken over by another organisation.
Q770 The Chairman: There has been a bit of debate about this. All community networks
will be to the standard of the rest of the wider, national network?
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Mr Vaizey: That is my understanding.
Mr Sullivan: Yes. One of the things that we have done, as part of the Rural Community
Broadband Programme, is work with communities essentially to determine a number of
models that have worked in communities across the country. You are right that a lot of
communities that started off thinking they were going to run their own telecommunications
network, and dig the fibre and operate it 24/7, still exist. Some communities are very hardy
and continue to think that that is the way they add value. Others have settled on other
models, so some communities are very successfully running what we would define as a
concession. They might pay for some of the civil engineering to be carried out, and then pass
the network over to private companies. Some of them are following a model that we call
“build and benefit”. Now it is a maturing space and they are, as I say, starting to settle on
models that have worked. That is something that we are trying to encourage. It is early days,
but there is a lot that communities can share with one another. We are trying to facilitate
that.
Q771 Lord Gordon of Strathblane: Mr Sullivan, could I pick you up on a point you
mentioned about no one having come up with an answer to the final 10%. I appreciate it is a
very difficult problem. The fact that BT, as regards pay television, has been bidding for
football rights as one of the main drivers for take-up, does that not rather up the ante in
terms of making sure that superfast broadband is universally available, not simply 90%?
Mr Sullivan: It is important that there is universality in the programme—
Q772 Lord Gordon of Strathblane: At the 2 Mbps level?
Mr Sullivan: —at the 2 Mbps level. Indeed, we are not saying to communities that that
should be a straitjacket. In many cases local authorities are trying to go beyond 2 Mbps, even
for the universal part. What is also very true is that the take-up and demand stimulation that
many communities are able to galvanise is not just nice to have. It makes a really material
difference to the business case. There are elements that we do understand inside the 10%,
but in terms of what is exactly the right way to tackle that to get superfast, and then to
maintain that in a future-proofed manner, is worthy of a longer debate.
Q773 Bishop of Norwich: One of the things that we have heard, from some
communities that are willing and able to build their networks, is that they are really
frustrated by the lack of access to affordable backhaul. That, linked in with the strong
arguments we have heard that providers of broadband services should be able to plug into a
national access network, still makes us wonder whether, in the long run, ownership of the
infrastructure should not be completely separated from the provision of services over it.
What are your views on that in the longer term, not immediately?
Mr Vaizey: I cannot remember who gave evidence to you earlier who said that that was still
up for debate. Certainly, it was something that the last Government considered, and the
solution that they reached with functional separation was an elegant solution, and has been
copied by several other jurisdictions, so I think it works effectively. One can never say
“never” in the future. It is not on our agenda at this time, but certainly it is an argument that
is run. What is important is that functional separation has been achieved, and is working
effectively. It will always be a case, with this current arrangement, that people will try to
read into it something more than there is. There will be a feeling that somehow BT
Openreach favours BT Retail as opposed to other providers. But I see no evidence that that
is the case, and certainly Ofcom does not see any evidence that is the case. In fact, I will go
further. In my view, it is not the case. They offer their products to BT Retail and BT Retail’s
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competitors on the same basis and, therefore, I think there is fair competition over BT’s
networks. BT Openreach, although it is a subsidiary, is still a standalone organisation that is
required to make a profit. It is very ably led now by Liv Garfield and I think that the
arrangement works well. The evidence is there for people to see.
We have a very successful competitive broadband market. I would say we have at least four
major players—BT, Virgin, Sky and TalkTalk—but also with Orange and O2 as significant
players, and some other providers in the marketplace. We also have broadband very
competitively priced. When we talk about having the best superfast broadband in Europe, in
our rather macho fashion at the DCMS, we want that to be not just about speed but also
about price and access. I know again that, in one of your open sessions, somebody cited—I
think it was—Lithuania, or somewhere, having very good broadband but it was quite
expensive so not many people were on it. I think it is working well, but this debate will
always be had. All I can say is it is certainly not on this Government’s agenda.
Q774 Bishop of Norwich: Even the separation of Openreach from BT still leaves a
company that has to deliver a pretty short-term investment return to its shareholders—
does it not?—in an industry where you need very long-term investments.
Mr Vaizey: First of all, there is a recognition from BT Openreach that investment in fibre is
the way forward. Historically BT was caught short, funnily enough, in the initial broadband
rollout. As an MP it is an interesting perspective that, when I was a candidate about 10 years
ago, simply getting broadband to my local communities was a big political issue, and in fact
community broadband played an incredibly important role in encouraging BT. I think they
learned from that mistake, and they have now leapt over that and are ahead of the game. I
am very proud of what BT is achieving as a British company, in terms of the investments it is
making. I think it is passing the equivalent of Singapore every quarter. It has already passed
10 million homes. It is investing £2.5 billion or so a year ahead of schedule. That is good
news, so I think they are making the long-term investment decisions that the country needs.
As well they are helped, and we are helped, by the fact that Virgin Media is a very, very
strong competitor. Virgin Media, while not necessarily having the same footprint, is certainly
highly innovative in terms of the products it is offering its customers. Then of course, we
have the mobile phone companies and the advent of 4G, so we will have a very competitive
marketplace.
Q775 The Chairman: Do you think that the function of separation, which is relied upon,
provides a clear boundary between the access network and the backhaul? That is important,
is it not?
Mr Vaizey: Yes. I do think it provides a clear boundary between the access network and the
backhaul. Rob, you may want to elaborate on that?
Mr Sullivan: I think you have covered the issues in the conversation with Ofcom. They are
both important aspects. Ofcom regulate, I guess, not on the common network because
there is fierce competition there. They have found it necessary to regulate on the backhaul
piece end and local access. I agree with Ofcom that in a sense the need to regulate strongly
becomes fiercer as you go deeper into the local-access piece. But they are both important.
Indeed, if you look at some of the most challenging parts of the country—so the
Government have recently given additional funding to the Scottish Government to tackle
Highlands and Islands—there you would find that what we would recognise as the backhaul
network just did not exist at all. Essentially, we need to rebuild even what might have been
seen as parts of the core because it is so challenging. Yes, I think those remedies are
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Q776 Baroness Bakewell: A lot of people believe that the mobile system will create the
back-up—will catch all the situations that the others do not cover. Is that really on, in the
light of Government policy? Is that going to be your backstop? Is that going to work?
Mr Vaizey: No. I do not see mobile as a backstop solution. When we are talking about the
last 10% as a challenge, there can be a range of options. People talk about the last 1% getting
satellite. You can slice and dice it any which way you want. What we are broadly speaking
about, in slightly crude terms, is how far away does a small, remote farmhouse have to be
from a concentration of homes before it becomes highly uneconomical to lay a big fibre line
to that individual home? At that point is the cost is completely out of kilter with the benefit,
and what alternative technology could be used without having to dig a trench miles long to
get to this home? But there will be a range of possibilities. I am also confident that, as we
move forward, technology advances rapidly, almost month by month, so I am sure there will
be solutions. In a sense, we have approached this technology blind by saying, “We want a
solution for remote parts of the network that is cost-effective but delivers a seamless
broadband experience”, starting with 2 Mbps and hopefully moving forward to superfast
broadband as we go forward, in terms of the last 10%.
The Chairman: It is not looking at the philosopher’s stone, is it?
Q777 Baroness Bakewell: Given that there will be people you cannot reach by whatever
system you are deploying, in terms of fibre, what are you doing to make the mobile system a
really reassuring alternative?
Mr Vaizey: With mobile, we have put in place the Mobile Infrastructure Programme. We
have allocated £150 million to mobile not-spots. I think it is important to make clear the
distinction between a “not-spot”, which is where you cannot get any mobile coverage at all
and what is known as a “partial not-spot”, where you might get good coverage from one
carrier and not good coverage from the other carriers. That is filling up the gap, which will
effectively give universal coverage of mobile. We are going to use that money to build the
masts, and they will be open access masts so everyone will be able to put their cells on
those masts and deliver a service. That will effectively deliver voice and then, hopefully, 3G
and 4G services to quite remote parts of the country. It is about 60,000 homes; 10 road
networks as well are in the initial tranche of where we are putting the money.
Q778 Baroness Bakewell: Are you confident that it will reach the farthest corners and
the most remote farmhouses, up mountains and down dales? Is that going to be adequate?
Mr Vaizey: It is a lot of money for quite a few people, so it is a very effective solution. It will
make a significant difference. I would not, hand on heart in front of this Committee, say,
“Every single home”. You would not be able to haul me in front of you in three years’ time
and present me evidence of someone who has missed out on the Mobile Infrastructure
Programme, but I hope you would have to look extremely hard to find them. You might not
be able to find them because, of course, you would not be able to telephone them.
Q779 The Chairman: Roughly, how many masts do you think there are going to be?
Mr Vaizey: I have no idea.
Q780 The Chairman: Have you any idea?
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Mr Sullivan: It is too big to determine, to finally answer. What the Government have said is
that we are focusing on voice not-spots. It is important to make that distinction—that rather
than being a broadband programme it is a voice programme. We are in the middle of the
procurement programme for the mobile infrastructure. The only way to answer your
question, Chair, is to actually do detailed radio planning and we will then be open with the
stakeholders on that.
Q781 The Chairman: Can we just get an indication of the possible extent of all this?
Mr Sullivan: Various stakeholders have talked about up to 1,000 masts, I think; something
like that.
Q782 Baroness Bakewell: Is there a timeline on this?
Mr Vaizey: Over the next three years, Lady Bakewell.
Q783 Lord Gordon of Strathblane: Last week we heard evidence from Cumbria and
Rory Stewart, your colleague. Very gently, I say that he understood why this was happening,
but there was a feeling that there were too many people trying to help and tripping each
other up in the process. In fact, there was a lack of co-ordination between BDUK and
Defra’s rural project, and that in many cases—I can understand the difficulty—they were
looking for a bit more flexibility, which I understand is quite tricky when you are dishing out
public money, but he was saying it is costing a lot more to comply with these things than it
need do. Have you been aware of this problem?
Mr Vaizey: Rob, do you want to—
Lord Gordon of Strathblane: I think it is a BDUK problem.
Mr Vaizey: Let me just say very briefly, before Rob gives you chapter and verse on this, that
I talk to Rory Stewart a lot and I am aware of some of the issues he faces. Some issues are
beyond BDUK’s control, in terms of compliance and issues to do with state aid, for example,
and Brussels, which we have to negotiate. But I certainly, as a Minister, do not feel that the
Defra programme and the BDUK programme are somehow two separate beasts that are
pulling against each other or going in different directions. They are very much a part of the
same programme.
Rory Stewart is pushing forward a really impressive community broadband programme that
is supported by some really extraordinary people. I was lucky enough to visit there about 18
months ago, two years ago. There are sometimes technical, regulatory issues that get in the
way, but certainly I am always available when Rory has a particular issue to raise, and
certainly work closely with BDUK when those issues arise. But I think Rob will be more on
top of the detail of what the specific obstacles have been.
Mr Sullivan: To add to what the Minister has said, I would pay tribute to Rory. He is one of
those pioneering MPs, obviously, alongside our Ministers. But I think, with all the pilot areas,
probably Rory, Jesse Norman in Herefordshire and Julian Smith in north Yorkshire have all
worked tirelessly with the communities and with the local authorities to take forward the
agenda. Rory and I discuss these issues very commonly, and I would say it is a joint
programme with Defra. We sit on the same board that steers the rural programme. Indeed,
Defra sit on the main board that steers the wider portfolio of programmes. As the Minister
said, some of the communities are pioneering and when you are pioneering you do meet
obstacles. Some of them are very frustrating and can appear incredibly complex.
Understandably, what communities want is a service that works and many of them do not
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want to get into procurement regulations and state aid regulations. Even if you are a national
official, like me, there is only so much state aid legislation that one can cope with.
But it is part of our job to help them through that—to make it accessible—and the thing
about the Rural Community Broadband Programme is that where we are seeing that
operate most effectively is where the community tier, the parish council tier, the district
council tier and the local authority tier operate very closely together and co-ordinate.
Where that operates it is of real advantage to those stakeholders, probably not just in
broadband, but it certainly makes a material difference.
What the broadband programme has exposed is that some of those tiers need further
refinement. That has created opportunities for some authorities, and I could give you
examples across the country. But to be fair, it is a very challenging agenda, and it is quite
early days.
Q784 The Chairman: Can I ask one specific question about that? I think the Eden Valley
broadband group were concerned that if they went for the Defra money—that was by
definition in the last 10%—it was not going to be reached by the Cumbria County Council
rollout, and they felt they were being presented with an alternative because otherwise you
might fall between all the stools. Is it not, on the face of it, a nonsense?
Mr Sullivan: I can understand their frustration, yes. But it is a good example of where it is
really important that the community groups and the local authority work very closely
together, and I think, to be fair to them, they are—
Q785 The Chairman: I understood that the local authority, no doubt for excellent
reasons, was not in a position to commit itself.
Mr Sullivan: This really comes back to state aid where state aid is very particular—rightly,
really—to ensure that there is not a duplicate public intervention, so you are not supporting
the same companies. Also it is really important, because the solution to this is carefully doing
the mapping of where existing companies have services and where you are intending to
intervene, to make sure that is co-ordinated.
That is really important because one of the other things we have had to be very careful
around is, in a sense, where there are smaller companies that already have commercial
services supporting communities, that we just do not roll through those. It is really
important. I do understand some of the frustrations, and all I would say is that we are
working very, very closely with those communities to try to work through those issues,
because I think what is really important is that where we have real enthusiasm we do not
dissipate that through kinds of processes.
Q786 Lord Gordon of Strathblane: Some of the cynics say that with all this
bureaucracy not a metre of fibre has actually been laid. It gives them an easy hit, does it not?
Mr Vaizey: It does give them an easy hit, the cynics being Labour spokesmen giving evidence
to the Select Committee and who also characterise BDUK as having 10 people and 500 local
authorities trying to get hold of money. These things do take time. It involves public money.
If we take a review of where we are over the last two years, we have secured the funding
and continue to secure additional funding from the Treasury, who have launched, effectively,
three programmes: the rural programme, the Super-Connected Cities Programme, as well
as the Mobile Infrastructure Programme.
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We have, effectively, awarded the money to the local authorities, so everybody knows what
they are getting from this fund so they can start to plan their investment, and all the local
authorities are very well advanced in their procurement processes. In fact 2012, we hope,
will see a lot of fibre being laid. But it is a time-consuming process and, I am afraid, you
simply cannot write a cheque on day one.
Q787 Baroness Fookes: Before I turn to the issue I wanted to raise with you, I wonder if
we could clarify, once and for all, something that has been niggling at me from the beginning
of this—and you have referred it to yourself, Minister—the question of the 10 people.
We have based the information on the answer to a parliamentary question on 15 May, which
referred to 10 people working on local broadband, and I think three and a half equivalent
full-time on Super-Connected Cities, which is very far indeed from the 53 which I think you
mentioned. I am sure there is an explanation but can you give it to us?
Mr Vaizey: Rob, give Lady Fookes an explanation.
Mr Sullivan: On the 10 people that others have said are working on the local authority
programme, I think where the confusion came from is that there are 10 people that are
dedicated to what we call our outreach team. They are predominantly working on the rural
programme, working very closely with the 40 or so local authorities that are bidding into the
framework to take them through and help them prepare their local broadband plans.
The majority of those people are from local partnerships, because of their expertise in both
commercial practice but also the local authority context. If you ask the question, “How
many civil servants are there inside BDUK?”, the number is also 10, confusingly enough. If
you ask the question, “How many people are there in BDUK overall?”, as the Minister said,
that is about 50 in total, including all the individuals across the programmes. We now have
three programmes that comprise BDUK: the urban programme, the rural programme and
the Mobile Infrastructure Programme. I am very happy to write to you with details if it is still
confusing.
Q788 Baroness Fookes: Yes. I think we may be forgiven for being confused or finding
that the PQ answer was a bit confusing or, at any rate, unintentionally misleading.
Mr Vaizey: Yes. I will go back and check that.
Q789 Baroness Fookes: Let us turn to another issue. I think I am right in thinking that
the Government are prepared to intervene in connection with the development of the
Super-Connected Cities issue, but is this not something that could have been left to the
market to develop?
Mr Vaizey: On the Super-Connected Cities Programme, you are right that to a certain
extent the market could deliver quite a lot. But the Super-Connected Cities Programme is
designed to raise the broadband offer to another level. We want to ensure that there are
certain cities where you have ubiquitous ultra-fast broadband, and also to use some of that
money to stimulate demand. While the market would deliver a certain level of investment—
and certainly, you are right, the market does mainly deliver in cities—this additional money
will complement what the market has already delivered, and allow very advanced broadband
to be laid and also demand stimulation in cities. I wonder if you wanted to add to that, Rob.
Mr Sullivan: No. Those are the major elements. The first thing to say is that there are
households and businesses inside even the larger cities that do not have access to standard
broadband. Again, I think this has come up in evidence. It is perhaps not common sense but
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that is the reality. There are also, because of historical reasons, some households who are
on what are called exchange-only lines, so they can also be quite slow. We are ensuring that
for the cities that are inside the process those areas are tackled.
There is also a component to the programme around the take-up and growth for the
companies and businesses too. There is a focus on support to SMEs that maybe do not have
the access to more expensive leased lines, as they are called, but nevertheless have business
opportunities around faster broadband. There is also an exciting element of the ubiquitous
Wi-Fi access—some of the cities have very creative ideas around going further—and the
opportunities that that creates.
Also, as the Minister said, just thinking back to the questions around the EU target of around
50% take-up at 100 Mbps: delivering that take-up target is very challenging, and an important
part of the Super-Connected Cities Programme is really to try to galvanise take-up, to look
at all the measures that you can use, whether they are public service reform or higher speed
business access, and to try to encourage companies and households to take up these
services. Indeed, you are trying to create an environment where novel applications, real
business and telehealth education can thrive because you have very large-scale deployment
of speeds at 100 Mbps plus.
Q790 Baroness Fookes: That sounds very splendid, but how much is private enterprise
going to deliver and how much the Government? Is it possible to have some kind of
proportions?
Mr Vaizey: The vast majority would be delivered by private enterprise but these sums will
add to the—
Q791 Baroness Fookes: But the top-up—what sort of sums are we talking about for
Government?
Mr Sullivan: The number would vary city to city. But as the Minister said the majority of
this and, in a sense, the whole BDUK programme is all about stimulating private investment
in the cities. I think we would expect the gearing to be much higher for that.
Mr Vaizey: The sum for each of the 10 cities is roughly—I do not have the figure in front of
me.
Mr Sullivan: It is £100 million for the round 1 cities and then £50 million for the round 2
cities. The key point is that—
Mr Vaizey: There are 10 cities in round 1 for the £100 million.
Q792 Baroness Fookes: Yes. But on top of that you have the private enterprise. I just
wondered what the proportion was, but maybe it is not possible to answer.
Mr Vaizey: It is not really possible to answer that but the vast majority is from private
enterprise. The £10 million for each city is going to make a real difference, but it would not
necessarily represent half or perhaps even a quarter of the kind of investment that is going
in, considering that most of the cities of both the major network operators are also
operating in the city.
Q793 Lord Gordon of Strathblane: Is it going specifically to the areas that private
enterprise would not reach?
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Mr Vaizey: It is going to the areas where private enterprise has not reached within cities
but also areas where private enterprise would not necessarily put in the very fast speeds
that we want to see for these cities.
Mr Sullivan: Just to add something to that, I say that it is also important—the BDUK
programme—because the whole portfolio is all capital investment. If you look at the SuperConnected Cities, we are expecting companies and the cities to contribute, since the
ongoing funding for support for things like demand stimulation is an important part of that,
so they are able to do that. We are not because we do not have capital funding ourselves.
Q794 The Chairman: I am conscious we are running beyond the time allocated. If we
were to go on for another quarter of an hour, would that be onerous or inconvenient?
Mr Vaizey: We would be delighted.
Q795 Bishop of Norwich: I was going to come on to the EU 2020 targets, and you have
already made reference to 50% of the population subscribing to 100 Mbps. But of course the
other side of that is 30 Mbps available to all. I think you referred to the first of those as
challenging. Are these targets feasible?
Mr Vaizey: It was Ofcom that referred to it as challenging in their previous evidence
session. They are challenging targets and they have been set by a challenging European
Commissioner, Neelie Kroes, who I think is a really excellent Commissioner in terms of
raising the profile of the broadband agenda and pushing many of the member states to put
together a coherent plan for broadband. I am pleased to say that, thanks to the work of
people like Rob, I think the UK is very well positioned in the eyes of the Commissioner as
being, I think, one of the leading nations in terms of a coherent programme of broadband
rollout. We stand as an example to many other member states.
Those are challenging targets, and I think when you take a step back we are talking about an
eight-year period to get most of Europe wired up to 30 Mbps. That is going to be
challenging, but I think it is good to set a challenging target in order to focus people’s minds
on the importance of putting out these kinds of networks.
Q796 Bishop of Norwich: What sort of proportion of the population will have fibre
within 500 metres, and how would the rest be reached? We are talking about short
distances between homes and the cabinet—are we not?—in relation to achieving these
targets.
Mr Vaizey: I think at least two-thirds to 75%. I am not sure whether I have the technical
expertise to say whether that would be within 500 metres of fibre, but I certainly think that
the market is going to deliver at least two-thirds of superfast broadband, which we tend to
define as around the 24 Mbps speed. That will rise in terms of the market delivering it
because I think BT and Virgin have seen huge success with their products. As I say, we want
90% of the population to have this superfast broadband by 2015. Whether that means they
have to be 500 metres from the fibre connection. I am not sure is necessarily the case.
