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Towards Ultrafast Britain 2030 Broadband Report IoD Policy Report Feb 2016 Towards Ultrafast Britain 2030 Broadband report Author: Dan Lewis IoD Policy Report About the authors Dan Lewis has been working with the IoD since 2011 on Energy Policy. Since March 2014, his brief has been expanded more broadly to include Infrastructure, incorporating energy as well as roads, railways, airports, ports, utilities, telecommunications, flood defences, waste and local amenities. His role is to meet and engage with the business community on infrastructure and energy issues, develop and write policy papers and contribute to the media on behalf of the IoD. Dan has been working in the public policy world and Dan Lewis contributing to the broadcast and print media for over Senior Adviser – 10 years; originally as Research Director of the Economic Infrastructure Policy Research Council from 2003-2009. He subsequently left [email protected] to start two new organisations - Future Energy Strategies www.future-es.com and the Economic Policy Centre www. economicpolicycentre.com which has fostered two new platforms - www.ukcrimestats.com, the leading independent crime, property price and energy data platform by postcode and www.ukgovspending.com (in development) - a deep insight into government spending. Prior to 2003, he worked in banking, asset management and corporate treasury in both Luxembourg and London. Towards Ultrafast Britain 2030 Contents Summary 3 Introduction 6 How we got here – a short history from 1840 6 The Ofcom era 12 Strategic Review 2005 12 2015 Review 14 Where we are today 15 How and what to compare in connectivity 16 Where are Britain’s connectivity chokepoints? 17 What are today’s connectivity demand drivers? 22 Rival technologies and what they can offer 24 Existing government policy and results 27 BT Openreach – time for a divorce? The case for and against the status quo 32 The Universal Service Obligation – too low or unnecessary? 35 Key Foreign experience: New Zealand and Lithuania 36 Britain in 2030 and Conclusion 39 3 IoD Policy Report Summary Key business findings from IoD • Throughout the 20th Century • The current policy framework is Policy Voice Survey: technology has delivered better inadequate to those challenges sound, reduction in transmission • 50% agree that an increase in costs and an increase in the capacity The Future broadband speed would encourage of data that can be transmitted them to offer more flexible working • The drivers of demand for the opportunities to staff • The final mile however or local loop, internet and data are huge and that brings copper to the premise has growing almost exponentially • 38% agree that an increase in barely changed at all for decades broadband speed would lead to • Each year sees incrementally faster greater revenues • Demonopolisation and Privatisation broadband but much more capable reversing the Victorian and Edwardian devices begets 40% growth in data • 34% agree that faster broadband decisions came 100 years later in 1981 demand would encourage them to invest more in their organisations • BT was privatised, a regulator, Oftel • Video is the biggest driver at 67% of was set up and telecoms markets traffic today • 60% agree that faster broadband for supplies and services were would increase the overall progressively opened up • With HD and 4K increasingly competitiveness of their organisation common, this will grow much faster • The pace of demonopolisation slowed • 77% agree that faster broadband considerably under Ofcom from 2003 • The Internet of Things promises billions would improve their organisation’s more sensors all transmitting data productivity • The Strategic Review of 2005 was successful in creating service- • Virtual Reality data demands could • 30% of members store data on based competition with local loop be even greater the cloud while 48% use their own unbundling dedicated servers and 8% used • The internet is going to become a leased servers – the cloud still has • But failed to engender infrastructure two-way immersive exchange some way to go competition, particularly at the fixed access level • Investment in the network today is The History short-term and incremental, unable Today to cater for the non-linear growth in • Britain’s early 21st Century demand that is present now communications network is still • Line rental charges have rocketed reaping the consequences of ahead of inflation, suggesting that How we compare misguided anti-competitive policy Ofcom was premature in lifting price decisions made by the Victorians and regulation because competition • Government policy has more or Edwardians in the 19th and early 20th would fill the regulatory gap less succeeded in reaching its own centuries narrow, short term goal of the best • On the plus side, Ofcom has overseen superfast broadband in Europe • The telegraph, telephone and radio easier switching, lower costs for spectrum were all nationalised leased lines and opening up the • But economic activity is not evenly leading to absolute dominance mobile spectrum distributed