BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
Pipe Dreams? Prospects for next generation broadband deployment in the UK BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
Contents
i Foreword 02
ii Executive Summary 03-07
1. Introduction 08
2. Next Generation Broadband 09-10
3. Why Broadband Matters 11-14
4. The UK Broadband Market 2001 to 2006 15-17
5. Predicting Demand for Next Generation Broadband 18-19
6. Next Generation Broadband Technologies 20-24
7. Commercial Challenges 25-27
8. Regulatory Challenges 28-32
9. Policy Challenges 33-35
10. Conclusions and Recommendations 36-38
11. Glossary 39
12. Endnotes 40-41
13. Annex (list of contributors) 42-43
Pipe Dreams? i/ Foreword
As broadband becomes ever more important The objectives of the report are threefold: The report was written for businesses and consumers, as well as a by the BSG Secretariat, and growing array of commercial stakeholders to raise awareness of the issues related to approved by the BSG Executive Committee across the broadband value chain, interest is the deployment of next generation access and myself. The research and writing took growing in the long-term evolution of the UK’s networks with government, the regulator place between spring 2006 and spring 2007, broadband infrastructure. With investment in and industry and has comprised desk research, one-to-one next generation broadband access networks to provoke discussion and inform policy meetings with stakeholders and a series of gathering pace in a number of countries development round table meetings and seminars with key around the world, this report sets out to look to suggest a number actions that can move players, which took place under Chatham at the prospects for similar investment to take this debate onto the next stage. House rules. A list of the stakeholders who place here in the UK. have taken part in the review process can be We have specifically investigated and reported found in the Annex. Although comments given The specific issue the report addresses is that on the potential demand for high bandwidth in interviews are not attributed, references while the underlying demand for greater broadband; the factors likely to affect market have been given wherever possible. bandwidth is likely to continue to grow rapidly, development and network requirements; the a variety of factors – notably the current likely developments in capability and capacity This is the start of a new phase of debate business models associated with broadband of access networks; the constraints to and action on this subject, which is of great and the balance of risk and reward associated investment in next generation networks, importance to UK consumers and businesses, with investment in advanced infrastructure – content and services; the transition from as well as the UK’s position in the world mean that it is not clear that this demand current to future models; and the role of economy. will be served. At a time when other countries public sector intervention. are investing in higher speed broadband Kip Meek, Chairman infrastructures, this may have damaging Broadband Stakeholder Group implications for the UK’s competitiveness.
02 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
ii/ Executive Summary The UK’s next generation broadband challenge
1 Broadband has been the key enabling 3 In a number of countries next generation 5 If the UK was significantly to lag behind infrastructure of the global knowledge broadband services are now being its international competitors in economy in the twenty first century, deployed that are capable of delivering bandwidths available to citizens and and is now an integral and everyday much higher upstream and downstream consumers, the pace of innovation in the part of many people’s lives in the UK. peak rate access speeds to end users economy could slip behind that of those than are currently available in the UK. competitors. There is, therefore, growing 2 However, this success has bred a new In some cases, governments and agreement that the move towards next dilemma. Rapid take-up, a fiercely regulators have chosen to incentivise generation broadband services presents competitive market place and the arrival these investments because they believe a difficult and serious challenge and that of new bandwidth-intensive products and they will be critical to their national the implications for the wider UK services, has led to a huge growth in competitiveness. economy could be significant. internet traffic, which shows little sign of slowing down. The question now 4 Currently, there seems to be little 6 For next generation broadband to move being asked by policy makers and prospect for the widespread deployment from pipe dream to reality in the UK, industry stakeholders is whether the of next generation broadband access steps need to be taken now. The issues UK’s current and planned broadband networks in the UK, as commercial are complex and there are few clear or network infrastructure will remain incentives are particularly weak. High obvious solutions at this stage. However, capable of sustaining the UK’s position costs, unproven business models and there is a limited window of opportunity at the forefront of the global knowledge intense competition for revenues from between now and April 2009 to get this economy. value added services make it extremely right. A concerted and innovative difficult for UK operators to justify large- approach to regulation and policy making scale investments in new access will be required to achieve the right networks. This means that we cannot balance of investment incentives and assume that the broadband value chain, competition that will enable a market-led as currently structured and regulated in transition to next generation networks. the UK, will deliver the ever greater bandwidth that both upstream service providers and users increasingly expect.
03 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
‘Next generation broadband is defined as broadband access services that are capable of delivering sustained bandwidths significantly in excess of those currently widely available using existing local access infrastructures and technologies.’