Mr Sullivan: As the Minister says, it is difficult to answer that because the speeds have to be
technology neutral, so companies could provide this with a mixture of fibre to the home,
wireless and satellite. One way of answering it would be that if you had a fibre to the
cabinet-only solution, then you would be close to 90% in that case.
Just coming back to your question about the EU target, both parts, as the Minister says, are
very challenging. They are designed to be stretch targets, and I think it is very helpful that
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the Commission have set them—the UK does not need this—because they encourage all
member states to think longer term, which is important in digital.
The 50% take-up at 100 Mbps is challenging because achieving 50% take-up is going to be
difficult. The 30 Mbps universally is also challenging because you have heard other evidence
that, in a sense, the costs of getting fibre into the network beyond 90% go up very quickly.
That is not to say, though, there are counter trends because technology is developing all the
time. At the same time, for wireless, part of wireless of course depends on backhaul as you
have also identified. But nevertheless, wireless, if you look at something like long-term
evolution, LTE or the system 4G, although the headline numbers look very high—in this
industry we talk about 100 Mbps—when you look at what you could expect to receive as an
actual user of the service, you will hear stakeholders talking about the numbers being more
like 10 to 15 Mbps. Again, LTE advanced is coming down the track but I think it is just that
we cannot pin down the precise solution of how we would address it to get superfast
universally. I think the make-up of that solution is something that is important going down
the track.
As I said at the beginning, we are very confident we have a very robust plan for getting to
the 2015 targets, and I think we will be well on the road to the 2020 targets but there is
going to be further work necessary to work out the most efficient mechanism and route to
deliver that.
Q797 The Chairman: On the 2020 targets, you said they are challenging, which covers a
multitude of sins. Do you actually think they are substantively doable?
Mr Sullivan: I think they are very effective as stretch targets to industry and the community.
Of course, they also need to be affordable. There would be a way of addressing them that
did not necessarily lead to affordable access by companies.
Q798 Bishop of Norwich: There is a substantial difference between them, though. I can
understand the 30 Mbps available to all. The bit that I do not understand is the 50% take-up
of 100 Mbps, whether or not you need it. There is no proof that 50% of the population will
require 100 Mbps by 2020, is there?
Mr Vaizey: I think that is a very fair comment.
Mr Sullivan: Yes.
Mr Vaizey: Anyway, they are the Commissioner’s targets, not ours, so I do not think we
should comment on them.
Q799 Lord Gordon of Strathblane: A pattern of Yes Minister: “challenging” means
“Unlikely to be achieved”.
Mr Vaizey: I do not think you want to give the game away. It is the other way around, trying
to find out what the game is.
Q800 Lord Gordon of Strathblane: The point that occurs to me is it is really code for
saying “fibre to the home” basically or fairly nearly to the home because there is no way you
can deliver those speeds without it.
Mr Vaizey: You can deliver it in fibres to cabinet; you can deliver those speeds.
Q801 Lord Gordon of Strathblane: Yes, providing the cabinet is not too far away from
the home.
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Mr Vaizey: Yes.
Q802 Lord Gordon of Strathblane: In fact, if this is unaffordable, as BT told us last
week it is—and I do not dispute that—why on earth is Europe setting these targets that are
unaffordable throughout a comparatively wealthy country, let alone some of the others in
Europe?
Mr Vaizey: I think you should ask Commissioner Kroes. She is a very effective
Commissioner and she is pushing forward this agenda very effectively, and if she wants to set
challenging targets then I think that is her prerogative.
Lord Gordon of Strathblane: All right.
Q803 Earl of Selborne: These challenging targets are the Commission’s targets, so,
Minister, you are not responsible. But nevertheless, if they are going to be achieved, you are
not going to do it with fibre to the cabinet because you still have that dreaded copper wire
on the last few hundred metres. Is the cabinet an intermediate technology? Are we going to
have to upgrade if the Commission is right and these targets are doable? Are the cabinets, in
fact, going to be redundant fairly quickly?
Mr Vaizey: No, the cabinets will be essential because they will get the fibre to the streets
and to communities, and from there you can potentially run out fibre to the premises. As
well, technology will change potentially, which will make it easier to get those last few
hundred yards to the home. There are lots of different ideas kicking around about how you
might be able to do that, and there might be regulatory changes to do that. But, no, I think
the cabinet will be essential, and I think the cabinet is still capable of delivering those kinds of
speeds to the home, particularly in urban areas. I do not know, Rob, whether I have gone
well beyond my technical understanding, as the specialist advisor looks more and more
sceptical as I give my answers.
Mr Sullivan: No, that is a very sound answer. Just to clarify, what I am saying about the
challenge here is just that there are more options that come into play and we have less
certainty around. What contribution could be made by TV white space or by LTE? In the
case of the progression of VDSL, which is essentially the technology behind cabinets, you
already have BT and others looking at what is called G.Fast—I think that may have come
up—which is essentially that you take the fibre even deeper from the cabinet and then have
almost little cabinets that sit on poles, and all of that is in play. We do not know whether
there is going to be affordability, but this is a very creative sector. There are solutions down
the track that are, in a sense, paths for each of these technologies to evolve. I think you have
also touched on wavelength division, multiplexing on fibre itself. Even within fibre to the
home there is an evolution.
It just becomes a more complex picture of the exact mix that companies will deploy to
reach these targets. When you go and talk to the engineers they will feel that they can do
this. The critical point will be the wider economics; can you do this at a level that is
affordable to businesses and to consumers, which is absolutely critical, of course?
Q804 Lord Gordon of Strathblane: A lot of people say that it does not really matter
who owns the infrastructure, provided it is open to and used by everyone at a reasonable
cost. To that extent are you at all worried about the GPON technology that TalkTalk have
alleged—I put it no higher than that—makes it more difficult to unbundle and, therefore,
might render the new system less competitive than the old copper system?
Mr Vaizey: Are you worried about that, Rob? I am not.
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Mr Sullivan: It is not my greatest worry, no. Again, I think you have taken evidence on this,
which I think is correct. GPON does have advantages over what is called point-to-point fibre
in terms of deployment costs, and I can understand why companies would want to use it.
Q805 The Chairman: Essentially, it is a cost advantage, is it not?
Mr Sullivan: Yes, and there are technologies, like WDTN, that are very prevalent in the
core network. The difficulty I think is making the customer premises part of that affordable,
which will come down the track. In the interim, in a sense, the active-level remedies that
Ofcom have required from BT are fit for purpose, and we can already see the companies
like TalkTalk and Sky and others making use of GEA as a product. It is that link between
technology evolution and regulatory aspects that we need to keep in focus and review. I
think Ofcom does that very professionally.
Mr Vaizey: That is an important point to make, which goes back to the functional
separation, and TalkTalk’s concern, which is perfectly legitimate. I am a supporter of all of
the companies that we are talking about because I think they are all pioneering in delivering
great solutions to their customers. The common network is a historic network and,
therefore, to have an upfront investment is not necessarily required and that price is, quite
rightly, being regulated and therefore you can access it or regulate the price.
TalkTalk’s concern is that the access to the fibre network is unregulated. First of all, to a
certain extent it would be a decision of Ofcom whether to regulate that, and certainly I
think there is a common-sense view that this fibre is being rolled out and we need that
upfront investment. You do not want to stifle that rollout by suddenly regulating the price
and potentially cutting off the investment that is going to make that. But the key point to
keep in one’s mind is, whatever the price of access to that fibre network, BT Retail does not
have the competitive advantage in terms of the pricing over TalkTalk.
Q806 The Chairman: We are getting long after our closing time, but I have just two
small points to conclude with, please. The first one is: we have had it put to us that
Government intervention should basically focus on the provision of open backhaul to within
reach of a community, as long as that is relatively cheap, and then leave the access networks
to the market and community provision. What are your thoughts about that? Then the
second one, which is in a sense slightly similar to it I think, is that Rory Stewart, when he
was in front of us, referred to having a digital pump in every village. Is that an idea that you
still subscribe to or ever subscribed to? It is put in different words by different people but do
you think that is the right approach?
Mr Vaizey: Yes. I think it is important to be careful about the language; different terms tend
to come in and out of fashion as we move along. But the key is that the public’s money is
going in to support a public infrastructure that, in theory, anyone can gain access to it to
provide services to customers. In effect, getting down to the technical detail of whether or
not we are providing the backhaul, yes, some of that money will be used to provide backhaul
to communities where it is not economically viable in a commercial marketplace to do that.
That will then be available to different providers to provide a service, either by putting in the
additional infrastructure in a village or allowing the village potentially to put in its own
infrastructure to access that backhaul. But it is going to be an open network. I do not know
if you want to—
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Q807 The Chairman: Is it fair to add to that any internet service provider being able to
use—shall we say—BT or Fujitsu’s infrastructure, getting access to that to be able to use it
for their purposes, as well as those other two you described?
Mr Vaizey: That is a slightly different issue, if I read you right, Lord Inglewood, which is: can
they use effectively the ducts to lay their own lines, their own fibre? We have duct access in
order to allow competitors to use BT’s ducts where appropriate. But what we are talking
about here is, I think, access to the kind of backhaul fibre that would be open access. Is that
fair, Rob?
Mr Sullivan: Yes. I think both Fujitsu and BT necessarily need to do this. They need to
demonstrate to us that they are offering open access systems. They have to do that. That
was called the active level through bitstream. They can either do it through access to any
new duct that they are building or duct fibre; they have the choice there. There are some
quite intricate details around that that we are talking to the Commissioner about, on a stateaid piece, exactly how you frame those wholesale access conditions, not just on new ducts
that you might build, but then what happens with the connection points to existing duct.
It is mind-bogglingly detailed, but the principle is one that I think we would all completely
subscribe to. It is really important to make sure that, in a sense, the conditions that we set
around access that is being built in the final third is at least, if not better, open access than in
the first two-thirds. I think it is a really important point.
The answer to the question is that when we have come to real procurements we have had
to, I would say, productise the description of what the digital pump actually means. But it has
not gone away; it has just turned into fibre. FTTH on demand from BT is a good example of
what we had in mind. Some of the propositions from Fujitsu equally are within that category,
so it is very much alive and kicking.
Q808 The Chairman: Thank you. That seems a very suitable point on which perhaps
draw to conclusion, other than to say to you, first, thank you. But second, is there anything
you want to say to us that we have not asked you about?
Mr Vaizey: Very briefly, apart from our upfront investment I think it is important as well to
focus on some of the regulatory obstacles. We are looking, for example, at the electronic
communications codes, so we are looking to make it easier potentially to deploy overhead
lines and to deal with wayleaves and so on. I think there is an important aspect there. That is
point number 1.
Point number 2: you may find that broadband is not being delivered in some local areas.
Sometimes that is down to the local authority being quite difficult on planning issues, so we
should not forget that there are other players in this game who may hold up the rollout of
broadband. Also, when I was reading some of the evidence you received, business rates on
fibre were also mentioned. That was an issue that I was very obsessed about in opposition
and, as usual, when you get into Government you find out it is a lot more difficult than you
imagined. Just to say on that issue, fibre is rated as though it was, effectively, business
premises. But I think we have made progress by working with an organisation called the
Valuation Office Agency, which is part of DCLG, to give clear guidance to all companies that
lay fibre on what rates are expected. Most of them have a year’s holiday anyway, so you put
the fibre in the ground and you do not have to pay rates on it until the next financial year.
But we have worked with them to create a much stronger dialogue with the VOA. We
cannot, obviously, remove the tax: that would be a decision by the Chancellor. I am not
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even sure he could remove the tax; it is so complicatedly embedded in business rates. But
we have made progress on simplifying and greater clarity in that area.
Q809 The Chairman: Thank you. Is there anything you want to add?
Mr Sullivan: All I would say is that we are quite proud of the fact that we run a very
vigorous and open competition, and we have tried every means at our disposal to try to
ensure we have very strong competition on the framework. I would just register that we
have a sound framework, a good plan to 2015, and I would encourage the Committee and
other stakeholders to think about the longer term as well—to think about what comes next.
But on those two planks—the kind of concrete plan and the robustness of the framework—
as I say, we are very satisfied with that ourselves.
Mr Vaizey: I think it is great value for money. Lord Inglewood, I think it is a very British
approach we are taking.
The Chairman: I am very glad of that ringing endorsement. Thank you both very much
indeed for giving us a lot more of your time than was originally programmed. We appreciate
it.
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Department for Culture, Media and Sport – supplementary written
evidence
I wanted to thank you for giving me and Rob Sullivan, CEO BDUK, the opportunity to give
evidence at our session on 19 June. I welcome the inquiry and was very interested in the
Committee’s questions and approach.
Thank you also for the transcript of the session. I have one small correction to make – in my
response to the question regarding demand stimulation, “three” should be capitalised to
make it clear I was talking about Three, the mobile network operator. I understand my
officials have already sent a corrected version to the Clerk of the Committee.
I wanted to clarify a couple of points I made in my evidence. I told the Committee that the
Government financially supported the Community Broadband Network. In this instance, I
was incorrect – this is something that has happened in the past, but we don’t financially
contribute to the CBN currently. We do however continue to have an active dialogue with
those involved in community broadband. I would like to apologise of I misled the
Committee.
It may also be helpful to confirm the position regarding BDUK’s staffing. BDUK currently has
a total of around 50 staff. Of these, approximately five are dedicated to the Urban
Broadband Fund and 10 to the Mobile Infrastructure Project. The remainder are working on
the rural broadband programme and cross-cutting functions. Within the rural programme,
there are approximately 10 people in the local projects team, who work with local
authorities and the devolved administrations on the development and delivery of their Local
Broadband Plans.
Finally, I wanted to bring the Committee up to date with regards to local broadband plans,
as there have been some developments since I gave evidence. 44 out of 45 local broadband
plans have been approved by the Secretary of State. The local authorities for the outstanding
plan, covering Sandwell and Birmingham, are working to submit their plan for approval in July
2012. Two local authorities, North and South Tyneside, declined to submit local broadband
plans, believing the market will deliver our ambitions.
Thank you once again for your time, and I look forward to the report in due course.
16 July 2012
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Digital Outreach – written evidence
Digital Outreach – written evidence
1
Background
1.1
Digital Outreach is a leading provider of outreach and engagement services,
information and behaviour change campaigns. The evidence in this response is
gathered from our experience of digital inclusion relating to digital TV switchover and
the internet. For more information about us please go to
www.digitaloutreach.org.uk
1.2
Our response addresses bullet points 1, 2, and 6 of the call for evidence. We set out
our response to each point below.
1.3
Our experience has demonstrated that while the roll-out of the technical
infrastructure will ensure potential physical access to all, infrastructure provision
itself is only one of several measures that need to be considered in order to
overcome barriers faced by the c.8 million people still offline. The emphasis needs to
shift so that the overall goal is to get every household online, and the physical
network is considered as just one means to achieving this end. Demand stimulation
measures, and measures to overcome barriers faced by the most excluded groups
such as lack of confidence and lack of motivation, are also necessary. Practical,
joined-up cohesive measures are needed, providing a variety of ways for people to
get online.
2
Point 1: What is being done to prevent a greater digital divide occurring
between people who can access superfast broadband and people in areas
where the roll-out of superfast broadband may not be commercially
attractive?
2.1
From our experience, while providing the physical infrastructure of superfast
broadband is important, creating infrastructure access to this alone is not enough to
lessen the digital divide.
2.2
There are still 8 million people not online. As this number decreases, the remaining
people offline will be harder to reach and particularly harder to engage as they often
face multiple barriers to getting online, with access being only one of these. Some
may not even face the barrier of access as they may already live in an area with a
superfast broadband connection.
2.3
These people tend to be the most vulnerable in society. Those who are older,
unemployed, have poorer education or who suffer from mental or physical disabilities
are among the groups of society who are least likely to use the internet, yet are also
some of the biggest users of public services. In a report “The Emergence of a Digital
Underclass”, Ellen J Helsper from the London School of Economics writes: “Those
who need access to services most, from where the biggest cost savings through the
digitisation of services are supposed to come, are the least likely to take these up
even when access is available.” Shifting services to ‘digital by default’ will have the
strongest impact upon these people and will actually widen the gap between those
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Digital Outreach – written evidence
who are online and those who are not, putting these groups at an even greater risk
of being left behind by not being able to access the services that they rely on.
Helsper says: “Gaps based on education and employment persist independent of age
or other characteristics. They therefore represent a problem that is unlikely to go
away even with better infrastructure”.
2.4
In their Statistical Bulletin, ‘Internet Access 2010: Households and Individuals’ the
ONS has published a breakdown of internet use according to demographics,
including:
• 60% of people aged 65 and over have never used the internet, compared with
22% of those aged between 55 and 64 and just 1% of 16 to 24 year olds
• Of those individuals who indicated they had an illness or disability which limited
their activities, 39% had never used the internet compared with 14% of adults
who either had no illness or disability, or were not limited by any illness or
disability.
2.5
If local and regional roll-out of projects purely focuses on the technical, then we still
won’t get the 8 million online because there needs to be some focus on demand
stimulation as well as putting the physical infrastructure in place. We need to go out
and support these people, raising their awareness and interests by demonstrating to
them the benefits of being online for them personally.
3
Point 2: The Government has committed £530million to help stimulate
private investment – is this enough and is it being effectively applied to
develop maximum social and economic benefit?
3.1
The roll-out of superfast broadband is a massive technical undertaking and the
economic benefit and cost savings of being able to provide access to services online
rather than in other formats is significant. However, if all the focus is on the technical
infrastructure, with little or no emphasis on demand stimulation and breaking down
motivational and personal barriers to being online, there is the risk that people will
not use the service available to them, resulting in both economic and social benefit
not being maximised. For example, the simplicity of online car tax renewals removing
the need to travel to a post office, or chat forums for carers helping to break down
feelings of isolation.
3.2
Parallels can be drawn between the roll-out of superfast broadband and the digital
TV switchover in the UK. The digital TV switchover is another huge technical
undertaking, with an enormous investment in the physical work to be carried out to
upgrade the infrastructure. Like services moving to digital by default, the TV
channels were moving from
3.3
analogue to digital, and could not be accessed in the same way after switchover. As
with the internet, it is often the most socially isolated individuals who need the most
help in converting their TVs to digital and using the new technology.
Digital UK recognised that it was necessary to invest in ensuring that people can
cope with and use this new technology. Research was undertaken into the audiences
who would need the most help with switchover, and groups were identified who
were likely to be resistant to mainstream switchover messaging. For many of these
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groups, the switchover was a cause of much confusion and concern as the system
whereby they had received television channels all of their lives was going to become
redundant, whilst many were unfamiliar with connecting the correct cables and
hardware to their television in order to receive digital television. You can read more
about these findings in the report by Digital UK,
http://www.digitaluk.co.uk/__data/assets/pdf_file/0011/19388/DUK_Copeland_Repor
tWEB010508.pdf
3.4
Investment was made in the social aspect of rolling out digital TV. This ensured that
those who may have ended up with a blank screen after switchover received the key
messages from the public information campaign, enabling them to take an informed
decision and access support and advice about their options for going digital. Digital
UK ran a mainstream marketing campaign and telephone helplines, and commissioned
outreach (delivered by us) to engage those who were less likely to respond to
mainstream messaging and who were harder to reach. We did this by managing and
delivering outreach into local communities, working through charities and volunteers
during the run-up to switchover and running ‘advice points’ at the point of
switchover.
3.5
This integrated approach proved to be extremely effective, and the outreach element
of the campaign proved invaluable in supporting those in the community who needed
extra help and advice. So far, we have reached over 750,000 people with face-to-face
information and advice, provided to them at existing activities in the community by
someone who is a ‘trusted voice’. Independent research carried out by i2 media
research at Goldsmiths University
(http://www.digitaloutreach.org.uk/content/images/uploaded/i2%20research%20finding
s%20brochure_V2_201211.pdf) found that the digital TV switchover Community
Outreach Programme made a significant contribution to reaching the target groups
and had a major positive impact on changing their attitude, understanding and
confidence levels around switchover. After contact through outreach, the percentage
of people feeling confident about choosing the best way to receive digital TV
increased from 55% to 92%. Those feeling confident about getting their home ready
for switchover on their own increased from 46% to 82%. Not only this, but they felt
empowered to help others – those who felt their knowledge of how to help other
people was “good” or “excellent” increased by 59%, to 75%.
3.6
With switchover there was an absolute, immovable fixed date when services would
shift from one platform to another, whereas with broadband this is happening more
gradually. It would be possible to accelerate the rate that services are shifted to
digital by default and other routes to services are withdrawn, and gain the cost
savings this entails, if investment was made in reaching and engaging people to
stimulate demand.
3.7
Demand stimulation with broadband is about educating people (for example, they can
save £200-£300 per year by being online) and about providing a variety of ways for
them to access the internet, so that they can use the technology that best suits their
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individual circumstances.
4
Point 6: To what extent will the advent of superfast broadband affect the
ways in which people view, listen to and use media content? Will the
broadband networks have the capacity to meet demand for new media
services such as interactive TV, HD TV and 3D content? How will
superfast broadband change e-commerce and the provision of
Government services?
4.1
In order to get every household online, it is important that broadband networks have
the capacity to meet demand for new media services such as interactive TV. Using a
computer or laptop does not suit everybody and can put some people off using the
internet altogether. Services such as interactive TV may better suit individuals who
are not confident with using computers, or who face financial barriers to accessing
the internet via a computer or tablet. Many have TVs which they are confident in
using and which could provide internet access.