and London is one of the by a single player, with no market worst performing capital cities in competition • Britain has 6 connectivity Europe for download speed, ranked chokepoints; large rural areas, not- 26th just ahead of Minsk • Embedding inefficiency, unionised spots and city centres, suboptimal workforces, rising costs, taxpayer competition, poor knowledge about • With a global ranking of 23 for subsidies and precluding the final leg of the copper network download speed entrepreneurial activity in the leading and limited knowledge about the technology of the day whole network • While Fibre to the Home penetration can hardly be measured at 0.003% 4 Towards Ultrafast Britain 2030 • And according to Eurostat’s • Lithuania from 2004 enforced pole Telecommunications CPI, prices have and duct sharing, very low access risen the last few years uniquely in costs and embraced infrastructure the UK compared to other major competition, leading to 61% of new European nations networks built by AltNets Competition • It now has amongst the fastest speeds in Europe and with high fibre • The lack of competition for Broadband to the home penetration can easily Delivery UK funds is very disappointing upgrade to much faster network speeds • BT won all 44 of Phase 1 contracts and 42 of the 47 Phase 2 contracts • New Zealand in 2011 structurally separated New Zealand Telecom into • Not enough was done to ensure new Chorus and Spark creating additional entrants and lower the price of the value for existing shareholders Physical Infrastructure (ducts and poles) to non-BT players • And creating additional investment in the network that the incumbent • BT’s market share is growing, would not have been able to deliver reversing demonopolisation progress since the 1980s The Road Ahead • According to Ofcom, 74% of new • There is room for more than one superfast connections have gone to BT investor in a future Openreach • While in the SME market, BT’s share • Under great pressure Openreach is 50%, with the next nearest player performance has improved, but not only 5% enough to silence its major users • Left unchanged, operators will find • The UK paradoxically has the leading it hard to do much more than resell internet economy in the G20 BT’s Generic Ethernet Access • And some of the worst coverage and • To have a more resilient telecoms speeds of any industrialised nations network, the UK must aim to retreat from key dependency on one future • Incremental improvements based network investor on the existing copper network will not close the gap or unleash • The new Universal Service Obligation infrastructure competition of 10 Mbps by 2020 will make a very minimal impact on the economy • Gigabit speeds open up dramatic improvements that will come from Key Foreign experience virtual reality, self-driving cars and always present and on video cameras • Britain can learn most from two countries that have had the most • Fibre to the premise has to be a big enlightened approach to solving the part of the solution connectivity challenge • As does a longer term near universal target of 10 Gbps by 2030 and bringing in pension funds to invest who have longer term time horizons 35 IoD Policy Report How we got here: a short history of the telecoms Introduction network Britain’s telecommunications network and 1 Boston Consulting Group, There are times in economic history when The Internet Economy in making the right decision has long and lasting resulting broadband and connectivity issues the G-20, 2015 2 repercussions for an entire nation and getting did not appear overnight. They are the genesis Ibid 3 See “The Victorian the information revolution right is one of those of nearly two centuries of evolution and the Internet” by Tom Standage, published in seminal decisions. The good news is that Britain compound impact of decisions made long ago. So 1998 leads the way in embracing the digital revolution. what were they and how did we get here? 4 See BT Archives Information “Private Some 12.4% of our GDP in 2016 is expected to Telegraph Companies” As the first modern industrialised nation, built 5 See “Victoria Telegraphy come from the internet economy, more than before Nationalisation” on trade and mostly living in urban centres, by Professor Simone Fari, double our closest competitor in the G20 - South published September 2015 Korea, which sits at 8%.1 Silicon Valley may be enabling lower cost short range communications, the mecca for start-ups in the shape of Silicon the United Kingdom stands out as being the Valley, but the internet is set to account for first to experience the full range of political only 5.4% of the US economy this year. Equally and public difficulties in the meteoric rise of impressive, some 23% of all transactions this year telecommunications in the nineteenth, twentieth are expected to take place online, streets ahead of and twenty-first centuries. our nearest competitor.2 The early drivers of the nascent telecoms market The entrepreneurial revolution is not limited to in the 1840s were the railway companies.
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