The potential importance of next generation broadband, mainly because these networks availability. Local loop unbundling (LLU) broadband for the UK are still new and the impacts have not yet and the wide availability of wholesale DSL started to work through the system. products, has lead to strong retail and 7 It is too early to assess definitively wholesale competition, which in turn has whether our global competitors’ 10 This raises a dilemma: there is a strong resulted in falling prices and stimulated investments in next generation probability that higher speed broadband high levels of take-up. The ‘virtuous infrastructures will deliver the will be crucial to maintain circle’, which the BSG has always argued commercial and socio-economic gains competitiveness. However, there is, is crucial, where industry innovation that are hoped for. However, the move as yet, no clear commercial model for drives user adoption and market growth, to a globally connected world has clearly widespread next generation access is now a reality. brought economic benefits. There is a deployment. The policy instinct where strong possibility that expanding the there is a lack of evidence will be to do 12 Operators will continue to invest in and range of services capable of being nothing. However, if significant efficiency deploy new broadband infrastructure provided, as well improving the speeds gains are derived from next generation over the next five years. Primarily this will with which they can be accessed and broadband then it is possible that nations involve the deployment of ADSL2+ by BT delivered, will further increase that opt for accelerated deployment will and other LLU operators and, potentially productivity and efficiency. gain sustained competitive advantage DOCSIS 3.0 by Virgin Media. BT will also over nations that do not. Given the very start to deploy fibre to the home (FTTH) 8 These factors are particularly important long lead times involved in deploying next in a limited number of green field sites for the UK, as it seeks to become a leader generation broadband, the risk of action from 2008. in the knowledge economy and to must be weighed against the risk of inaction. capitalise on its end-to-end strengths 13 However, because the performance of in the high-tech, creative and new media Likely evolution of the UK broadband ADSL2+ decreases over distance, this sectors. The social impact of broadband market versus potential demand investment will, at best, result in a has also been significant. It has raised patchwork of broadband availability standards of living by increasing choice 11 In 2001 the UK sat in twenty-first place in where, for the vast proportion of and lowering prices, promoted efficient the OECD countries in terms of consumers, practical broadband speeds and effective public services, and allowed broadband penetration1. Six years later will vary massively between 1 and 24 greater inclusion in civic society. there are more than 13 million broadband Mbps (downstream). It is likely that a subscribers (representing more than significant minority of users will see no 9 While evidence is emerging of the impact 50 per cent of the UK’s 24.4 million real improvement in their broadband of first generation broadband, there is households2), and the UK now leads the access speeds during this time. Only a not much evidence yet about the G7 in terms of the availability of first small number of users on new additional benefit of next generation generation broadband, with 99.6 per cent developments will be able to access very
04 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
high-speed symmetrical FTTH services be needed soon to make such services result, there is considerable uncertainty equivalent to those being deployed in the available ubiquitously across the UK in about whether broadband operators can US, Japan and France today. Although time to meet demand. recoup sufficient revenue from the perhaps sufficient in the short-term, for provision of new services to fund their many consumers and businesses this Technology options for next generation deployment. This situation is exacerbated may not be a tolerable outcome in the broadband and their implications in the UK where the high penetration of long-term. digital TV makes the market for new IPTV 16 There is a range of technologies capable services much more challenging. 14 This patchwork market, where speeds will of delivering next generation broadband. be limited and variable, has the potential Although wireless technologies will play a 18 Broadband operators face a challenge in to become a significant issue when part, the move to next generation moving customers away from simple flat considering possible future demands for broadband will require the deployment of fee pricing plans, which are in part driving bandwidth. The BSG published a ‘Green optical fibre deeper into the local access traffic growth. However, they are seeking Paper’ in March 2006 suggesting that network, either to the street cabinet or to innovate around new pricing models by 2012 the most bandwidth intensive directly to the customer premises. This tiered around peak rate access speeds, households will demand capacity will require a huge capital investment. traffic volume and quality. In addition, that is beyond the capability of existing The cost of providing fibre to the home to broadband operators are looking to access infrastructures (downstream, 23 90 per cent of UK households has been generate additional revenues through Mbps, upstream, 14 Mbps). estimated to be H14bn3. new value added services. While many operators are seeking to do this through 15 There were a large number of sensitivities The commercial case for investing in vertical integration, they may also seek to in these conclusions, some which would next generation broadband is uncertain negotiate commercial agreements with reduce the potential demand for content owners or content aggregators bandwidth, such as a lower than expected 17 The commercial challenge is not simply to provide guaranteed quality of service. demand for HD content, and some which about the scale of the capital costs Prospects for these business models are would increase it, such as the continued involved. Digital convergence is also uncertain, however. increase in peer-to-peer services. transforming the telecommunications Moreover, consumer propensity to pay a sector and the traditional business 19 In order for network operators to invest premium for such services was not taken models that have supported telecoms in the infrastructure needed for new into account. However, even bearing investment are under challenge from new services, business models will need to these sensitivities in mind, if these and diverse competition. Meanwhile, align the interests of the operators with predictions are correct, it would mean broadband operators are also facing the upstream content providers by that a significant investment in next rising operating costs as a result of the enabling monetisation of usage that generation access infrastructures would rapid growth of network traffic. As a imposes costs on providers.