4.2
It is important to tailor access to the needs of the individual as much as possible,
offering them a variety of approaches (such as tablets, mobile phones, and interactive
TV) to accessing the internet. Providing forms of access which suit people’s individual
needs is key to enabling them to embrace the new technology and take steps to using
the internet for more things, like accessing government/local authority services. This
is a gap in many current initiatives to support people to get online.
4.3
This attitude shift is becoming more and more important as government services
move to being provided online and other ways of accessing these services are
gradually withdrawn. Vulnerable, hard to reach groups of digitally excluded people
tend to be those who are more disadvantaged and are the biggest users of council
services. BDUK projects are seeking to get more households using government
services online to reduce the digital divide, however anecdotal evidence suggests one
of the barriers currently being faced by local authorities delivering the projects is that
there is little joined-up strategy for moving to digital by default which considers how
to get hard to reach groups to engage with the technology, as well as the technical
side of physically providing the access.
4.4
To ensure that the roll-out of superfast broadband provides benefits for all in society,
these key issues need to be set out at the start of any planning process, ensuring
vulnerable groups are considered from the beginning. BDUK pilots should include
elements of demand stimulation or measures to ensure access for those who are
currently digitally (and socially) excluded.
13 March 2012
274
Directors UK – written evidence
Directors UK – written evidence
1. Directors UK is the professional association for film, television and all moving image
directors in the UK. The organisation is both a collecting society for the distribution
of secondary rights payments to directors, and the professional association providing
services and support to its members. It seeks to protect and enhance the creative,
economic and contractual rights of directors in the UK and works closely with
organisations in the UK, Europe and around the world to represent directors’ rights
and concerns. With over 4,000 current members it represents the overwhelming
majority of working film and television directors in the UK. Directors UK is nonprofit-making.
2. Directors UK welcomes the opportunity to respond to the call for evidence to the
House of Lords inquiry into the Government’s superfast broadband strategy.
Directors UK has only answered those questions on which we feel we can offer an
informed view.
What is being done to prevent a greater digital divide occurring between people
who can access superfast broadband and people in areas where the roll-out of
superfast broadband may not be commercially attractive? How does the UK
communications market vary regionally and what is the best way to connect the
areas that the market alone cannot reach? Is a universal service obligation
necessary to avoid widening the digital divide?
n/a
The Government have committed £530 million to help stimulate private
investment – is this enough and is it being effectively applied to develop
maximum social and economic benefit?
n/a
Will the Government’s targets be met and are they ambitious enough? What
speed of broadband do we need and what drives demand for superfast
broadband?
3. Content is a key driver for superfast broadband. Consumers’ desire to access
creative content online whenever they want, wherever they want on whatever
device they want is one of the key forces behind the rapid growth of online
broadband services and technologies. The expansion of superfast broadband will
further opportunities for consumers to access high-value audio visual content.
In fact, are there other targets the Government should set; are there other
indicators which should be used to monitor the health of the digital economy?
What communications infrastructure does the UK ultimately need to remain
competitive and meet consumer demand over the next 20 years?
4. Online piracy - or IP theft - represents a huge threat to the UK’s creative industries
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Directors UK – written evidence
and has an impact on the future success of online content provision. The
government should consider measures for assessing how this is being prevented and
the impact it has on the health of the digital and creative economy. As an example,
under the provisions of the Digital Economy Act, Ofcom is required to monitor
levels of online copyright infringement. Although this has yet to be implemented
once it is in place this could be used as one of the Government’s key indicators.
How will individuals and companies use cloud services for distributed storage
and computation? What network properties are required to enable efficient
provision and use of such services?
5. Cloud computing covers a variety of services, including those based on protected
content – including audiovisual works. This is a market that will grow in the coming
years with the advent of “locker” services. It is essential that such services develop
in full respect of authors’ rights.
6. Directors UK is a member of the SAA (The European Society for Audiovisual
Authors), who in a recent paper to the ‘EC consultation into online distribution of
audiovisual works’ 69 distinguished two types of services as follows: “Those which
store one copy for all users (hence operating a service to users) and those where users copy
their own files to a locker (making private copies). With regards permissions for use of
works, the former has to be authorised by rightsholders, while the latter does not as it is an
exception to authors’ rights (provided that copies are not shared with third parties beyond
private copying exception limits). It does require fair compensation for authors, however.
The 2001 Copyright Directive and the European Court of Justice’s jurisprudence authorises
Member States to establish a ‘private copying levy’ for the purposes of financing fair
compensation. This must be paid not by the end consumers, but by the manufacturers,
importers or service providers of a copying facility (Padawan paragraph 46).
In both cases, an additional problem relates to the copying by users of illegal files from their library
to the service. Cloud services should not have the capacity to “legalise” these illegal files without due
negotiation with rightsholders. Cloud services related to protected works must respect the IP rights
attached to them and conform with the law.”
7. Directors UK supports the issues highlighted by the SAA and would urge that in
developing services for cloud storage that issues of IP and authors rights are fully
respected.
To what extent will the advent of superfast broadband affect the ways in which
people view, listen to and use media content? Will the broadband networks have
the capacity to meet demand for new media services such as interactive TV, HD
TV and 3D content? How will superfast broadband change e-commerce and the
provision of Government services?
69
http://ec.europa.eu/internal_market/consultations/2011/audiovisual/registered-organisation/societe-des-auteursaudiovisuels_fr.pdf
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8. Digital technology and the internet are rapidly changing the way in which audiences
access media content, with consumers increasingly expecting to be able to watch
anything, anywhere, anytime, and on any device. We have already seen a rapid
growth in the number of online download services available in the UK e.g. Lovefilm,
Netflix, BBC iplayer, 4oD, etc offering access to a vast array of material via Internet
TV, computers, phones, games consuls, tablets etc.
9. Superfast broadband will increase the ability for audiences to access more types of
work, on more platforms and in ways which suit them. Improved download speeds
and capacity will enable people to download larger files, including films and TV
programmes, at a faster rate making these a more viable service. It will offer the
opportunity for audiences who would otherwise not be able to view, listen to or use
some forms of media content to gain access to it, for example those who do not
visit the cinema would be able to view films via online TV and Video On Demand
download sites.
10. Directors UK supports any measures which enable greater access to AV works,
providing they do not compromise protection of copyright. As the ‘digital
revolution’ becomes the ‘digital norm’ it is crucial for the future of the UK’s creative
industries and the UK economy that full advantage is taken of the opportunities
presented by digital and online distribution via superfast broadband, whilst ensuring
that content creators are rewarded for the use of their work and are protected
from illegal copying and distribution of their work.
Will the UK's infrastructure provide effective, affordable access to the 'internet
of things', and what new opportunities could this enable?
n/a
How might superfast broadband change the relationship between providers and
consumers in other sectors such as content? What aspects of this relationship
are key to enabling future innovations that will benefit society?
11. Superfast broadband presents huge opportunities for both content creators and
online service providers. The way media content is produced, marketed and
distributed to audiences is changing in order to take advantage of these
opportunities. Innovation in response to consumers’ expectations to accessing
content and in developing new usages in the audiovisual sector is developing very
quickly, with new services using new technologies (conditional access possibilities,
multi-device interoperability approaches, cloud computing, etc.) emerging every day.
Being able to offer audiovisual works to consumers is the basis for these innovative
services, making audiovisual works a key source of content for Internet Service
Providers.
12. Directors UK is concerned that the proliferation of such services however might
generate less money for future production and innovation. Despite the increased
consumption of audiovisual content, instead of providing additional revenues to the
audiovisual sector, both for the remuneration of rights holders (in particular
authors) and the investment in production, there are declining revenues. In a recent
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report CISAC (The International Confederation of Societies of Authors and
Composers) 70 reported that while royalty collections from the digital sector rose by
22% in 2010 they still have not offset the decline in royalties from physical sales and
remain a very limited source of revenue for creators at only 1.7% of total
collections.
13. The impact of improved access to audiences via Broadband must be balanced against
the effect it may have on existing methods of content distribution e.g. the impact on
cinema audiences, sales of DVDs etc.
14. The biggest challenge therefore to content creators, with regards improved
broadband access, is being present on all platforms in the way consumers want, at a
fair price which rewards creators and IP holders. Without fair remuneration there is
no incentive to continue to create new and innovative content for audiences to
enjoy and poses a risk to jobs and industry growth.
15. The key to future success is to ensure that the principle of fair remuneration for
rights holders is applied to every situation, regardless of the type of
technology/platform involved – including uses that often are not contemplated or
accounted for at the time of original creation of the work. Ultimately it is important
to have adaptable and flexible arrangements which allow people to access content via
different platforms but in a way that protects and fairly rewards rightsholders.
16. In addition, content creators and providers need the right regulatory framework in
order to flourish. With illegal download sites offering unlicensed content for free it
is difficult for legitimate sites to compete. The issue of online copyright infringement
must be addressed in tandem with the development of Superfast broadband in order
for the digital and creative economies to maximise their potential.
What role could or should the different methods of delivery play in ensuring the
superfast broadband network is fit for purpose and is as widely available as
possible? How does the expected demand for superfast broadband influence
investment to enhance the capacity of the broadband network?
n/a
Does the UK, for example, have a properly competitive market in wholesale
fibre connectivity? What benefits could such a market provide, and what actions
could the Government take to ensure such a market?
n/a
What impact will enhanced broadband provision have on the media and creative
industries in the UK, not least in light of the increased danger of online piracy?
What is the role of the Government in assuring internet security, and how
70
http://www.cisac.org/CisacPortal/listeArticle.do?numArticle=1446&method=afficherArticleInPortlet
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Directors UK – written evidence
should intellectual property (IP) best be protected, taking into account the
benefits of openness and security?
17. The fast-changing nature of communications technology and services presents both
new opportunities and challenges to the UK creative industries, and it is therefore
very important to ensure that regulatory structures and policy initiatives remain
appropriate and forward-thinking.
18. As highlighted previously, enhanced Broadband provision has had the contradictory
impact of increasing opportunities for audiences to access audiovisual content whilst
reducing revenues for the creators of this content.
19. Creative talent is crucial to the success of a thriving superfast-broadband culture and
to the creative industry as a whole in the UK. Without a continuing flow of new
creative works, there will be nothing for content providers to distribute and
audiences to engage in. The innovation of creators drives growth in the AV
industries and in the wider economies, both through the exploitation of AV works
themselves and in spin‐off industries.
20. The greatest threat to continued innovation and growth in the audio-visual sector,
and indeed elsewhere in the creative industries, is the infringement of copyright via
internet dissemination (online piracy / IP theft). Without a commitment to ongoing
support for copyright (and other IP protection) the content creating industrial sector
is exposed to a further drain on revenues, increased threats to rights and,
particularly in the case of audiovisual works, a disincentive to investment. The knock
on effect will compromise new creative content, jobs and revenues for the UK
Exchequer.
21. A 2009 study by Oxford Economics 71 for the audiovisual sector demonstrated that a
commitment to strengthened enforcement of copyright would “provide direct gross
revenue benefits to the AV sector of £268 million as well as benefits spread
throughout the entire UK economy via ‘multiplier effects,’ creating a total of £614
million in revenues to all industries, £310 million in GDP, 7,900 jobs and £155 million
in taxes to government”.
22. Online piracy is markedly different from the unauthorised release of physical copies.
Once unlicensed works are released online the capacity for multiplication of such
digital copies is unlimited - any return on investment can be fatally compromised.
23. Directors UK welcomes much of the recent Hargreaves Report, in particular its
understanding of the need to sustain fair rewards for creators, and for the continuing
fight against IP theft: ‘In copyright, the interests of the UK’s creative industries are of great
national importance. Digital creative industries exports rank third, behind only advanced
engineering and financial and professional services. In order to grow these creative
businesses further globally, they need efficient, open and effective digital markets at home,
where rights can be speedily licensed and effectively protected.’ 72
24. The solution to ensuring greater access to legitimately protected content across new
71
72
http://www.bva.org.uk/files/images/AV_Piracy_Final_Report_-_FINAL.pdf
Hargreaves, Prof. Ian. Digital Opportunity: A Review of Intellectual Property and Growth. May 2011, p3
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Directors UK – written evidence
delivery platforms, lies in both facilitating licences and in preventing illegal access to
copyrighted works. Directors UK supports the recommendations in the Hargreaves
report of a dual approach of stricter enforcement and making legal distribution
easier.
Tackling Online Piracy
25. In terms of preventing illegal access, piracy can be tackled through the Government
bringing the Digital Economy Act enforcement regime into being as soon as possible
and prosecuting those responsible for copyright theft or abuse of copyright law.
Social media networks, websites and their end-users have to respect the economic
and moral rights of audiovisual authors as any other users. These networks and sites
should develop efficient mechanisms to detect the illegal making available of works
and avoid their reappearance when taken down. This should include implementing
the notice sending provisions of the DEA and introducing a Code of Practice. Legal
platforms can only develop if illegal consumption of audiovisual works is countered.
Simplifying Licensing and Rights Clearances
26. To encourage greater legitimate viewing of films, better methods of distribution are
needed which allow access to content but also fairly reward directors and other
authors for use of their copyright. Directors UK believes that support for an
affordable and flexible collective licensing system which gives consumers access to
great content and rewards creators for their efforts, should lie at the heart of public
policy in the area of IP and copyright law.
27. New service providers entering new online markets require access to large numbers
of works. Such licensing is likely to be extremely costly and time‐consuming if it
has to be conducted on a work‐by‐work or repertoire‐by‐repertoire basis.
Licensing of AV works can be especially tricky as the work may consist of multiple
copyrights bundled together – such as the scriptwriter, the director, originally
composed and recorded music, archive film etc.
28. We agree with Prof Hargreaves that rights owners must facilitate a much simpler IP
rights licensing regime (for example the report’s Digital Copyright Exchange (DCE))
that makes it easier for new digital businesses to obtain fair licences through a simple
procedure, and the creators and authors (in this context authors refers to both
writers and directors) of the works used obtain a fair reward.
29. Simplifying rights clearances, whilst ensuring fair reward for content creators, will
enhance the choice for the consumer, as it is likely to facilitate new entrants to
enhance competition and innovation. Licensing through collective management
organisations (CMOs), such as Directors UK, provides a low‐cost and secure means
of obtaining licences and ensuring that the rights owners receive a fair reward.
30. It is therefore important for the Government to make its recommendation for
setting up a Digital Copyright Exchange a priority, with industry players involved in
its design, so that AV content can be distributed legally and fairly through a wider
range of platforms. In this respect Directors UK is contributing to Richard Hooper’s
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Directors UK – written evidence
work to take the DCE forward.
31. Directors UK is also working with fellow societies in Europe to facilitate the
development of a scheme that would enable licences to be granted for services
operating across national boundaries in Europe. We would also urge the
Government to support a multi-territory licensing system that incorporates the fair
remuneration for authors in the EC Green Paper on Online Distribution of AV
works 73 , so that we can arrive at arrangements that operate efficiently and
seamlessly across Europe.
Global Identification Systems
32. Furthermore, collective licensing would be more effective if there were a wider
acceptance of global metadata and numbering identification systems such as the
International Standard Audiovisual Number 74 . The ISAN is operated by mandated
collecting agencies in different territories, and is compulsory in some countries (e.g.
France, Spain). It is key to the tracking and monitoring of the usage of works. A
mandatory metadata international system such as this would improve co-operation
between licensing bodies and support better tracking of usage across the globe.
Authors’ Remuneration Right
33. Online services represent a relatively new market where business models are still
being formulated and tested. Revenues from these new services have been very small
compared to traditional markets (consumer spending on VOD rental was £17m for
internet VOD from a total of £207m in the VOD market in 2010 75 ), with
correspondingly small shares coming back to copyright owners.
34. As far as pure on-demand service providers are concerned, the lack of experience in
the field of audiovisual works’ rights clearance and of know-how in collective
agreements for authors’ rights makes it difficult for them to understand the full
challenges of services based on intellectual property protected works. It is equally
difficult for individual creators to tap into the various different revenue streams
found in the new digital markets and to deal with some of the very large ISPs.
35. In our view, this makes online a very good example of a new market where a
remuneration right would represent a very effective and fair way to secure the right
reward to copyright owners and at the same time to provide a secure and simple
method of licensing content for service providers. It would also do so without being
disruptive to existing rules.
36. We therefore support the SAA’s proposal in a recent White Paper76 for European
legislation to establish a remuneration right for the audiovisual authors’ making
available right - collectively managed, based on revenues generated from online
distribution and paid by the on-demand services providers - which would simplify the
understanding of these operators of which rights are involved and who should pay
73
74
75
76
http://ec.europa.eu/internal_market/copyright/copyright-infso/copyright-infso_en.htm#AV_greenpaper
http://www.isan.org/portal/page?_pageid=168,1&_dad=portal&_schema=PORTAL
Enders Analysis based on EVA, Screen Digest
http://www.saa-authors.eu/en/news/32/SAA-White-Paper
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Directors UK – written evidence
for what. This entitlement should exist even when exclusive rights have been
transferred and would secure a financial reward for authors proportional to the
actual exploitation of the works.
37. Following this course could provide a boost to the VOD market – which is currently
threatened by piracy, but by making it easier for consumers to access content easily,
legal VOD platforms will provide an alternative legal and secure method.
13 March 2012
282
Everything Everywhere – written evidence
Everything Everywhere – written evidence
We welcome the opportunity to respond to the Committee’s invitation for views on the
Government’s superfast broadband strategy.
As the UK’s leading communications company we have the ambition to create the UK’s
‘digital backbone,’ and with our presence across the UK with over 15,000 employees and
over 27 million customers we fully support initiatives to increase and improve connectivity.
Under our Orange and T-Mobile brands we offer mobile broadband through handsets and
dongles, and following our wholesale deal with BT Openreach we offer some of the most
competitive home broadband and fixed line telephony products under our Orange Home
brand to over 700,000 customers.
The UK already enjoys the most competitive e-commerce market in the European Union,
and with a large number of ISPs, both fixed and mobile, for consumers to choose from.
What is required is a regulatory environment which continues to foster this choice,
promote innovation in new services and to encourage both existing and new entrants to
invest in new and innovative technologies.
Broadband Takeup and Digital Divide
Considering the two government broadband objectives – broadband uptake and availability
of superfast broadband – we believe that uptake of broadband is just as important as the
deployment and availability of superfast broadband. Whilst Ofcom’s 2011 Communications
Market Report recognised that superfast broadband services were already available to
around 50% of UK homes, and that this figure is increasing as further investment takes place,
it remains important to address the digital divide.
The most recent figures for internet usage amongst the adult population published by the
Office of National Statistics showed that in Q4 2011 just over 16% of adults in the UK had
never been online. Whilst this marked a 1% reduction of offline adults over Q1 2011, strong
and continued encouragement from the Government on digital inclusion is welcome 77 .
As the Broadband Stakeholder Group have noted “Demand for superfast broadband is in its
infancy in the UK, but the initial signs are that the UK is in a good position, and is seeing
take-up at a similar or higher level than other EU markets at the same stage.” Furthermore
“it is important that policymakers have realistic expectations of the likely levels of take-up
that superfast broadband will achieve in the UK in the short-medium term, and draw
appropriate lessons and comparisons with other markets across the world.”
UK Economic Competitiveness
Whilst there has been a lot of focus on headline speeds available in some Northern
European and Asian countries the UK government has rightly recognised that a more
balanced approach is required to determine success in delivering the best communications
network.
77
Ofcom: The Communications Market 2011
283
Everything Everywhere – written evidence
In the December 2010 Broadband Future policy paper the UK government set out a basket
of measures looking at speed, coverage and take up, and price of fixed and mobile
broadband. These measures are germane to determining what infrastructure the UK should
look to have for continued economic success.
Broadband Delivery UK
Broadband Delivery UK has been asked to fulfil a difficult role. As a mobile provider we
continue to have some concerns as to how the BDUK timetable did not take account of the
spectrum auction process, and thus reduced our ability as a mobile operator to participate.
In addition, the process has been delayed by local authorities not being adequately equipped
to move forward as quickly as the Government would have wished.
Whilst it was recognised by the previous government, and accepted by the coalition
Government, that the cost of deploying Fibre To The Cabinet (FTTC) across the UK would
cost in the region of £15 billion whilst deploying Fibre To The Premises (FTTP) could cost
around £30 billion, the £530 million available through BDUK in the current Parliament is
welcome and should help ensure that government targets on availability of 2MBps are
delivered.
Fibre Wholesale
The growth in take up of ‘up to 20Mbps’ broadband products over the last five years in the
UK has been driven by affordable broadband pricing offered by a wide range of competing
internet service providers. Ofcom’s own Communications Market Reviews have found that
the result of this has been that the UK has one of the most competitive communications
markets in the world, with one of the highest take up rates of online services and ecommerce. As the UK moves forward with further deployment of superfast broadband it is
important that the regulatory environment encourages a competitive market as we are
concerned that without appropriate regulation the UK could fall further behind the rest of
Europe.
Whilst we welcome the overall push for localism that the coalition government is
committed to, we are concerned that it could have unforeseen consequences for the
deployment of superfast broadband, and the Mobile Infrastructure Project, if each local area
pursued their own separate technical solutions. In particular, we would wish to see a
regulatory solution that ensures that should anyone other than BT deploy FTTC/FTTP on a
regional basis that it should be ‘equivalent’ to BT’s solution so that the UK does not end up
creating regional fibre monopolies, such as KCom in the copper world, or seeing other
communication providers having to constantly build interfaces into very small local
broadband markets.
Furthermore, a competitive fibre market is essential for the deployment of 4G mobile
broadband as we require access to fibre backhaul from our cell sites to enable us to deliver
4G LTE services to our customers.
Contribution of mobile
As the internet has gone mobile with the rapid increase in popularity of Apps the role of
mobile broadband has become more important to consumers and the economy.
Government ambition to deliver near universal availability of broadband will require that
mobile broadband services are part of the mix. Whilst it may well be economic to roll out
fixed broadband to around 90% of the UK population, there will remain around 10% of the
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Everything Everywhere – written evidence
population who would not be covered by traditional fixed networks. In this space the next
generation of mobile technology, 4G LTE, will enable us to deliver current broadband
speeds. This technology is already available in other markets, and since last autumn we have
been conducting a trial with BT
Wholesale in Cornwall using 800 MHz spectrum to demonstrate the viability of the
technology.
Mobile broadband will, however, be of interest to not just rural communities. Individuals,
such as students, who live in rented accommodation, are currently unable to purchase fixed
line broadband. A mobile broadband product can be taken with them wherever they are.
We would be happy to come and talk to the Committee about the issues raised in this call
for evidence, and understand that you plan to hold hearings later in the year.
March 2012
285
Everything Everywhere – supplementary written evidence
Everything Everywhere – supplementary written evidence
We read with interest the transcript of your committee's evidence session with Paul Morris
of Vodafone and Julie Minns of Three as part of your Superfast Broadband inquiry.
As we were mentioned and our market position was discussed during the session, we
thought it would be helpful to the Committee to hear our views.
We share the experiences of both Vodafone and Three in the growth of data traffic on our
network and have seen a similar increase in take up of smart internet-enabled devices over
the last year. We are seeing a 250% increase in data use year on year and 90% of our new
contract customers are opting for smartphones. This is one reason why it is so critical that
4G services come to the UK as soon as possible.
Turning to the substance of the remarks about Everything Everywhere, we have asked
Ofcom to liberalise our 1800 MHz licence so that we can deploy 4G services. This is in line
with the European Radio Spectrum Policy Programme Decision No. 243/2012/EU of the
European Parliament and of the Council of 14 March 2012 establishing a multi annual radio
spectrum policy and the 900 MHz and 1800 MHz Commission Implementing Decision of 18
April which amended Decision 2009/760/EC on the harmonisation of the 900 and 1800 MHz
frequency bands for terrestrial systems capable of providing pan-European electronic
communications services in the Community. This decision set out that all EU member states
should make both 900 MHz and 1800 MHz available for 4G services by 31 December 2011
and to have completed the authorisation process this year. This freedom to liberalise
existing spectrum that is already in use for mobile services so that it can be used for 4G is
very important and beneficial: it means that the spectrum auctions next year are not the
only route to delivering 4G to UK consumers and businesses.
Our request for liberalisation is by no means an attempt to obtain a monopoly over 4G
services in the UK. This is for the following reasons. First, Vodafone and 02 could have made
the choice to launch 4G services over their existing airwaves - 4G mobile services already
exist on 900 MHz (Vodafone and 02 share these frequencies in the UK) in Scandinavia, Japan
and Australia - instead of using the frequencies for 4G they opted to deploy HSPA+ much
earlier than 4G was available and obtained commercial advantages from doing so. Second,
the scope of any advantage we might gain from deploying 4G will be limited. Our ambition,
subject to regulatory approval, is to begin a limited launch of 4G later in 2012. We are
expecting the 4G spectrum auction to take place in early 2013, and successful bidders would
be able to start building out a 4G network in May/June 2013.
Furthermore, the purchaser of the spectrum we have to divest as a condition of our merger
would also be able to launch a 4G service next year. We therefore believe that any
competitive advantage from our proposed launch of 4G services would be limited in
duration (six to twelve months), that its duration is in part controllable by the determination
of our competitors to minimise it and is consistent with the normal evolution of competitive
mobile markets.
In addition, it is worth pointing out that there is a UK precedent for allowing mobile
networks to use their existing airwaves for the latest services. In 2011, our two largest
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Everything Everywhere – supplementary written evidence
competitors both benefited from the Government direction to Ofcom to allow mobile
operators to deliver 3G services over 900MHz and 1800MHz airwaves - a decision we did
not challenge.
We believe that our proposed investment and innovation will drive further investment and
innovation in the UK from the other networks. The auction itself will not necessarily drive
investment - the 3G auction in 2001 saw all networks overpay for the spectrum licences and
subsequent infrastructure investment was consequently slow. Ronan Dunne made a recent
comment to the effect that, as the CEO of 02, he does not see the business justification for
bringing 4G to the UK. There is no better way to make him change his mind than EE
launching a 4G service this year. This will ensure that the predictions in the economic
research we commissioned from Capital Economics will materialize - these indicated that
roll out of 4G networks would add 0.5% to UK GDP over the next decade and unleash
£5.5bn in private investment that will support 125,000 jobs over the next three years.
In a period of such economic uncertainty, we do not believe the UK can afford any further
delays.
1 July 2012
287
Federation of Communications Services – written evidence
Federation of Communications Services – written evidence
Introduction
1
The Federation of Communication Services, FCS, is the trade association for the
communication services industry supporting 325 members that deliver products and services
via copper, fibre and wireless to UK customers. For a list of our members please visit
www.fcs.org.uk
Broadband policy
2
We welcome the opportunity to respond to this timely inquiry into the
Government’s superfast broadband strategy. Broadband is the basic building block of the
digital economy that is fast becoming the staple mechanism for doing business and for social
life in the UK. Government policy should therefore be to ensure that appropriate broadband
technologies are available for the longer term, a timeframe of at least up to 20 years.
Broadband is now an essential utility - rather than an optional service delivering
communications in competition with pen and paper of yesteryear. We believe that
broadband policy should now be substantially reviewed to recognise the utility nature of
communications infrastructure, with competition residing at the retail level.
3
As in other markets, infrastructure provision should be regulated as a utility platform
-separated from competing retail services that access the infrastructure on equivalent and
fair terms. The role of infrastructure providers should also be clearly separated from that of
retail service providers.
4
A policy of competing infrastructure appears to be inefficient. Duplicating
infrastructure investment passes extra costs down to the consumer. Commercial network
providers cannot justify delivering services to markets where there is not a density of
population to satisfy their commercial objectives, leaving wide swathes of the population
without access. Since all UK citizens need access to the same level of broadband and
increasingly superfast broadband, a different supply regime is required and, crucially,
regulatory intervention will be needed to support this outcome.
5
FCS recommends that infrastructure is in the form of a single “fat pipe” with
wholesale access - enabling both universal services, such as smart meters and telemedicine,
and competitive services, such as video on demand and voice, to plug into the pipe.
6
Demand for superfast broadband is evident and the infrastructure to supply this
growing need must be adequate to respond to demand. FCS research among CPs and
resellers who take bandwidth from wholesalers and package services for SME business
customers’ shows higher capacity broadband is needed for
¾ higher data capacity and broadband conferencing
¾ growing E- business processes
¾ Distributed working with multi-site and remote working for business efficiency and
employee support
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Federation of Communications Services – written evidence
¾ Growth of cloud computing - a need for greater uplink and downlink capacity to
share databases, business files
7
The “fat pipe” model that FCS and others propose would entail the grey fat pipe to
the right of the diagram below being owned and operated by the infrastructure provider,
who has no retail offering to compete with its customers. Services such as IPTV and internet
access would be delivered by competing suppliers - each having fair and equivalent wholesale
access to the pipe. Customers would then purchase one or more services from CPs and,
should they wish to move supplier, they could do so within an efficient universal customer
switching process. For this model, “net neutrality” would be less of a problem since the
pipe operator would not have a commercial interest in managing traffic for one wholesale
customer in preference to another. Additionally, different levels of traffic management could
be applied to different services in a transparent manner. Crucially, if the internet end user
were to transgress the Digital Economy Act, internet services could be cut off without
compromising the public / universal services for smart metering or telemedicine to an
individual household or premises.
Figure 1: “Fat Pipe”
8
The entity that owns the “fat pipe” is already becoming apparent. Openreach is
rolling out its broadband and superfast broadband widely across the nation and, significantly,
it is also winning many of the local authority tenders under the BDUK scheme. This is not
surprising as there is inherent skill, experience and attention to maintenance, security and
resilience in this organisation.
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Federation of Communications Services – written evidence
9
As with the consolidation of the regional railways in the last century, communications
infrastructure needs to be considered as a single logical national entity, although there might
be a few different ownerships. The current EU Framework enables the regulator to impose
functional separation on major entities
10
In the UK, 6 years of experience of functional separation has illustrated its
limitations. While functional separation of Openreach within BT has been valid for the
current regulated copper technology, there are no clear equal access rules for retail
providers of fixed telephony and broadband services in the new fibre world. Consequently,
competing providers would have to rely on competition appeals to prevent market
dominance and walled gardens appearing. The regulatory solution to the questions posed in
the Inquiry would be for full structural separation of Openreach from BT, following the
examples in New Zealand and Australia.
11
We believe that Government should review its infrastructure policy to assess the
impact of this trend, consider whether infrastructure competition is still required and
propose how a single national infrastructure provider should be regulated. Other
infrastructure sectors of the economy could provide examples of the regulatory framework
needed. At the same time Ofcom might like to review the Undertakings agreed with BT in
2005. We believe that there is an opportunity to implement change with plans for a new
Communications Act.
12
In response to the questions posed in the Inquiry
Q1 While current Government policy and BDUK implementation is aiming to plug the gap,
we think that there is need for more substantial regulatory change, as described above, to
resolve the national need for superfast broadband.
Q2 We are unsure about the efficiency of the programme to stimulate private investment.
New infrastructures such as those being developed locally should be able to "plug in" to
national infrastructure so their end users can get access to the general level of content and
services available in other parts of the country. This will require software development,
logically sourced from the £530 million set aside for broadband development to support the
“final third”. Management of these co-ordination arrangements would be by means of a
national governance body for change management.
Q3 While the funds may be delivered to local authorities in time, the potential for delivering
nationally comparable services to all customers is not yet demonstrated.
Q4 and 9 As we have described above, now is the time for the Government to review and
implement a communications infrastructure policy regulating the utility infrastructure
provider(s) as separate entities from the competing retail market. This would involve
structural separation and a fair wholesale access regime.
Q10 FCS members do not believe that there is a properly competitive market in wholesale
fibre connectivity. Many members deliver Wholesale Line Rental, WLR, over copper pairs to
customer premises.
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Federation of Communications Services – written evidence
While fibre roll out is essentially merely a technology change, a new regime for
communications delivery has been introduced alongside. For fibre, access to the next
generation access network is no longer at the WLR level, but much deeper into the
infrastructure - akin to LLU. An immediate change is that only a select few providers have
the financial resource and capacity to trade with Openreach to deliver fibre services either
from the street cabinets or directly into premises. FCS has identified a real problem in
supply of services to small business customers. The worst case scenario is that existing
services delivered over WLR may cease at some time in the future, particularly as
Openreach is already planning trials of fibre only exchanges. New broadband services are
being delivered only by larger well resourced LLU type operators. No part of BT is offering
voice over next generation access as a seamless and price regulated service for CPs and
resellers to offer to their existing customers as a replacement for WLR. Ofcom is not
placing obligations on BT in this area.
March 2012
291
Federation of Small Businesses – written evidence
Federation of Small Businesses – written evidence
The Federation of Small Businesses (FSB) welcomes the opportunity to respond to the
above named consultation.
The FSB is the UK’s leading business organisation. It exists to protect and promote the
interests of the self-employed and all those who run their own business. The FSB is nonparty political, and with 215,000 members, it is also the largest organisation representing
small and medium sized businesses in the UK.
Small businesses make up 99.3 per cent of all businesses in the UK, and make a huge
contribution to the UK economy. They contribute 51 per cent of the GDP and employ 58
per cent of the private sector workforce.
The FSB is very concerned with the lack of ambition in the Government’s current broadband
strategy and urge the Government to introduce a programme, similar to Race Online, to
help businesses realise the benefits that broadband presents and ensure that the UK remains
at the forefront of ecommerce and innovation. The bar must be set considerably higher than
2 Mbps by 2015 if the UK’s small businesses are going to take advantage of all the
opportunities that e-commerce has to offer. The wide availability of high connection speeds
will fundamentally change how business interacts with its customers, supply chains and
government and creates both new business opportunities at the global scale as well as
improving the efficiency and effectiveness of existing commerce.
We trust that you will find our comments helpful and that they will be taken into
consideration.
Yours sincerely,
Prof. Neil Hoose
Chairman of the Infrastructure Policy Unit
Federation of Small Businesses
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Federation of Small Businesses – written evidence
FSB response to consultation: Will superfast broadband meet the needs of our
‘bandwidth hungry’ nation?
1. Broadband today is an essential utility for small businesses. It removes barriers to
competition, brings businesses closer to consumers and suppliers, and allows
businesses to find new markets and to innovate. However, small businesses up and
down the country are not realising these benefits.
2. In 2011 the FSB carried out an internet opportunity survey partnering with the
Communication Management Association (CMA), Department of Culture Media and
Sport (DCMS) and BT Openreach (BT) which brought out some very useful facts.
3. Nine per cent of small businesses cannot access current generation broadband, by
which is meant speed up to 24 Megabits per second (Mbps), across any of their sites.
Twenty-two per cent cannot access it at at least one of their sites. These figures are
not limited to rural areas. Small businesses located in close proximity to large towns
and cities are also facing problems with connectivity.
4. There is also a marked difference in the speeds small businesses receive. For those
receiving current generation broadband, over a quarter only have access to speeds
up to 2 Mbps. This might be sufficient for the average household, who uses the
internet for social media and watching catch-up IP TV; but for a variety of businesses
this is not at all sufficient. To mention a few examples; if you are an IT support firm
that wishes to expand into application and web hosting services; or an acoustic
solutions firm that wishes to launch an online retail outlet; or a firm that designs and
installs irrigation and water systems for customers throughout the world who relies
on being able to share and receive large data files such as construction drawings, this
is just not sufficient.
5. The point is that it is not good enough for Government to assume that such a low
bandwidth as 2 Mbps is sufficient in years to come. Technology and opportunities
develop at an incredible speed these days that second-guessing what technology is
going to be available and what bandwidth they will require is impossible. The strategy
must instead be to find ways to enable superfast broadband connections across the
whole of the UK by 2015. The FSB considers this a higher priority than establishing a
more extensive high speed rail network.
6. Eighteen per cent of small businesses say there are services they are unable to use via
their current generation broadband. Of those, 80 per cent say that it affects their
organisation when innovating or using other new services.
7. As well as creating barriers to innovation, inadequate connectivity also creates
inefficiencies and results in lost productivity. The FSB has endless examples of small
businesses who at best, lose several hours a week waiting for things to upload or
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download, and at worse, have to organise their entire working week around when
expected down-times are. We know of a Managing Director who travels with his
Notebook to the nearest hill to find a connection to enable him to download orders
and emails; and farmers who have to travel to their nearest village, to a Post Office
that allows them to use their internet connection to submit compulsory online forms
to Defra. These examples may sound extreme, but they are the reality in which far
too many small businesses operate.
8. There are alternatives of course, such as leased lines, satellite broadband and so on
but these are often too costly for small businesses. The FSB is aware of members
particularly in Scotland who spend an enormous amount annually on broadband
provision, and this is not fair. The broadband provision in large parts of the UK is
completely unacceptable for a nation that is claiming to be the best place in Europe
for broadband by 2015.
9. Part of the solution lies in the forthcoming Spectrum auction. The FSB urges the
Government and Ofcom to ensure that there is no further delay to the auction
process. Described as a “once in a generation opportunity” – we must embrace the
opportunity the Spectrum auction affords us and ensure that households and
businesses are well connected to digital services. Mobile broadband will play a very
important role in future broadband provision.
10. There is a real risk that if not spots are not addressed, those communities will be at a
significant disadvantage to others. Their businesses will be at a competitive
disadvantage and it will be increasingly difficult to retain and attract new business.
That is why we urge the regulator to attach a 98% population coverage obligation to
at least two of the licences being auctioned.
11. There is a high demand for superfast broadband. Figures from the CMA report
suggest that 40 per cent of small businesses would be likely to adopt superfast
broadband as soon as it became available to them. Twenty-eight per cent said they
would be very likely to adopt it.
12. Around half of small business says they would be prepared to pay extra for the
speeds they required from superfast broadband. But these figures could be higher.
With a programme to raise business awareness and promote the benefits of
superfast broadband, we believe more businesses will demand superfast services.
13. That is why we are asking the Government to introduce a programme, similar to
Race Online, to help businesses realise the benefits that broadband presents and
ensure that the UK remains at the forefront of ecommerce and innovation. Nearly
half of small businesses expect that access to superfast broadband would result in
increased turnover.
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Federation of Small Businesses – written evidence
14. Forty-one per cent believe superfast broadband would allow them to expand into
new markets. And Thirteen per cent believe it would allow them to hire more staff.
15. Given the right tools small businesses can diversify and grow. The UK needs jobs
now. That is why the Government must commit to creating the environment for
businesses to grow. The right infrastructure in the right places, including fast and
reliable broadband, will be central to this.
16. At a time when the economy is faltering and the Government is considering options
for stimulating growth by removing the barriers businesses face, it must think
seriously about the barrier inadequate broadband connectivity can create, and the
opportunities that are unleashed as a result of good connectivity. The FSB urges the
Government to ensure that it is genuinely committed to its targets for universal
coverage and ensures that enough money is targeted at those areas the market will
not reach on its own.
13 March 2012
295
Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) –
written evidence
Fibre GarDen (the Garsdale & Dentdale Community Fibre
Broadband Initiative) – written evidence
1. INTRODUCTION
We are delighted to have the opportunity to submit this paper in response to the call for
evidence from the House of Lords Select Committee on Communications (the Committee).
As probably the most important infrastructure issue of our generation, this inquiry into
national superfast broadband delivery is most timely. We are hopeful that the conclusions
reached, and action taken as a result, will lead to a paradigm shift in the superfast broadband
provision debate.
We have chosen to respond by outlining the vision and efforts being made by a unique
alliance of two small rural communities in the Yorkshire Dales and some of the issues that
we have encountered. As a result we hope that the Committee can understand in better
detail some of the impediments in place to achieving a truly internationally competitive
broadband landscape in the UK.
2. fibre GarDen
Background
Over the last eighteen months our community effort, in the very best traditions of the Big
Society, has been working with our MP Tim Farron, South Lakeland District Council (SLDC),
Cumbria County Council (CCC), Broadband UK (BDUK), and other government and
private sector parties, to develop a sustainable model to deliver a superfast broadband
network that is ambitious, and critically 100% inclusive. The vision is a fibre-to-the-home
(FTTH) network that is future-proofed and able to deliver super fast broadband, telephony,
TV, media, telehealth, farming services, education and other government and local authority
services.
This has been a joint effort between two dales in Yorkshire, namely Garsdale and Dentdale,
who recognized early on that combining their resources and efforts would be beneficial to
the residents and businesses of both valleys. It has the approval and support of both parish
councils and a community interest company has been established with a strong management
team with combined experience in finance, marketing, fibre optic technology, education,
health provision, and farming services. To date, alongside their other individual work
commitments, several thousand volunteer hours have been expended by the team on behalf
of their communities.
A detailed business plan, supported by extensive evidence, has been developed which
informs that a 60km network connecting the two dales and 500+ premises can be
constructed for a sum in the region of approximately £1000 per premise, with a community
digging effort and farmers’ community spirit solving the wayleave issue. This is fully costed to
a high technical standard including network installation, fibre cabling and fibre types,
installation and fusion splicing, telephony, quality of service, infrastructure services and
ongoing management thereof. Funding of the network will come from a variety of sources
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written evidence
including BDUK/RDPE, contribution of £300 per premise, vendor finance, a community
share issue, loans and work in-kind.
Initial success has been achieved with BDUK confirmation that we have become a
recognized Rural Community Broadband Fund pilot and therefore eligible to apply for first
round funding from the Rural Development Programme for England (RDPE). This application
has been submitted and is awaiting approval from DEFRA.
Our project, its importance and contribution so far, has also been acknowledged by the
following:
“ That is why I am so proud that our communities in Cumbria, and South Lakeland especially, are
choosing to make their own luck. I pay tribute to……the team from fibre GarDen who ensure that
we can deliver superfast broadband to Garsdale and Dent. They show a vision that UK plc - I am
not aiming criticism in any specific direction - has so far not matched. This debate is about
demonstrating that the House of Commons stands behind them in solidarity”…… and, further
quoting from an email from Andrew Fleck, Chairman of fibre GarDen, “The cost of nationwide
implementation is prohibitive in the current economic climate, but the economic penalty for delay
will be greater still”. He is absolutely right. Tonight I will get on the train to Oxenholme and travel on
a rail network that was built by visionaries 150 years ago. That is the sort of vision and ambition we
need today”
Tim Farron MP, Daily Hansard, Thursday 19th May 2011
“Cumbria County Council regards fibre GarDen CIC’s planned FTTP local network as an important
part of the overall broadband strategy for Cumbria. The significant efforts of fibre GarDen CIC have
been instrumental in achieving the best possible outcome for the pan-County rollout and the
successful construction of their network will be a valuable contribution to the provision of superfast
broadband in the county”
Alan Cook, Project Manager, Cumbria County Council
Fibre GarDen’s help in exploring ways in which communities can actively support suppliers to deliver
superfast broadband access to deeply rural areas has been extremely useful in helping us develop a
number of potential products for communities in similar locations across the country to utilize”
Robert Sullivan , Chief Executive, Broadband Delivery UK
The Project
Existing provision by current operators in our area, as might be expected, is not consistent
with a 21stC economy. In most cases broadband download speeds below 1Mb/s are the
norm, with many premises remaining on dial-up (512kb/s) and no broadband provision at all.