05 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
A gap between public and private value market, there may be many other partial infrastructure can then be benchmarked of next generation broadband competitors able to exert influence over against our global competitors. the actions of a next generation operator. 20 While the public value of next generation Market definitions should therefore not 29 In cooperation with stakeholders, the broadband for society and the economy be set too narrowly. government should establish a target to as a whole is potentially high, the large ensure that by 2012 the UK remains in the scale of investment combined with the 24 Given that competition between value upper quartile of OECD nations in terms significant number of uncertainties added service providers is likely to be of the range of broadband-delivered surrounding the prospects for recouping intense, there may be commercial services to which its people have ready that investment, mean that the potential incentives that will encourage NGA access (Quality) and the proportion of the private value available to investors is operators to look for wholesale as well as population served by broadband (Reach). comparatively weak. This gap between retail revenues. Even if SMP is identified ‘Quality’ and ‘Reach’ should be defined public and private value becomes in some geographic markets, we should through a basket of metrics, similar important when also considering that the be very cautious about whether rate of to the approach used to define the current infrastructure, and planned return regulation should be imposed. Any competitiveness and extensiveness investment in that infrastructure, seem such obligations could be self-fulfilling as targets set in 2001. unlikely to be able to support the they tend to have a negative indirect probable (if not certain) demand for effect on the business models of other 30 There are a number of justifications that bandwidth in the medium- to long-term. operators. Behavioural remedies based on can be made for public sector If the UK wishes to be in a position to functional separation are likely to be intervention, including the need to capitalise on the potential benefits of more benign. address market failure, the need to next generation broadband, and retain its ensure the equitable distribution of position as a global knowledge economy 25 If NGA networks are broadly deployed, welfare gains and the need to ensure leader, proactive steps that address this the provision of wholesale access should regional competitiveness. However, there imbalance, and encourage investment, be encouraged, and if necessary required, is a real risk that poorly targeted will need to be taken. from all those operating at scale or with interventions could pre-empt the market, the benefit of public sector contributions. distort competition and actually deter or 21 The evidence base needed to assist in If wholesale products are available, then duplicate private investment that might this decision-making process is limited retail markets should not need regulation, otherwise be made at a later date. at present. However, over the next two especially where innovation in new years, the picture is likely to become products and applications which exploit 31 Because the UK market for next clearer, as international deployments of increased bandwidth is to be encouraged generation broadband is at a very next generation broadband accelerate from multiple parties. embryonic stage it is difficult to predict and as demand for high bandwidth where market failure may emerge. The becomes more evident as a new wave of 26 Meanwhile, open access to alternative public sector should therefore forbear bandwidth intensive services come to wayleaves and passive network elements from making large-scale interventions to market. For this reason we believe that can mitigate a significant amount of the promote NGA deployment at this stage. there is a limited window of opportunity total capital cost of NGA deployment. However, it is likely that public sector over the next 12-24 months in which to These should form the basis of any public interventions will eventually be required develop and implement a concerted and sector interventions that might be to support deployment innovative approach to policy making and considered appropriate in time. in low-density areas. Working together regulation to create the a balance with operators and regulators, public of investment incentives and competition Government must ensure that the UK is sector bodies should explore potential to enable a market led transition to next ready to take advantage of the next models for targeted, effective and well- generation broadband. broadband opportunity timed interventions, which may be more widely applicable in due course. Next generation broadband needs a tailored 27 Given the critical importance of regulatory approach broadband as the key enabling 32 It is also important to address those non- infrastructure of the knowledge sector specific policy or regulatory issues 22 Any new regulatory framework will need economy, a failure of broadband supply that can inhibit investment because of to strike the right balance between to meet demand could stifle the pace of their impact on construction and/or incentivising efficient investment and innovation in the UK economy compared operational costs. The issues that have ensuring sustainable competition. Given to our global competitors. This risk should previously been identified by the BSG as the high capital cost and the high degree be recognised and addressed inhibitors are non-domestic rating costs, of commercial uncertainty and risk, by government. planning rules and provisions related to simply extending the current regulatory access to highways, as well as issues such framework to next generation broadband 28 To a large extent, the potential as security, payment systems and access would not achieve this balance. risk/benefit to the UK economy depends consumer trust and confidence. upon how investments in next generation 23 Ofcom must ensure that potential broadband are made and utilised in other 33 As broadband penetration continues to efficient investment is not undermined by countries and the extent to which increase, it is also becoming appropriate regulatory uncertainty. While enduring economic benefits start to emerge from to review the definition and funding economic bottlenecks may emerge in the these networks. Government should, mechanisms for universal service/ long term, we should not assume that any therefore, begin to monitor the deployment, universal access. next generation broadband operator will use and exploitation of next generation quickly achieve a position of Significant broadband in key leading economies. The Market Power (SMP). In a converged evolution of the UK’s own communications