This is the backdrop to our community motivation to address this inequitable infrastructure
under investment to date.
This project will create a fibre optic network that connects every property in an isolated and
sparsely populated upland rural community in exactly the same way that properties and
businesses would be networked in a fibre wired city. The project is ambitious, as its aim is
not simply to increase rural broadband speeds, but to demonstrate how economic
disadvantage and social exclusion can be overcome in a rural area by the provision of future297
Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) –
written evidence
proof Next Generation Access (NGA) broadband. In order to achieve its goals, it will
harness community support and action alongside government investment and commercial
partnership.
The project will build and operate a NGA broadband network in the two adjacent upland
valleys of Dentdale and Garsdale in South-East Cumbria, close to the North Yorkshire and
Lancashire boundaries and inside the Yorkshire Dales National Park. The network will be
built and operated by a community interest company, Fibre GarDen CIC, employing a local
telecoms company to manage both the build and the network’s operation. The build will be
completed by December 2012, after which the ownership of the network will remain with
the CIC. The RDPE funding would be used to meet part of the capital costs of building the
network and not its running costs.
The project’s key features are:
i)
the creation of a consortium of suppliers working with the community to build
the network,
ii)
the finished network to remain under community control, to ensure it serves
the community’s future needs (and importantly obtain the necessary wayleaves),
iii)
the involvement of a local telecommunications provider with full code powers,
iv)
the granting of free wayleaves by residents/landowners to a community project,
v)
the availability of expertise in fibre optics, telecommunications and company
fundraising by the project’s management team,
vi)
the use of an innovative backhaul solution that is applicable to rural communities
across Cumbria and nationally
By these means it will demonstrate how NGA rural broadband can be provided in places
where there is no current market solution for fully future-proofed superfast broadband
provision. This will support the drive by Cumbria County Council to raise the standard of
broadband delivery within the procurement for Cumbria and thereby improve services to a
wider range of communities.
The network that is created will:
• provide a 100% fibre optic cable to all properties and businesses, and thus be fully
future-proofed
• be either own brand or open access ISP
• enable initial broadband speeds of 100 Mb/s, with the option for Gb/s service in the
future depending upon need and growth in demand
• be a significant economic multiplier for businesses and the community as a whole
• provide extra fibre capacity for community and future P2P use
• be available to supply backhaul for 4G mobile phone coverage
• provide support to farming enterprises, in areas where the rural economy relies
upon a vibrant farming sector and where the national food supply agenda needs to be
fully recognized and supported
• be available to NHS Cumbria for informatics, telemedicine and telehealth research
trials
• be available for use by emergency services, critical in an upland and occasionally
remote rural area
• become a template for the creation of a fibre network, which will be available for
other rural communities to use
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Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) –
written evidence
•
most importantly, be fit for purpose for accommodating other (unforeseen)
technological advances that may transpire in the future
The key beneficiaries can be divided into three groups:
‐ Direct occupants in the Fibre Garden area including 351 private households and 159
businesses and further tourism businesses, and 1 primary school serving 38 children.
The businesses include local farmers, and at least 28 consultancy businesses, some of
national and international repute, including individuals such as a FTSE 100 CEO, a
Chairman of a number of telecommunications companies, a Chairman of a digital
media company, and an Asia-Pacific focused strategic advisory services company as a
few examples of the breadth of activity already occurring in these Dales. The
business mix in our dales is perhaps excitingly unique as compared to urban
environments and a model for the future knowledge based mixed economy;
‐
Indirect beneficiaries such as BDUK, DEFRA, Yorkshire Dales National Park, South
Lakeland District Council, Cumbria County Council, Sedbergh Health Centre,
emergency services, mobile phone operators, wider rural communities who may use
our model, and the several millions annually of visiting tourists; and
‐
Important social re-generation of a Severely Disadvantaged Area (as defined by the
government) through the attraction of inward investment by high value-added,
technology-rich entrepreneurs in the knowledge economy, who will be attracted by
the future proofed unconstrained bandwidth
Major Issues
This process and the efforts by all concerned has identified a number of issues that should
be considered by the Committee in greater detail as follows:
National
‐ The whole debate needs to shift away from broadband speeds and the latest PR,
inaccurately informing of “up to speeds”, and also “contention” (the number of users
constraining performance), and “attenuation” (eg distance from the exchange means
a weaker or non-existent signal). The flabby approach of both the industry regulator
and the Advertising Standards Board leaves much to be desired in this area.
Incumbents use these to control their investment and business model agenda. A
simple comparison can be made to electricity, another necessary and vital utility for
the 21stC. If the light in your house was flickering and cutting out all the time one
would consider that one was living in a less developed economy. Excuses about “line
speed” or “contention” or “attenuation” would not be an acceptable response.
Electricity companies have invested and solved all these matters and your service is
either “on or off” and is fully responsive to peaks in demand;
‐ Active engagement of alternative broadband infrastructure providers such as the
Electricity companies or Network Rail (which already has a publicly funded fibre
optic network) should be encouraged. These companies, in most cases, are already
connected, or are able to access, even the most rural communities as a result of our
forebears vision.
‐ This is an important national infrastructure issue and yet we have little or no
knowledge of the medium term investment plans of major incumbents;
‐ The “sticky plaster solution” of FTTC offered up by some of the existing operators
fails to address even the most basic needs of many, let alone the necessary future
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Fibre GarDen (the Garsdale & Dentdale Community Fibre Broadband Initiative) –
written evidence
‐
‐
proofing that is required based upon existing demand, and not accounting for
unforeseen future requirements. This can be delivered by a one off transformational
investment in FTTH;
We have the chance to make a visionary, once in a generation investment in critical
21stC infrastructure, yet at every turn existing operators are using whatever
techniques at their disposal to ensure that their competitive position is maintained, at
the cost of our national interest; and
BDUK have deemed that any government support in rural areas will be limited to
£300 per premise. This is an arbitrary number. The right question to ask is what size
of investment do we need to make to ensure that this is a one off commitment to a
fully future proofed structure. The payback will be in added GDP growth, research
figures suggesting this uplift is in the region of 1.5%. £1000 per premise is an
appropriate minimum number.
Regional
‐ The number of bidders that have shown an interest in the CCC broadband
procurement process underway, a substantial contract, is now only two, BT and
Fujitsu. This is not an appropriate competitive environment and requires government
to play a more active role;
‐ The rural broadband process originally was driven by BDUK, the right mechanism to
drive government intervention in this cross Ministry initiative, however it has now
become housed in DEFRA and the RDPE and linked to the rollout programme of the
responsible County Council. This multiplicity of sometimes conflicting interests is a
barrier, although notably, individual public servants do their best to work around this
in some cases;
‐ The original notion of selecting pilots within Cumbria to receive funding, which could
be important trail blazing and learning examples of community activity for use around
the country, seems to have almost disappeared;
‐ Linked to the above we have further been informed that if we are successful in
obtaining the small RDPE funding then we will not be eligible for any further funding
pools available at County level. Hard work and success is thus penalized.
Local
‐ In spite of the important impact that self motivated communities like ourselves can
have, nevertheless we have found that there is a “David and Goliath” factor and
communities need to be encouraged by other actors in the process and not
positively disadvantaged;
‐ Certain models have been put forward by existing operators suggesting that a
community will be provided with cable and ducting for FTTH, but need to do the
digging and also wayleave agreements. Once this is done the network would be
placed in the ownership of the existing operators. We fail to see how or even why
farmers should show community spirit on wayleaves for a network to be given away.
State aid issues are a substantial issue here too.
‐ Mobile and satellite provision were fully considered, but current, or foreseeable
technology is woefully inadequate and not fit for purpose.
3. CONCLUSION
The British sense of community spirit is second to none. We have a once in a generation
opportunity to capitalise upon this and make the necessary investment to ensure that our
next generation is able to perform at the peak of economic efficiency, that there will be
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written evidence
universal service provision with none of our communities or individuals left behind for
whatever reason, and that the proven economic multiplier effect of broadband investment
immediately starts adding to economic GDP growth in these uncertain times.
This government, and especially Ministers The Rt. Hon Jeremy Hunt MP and Ed Vaizey MP,
has made significant strides to drive forward this important agenda and this work must be
highly commended. Their personal efforts have been exemplary. A broader consensus on
real action, further Treasury financial commitment and a proactive regulator(s) are essential
to ensure that existing interests, by acute under investment, do not further impede the
progress of our economy in this brutally competitive global economic environment.
We look forward to the conclusion and outcomes of your deliberations.
13th March 2012
301
Film Distributors Association – written evidence
Film Distributors Association – written evidence
1) About Film Distributors’ Association and our sector
Film Distributors’ Association Ltd. (FDA) is the trade body for UK theatrical film
distributors, the companies that release films for cinema audiences. The feature films
brought to market by FDA member companies – ranging widely from international
blockbusters to classic revivals; and from British films to productions of 42 other countries
in 2011 – account for 97% of UK cinema admissions. Lord Puttnam of Queensgate CBE is
FDA’s President.
Theatrical film distribution is a sophisticated, competitive and dynamic business that depends
on product and the extent to which it connects with audiences. With 1% of the global
population, the UK generates 7% of global cinema box-office receipts (£1.12 billion from
171.5 million admissions in 2011).
Overall, the sector operates successfully and delivers a significant contribution to the
economy in terms of revenue and jobs, as well as the consequent cultural and creative
impacts.
An economic multiplier effect applies: for every £1 spent on cinema tickets, at least a further
£2 is pumped into the economy on directly related expenditure.
2) Market development
The roll-out of super-fast broadband enhances business opportunities to offer selections of
films to online consumers. Film companies will naturally embrace the ability to deliver
feature films and film-related content to ever-wider audiences faster and more efficiently.
The comprehensive UK Film Policy Review, chaired by Lord Smith of Finsbury and launched
in January 2012, urged the industry to consider increasingly flexible periods of theatrical
exclusivity, to be determined on a film by film basis, to assist greater development of the still
nascent “Video on Demand” market segment. FDA welcomed this recommendation (no.
14): it is important for the overall film value chain that VoD flourishes.
Furthermore, developments in media technology may open up future opportunities to
provide audiences with a greater range of “big screen” experiences in a variety of
“connected” venues in local communities. We shall watch any such market developments
with great interest.
3) Collateral editorial
The average consumption of films across all platforms is seven per person per month; films
are among the most highly desired content to drive take-up of super-fast broadband
services. In light of this, FDA believes that film-related programming is under-represented on
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Film Distributors Association – written evidence
UK media channels, certainly when compared to other leisure or lifestyle activities such as
cookery and antiques. The significantly improved infrastructure may provide opportunities
for the wider dissemination of film-related programming tailored to local audiences via the
community-focused TV/media services being actively supported by Government.
4) Evolving business patterns
While distributors are eagerly striving to experiment in, and embrace, an all-digital
landscape, the current transitional period has thrown up particular challenges for our sector.
Caught in the transition from 35mm to digital, unable fully to leave the one and embrace the
other, distributors have effectively had to finance and operate both formats and models
simultaneously.
Accordingly, at a time of such uncertainty, the question raised by the Committee concerning
online copyright infringement and theft assumes greater significance.
We have outlined below our response to this matter.
5) What impact will enhanced broadband provision have on the media and
creative industries in the UK, not least in light of the increased danger of online
piracy? What is the role of the Government in assuring internet security, and
how should intellectual property (IP) best be protected, taking into account the
benefits of openness and security?
FDA supports the statement in the Hargreaves Review of Intellectual Property and Growth
(2011) that: “Government should pursue an integrated approach based on enforcement, education
and, crucially, measures to strengthen and grow legitimate markets in copyright and other IP
protected fields.”
A robust Government stand against IP theft is vital, as the confidence that investments will
be protected is itself a key driver of the creative industries and the 1.5 million UK jobs they
sustain. Promoting a clearly understood and consistently applied respect for intellectual, as
well as physical, property in our society remains an urgent priority for industry and
Government alike. The rule of law must apply, and be seen to apply, in the online realm as
well as the physical one.
Film distribution requires substantial investments in terms of both product acquisition and
bringing completed titles to market. In 2011, FDA members invested more than £330 million
in film prints and advertising alone. Ultimately, threats to a return on that investment will
result in fewer films being made and released and, in turn, to a decline in revenues.
Super-fast broadband – facilitating, as it does, access to large-size files – could paradoxically
limit the sector’s growth if action against online copyright infringement fails to become
effective.
FDA runs a multi-strand programme to safeguard content in the UK theatrical lifecycle,
including consumer education campaigns (from age 8 upwards), a long-standing partnership
with the Federation Against Copyright Theft (FACT), and a substantial investment in night
vision technology to support cinema operators.
303
Film Distributors Association – written evidence
In the online realm, we urge the Government to implement the infringer notification process
contained in the Digital Economy Act 2010 (DEA). We look forward to the introduction of
an effective, proportionate system based on the identification of infringers on peer-to-peer
(P2P) file-sharing networks.
This will be an important means of ensuring that individuals who infringe are aware of the
consequences of their actions, and also of the ever increasing array of legal options available
to them online.
P2P infringement is, however, just one way in which individuals may consume content
illegally online. The streaming and downloading of files from websites is the fastest growing
form of online piracy, and is likely to continue as super-fast broadband rolls out further. But,
by definition, it cannot be addressed through the DEA notification process, which only
targets P2P networks. Instead, access to infringing sites that offer content illegally, or other
linking sites, needs to be blocked by internet service providers (ISPs) following due legal
process. In this way, it is the infringing websites themselves that are targeted, not individual
end-users.
6) Specific actions for the Government to consider include:
ƒ
The appointment of a dedicated Minister for Intellectual Property at Minister-of-State
level in BIS or DCMS with cross-government responsibilities. It is not helpful to have
the key (to us) policy areas of “Media” and “Copyright” located in different
Government departments.
ƒ
Establish a dedicated IP economic research unit, to measure the contribution of IP to
economic growth and to commission, prepare or supervise full economic impact
assessments prior to implementing any significant changes to the IP framework.
ƒ
A requirement on internet search engines to play a greater role in helping consumers
navigate to legal sites and to remove illegal ones from search results. Searches should
not return sites dedicated to copyright infringement.
ƒ
A requirement on companies to stop advertising on illegal websites which deliver
money into the hands of organised criminal networks whilst driving down advertising
revenues for legitimate sites. Similarly, a requirement on payment processors to
withdraw their services from pirate websites.
ƒ
Focus UK law enforcement agencies on the impact that the reduction of IP crime will
have on domestic wealth and employment opportunities, and introduce a deterrent
element to civil damages for serious IP infringement.
The UK marketplace is a liberal one – by way of example, there are already millions
of digital video recorders, and no one has ever been prosecuted for private formatshifting. But the UK – where films are often released in desirable English-language
formats simultaneously with, or prior to, the US – is particularly vulnerable to
copyright theft and the serious organised crime networks that exploit IP loopholes to
generate millions in cash.
ƒ
Ensure that UK citizens have a more confident and beneficial online experience by
carefully monitoring, once implemented, the DEA’s effectiveness. The impact of
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Film Distributors Association – written evidence
enforcement measures introduced by the DEA should be analysed and compared
with evidence from other countries to provide the insight needed to adjust
enforcement mechanisms as market conditions continue to evolve.
Thank you for the opportunity to respond to the Committee’s call for evidence on this
important topic. We would be happy to address any further questions as required.
13 March 2012
305
Forum of Private Business – written evidence
Forum of Private Business – written evidence
The Forum of Private Business is a not-for-profit organisation which supports small and
micro-businesses throughout the UK. We provide our members with a range of services,
including representation of their views to decision-makers in Westminster and the devolved
regions.
We are entirely supportive of the Government’s commitment to roll out superfast
broadband to 90% of the country by 2015 and to provide universal access to standard
broadband. However, we urge the Government to ensure that small businesses, especially
those in rural areas do not get left behind as technological developments advance.
Our Referendum research at the end of 2010 found that the biggest concern over the
adequacy of technological infrastructure for small business owners was internet speed, with
one in four reporting that current internet speed was inadequate for their needs. This feeling
was twice as frequent among rural businesses as those in urban areas, with 33% of rural
businesses reporting that internet speed was inadequate compared to 18% of urban
businesses. Moreover, 65% of business owners expect to increase investment in
technological infrastructure over the next few years and according to the preliminary results
of our most recent Referendum survey, 80% of business owners cited broadband and
telecommunications as an ‘important’ or ‘very important’ element of their business’s
infrastructure.
Increasingly the Government is adopting a ‘digital by default’ agenda and nowhere is this
more apparent than within HMRC, with Real Time Information and mandatory online VAT
filing in the pipeline. Whilst making the lives of the great majority of businesses easier
through online services is a cause for celebration, at the same time we must ensure those
businesses without access to the internet, or with very poor service, have the necessary
‘offline’ support they need whilst we await the full roll-out of superfast broadband.
Thus the Forum feels it is imperative that the needs of small businesses, and especially those
in rural areas, are taken into account in the roll-out of superfast broadband if this
technological advancement is to have the full economic impact that the Government desires.
I look forward to seeing the results of this inquiry.
13 March 2012
306
FTTH Council Europe – written evidence
FTTH Council Europe – written evidence
Introduction
1. The FTTH Council Europe (hereinafter the FTTH Council) welcomes the
opportunity to participate in this enquiry from the House of Lords Select
Committee.
2. The FTTH Council is an industry organisation with a mission to accelerate the
availability of fibre-based, ultra-high-speed access networks to consumers and
businesses. The Council promotes this technology because it will deliver a flow of
new services that enhances the quality of life, contributes to a better environment
and increased competitiveness. The FTTH Council consists of more than 150
member companies. Its members include leading telecommunications companies and
many world leaders in the telecommunications industry (additional information is
available at www.ftthcouncil.eu). Telecoms operators are not members of the FTTH
Council and we have our own perspectives regarding the appropriate regulatory
policies to accelerate NGA deployments.
3. The FTTH Council believes that the future needs of broadband users can only be
met by bringing fibre directly to the subscriber. Thus, Fibre to the Home (FTTH) is
perceived by the FTTH Council as the clear end game. While other solutions
including fibre hybrids and wireless solutions will play an important role as
complements, they will in no way act as demand substitutes. The need for a FTTH
solution relates to the realistic future needs of end users in terms of capacity and is
entirely consistent with the need for technological neutrality.It is important not to
set a false version of technological neutrality which understates future capacity
requirements so as to include as many platforms as possible.
4. The FTTH Council believe that the widespread deployment of FTTH will facilitate
enormous benefits for the economic and social development of Europe. Many of the
potential uses of FTTH, such as home working and the extensive use of cloud based
applications will have significant impacts with them which can be classified as positive
externalities. In the case of home-working, this could be relief of traffic congestion
allowing other commuters to save time as well as positive environmental impacts. In
the case of cloud applications, lowering the costs of developing and delivering
innovative services, including public services, can be anticipated in addition to the
direct benefits. In these circumstances, the benefits accruing to society often go far
beyond the direct economic benefits identified by investors. These spill-over benefits
which are not recognised by private actors justify State intervention.
5. If the UK wishes to develop services for delivery in the presence of FTTH networks
but such services cannot be used or delivered because of network capacity
constraints, this will act as a major barrier to the market developing.
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FTTH Council Europe – written evidence
Setting appropriate targets
6. What exactly constitutes ‘superfast broadband’ remains largely undefined. The EU
sets targets of 100mbits for 50% of subscribers and 30mbits for 100% of subscribers
in its EU2020 Strategy Proposal 78 . In the UK the definition is even looser but appears
to refer to a 50mbits download speed79 . While a specific speed is not so important
to the FTTH Council, certain aspects are and a particular concern for the FTTH
Council is the absence of upload speeds in most targets being set. The presence of
networks which can support viable two way speeds is a key enabler of cloud services
for example. Even basic cloud services such as data storage are constrained by the
current networks available and they have been identified as a constraint already 80 .
Amazon has a basic offer to their users which gives data storage which can be used
for network back-up. However, with an average connection a 5GB back-up will take
over 5 hours compared to less than 7 minutes on a 100Mbps fibre connection. The
viability of such a basic service will depend on such differences. The UK is currently
ranked 56th in terms of upload speeds81 .
7. However, the Council believe that insufficient consideration is being given to upload
speeds. When Japan set its network goals in 2004 it set a 30mbits upload universal
target. Any network supporting 30mbits upload will inevitably support a far greater
download speed.
8. Upload speeds will be even more important in the context of real time high capacity
data applications that reside in the cloud. This perspective is supported by an
established body of work 82 which has shown over time that much of the benefits of
ICT investments come not from the investments themselves, but from firms and
industries ability to reorganise their means of production around these new
technologies. The implications for economic systems are that the manner in which
services are delivered in many areas may need to be completely rethought. This may
be particularly important in relation to the deliver and production of public services
such as education and health.
9. Other research shows that the economic and societal benefits of very high speed
internet access (particularly high upload speeds) 83 , and that the availability of such
connectivity, changes the way consumers react to the internet. One of the biggest
functional differences between FTTH and DSL options is speed but in particular,
upload speeds. The many business cases put forward by different analysts looking at
future cloud services rely on a variety of services which require radically different
upload speeds. Key Cloud services such as IaaS (Infrastructure as a Service), SaaS
78
79
80
81
82
83
http://ec.europa.eu/europe2020/index_en.htm
http://www.culture.gov.uk/images/publications/10-1320-britains-superfast-broadband-future.pdf
http://www.bsa.org/country/News%20and%20Events/News%20Archives/BE/2012/BE-01262012-cloud.aspx
http://www.netindex.com/upload/2,4/United-Kingdom/
‘FOR A GROWING EUROPE Making the EU Economic System Deliver’ Report of an Independent High-Level
Study Group established on the initiative of the President of the European Commission, André Sapir et al. July
2003.
‘Catching Up or Getting Stuck? Europe’s Troubles to Exploit ICT’s Productivity Potential’, Bart van Ark and
Robert Inklaar, July 2005
See for example, http://www.ftthcouncil.eu/documents/Reports/Socio-Economics_Study_2009.pdf
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FTTH Council Europe – written evidence
(Software as a Service) and so on require upload speeds if their potential is to be
realised. The indirect benefits in terms of service development and the efficient
allocation of resources at a time of rising demand is clear but is unlikely to factor in
private investor considerations.
10. That is why the FTTH Council believes that it is appropriate for the State sector to
recognise the positive externalities that arise from very high speed networks. The
UK government’s allocation of £530million to enhance the UK’s networks outside
competitive areas is therefore wholly justified.
11. It can be argued that rural communities will benefit the most from the best network
performance, as demonstrated by numerous case studies taken from the experience
in Scandinavian countries. These are also the areas where customer demand is
highest, many communities are requesting a FTTH network and the communities are
willing to support the installation, reducing the build costs. We suggest for these
areas it is inappropriate to set short term solutions and a 2Mbps minimum
performance target.
The need to invest in future proof networks
12. While the future needs of society cannot really be fully anticipated, a network which
has theoretically almost infinite capacity is preferable to networks which are already
constrained. Analysys Mason, a UK consultancy conducting a review of public
expenditures in Europe found that the largest single project, a fibre to the cabinet
project in South Yorkshire, had been overtaken by the market. While many issues
arise in the project the fact that the local authority had chosen an interim technology
such as FTTC points to the danger of thinking short term. There is therefore a
concern that certain investments which may have a cost advantage in the short term
may actually prove significantly more expensive when they need to be further
developed and upgraded in subsequent years and become wary of such investments.
13. The Council believes that there dangers of investing public funds in time-limited
infrastructures which are unlikely to be adequate to meet end user needs in the
medium term. Short terms solutions such as FTTC are unlikely to be adequate and
will most likely delay the ultimate migration for these users to FTTH since second
and third rounds of public finance are not likely. Rushing to a quick and cheap short
term solution which would delay or impede the momentum to a FTTH solution
should be resisted in our view, both because such investments are potentially
wasteful of public funds and are damaging to the market dynamic which is likely to
see digital divide issues exacerbated rather than ameliorated. The FTTH Council
notes that certain countries such as France are adopting criteria themselves that
requires a path to FTTH if public sector finance is to be invested (see for
instancehttp://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000024473
100&dateTexte=&categorieLien=id) such that a clear path to FTTH is required
where public funds are used. Such criteria should be encouraged and standardised at
EU level in the Council’s opinion. The FTTH Council believe that a similar
requirement would be appropriate in the UK.
309
FTTH Council Europe – written evidence
The need for a holistic view
14. The FTTH Council notes across the countries of its members that many public
financing initiatives are seeking to use public finance as a catalyst for private sector
investment in more marginal areas. Portugal represents a good example of such a
project where the regulator has divided the country into two regions, competitive
and non-competitive. Currently, in the competitive region operators have regulated
access to civil engineering (passive) infrastructure and the main operators are obliged
to deploy their own networks (and some alternative operators are co-investing). In
the non-competitive areas, where there is currently no other basic broadband
infrastructure besides the network of the incumbent operator, a single FTTH
infrastructure which is independently owned and operated and open to all operators
is being built with State support. The aim therefore is to have ubiquitous FTTH
access and already 55% of homes have FTTH available compared to less than 3% in
the UK. A coherent objective and a path to achieve that objective is critical for
success in long term infrastructural projects such as FTTH deployments.
15. On the demand side, the public sector needs to completely rethink the organisation
of public service delivery organised around new technologies and delivery platforms.
This should be included in a much broader plan (national plans) which needs joined
up thinking across a large number of service areas. Use of the Cloud to enable such
service delivery is critical to achieving key development targets in a range of areas. As
noted already, exploiting the Cloud requires adequate networks to be in place in
order to have sufficient capacity so that its potential can be reached.
16. When considering the case for FTTH networks other industrial policy motivations
should also be considered.
17. If the UK’s competitors in other parts of the world have fibre and the UK does not,
where are Cloud solutions, applications and job opportunities likely to be developed?
Experience to date suggests that applications will be developed where the network
capable of supporting service delivery is available. Once developed, those firms and
research centres that lead the way are likely to maintain their lead if developments in
other areas of ICT are to be our guide.
18. This is why the FTTH Council believes that new developments such as Cloud
computing represents part of a much broader paradigm shift in this sector but also in
the broader economy. The FTTH Council believes that any such paradigm needs to
clearly incorporate the functionality of FTTH and recognise the indirect benefits that
such networks can enable in this sector. These very high speed networks can enable
a set of services which are capable of completely changing certain aspects of service
delivery in a range of areas from healthcare delivery to SaaS.
19. There are many other enablers that are required to support this shift whichconcern
factors such as data protection and the legislative framework governing such service
delivery. The FTTH Council endorses these measures and believes that increasing
interoperability, cross border legal regimes and legal certainty for users, and R&D are
all clear enablers of a future Cloud environment. Nevertheless, without the
underlying infrastructures in place, these measures will have limited impact in
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FTTH Council Europe – written evidence
practice and that is why the FTTH Council believes it is critical that all parts of the
State coordinate to highlight the overall benefit that FTTH networks can bring in a
range of areas.
20. The UK is well behind in the deployment and adoption of FTTH deployment and
take up. By comparison with G7 countries (refer to graph of subscribers based on
Dec 2012 figures) the UK ranked last in terms of availability of FTTH networks 84 and
the future forecasts of firms like Heavy Reading suggest that the UK will remain last
beyond 2020 85 .
Economies with the Highest Penetration of Fibre-to-the-Home/Building + LAN
Conclusions
21. The FTTH Council Europe believes that where possible competitive markets are best
enabled to deliver the required networks and services to the mass market. However,
there should be National targets for performance and these should be no less than
the standards set out in the Digital Agenda by the Commission. However these
targets should support existing and future services and be as future proof as possible
84
85
OECD (2011), "Fibre Access: Network Developments in the OECD Area", OECD Digital Economy Papers, No.
182, OECD Publishing.
http://www.heavyreading.com/
311
FTTH Council Europe – written evidence
and therefore include uploading capabilities necessary to deliver existing Cloud
performance levels and beyond. These targets must be a pre-condition for networks
benefitting from public finance. The present ill-defined target of “superfast
broadband” is at best misleading.
22. The FTTH Council believe that several incremental investment cycles in broadband
networks will be prohibitively expensive and would urge appropriate network targets
to be set from the outset. The consequence of not doing so will be a deepening and
a prolonging of the digital divide in the UK
23. The FTTH Council sees very significant positive externalities flowing from these
networks and these spill-over benefits to society justify public investment to see
these networks built.
24. These investments should form part of a holistic national plan which envisions
ubiquitous availability of connectivity across the UK as well as a private and public
sector reorientation on the production and delivery of services to end users.
25. The FTTH Council Europe would welcome any opportunity to provide further
supporting technical information.
13 March 2012
312
FTTH Council Europe and Communications Chambers – oral evidence (QQ 136-249)
FTTH Council Europe and Communications Chambers – oral
evidence (QQ 136-249)
Transcript to be found under Communications Chambers
313
Fujitsu – written evidence
Fujitsu – written evidence
1.
RESPONSE TO THE REQUEST BY THE HOUSE OF LORDS SELECT
COMMITTEE ON COMMUNICATION
1.1
WILL SUPERFAST BROADBAND MEET THE NEEDS OF OUR
“BANDWIDTH HUNGRY” NATION?
Current broadband policy
a. Fujitsu is supporting and actively engaged in the current Government initiatives to
rollout superfast broadband to what is commonly known as “the final third” of UK
properties. Looking beyond the timescales of these initiatives, we can see that
further activities will be necessary to satisfy the demands for “beyond superfast
broadband” in all areas of the UK. With appropriate further investment, increased
broadband speeds could be delivered that, although much more challenging than that
of the broadband currently being offered in urban areas, should satisfy customer
demands for at least the next 20 years.
b. In addition, the current proposals do not address the final 5% of the population, who
live in geographically remote areas. This will mean that the problem in many rural
areas is not really being tackled. The use of fibre could address this shortcoming.
Technological questions
c. The use of interim network rollout technologies, such as those based on the existing
copper infrastructure, is currently insufficient to satisfy the bandwidths identified by
the Lords and is inefficient and not environmentally sustainable. To ensure that
investment is not wasted on a short-term gain, with costly network upgrades to
meet future bandwidth targets, there should be incentives to rollout other access
solutions such as fibre to the premises, and a well-known and trusted standard for
high speed wireless communication, such as LTE 86 .
d. The feasibility of ‘beyond superfast broadband’ is reliant on certain products being
made available by the incumbent provider (BT). A key example of this are wholesale
dark fibre products, the availability of which would open investment opportunities
for competitive telecommunications providers to deploy more advanced
technologies to more of the UK.
e. A number of solutions for superfast broadband involve enhancements to the existing
copper access network. Whilst meeting immediate demands, these solutions do not
have the capability to support upgrades to enhanced faster networks that will be
demanded in the medium term.
86
3GPP Long Term Evolution, usually referred to as LTE, is a standard for wireless communication of high-speed
data for mobile phones and data terminals.
314
Fujitsu – written evidence
Issues with infrastructure
f. The access solution for superfast broadband should not be limited to one
infrastructure to provide the service. There should be no regulatory barriers or
protection of existing access network providers that prevent services being
introduced over all the existing infrastructures.
g. Shared infrastructures should be encouraged in order to reduce incremental cost.
h. Regulation should only be applied to the layer of the network where actually
necessary. The “lower” network levels, such as access infrastructure, need not be
regulated in the same way as other areas concerning specific applications such as
security, etc,.
Summary
i. Fujitsu believes that further investment in broadband infrastructure can and should
be guided to provide a future–proof solution that will be able to evolve, grow and be
re-used as demand increases, rather than see investment in ‘short-term’ technology
enhancements that will require further upgrades yet to be developed.
13 March 2012
315
Geo Networks Limited – written evidence
Geo Networks Limited – written evidence
The Coalition Government began in 2010 with the ambition of having the best superfast
broadband network in Europe by 2015. In June 2010, Jeremy Hunt announced several pilot
or “market testing” projects that would enable government to determine how any financial
intervention should be targeted. BDUK was given the job of managing the pilot projects.
Nearly two years later contracts for these projects have yet to be awarded and the concept
of “pilot” areas has had to be abandoned. The 2015 target date is at risk.
Government’s decision in 2010 to reject a top-down nationwide procurement was seen as a
positive step in encouraging new investment models and competition in networks. The
Government promised it would look at encouraging infrastructure sharing; exploring the reuse of public sector networks (such as those of local authorities and the national education
network); public sector investment and joint ventures; reforming the process for granting
wayleaves; and obtaining clarity from the EU on State Aid rules. So far, none of these ideas
has come to fruition and most have been discarded.
Back in 2010, Geo made clear to Government the conditions we considered necessary in
order to attract investment.
1. Infrastructure Sharing and Open Access Networks
A condition of the procurement should be the requirement to offer “open access” to the
resulting fibre network. This means offering duct access and dark fibre – technology neutral
“passive” elements, rather than managed or “active” services. This creates maximum
competition in the market and lowers barriers to entry by allowing operators to come in
and compete at the most cost effective level of the network. An open access network
(offering access to fibre, duct and co-location) is also a requirement under the European
Commission State Aid Guidelines for networks built using public funds.
If service providers are given open access to the passive elements of the network, they will
have the freedom to deploy their own active products with choice and flexibility over
broadband speeds, usage caps and pricing. It allows service providers further to differentiate
their service offering and compete on a level playing field with large vertically integrated
players such as BT. It is the model adopted by the Fibrespeed network in Wales, which is a
joint venture between Geo and the Welsh Assembly Government. If access to the network
is restricted to the active layer only, service providers are limited to reselling the
incumbent’s prescribed active products, leaving little room for product differentiation or
competitive pricing.
Where incumbent infrastructure exists, the incumbent should contribute its infrastructure
(i.e. provide a reference offer for duct and fibre access) before it participates in any
procurement in order to make the process fair and competitive to all bidders. Without
access to the incumbent’s infrastructure, any other bidder would automatically face higher
deployment costs which would, in all likelihood, render a project unviable.
BT now offers a Physical Infrastructure Access (“PIA”) product, through which competitors
can access its ducts and poles. However, it is so restricted in its use it puts competitors at a
huge disadvantage when bidding against BT. As a result of Ofcom regulation, PIA cannot
316
Geo Networks Limited – written evidence
currently be used to provide fibre connections to businesses, backhaul from the local loop,
or to connect to wireless masts. Ofcom has the opportunity to remove these restrictions
this year by requiring BT to offer PIA as a product in the so-called Business Connectivity
market, but they are likely to bow to pressure from BT not to do so.
There are no processes in place by which this product can be ordered to scale or in
volumes and it currently comes with no service level agreements or guarantees. What is
more, the terms, conditions and prices for BT’s PIA product were only published in
November 2011, which came too late for submissions to many of the BDUK procurements.
Many of the contract terms remain extremely onerous and are not applicable to BT when it
wishes to use existing poles and ducts for fibre cables.
2. Investment Models
We advocated the use of public private partnership investment. PPPs provide efficiency in
public services through risk sharing and harnessing private sector expertise. They also
relieve the immediate pressure on public finances by providing an additional source of
capital. There are numerous benefits from using a PPP model including, value for money by
exploiting private sector efficiency and innovation, improved risk sharing and sustainability,
innovation and development efforts from a competitive tender process and the private
party’s delivery undertaking. In addition to a PPP model, authorities can maximise savings by
aggregating public sector demand and a commitment to use the procured network.
We cautioned against a gap funding model, because it favours the incumbent’s economies of
scale and thus does not encourage a wide range of bidders. However, BDUK disregarded
our views and has decided to encourage a gap funding model.
3. Public sector revenues
The incumbent operator is much more likely than a new entrant to have significant
commercial relationships in place with local authorities to provide them with services.
Therefore, without a guarantee of public sector revenues in the form of a public sector
anchor tenant, or an undertaking to underwrite the customer take-up risk, the financial risk
of a new entrant is much greater than that of the incumbent.
Taking all of the above into account, the incumbent can utilise revenue from business leased
lines, public sector customers, mobile and wireless operators, as well as residential
broadband customers in order to make the network profitable. The new entrant, on the
other hand, may only be able to rely on revenues from residential broadband customers.
4. Reform of the Electronic Communications Code
We also advocated reform of the Electronic Communications Code to simplify and speed up
the process by which network operators obtain wayleaves and other rights of way necessary
to install their apparatus on public and private land. We very much welcome the review of
the Code undertaken by the Law Commission, though we note that any consequent change
to legislation is unlikely to come into force before 2015.
5. Addressing the disproportionate disincentive of the business rates system
We requested that Government and the Valuation Office Agency examine the disincentive
effect of the current business rating system. We have supported the Broadband
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Geo Networks Limited – written evidence
Stakeholders Group and Valuation Office Agency in their development of the Rating manual
to better reflect the real obstacles to creating valuable networks in rural areas and welcome
the positive progress in this area. This was considered only a year ago to be one of the most
difficult areas for Government to tackle – in fact it is the only one where real progress has
been achieved.
BDUK’s Procurement Framework
In early 2011 Geo joined BDUK’s framework procurement process. During that process we
re-iterated our concerns to BDUK on several occasions. We invested considerable sums of
money in preparing our bids for various BDUK procurement areas. However, in the
Autumn of last year, as it became evident that our concerns would not be addressed, and
the odds were stacked so heavily in favour of BT, we felt we had no choice but to withdraw
from the Framework.
We expect that all or the majority of the government-subsidised procurements will be
awarded to BT. BT’s VDSL-based technology is very unlikely to be future proof and is
unlikely to satisfy the needs of the SMEs who so badly need affordable capacity with high
speeds for uploads as well as downloads. As Jeremy Hunt has said, “Today’s superfast
broadband is tomorrow’s super-slow broadband.”
For residential users, the “killer app” is in fact the family itself – multiple users streaming TV
and video and uploading high bandwidth content simultaneously. Current speeds are not
adequate. Moreover, it is not clear at this stage whether or how adequately the rural notspots will be served. There will be no competition in the provision of fibre networks, with
service providers forced instead to resell BT’s services. This is a backwards step from the
level of competition which exists today.
If BT is to have a monopoly in the provision of fibre networks, then it should not be
permitted to remain vertically integrated but should instead be required to separate its
network business fully and structurally in order that other service providers can compete on
a level playing field with BT’s retail divisions. Today’s functional separation of the Openreach
business no longer works to provide effective competition and useful innovation.
It is regrettable that responsibility for telecoms infrastructure was moved from BIS to
DCMS, which is perhaps less tuned in to the needs of the wider UK economy. There has
not been enough ministerial focus on implementation of broadband policy and carrying out
the recommendations of the 2009 Digital Britain report. We believe that the roll-out of
fibre networks is an infrastructure project of huge economic importance and should be given
the focussed attention that that warrants.
Since the current policy environment is not conducive to further investment in Next
Generation Access, we have decided to limit our focus to the Fibrespeed project in Wales
and to our other main business, which is the provision of dedicated fibre to large enterprise
customers and data centres. Whilst Geo remains extremely interested in the development
of NGA networks and will continue to invest in connectivity for core and backhaul networks
for its service provider and enterprise customers, it will not be bidding for broadband
projects subsidised by the public sector until the same market and regulatory conditions
identified by us over two years ago are finally addressed.
March 2012
318
Dr Tehmina Goskar – written evidence
Dr Tehmina Goskar – written evidence
Cultural heritage and superfast broadband
1. I provide these suggestions as food for thought when the committee considers the
question:
•
To what extent will the advent of superfast broadband affect the ways in which
people view, listen to and use media content?
2. The suggestions are written from my perspective as a professional with over 12 years
cross-sectoral experience in the cultural heritage industry with particular interest in internet
and mobile technologies serving small organisations. I am now an independent heritage
consultant based in Cornwall.
3. Over the last decade millions of items in British museum, archive and library collections
have been digitised to improve access by greater numbers, and a wider variety of audiences
(c/f New Opportunities Fund Lottery-funded projects). Web presence of cultural heritage
institutions has improved immeasurably and at the same time so has ‘born-digital’ data.
4. Concerns over copyright, Intellectual Property and limited bandwidth have combined to
prevent the full potential of these invaluable resources being realised. In many instances,
once created, data languishes on servers, unknown and inaccessible by many who may have
the entrepreneurial spark and creativity to work with holding institutions to do something
socially worthwhile and/or financially profitable with them. Copyright legislation is woefully
inadequate and out of date, and is hampering progress towards more open access and uses.
5. The cultural heritage sector as a whole has not been able to adequately gain an overview
of the use of digitised resources in Britain owing to a proliferation of organisations and
regionally-based bodies that lack an over-arching vision and usable set of guidelines; there is
quite large fragmentation between the home countries. Therefore constructive thought and
debate about how radically-improved bandwidth for both users and institutions have also
been lacking. This has led to Parliament’s work on digital content and media focusing almost
exclusively on what the film, TV and high-impact media organisations can provide.
6. The growing academic field of Digital Humanities is beginning to assess use, reuse and
impact of digital heritage resources but these studies tend to be an end in themselves, rather
than as a fillip for the future development of digital heritage in Britain. However, it is early
days for this discipline and its reciprocal relationship with content creators.
7. At a time when economic constraints are causing many non-national, small, independent
and volunteer-led museums to close or severely curtail their services, broadband
connectivity has to be a crucial lifeline for their future survival, resilience and sustainability.
8. Take, for example, the situation here in Cornwall, a largely rural region with nonetheless
over 70 museums and heritage sites. Most are considered to be small, independent or
volunteer-led operations and yet provide a major draw for millions of domestic and
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Dr Tehmina Goskar – written evidence
international tourists every year. This tourism brings billions of pounds into the wider UK
economy and yet they are seldom the beneficiaries of investment.
9. Many of these organisations are also vital nodes for local, often isolated communities,
particularly for educational uses by schools, further education, training and lifelong learning.
And if they do not perform this function, there is certainly massive potential for them to do
so if they had access to the best wired and mobile 3G and 4G broadband could offer.
10. With the Superfast Cornwall roll-out underway, some of the connectivity issues will be
addressed, but it will be far from perfect as bandwidth will only be as good as the quality of
the copper wire emanating from the fibre-enabled exchanges. Many households and sites are
miles away from their local exchange meaning that adoption of 4G wireless networks will
surely be essential for these and similar areas.
11. Lack of skills and training in small, independent and volunteer-led organisations is
preventing a wealth of information and data being accessed and used in a manner that is
fitting to providing culture and heritage to diverse audiences in the 21st century—particularly
via the fastest growing platforms via smart and mobile phones.
12. If all of these elements can be brought more closely together, it would improve the
resilience of these organisations by diversifying their role in their local communities, e.g. as
micro-educational organisations serving their local populations, as heritage sites that provide
experiences to domestic and international visitors that are unique and memorable, and
perhaps even become a hub for digital services provided to remote and isolated
communities.
March 2012
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GreySky Consulting – written evidence
GreySky Consulting – written evidence
1.
1.1
Submission
This submission is provided by GreySky Consulting Ltd (GreySky.