06 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
Recommendations for next steps
Recommendation 1 Recommendation 4 Recommendation 7 – Define the public value of – Explore alternative commercial models – Identify models for efficient broadband networks to support network investment public sector intervention
It will take years for a complete evidence base Further work should be undertaken by While the BSG recommends that the public to emerge to assess the full economic and stakeholders to debate and explore alternative sector should forbear from intervening to social value of broadband. However, it should commercial models to support network promote NGA deployment at this stage, it is be possible now to define a framework to investment. Good solutions need to be found highly likely that public sector support will be assess the potential public value of that align the interests of operators with required in areas where persistent market broadband, i.e., to identify the factors that upstream content and service providers and failure is most likely. Building on the Best should be taken into account when assessing end consumers whilst mitigating concerns Practice Guide published by the DTI and broadband’s impact on society and the about blocking or degrading third party Ofcom in February 2007, further work should economy. Once such an approach is agreed, applications and services. be undertaken to identify and experiment in evidence can be added in as it emerges and a the development of efficient and effective more accurate model developed for assessing Recommendation 5 models for public sector interventions in the public value of broadband. This should be – Develop a regulatory framework for collaboration with commercial stakeholders, a collaborative initiative involving industry, next generation broadband government and the regulator. academics, the DTI and Treasury. Discussion on the regulatory challenges posed Recommendation 8 Recommendation 2 by next generation access (NGA) networks has – Remove non-sector specific – Monitor demand for bandwidth only just begun in the UK. Ofcom opened up regulatory barriers the debate with its discussion document As a new wave of bandwidth intensive services published in November 2006. This document The deployment of next generation access come online over the next 12-24 months, close raised a broad range of complex issues, which infrastructure will inevitably require new civil attention should be paid to the actual growth need to be explored in more detail. Further infrastructure and will involve significant new in demand for bandwidth by households and informal discussions should be undertaken in street works across the country. DTI should businesses both in the UK and internationally. advance of a full public consultation by Ofcom. work together with relevant departments and Various approaches could be used to develop However, Ofcom needs to set out the public sector bodies and the industry to data in this area. However, this information principles of its regulatory approach to NGA develop streamlined approaches to NGA should be made publicly available to help within a 12 month time period, if the inhibiting related street works and planning issues to inform decision making by stakeholders across effects of regulatory uncertainty on minimise both the disruption caused and the the value chain. This should be coordinated investment are to be avoided. cost to operators of these works. The by Ofcom. government should also review the non- Recommendation 6 domestic rating applied to optical fibre. The Recommendation 3 – Explore options for access to current approach provides a strong financial – Set a benchmarked target for 2012 passive infrastructure disincentive to the use of deployed fibre.
The UK must have a communications As an input into Ofcom’s NGA pre- Recommendation 9 infrastructure that enables it to compete and consultation, a more detailed review should be – Review universal service/universal access prosper in the global knowledge economy. undertaken into the options for access to The government and Ofcom should, therefore, alternative passive infrastructure in the UK. The current universal service directive refers benchmark the UK’s communications This work should be taken forward by only to functional internet access. However, as infrastructure with our global competitors. stakeholders. the adoption of broadband continues to accelerate, this definition is starting to look Government should establish a target to outdated. Ofcom’s consultation on universal ensure that by 2012 the UK remains in the services should address both the definition of upper quartile of OECD nations in terms of the universal service and future approaches to range of broadband delivered services to funding universal service/ universal access. which its people have ready access (Quality) and the proportion of the population served by broadband (Reach)4. These two aspects of quality and reach should be defined through a basket of metrics, similar to the approach used to define the competitiveness and extensiveness targets in 2001. This work should be undertaken by government, in collaboration with stakeholders, and updates should be published bi-annually.