1.2
GreySky is a specialist consulting company currently focussing on the delivery
of broadband and superfast broadband in rural areas.
1.3
Our concern is specifically focused on the question of whether the
Government’s superfast broadband strategy, and its delivery by BDUK will
meet the requirements for superfast broadband in the UK’s rural areas.
2. Digital Divide
2.1
Approximately 86% of the UK population can currently receive broadband
connectivity at 2 Mbps or faster (Ofcom; Communications Infrastructure
Report, 2011). The failure to achieve full broadband availability throughout
the UK has resulted in a significant digital divide. The digital divide has
resulted in significant social and economic disadvantage, mostly in rural areas.
2.2
Currently the digital divide exists between those who have broadband and
those who do not. However, the development of superfast broadband risks
continuing the digital divide for many years. The approach to the rollout of
superfast broadband will result 90% having access to superfast and the
majority of the remaining 10% having only 2 Mbps basic internet access.
2.3
It is possible to use the internet with less than 2 Mbps. However, software is
now maintained and updated automatically over the internet. Users with less
than 2 Mbps bandwidth find it difficult to effectively maintain their PCs and
the software services they use. It is expected that the bandwidth
requirements for this maintenance function will increase over time as
software becomes more sophisticated, and the number and range of devices
within a home or business being maintained in this way increases.
2.4
The Government’s strategy to ensure 90% availability of superfast broadband
by 2015 is appropriate. It increases the rapid availability of superfast
broadband. This will in turn benefit the availability of services and applications
dependent on superfast broadband. This is expected to have a significant
positive impact on social and economic development.
2.5
The strategy to ensure at least 2 Mbps to the remaining 10% is of significant
concern. We believe it will result in a continuation of the existing digital
divide.
2.6
Overcoming the digital divide requires the sustainable delivery of new
infrastructure, giving communities access to improved bandwidth and services.
3. Sustainable Delivery
3.1
The aim of the current broadband delivery activity is to provide a long-term,
commercially sustainable superfast broadband infrastructure, supporting a
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range of new and developing advances services to support economic and
social development.
3.2
The “first generation” broadband rollout demonstrated that commercial
sustainability is not straightforward. At that time, simple internet connectivity
was not sufficient to ensure the long-term viability of broadband
infrastructures. Access to popular Internet Service Providers (ISPs) was
necessary to provide users with the required combination of content,
services and customer care. These ISPs also provide the necessary marketing
activity to promote take-up of the broadband services.
3.3
This need for ISPs is recognised by the European Commission and by BDUK.
The need for services to be delivered over an “Open Access Wholesale
Network” is a central requirement of State aid rules. The exact details of this
requirement are less clear, however.
3.4
The need for “Open Access” is important in two respects.
3.5
First, there is a need for retail choice to promote retail competition. Strong
retail competition in the UK broadband market has been highly beneficial to
the market. BT’s dominant Open Access wholesale infrastructure has
allowed and supported strong retail competition, with most ISPs present on
the network.
3.6
Where community networks were developed as a part of the early first
generation rollout, they often enjoyed some early popularity. However, they
did not provide a choice of ISPs. When BT then delivered its network, there
resulted a widespread move to “proper broadband” where users enjoyed a
choice of ISP, and professional customer services, very often a significantly
lower cost.
3.7
Some small scale community broadband services still remain in the most
remote rural areas. Fontburn in Northumberland is one such service. They
have a desire to establish an improved infrastructure and service. Their
desire is led principally by the desire for greater choice of ISP (Fontburn
Community Network user survey 2010).
3.8
Second, there is a need for market access. Demand for superfast broadband
services will grow as services and content becomes available and is desired by
users. This will establish a strong market for the services. The first
generation rollout suggests that this market will be served principally by a
small number of dominant ISPs. The dominant ISPs will compete for market
share. This means they will want access to the market.
3.9
As the market develops, the extent of commercial viability will increase. If
widespread commercial networks have been established that deny access to
the dominant ISPs then they will build their own networks to access the most
commercially viable customers in communities. They will offer a combination
of content, services and price that will attract users to their networks. The
result will be that community networks will lose their most commercially
viable customers to competing networks, and be left to serve only the most
expensive and least profitable customers. The community networks will fail
to remain commercially viable and will be forced to cease operation.
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3.10
The requirement for an Open Access Wholesale Network efficiently meets
these requirements for retail choice (for users) and market access (for ISPs).
3.11
However, an Open Access Wholesale Network is expensive and complex.
The Digital Region in South Yorkshire has demonstrated that technical
capability and significant investment alone do not provide the two
requirements. Despite significant public investment in the infrastructure, ISPs
and end users have failed to be attracted to the network.
3.12
“The Market” will provide retail competition in the “first two-thirds” of the
market using their own investment. The BDUK and local authority funded
projects will deliver services up to 90%. These are not genuinely hard-toreach areas. Requiring an Open Access Wholesale Infrastructure to support
retail competition among ISPs in these projects appears fully appropriate.
3.13
However, the final 10% presents a much more challenging environment for
commercially sustainable services. Insisting on the requirement of a full Open
Access Wholesale Network in the final 10% risks leaving them with no
superfast infrastructure. It is necessary to reduce the barrier to delivery in
the final 10%.
3.14
It appears that reducing the barriers to provision of service for the last 10%
may require separating the considerations of bandwidth from the issues of
services and content.
4. Bandwidth Availability
4.1
Although the strategy is to provide “at least 2 Mbps” to the last 10%, the
approach taken to the rollout of the BDUK funded broadband programmes
appears likely to result in only 2 Mbps, and will establish a higher barrier to
the provision of improved services once the 2 Mbps services are delivered.
4.2
Current interpretation of State aid requirements separates basic broadband
services from superfast broadband services. This was established to allow
public sector intervention to establish superfast broadband services in areas
where good basic broadband services were already available. In areas where
broadband is available at 8 Mbps, it is still possible to invest to promote the
availability of superfast broadband at 24 Mbps or faster.
4.3
However, the interpretation appears also to be considered to operate in
reverse. Where reliable open access broadband is available at 2 Mbps then
public sector investment in infrastructure is only permitted where the
resulting infrastructure will deliver at least 24 Mbps (and preferably 30 Mbps).
4.4
Currently available technologies to deliver 30 Mbps are prohibitively
expensive for sparsely populated rural areas. However, reducing the
bandwidth requirement to 15 Mbps would allow significantly greater
deployment. There is a significant practical difference between 2 Mbps and 15
Mbps broadband services – and arguably little practical difference at present
between 15 Mbps and 30 Mbps. 15 Mbps is more than sufficient for most
domestic and small business internet use. This will change over time, but it
can be expected that over the same time period, the capabilities of the
installed technologies will also improve.
4.5
Reducing the bandwidth requirement for the superfast broadband market in
the most hard-to-reach areas will help to reduce barriers to implementation.
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4.6
Small scale commercial providers, such as Rutland Telecom, have proved that
delivery of broadband and superfast broadband in rural areas can be
commercially viable if the requirements for open access are removed.
However, this currently excludes them from the scope of public subsidy –
which could increase the wider commercial viability of their services.
4.7
It is possible that the two conditions of retail choice and market access that
ensure sustainability could be achieved through alternative routes.
4.8
If the network infrastructure were to be specified such that it is technically
possible for other ISPs to use it to deliver their services if they chose to
access the geographic market covered, and that wholesale prices were
available that did not exclude them, then the market access condition could
be met. This would not be expected to meet the retail choice condition at
“day-one” since the attraction to major ISPs would be limited (as
demonstrated by Digital Region). However, if demand were to develop and
ISPs wanted to access the market, then the existing infrastructure would
provide them with an available option to creating their own competing
network.
5. Service Availability
5.1
Currently access to content and services on the internet is largely governed
by ISPs. However, it is increasingly accepted that ISPs have little control over
their customers and the content and services they access over the internet.
5.2
The Leveson Inquiry has demonstrated that it is no longer appropriate to
concentrate the power to control our access to content in the hands of a
small number of dominant providers. This concern must be still greater if
extended to health-care and other essential services anticipated using
superfast broadband.
5.3
Separating control of user access to the internet from control of their access
to content will significantly change the conditions of the superfast broadband
market.
5.4
If all internet users were able to access any content then the criteria for the
choice of ISP would change, and become less critical for many users.
5.5
If content were widely available to all users (at appropriate commercial rates)
then the retail choice of ISP for users could be satisfied more simply than
requiring an Open Access Wholesale Network where each user is able to
make an independent retail choice. It would mean in the last 10% that the
community could join together and make a single collective decision regarding
the ISP for their community network. A regular open procurement exercise
could be undertaken to invite ISPs to bid to provide services to their
community over their community network and the most preferred offer
selected by the community.
6. Efficient Investment
6.1
Delivering internet connectivity in the “last 10%” is significantly more
commercially challenging than in other areas. Remote rural areas present the
double challenge of higher initial investment costs because of the lengths of
connections needed, and the lower revenue returns because of the sparse
population densities.
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GreySky Consulting – written evidence
6.2
The challenge of the last 10% demands a greater level of investment efficiency.
Encouraging collaboration rather than competition is important. Equally
ensuring that public sector investment is efficient in these areas is essential.
6.3
It is being demonstrated in Northumberland, Cumbria, Cornwall and
Lancashire that delivery of the 2 Mbps Universal Service Commitment to the
most remote areas is challenging and expensive.
6.4
The presence of the Universal Service Commitment as a central target of the
BDUK programme is essential to ensure at least basic connectivity to all.
6.5
However, the current separation of the BDUK and the Rural Community
Broadband Fund (RCBF) and other subsequent investments appear to result
in a far from efficient investment in the critical last 10%.
6.6
The BDUK programmes will generally be delivered first – before the rollout
of other community projects. At least this is true in terms of planning and
State aid approval. This means that by the end of 2012 (or at the latest early
2013) it is expected that all local authorities will be able to demonstrate clear
plans to provide at least basic broadband to all areas. Procurement exercises
will be undertaken and investment decisions made to commit funds to deliver
these plans. Hence significant investments will be committed to achieve 2
Mbps delivery throughout the final 10%.
6.7
In the most remote areas, investments of £1,000 per property (and even
higher) will be required to deliver this 2 Mbps commitment.
6.8
RCBF funded projects developed subsequent to these plans will need to
demonstrate superfast capability (24 Mbps or faster) to meet State aid
requirements – since plans will exist to deliver basic broadband in all areas.
They will also receive a maximum of £300 investment per property.
6.9
This does not make the Universal Service Commitment wrong. Ensuring
connectivity for all is essential. It is accepted that this will require significant
investment in the most remote areas, and the 2 Mbps requirement allows
services to be delivered now that will represent a significant improvement for
the most remote areas across the UK.
6.10
Greater coordination of investment in the last 10%, however, may enable a
far greater reach of superfast broadband capabilities in remote and rural
areas.
March 2012
325
Peter Griffin - written evidence
Peter Griffin - written evidence
Introduction
1. The Government’s broadband strategy, Britain’s Superfast Broadband Future, aims for
Britain to have “the best superfast broadband network in Europe by 2015”. The
House of Lords Select Committee on Communications (HoL SCoC) has announced
an inquiry into that strategy. In response to the Committee’s invitation for written
evidence, this document addresses:
a.
b.
c.
d.
Competition in broadband provision
Accelerating the availability of superfast broadband
Flexibility, efficiency, and standards for broadband providers
Impact on infrastructure and scarce resources.
The document also includes a series of proposals to support the government’s aim.
Competition in Broadband Provision
2. Within each delivery platform - fixed-line, wireless, and satellite - broadband
providers compete both in the technology used to deliver service and in the range
and cost of services offered. It is doubtful whether competition in technology actually
delivers significant benefit to customers.
3. Duplication of fixed-line networks arises in locations where, for example, BT and
Virgin are in direct competition and each of them operates their own network
between the telephone exchange and customer premises. Similarly, providers of
wireless broadband have their own networks of relay masts, often carrying
exclusively the traffic for their own customers. There is considerable variation in the
extent of national coverage offered by each provider.
4. Alone among the providers of fixed-line services, BT is required by law to provide
national coverage and to offer access to its network to other providers on terms
equal to those available to its own retail divisions. This has been achieved by the
establishment of BT Openreach as a totally independent division within the parent
company. There are no similar obligations on providers of wireless services, resulting
in duplicated availability in some areas and none whatsoever in others.
5. Duplicated coverage for fixed-line and wireless services not only delivers little in the
way of benefit to end-users, but also creates waste:
a. Manpower to maintain rival networks
b. Technical evaluation of equipment which other providers wish to install at BT
exchanges
c. Applications for planning permission to install wireless masts
d. Greater numbers of “holes in the road”
e. Materials used to construct and maintain the networks.
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Peter Griffin - written evidence
6. In the provision of gas, water, and electricity, delivery is achieved via a single grid for
each service, accessed by multiple suppliers who pay a fee to the grid operator and
compete between themselves on the cost and quality of supply. Each of these grids
provides nominally national coverage, except in those areas of the country where the
cost of provision would be prohibitive.
Accelerating the Availability of Superfast Broadband
7. The principle measures for determining the achievement of “the best superfast
broadband network in Europe” will relate to:
a.
b.
c.
d.
Speed of download and upload
Extent of national availability
Service reliability
Price
Fixed-Line
8. The fastest broadband delivery speeds are achieved over networks which run fibreoptic cable from the telephone exchange directly to each customer's address, known
as FTTP "fibre-to-the-premises". Most BT customers receive FTTC "fibre-to-thecabinet", with lower broadband speeds, because the final connection from street
cabinet to customer premises is only made over copper cable with a lower delivery
speed than fibre-optic. Virgin, formerly NTL/Telewest, operates a totally FTTP
service but only in certain large towns and is under no obligation to allow other
providers to deliver services over its network.
9. To achieve in the shortest time the four measures detailed above for the best
superfast broadband in Europe, the following actions are proposed:
a. Each broadband provider to create its own "Openreach", operating on the
same terms as BT Openreach, to enable any other provider to deliver their
services over its network.
b. Automatic migration of all customers to the fastest network, while leaving
them to receive their services from their preferred provider. Thus BT’s
customers who only receive FTTC service in areas where Virgin operates an
FTTP service would be migrated to the Virgin network and take their service
from whichever provider they preferred.
c. After this migration of customers, the slower networks to be dismantled and
their physical assets recycled to locations where there is no duplicate
network.
d. Staff who maintained the slower networks to be re-assigned either to the
gaining Openreach organisation, or to neighbouring locations where there is
no duplicate network, so that they may accelerate roll-out of superfast
broadband there.
e. All Openreach organisations to be amalgamated into a single, fully independent
company, free of any ties to the service providers.
f. Technical standards and commercial practice to be rationalised within the
integrated Openreach organisation.
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Peter Griffin - written evidence
Wireless
10. The major obstacles to achieving “best wireless broadband in Europe” are its
incomplete availability nationwide and its signal quality. To achieve the four measures
for determining success, the following actions are proposed:
a. As for fixed-line networks, create an integrated and fully independent wireless
Openreach organisation from those providers currently offering wireless
services.
b. Rationalise the existing wireless networks to eliminate duplication and to
provide the greatest national coverage, available to all wireless providers.
c. Align the technical standards to “best-in-class”.
d. As for fixed-line networks, automatically migrate all customers to the new
integrated network, leaving them free to take their service from whichever
provider they prefer.
e. Establish a programme to extend the wireless network to those areas which
lack coverage, within technical and economic constraints to be approved by
Ofcom.
f. Collaborate fully with international organisations to rationalise and implement
standards and charges relating to such matters as call termination.
g. Collaborate fully with Ofcom and the fixed-line Openreach to ensure that the
greatest number of potential customers across the country has access to at
least one form of broadband.
Benefits
11. By eliminating competition from the technical delivery of broadband services, it is
expected that customers will receive rapid and substantial improvements in quality of
service. These improvements will be reflected by the four key measures of success:
download and upload speed, service availability, service reliability, and price. Effective
collaboration between the proposed National Openreach divisions for fixed-line and
wireless broadband will ensure that a very high proportion of the population will be
provided with at least one form of broadband delivery. Retailers of broadband
services will be liberated to focus on what they do best: devising and selling services
to meet customer needs. The major benefits from the proposals made in this
document are:
a. Rapid upgrade to full Superfast broadband (i.e. FTTP) for all customers located
in areas where such a capability is already available from another fixed-line
broadband provider
b. Higher proportion of subscribers with access to full Superfast broadband (i.e.
FTTP).
c. Re-assignment of displaced Openreach staff to locations without an FTTP
network, resulting in accelerated roll-out of FTTC Superfast broadband in
those same locations.
d. Recycling of physical assets from dismantled networks, thereby reducing the
cost base at other locations.
e. Greater network security resulting from the decreasing use and theft of
copper.
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Peter Griffin - written evidence
f.
Fewer "holes in the road" in all locations where duplicate networks are
dismantled.
g. Eliminated cost of upgrading duplicated networks to superfast broadband.
h. Re-appraisal of the financial viability of FTTP roll-out to other parts of the UK,
as a result of cost savings from the elimination of network duplication.
i. Extended coverage and enhanced reliability of wireless broadband across the
country.
j. An integrated telecoms network (National Openreach), operating to common
standards and totally independent from all broadband service providers.
k. Faster delivery of new services from commerce and industry which depend on
the availability of Superfast broadband.
l. Increased competitiveness with other countries which already offer Superfast
broadband.
20 February 2012
329
Groupe Intellex – written evidence
Groupe Intellex – written evidence
Introduction.
This response has been prepared by Groupe Intellex – a UK-based business development
agency and on-line publication with a long-standing interest in digital access network
strategy.
The author’s insight derives from a 30-year career in telecommunications followed by two
decades as a leader of enterprises that enable innovations across several sectors of the UK
economy.
Your Committee’s inquiry is timely and whilst focused on the Government’s broadband
strategy may also inform a wider consideration of national economic imperatives.
Your Committee’s inquiry will almost certainly attract inputs from a wide range of
commercial interests and organisations active in this arena – with, not surprisingly, diverse
motivations and detailed responses to the suggested questions.
Rising above the call for detail your inquiry presents an opportunity to fulfill the function that
comes naturally to the upper chamber; taking a measured and long-term view that whilst
practical is not unduly constrained by legacy technology issues, regulatory fashions, or past
policy and promises, and a perspective that equips the legislature with the intellectual
capacity for the design of future policy in an area that has become central to the UK’s
economic and social development.
Response
1. Observations
1.1 Your call for evidence is headlined by the demands of a ‘bandwidth hungry’
nation and is almost immediately focused on two aspects of that demand –
Consumer needs and Delivery (i.e. Download) capacity. It should not be forgotten
that Businesses and Public Sector organisations are themselves consumers (and
regarded as such by Ofcom) and that their needs, particularly in Upload capacity
and many other technical characteristics i , are often leading indicators of emergent
requirements within households and amongst the population at large.
1.2 Your call cites the current strategy aimed at Britain having ‘the best superfast
broadband network in Europe by 2015’. Definition difficulties apart your committee
might observe that any attempt to determine ‘fitness for purpose’ (a) requires
clarity of that purpose and (b) that relative performance will only reflect the
priorities, perceived needs and achievements of othersii.
2. Policy Principles
2.1 The priority for ubiquity of connectivity
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Groupe Intellex – written evidence
2.1.1. It is not possible or even wise to attempt prediction of future specific uses of
digital communications but there can now be little doubt that more usage by more
people across more aspects of the economy and society for more reasons and in
conjunction with ever more convenient devices will profoundly change the way we
all live and work.
2.1.2 In its cross-sector economic impact the long-term utility nature of
connectivity suggests that, as in rail, roads, water, drainage, gas and electricity, the
adequacy of provision expected by the vast majority of people requires at least a
minimum set of standards and that these should be expected to be rise over time.
Universal Access standards are a fundamental component for Enterprise and
Administrative ICT systems planning/investment and are applicable to fixed, Mobile
(cellular) and other wireless Access networks.
2.1.3 This ubiquity of connectivity is not suggested as a matter of societal fairness
but as a basic functional requirement for business and the public sector – relieving
major system designers of the need to compromise solutions or accept variable
performance below a given level in network operations. The expectations of
employers for flexibility in work-practices and of innovators (particularly in device
interconnection) in an environment of steadily rising level of default minimum
standards will enable service planning and ease pressure on locational clustering of
enterprise activity.
2.2 The distinction between Access and Service
2.2.1. In both mobile and fixed networks the realisation that the utility of Access is
distinct from the diversity of competitive Services has only become widely
understood in the last decade. This is not to suggest that users of vertically
integrated services are necessarily discontent with their chosen packages but that
from investment and regulatory viewpoints the nature of the Access and Services
businesses are different and are subject to different pressures – one being very long
term and technologically stable and the other highly competitive and fast evolving.
2.2.2. The single factor that has enabled this distinction is the emergence of globally
accepted standards – notably around the adoption for information of the Internet
Protocol (IP) but also informed by transmission standards in wireless and fixed
networks. In mobile (cellular) networks an effect parallel to that of fixed networks
has changed the landscape for spectrum requirements with the scope for wholesale
providers of shared infrastructure operating separately from service providers – a
challenging concept for network operators that have traditionally attempted market
differentiation in terms of coverage and network performance.
2.2.3. The resolution of the distinction between Access and Service is achieved
through use of an Open Access culture where the connected consumer chooses a
package of services customized to their requirements from a diverse range of
Services Providers – usually via an automated processes for switching between
suppliers. Some enterprise consumers make no service choices at all but simply
purchase basic connectivity (‘dark fibre’) for use within their own private networks.
Other consumers appreciate the inherent flexibility that enables rapid changes to
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Groupe Intellex – written evidence
capacity to meet short-term demand – e.g. for streaming video from a football
match or taking part in a multi-user event that demands higher than normal
responsiveness.
2.2.4. The regulatory implications of a determinedly Open Access culture include
consumer convenience – the expectation of easily enable supplier switching – a
reduction of regulatory oversight of Services and greater clarity on the avoidance of
cross-subsidisation by network operators. In much the same way that society has
formed a view on the separation of utility and investment banking it seems possible
that legislators may in future consider the desirability of reconsidering Access
network provision along the lines of the models adopted in New Zealand and
Australia.
2.3 The cross-sector perspective
2.3.1. The focus of attention for network policy has in recent decades
predominantly concerned the communications and media sectors but recent and
wider economic analysis, aided by the stark impossibility of being blind to digital
impacts, has linked national digital proficiency and performance to economic
growth. In Sweden, after several years experience of high quality network access,
researchers have extended this basic economic analysis to the area of social and
community development and shown more clearly the conventionally ‘uncaptured
values’ - the secondary and tertiary benefits of network infrastructure investment.
2.3.2 There is now no reasonable dispute of the cross-sector economic and
societal benefits of infrastructure investment and there are signs of a better
informed market. This heightened awareness has been driven not so much by
network operators but by device manufacturers (handsets, tablet and TVs for
example) and by increasingly innovative services that combine functions and
information from independently developed spheres.
2.3.3. This raised awareness has not however dislodged (from the telecoms sector)
a sense of ‘ownership’ of network policy. The debate, and desire for network
transformation is only beginning to make itself felt and a seriously-scaled demandside focus has yet to influence regulatory policy or the mainstream media’s
understanding of the word ‘infrastructure’. The contrast with everyday business
views of ‘essential’ transport infrastructure is instructive. We have long left behind
the narrow sectional interests of road and rail builders but the critical digital
demands from Health, Environment and Energy have yet to dominate the network
debate. Discussion of the need for expansion of airport capacity is certainly not
restricted to a few flying fanatics!
2.3.4. Whether the current gradual upgrading of old networks will result in any
widely shared view of inadequate compromise is an open debate but the few UK
examples of high quality fully-fibred networks (designed along the lines of
continental experience) will inject an even greater level and awareness of inequality
and debate around ‘fitness for purpose’. This is an area where policy development
need not wait to be triggered by rising popular dissatisfaction but calls instead for a
rather more ambitious national approach. Tentative recognition of the economic
benefits by Treasury analysts does not signal a visionary approach and yet this is a
332
Groupe Intellex – written evidence
relatively risk-free policy arena compared to projects such as HS2 and it is one that,
if not urgently prioritized, may engender dissatisfaction and court national
competitive failure.
3. Summary
3.1 The three basic principles, Ubiquity, Access/Service distinction and a cross-sector
viewpoint, need to be woven into government and regulatory policy but your committee
may also serve the country well by enlisting your colleagues in a wider acknowledgement
that digital access networks should now feature alongside ‘Deficit Reduction’ as an essential
national policy priority.
Notes:
Terms:
A. VPN – Virtual Private Network – a connection made for a specific purpose
that may operate concurrently with many other digital activities over a single
access connection.
B. IP – Internet Protocol – a global standard for the organisation of digital
information (Voice, Video, Graphics and Text) in ‘packets’ that each contain
routing instructions so that on delivery the information can be reassembled and
checked for completeness.
References:
i Access network characteristics. The use of headline Download transmission rates as the
dominant measure of network Access adequacy will become increasingly irrelevant with
changes in consumer requirements. User-generated content, the use of ‘cloud computing’
resources, machine-to-machine automated monitoring and control, the greater use of VPNs
and diverse multiple activities within the overall capacity of a single connection, will focus
attention on Symmetry and Upload transmission rates, packet loss, jitter, latency, VPN
capacity and dynamic bandwidth flexibility.
ii Relative network performance. The ready availability of data for actual network
performance as experienced by thousands of consumers provides a contrast with Network
Providers’ data on the theoretical performance of ‘available’ Access networks. Recent
studies by Ofcom have shown the large differences between what is advertised/sold and
what is delivered and have suggested that misleading claims for ‘up to’ maximum theoretical
headline speeds could be replaced in promotional literature by ‘typical speed ranges’.
An interactive graph reporting consumer experience is available at:
http://www.google.com/publicdata/explore?ds=z8ii06k9csels2_&ctype=l&strail=false&nselm=
h&met_y=avg_download_speed&scale_y=lin&ind_y=false&rdim=country&tdim=true&hl=en
&dl=en&iconSize=0.5&uniSize=0.035#ctype=l&strail=false&bcs=d&nselm=h&met_y=avg_do
wnload_speed&scale_y=lin&ind_y=false&rdim=country&idim=country:SE:LT:GB:DE&ifdim=c
ountry&tdim=true&hl=en&dl=en
March 2012
333
Mr John Howkins – written evidence
Mr John Howkins – written evidence
1. I live and work in a rural part of Norfolk. My business depends on fast reliable broadband
service 24 hours a day.
2. Your committee seems focussed on superfast broadband. I hope you will also look at
ordinary broadband because we need that first before we can dream of superfast
broadband.
3. In recent years, the level of ordinary broadband here has declined. I understand that the
network and local loop has improved but user demands have increased even faster. As a
result, it is often impossible to get any broadband service at all. The worse times are
after 6pm and at weekends when the number of users increases and file sizes increase
too. You say that ‘consumer demand for bandwidth is growing by around 60% a year’. I
doubt capacity is increasing at half that rate.
4. My ISP, BT, continually tell me speeds etc are increasing. But, in practice, speeds are
declining sometimes to zero.
5. Although I can usually work around this, I know others have found it impossible.
Nobody likes to admit their business is unreliable or failing but there is anecdotal
evidence of businesses closing.
6. Some people say that because I live in the countryside I should accept that broadband
service is intermittent. Your committee may take that view. I don't. I believe that
Britain can’t really claim to be a modern economy until broadband is reliable.
7. One of your questions asks if universal service is a good idea. Of course it is. A basic
reliable broadband service should be provided to all businesses and all homes. Without
that, the government’s claim that Britain will have the best broadband service in Europe
by 2015 is absurd.
12 March 2012
334
Huawei – written evidence
Huawei – written evidence
Executive Summary
The United Kingdom’s future rests on the successful implementation of its ICT strategy. Get
it wrong and the UK economy is likely to be significantly disadvantaged.
The once clear lines distinguishing buyers from suppliers, products from services, employee
from employer are disappearing, and the clear lines that exist between the haves and have
nots in our communities must be eliminated. Broadband has become a basic human need,
just like water and electricity and it will become a key component of all our lives as we
embrace the new century.
Without doubt digital communications technologies and a good mix of fixed and mobile
connections is the most important enabler to the long term health and wealth of the
underpinning our public private and corporate sectors. Digital communications will continue
to expand, becoming the key future enabler for all sectors of the economy, including; critical
services, communities and social sectors as well as our working and social lives.
There is a common belief that delivering 2Mbps for all UK citizens is adequate and will close
the digital divide, we do not believe this, and feel it will actually create a wider digital divide
stunting further growth in these areas. 2Mbps is about approx 4 times slower than the UK
average internet speed of 7.6Mbps (Ofcom 2011) and will soon become 50 times slower
compared to some of the more advanced city areas. A restriction to 2Mbps will relegate
parts of the UK to a historic version of the internet for a long time, thereby compromising
any business case for future speed increases.
335
Y axis: attached devices
Huawei – written evidence
Figure 1, summarises the trends we expect to continue over the coming years.
Looking back over the internet era, history shows clearly and dramatically how huge growth
in internet usage, demand for bandwidth and high speed requirements has always been
massively underestimated as we’ve ignored evidence to the contrary like Neilson’s law. The
internet has been of real value to the economy and is now intrinsic; some value its
contribution at approx £20 for every £1 of investment. Looking forward, the proven laws of
the internet economy can be realistically extrapolated to show that 2Gbps will be required
by 2022 and up to 6Gbps by 2025.
Digital communications however must not just be considered as the connection itself or the
speed of that connection. The ease and intuitive nature with which services, media and
applications can be consumed from the internet via a connection, and the relevance of those
services to the user are equally important
A connection, however fast, will not deliver the aspirations of the UK government without a
well considered end to end strategy on services and security in the internet, and the ability
to access those services on a wide variety of devices and heterogeneous connections.
Our lives will become more entwined with digital services and the digital world. Currently
we have many disparate touch points with the digital world, and our lives will be enhanced
along with our ability to create wealth and prosperity with the aggregation and
interconnectedness of these in a way that will make it easy to use and convenient to
consume. Social media is already pervasive and is set to become increasingly part of our daily
lives, as these services connect to others, whether this is at work or in a social context,
leading to further collaboration and engagement.
336
Y axis: Petabytes of data
Huawei – written evidence
Figure 2, summarises the increase in data traffic we expect to continue over the coming years.
This philosophy will transcend all aspects of digital life including government services – which
must be relevant, easy to access (e.g. single login), intuitive as well as holistic in a way that
the user sees and feels the benefit.
Glancing back highlights that pre 2000 we did not have 3G mobile, ADSL broadband,
Facebook, the iPhone, Digital TV, MP3 players, Blackberry, GPS navigation but simple telco
voice services and dial up internet. All of which have arrived and evolved rapidly, to become
subsumed in to our lives and are now considered vital. Looking out to 2020, and beyond,
functionality will continue to increase exponentially driving a huge rise in the use and
dependency of interactive internet and digital communications.
As much as the future is difficult to predict, there are however already significant trends and
research that show the possibilities of how the internet will further benefit society. Since the
turn of the millennium, we have witnessed great changes in the use of the internet, these
having been the result of a multitude of enablers aggregated into new services. Services will
need to be consumable across networks and devices. Adoption, change and commercial
advantage will be explicitly linked to user experience, as it will largely be embraced,
developed and creatively used by the next generation. Underestimating the needs of the
next generation with a limiting 2Mbps strategy can only be considered as short sightedness
by our generation.
The benefit of the internet will only be as good as the information it receives, stores,
processes and delivers. As a nation we must develop an inclusive society with connections
for life being a core concept. Huawei believes that fibre offers not only the relevant/required
capacity but also the future proofing capability to serve sustained and sustainable growth in
demand across all access networks. We see a need for improved delivery timescales
targeting areas where investment could be best utilised based on wealth creation and
commercial payback.
337
Huawei – written evidence
By 2020 there will be a need for enhanced interconnectivity between access technologies,
networks and service provider relationships to support the evolution of the internet as
described earlier. This is likely to be based on Fifth Generation (5G) technology. Fifth
generation will not just be a mobile service, but a holistic connection based philosophy, with
solutions utilising many networks and services. The implications for this are far reaching.
Therefore a strategic view of connected Britain and removing a digital divide must take the
implications of this in to consideration.
In a world of simplicity and intuition, digital communications is a vital part of any nationstates infrastructure, touching on all parts of society. The correct technology solution will
allow nation states to compete in the future, supporting its population in a commercially
sensible way. Without due consideration of the century ahead and its requirements, we will
fail to deliver the broader benefits of a connected nation to society, the economy, the
environment, a connected government and the business community.
338
Huawei – written evidence
Question 1 the Committee will consider: What is being done to prevent a
greater digital divide occurring between people who can access superfast
broadband and people in areas where the roll-out of superfast broadband may
not be commercially attractive? How does the UK communications market vary
regionally and what is the best way to connect the areas that the market alone
cannot reach? Is a universal service obligation necessary to avoid widening the
digital divide?
Key Points:
•
There are many ongoing projects both Urban and Rural in the UK working
to connect and develop the UK connected population. However, the
current programmes are disjointed and uncoordinated.
•
Our view is any Universal Service Obligation particularly at 2Mbps will
widen the digital divide especially as urban areas are already receiving
100x this and will have 1000x this in the next 5 years. The only real
solution is to get fibre to the end user or within 500metres of the end user.
There are many projects and programs in the UK that are ongoing that are working to
connect and develop the UK connected population. However the programmes are
disjointed and uncoordinated. Both Urban and rural projects are being developed, the
similarities are there but also the differences.
A number of the initiatives are highlighted below:
•
Broadband Delivery UK (BDUK: Initially having a budget of £530m, with an aim to
provide >25Mb/s to rural areas, but more like 2Mb/s to end users in Not Spots and
Not a lot Spots today.
•
Super Connected Cities: A budget of £100m for only ten cities in the UK to have
80Mb/s to 100Mb/s to end users.
The question is, would Government need to fund higher BB speeds in rural areas to
overcome the Digital Divide, if our operators, were protected from unbundling their fibre &
assets, until they had made a reasonable return on their investment? We use operators in
the widest sense of the word, as we see a big potential for councils to implement broadband
networks for their local communities.
339
Huawei – written evidence
This could be achieved by a number of schemes, with the Government setting the targets.
A number of examples are as follows:
•
Local councils can fund the deployment of fibre and recover the investment
through council tax's over a 20 year time period
•
Local communities can be given the option to develop a solution that will
interconnect to the national network in a secure manner
•
An operator (for e.g. BT could run a number of smaller networks on behalf of an
investor, thereby making a profitable return, without the risk of investment
•
Services can be used to allow the cost of infrastructure to be subsidised as we
find that services often get more return than the infrastructure, making it a
difficult business case to justify, especially in the rural communities
•
Areas of the UK could be auctioned off for exclusive investment by a single
network operator, offering a virtual network service, thereby improving the
business case.
Trial rural Broadband offerings with use of Government and EU funds include Cornwall and
Yorkshire. Other opportunities for areas with limited access see fixed and mobile operators
working together to find and develop synergies in the offerings and infrastructure. BT is
working with Everything Everywhere (EE) to deliver an infrastructure that can be reused in
mobile.
340
Huawei – written evidence
Greater exploitation of WiFi in a national sense. Municipal Wi-Fi in many cities has not had
the take up that could have been envisaged. We fully believe in City Wi-Fi and Wi-Fi
generally as a valid connection technology, but as with all connection technologies it must be
fit for purpose, easy to use, and most importantly give people and devices easy access to
what they desire from the internet.
Advantages of City Wi-Fi
•
Promotes connectivity
and online use
•
Promotes familiarity with
digital technologies
•
•
Disadvantages of City Wi-Fi
Very good marketing
platform for the
community, city, region
or country to both locals
and visitors
Offers cheap or free
access for basic bestafford service
•
Provides low cost services
•
Allow local business to
access local public
•
If implemented correctly
can promote adoption of
e-government and access
to public services online
•
Limited adoption because of
poor ease of use and data
bundles with devices that could
utilise
•
Take-up very low
•
Investment has been limited to
small scale
•
Competes against SP networks
and in most cases so far does not
work with them
•
No cross network coordination
or services support
•
No competitive business model
•
Too much
regulation/intervention
•
Access to Street furniture by SP’s
•
It can have a negative social
impact if service perceived
inadequate
The viability of public and or community schemes is critical and an improvement to the
assessment of business cases is required. The ability to offer free access has to be countered
by either a coherent subsidy scheme, or other revenue stream such as sponsorship or
advertising that will in a sustainable manner support the investment. There is the example of
an unsuccessful public Wi-Fi scheme in Swindon, and others that have not developed
because of the lack of a sound business model.
341
Huawei – written evidence
Small City
Big City
Diagram Big and Small cities are different and need different strategies
The UK communications markets vary regionally; the UK has widely different geographic
densities with broadband connection being required by all regions, businesses and
households as well as mobile devices and services.
Problems
Remedy
•
Cost/MB backhaul
•
•
Cost of Fibre deployment
•
Need to cost business model
across wider service base
Local voices have nowhere to take
group request, i.e. a village wishing
to use their own money to enable
fibre with an SP or Fibre provider
•
No business model with SP to
allow local investment
•
Lack of tiered pricing
•
Short-termism
•
No support for long fibre ROI
No shared network – High risk
Our view is any universal service obligation as its stands at delivering a 2Mbps service risks a
widening of the digital divide. 2Mbps is even now only just fit for purpose for basic internet
access. As we have shown with the requirements of the internet and connected devices and
services in the future, 2Mbps will limit parts of the UK to a historic version of the internet.
342
Huawei – written evidence
Additional business cases in the future will be compromised by the 2mbps connection and is
likely to stop additional investment once it is in place out to 2020 and beyond.
Without the prospect of additional investment the widening of the digital divide is more
likely to arise. Should rural communities be given a 2mbps service, when urban areas are
already receiving 100x this, and the prospect of a 1000x this in the next 5 years, the
investment potential from revenue generated in rural broadband will be close to zero.
Revenue in broadband is the additional revenue SP’s can generate with new and exciting
services. 2Mbps won’t support any new, exciting or desirable services and therefore business
cases to upgrade the network will become increasingly hard to justify, especially as the
chasm of the divide rapidly becomes larger. Services from the internet will heighten this
chasm, marginalising any investment in rural broadband, as they become increasing designed
for consumption over higher speed connections with richer and more integrated content
leaving rural communities on the edge of society.
Diagram - The widening Digital Divide
With such a large chasm, application, content and service providers will also heighten the
divide as they create rich and high definition/quality services for the high speed connected
mass market and withdraw low bandwidth services or marginalize them to the sidelines of
technology and society.
We foresee as early as 2016 that 2Mbps will cease to be considered viable for entry level
internet access given the rapid progression of content and applications in the cloud, and the
connection needs of new home and business devices such as High Definition TV’s and Video
conferencing to name but two. Today for example, to stream iPlayer to your TV with BT’s
Vision Service, end users need a minimum of 4.5Mbps, before BT will sell them the service.
343
Huawei – written evidence
The only real option is getting fibre to the end user, or to at least copper to within
500metres. 4G/LTE and evolutions of these whilst helpful suffers from service degradation as
the distance increases (Shannon’s Law) so it can be useful in some places, but not
everywhere to extend the reach of fibre. An ideal solution therefore will include a mix of
technology solutions with fibre to the premises and 4G(for mobility) being key constituent
parts.
344
Huawei – written evidence
Question 2 the Committee will consider: The Government have committed
£530 million to help stimulate private investment – is this enough and is it being
effectively applied to develop maximum social and economic benefit?
Key Points:
•
A rough EU estimate suggests a required investment of c.£26bn to 2020.
Whilst an estimate it provides an indication of the scale of investment
required.
•
Existing pilot programmes also show that the UK Government’s current
commitment of £530m may not be sufficient to stimulate the necessary
private sector investment across the UK’s remote and rural areas to
achieve the Government’s targets.
The UK Government’s proposed investment of £530 million in the Broadband UK scheme is
for the period up to 2015 and aimed at funding Superfast Broadband fibre projects in 4 main
rural pilot area’s (Cumbria, Herefordshire, North Yorkshire and the Highland and Islands).
There are other rural/regional fibre schemes which are being funded primarily by EU funds
such as South Yorkshire ( c £90m) and Cornwall ( £132m ). In addition to these there is also
the funding of around £150m for mobile “Not Spots”. The primary aim of the BDUK scheme
is to trial via these rural broadband pilot schemes the practical means of bringing Superfast
fibre capacity to end users, commercial, community and residential. This totals to
approximately £0.75bn but is less than 3% of the funding required to deliver superfast
broadband to non-urban areas.
The UK Government’s policy is thus a twin-track one of pump priming private and
community investment in rural areas, and leaving free market competition by major
operators and other groups to invest in area’s, primarily urban, where demand is greatest
and the costs of roll-out are lower.
The UK Treasury National Infrastructure Plan [ November 2011 ) states that the “ current
regional performance looks particularly weak as far as coverage of superfast broadband is
concerned, with overall availability of superfast broadband restricted to 58 per cent of the
UK’s population, and very large regional variations. For instance, 97 per cent of Northern
Ireland’s population has access to superfast broadband, but only 30 to 40 per cent of Wales
and Scotland”
Figures from the Infrastructure Plan show that the Treasury assumes a total public and
private investment in BDUK schemes to 2015 of £1.65bn and to 2020 of £2bn. The
Government’s funding total of £530m to 2015 would be thus around 33% of the required
investment, and if the Government adds a further £350m to 2017 as mooted this would take
the total Government funding to above 40% for these specific schemes.
345
Huawei – written evidence
The EU Digital Agenda for Europe has estimated the costs of Broadband roll-out by a variety
of technologies, Copper, Fibre and Mobile, in the whole of Europe by 2020 to be up to Euro
270 bn, This is to achieve the EU target of 30 Mbps coverage for all by 2020 and of those
50% of households have 100 Mbps services. The EU estimates that only Euro 50bn of the
required investment (just under 20%) will be funded by private operators leaving a funding
gap of Euro 220bn. Obviously the majority of that private sector investment will be in urban
areas thus the vast amount of unfunded broadband investment will be in rural locations.
A rough EU estimate of the UK’s share of this required broadband investment would equate
to a total (all technologies) required to 2020 in UK of around Euro 30.9bn or approximately
£26bn. This would very roughly equate to £3bn per annum for each year up to 2020.
Treasury estimates of current year and future planned private sector investment as shown in
the National Infrastructure Plan total around £5bn, made up of BT’s fibre roll-out, Virgin
Media investment, and mobile infrastructure upgrades. While this is a very rough estimate it
provides an indication of the potential future shortfall in investment.
In the USA the FCC, the telecommunications regulator, has recently announced
implementation of a National Broadband Plan which will include Government subsidies and
changes to criteria of the national Universal Service Funding to focus on Broadband
investment and support programmes. Overall it aims to spend some $24bn (c £16bn) in
support to 2020 which if translated