07 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
1. Introduction
1.1 The UK’s burgeoning knowledge economy currently structured and regulated, to put significant effort into faces an investment challenge. The rapid will deliver the ever greater bandwidth understanding the dynamics of the diffusion of residential broadband and that both upstream service providers and market and how their use will bear on UK continued innovation in new online users increasingly expect. The broadband competitiveness. Although there are no services and applications is driving the nirvana of fibre to the home currently clear or obvious solutions at this stage, consumption of bandwidth and looks like a pipe dream for all but the there is still time to get this right and we generating staggering growth in internet few in the UK. At very best, further recommend some actions that need to be traffic. If these trends continue many investment in faster broadband services taken now. A concerted and innovative upstream service providers5, businesses is likely to lead to a patchwork of approach to regulation and policy making and end users may find, in time, that availability across the country, with will be required to achieve the right broadband peak rate access speeds are broadband speeds varying significantly balance of investment incentives and insufficient to meet their needs. Given the depending on location. For many citizens competition that will enable a market-led critical importance of broadband as the and businesses, this is unlikely to be transition to next generation networks. key enabling infrastructure of the regarded as a tolerable outcome in the knowledge economy, a failure of long-term. 1.5 We have structured this report as follows: broadband supply to meet demand the next three chapters look at the could stifle the pace of innovation in 1.3 There is much that remains uncertain and current situation – what is going on the UK economy compared to our unproven about this hypothesis – markets worldwide, the evidence already available global competitors. and technologies move quickly. However, on the economic and social significance following extensive discussions with of broadband and the position of 1.2 There is a real concern that the stakeholders from across the broadband broadband in the UK. The following two incentives for broadband operators to value chain, we believe there is a growing chapters look into the future – what may invest in next generation broadband consensus that the provision of next happen to demand and supply, and what technologies in the UK are weak, generation broadband presents a difficult may happen in terms of technology compared to some of our key global and serious challenge and that the developments. The final three chapters, competitors. High costs, unproven implications for the wider UK economy prior to the conclusions and business models and intense competition could be significant. This is a critical issue recommendations, articulate the for revenues from value added services for the UK – one that government must challenges for broadband stakeholders: make it extremely difficult for operators play close attention to. respectively, the commercial players, the to justify large-scale investments in new regulator and the government. access networks. Having let the genie of 1.4 This is not special pleading on behalf of broadband-enabled disruptive change out broadband providers, but a call to policy- of the bottle, we can not simply assume makers and regulators, as well as to the that the broadband value chain, as commercial participants in the industry,
08 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
2. Next Generation Broadband
2.1 Next generation broadband services are now being deployed in a number of Targets Announced by Select Operators, (% Homes to be Passed with Fibrea) countries around the world, including Target Year 2007 2006 2007 2008 2010 2008 2010 Japan, South Korea, Hong Kong, China, Singapore, Canada, the United States, the 95% 80% Netherlands, Belgium, France, Italy and 75% 62% Germany. In the US ultra-high-speed 46% 50% fibre-based services are now available to 28% more than 6 million residential customers. These new services are DT Germany Belgacom SBC US Verizon US KT Korea HKBN Hong NTT Japan capable of delivering much higher Belgium Kong
upstream and downstream peak rate Target Homes 11 2 16 20 12 1.8 47 access speeds to end-users than are (million) currently available in the UK. They can Investment H H300mn H3.4bn H6.7–8bn N/A H100mnb H Planned 3bn 37bn be delivered by a range of technologies Technology FTTN FTTN FTTN FTTH FTTH FTTH FTTH but require significant infrastructure upgrades to local access networks. Wide- scale deployment can take many years. Figure 1: Planned next generation broadband deployments. Source: Capgemini
09 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
2.2 These large-scale multi-billion dollar 2.4 The implications of these international investments are being made in developments for the UK are uncertain. anticipation of a new wave of IP-based But they suggest that the debate about video-rich services and applications that the need for next generation access is no are expected to drive demand for longer hypothetical. Where operators can bandwidth from residential customers. In find a business case, based on the most advanced markets, competition commercial opportunity, commercial between telecoms companies and cable threat or policy or regulatory incentives operators to deliver new TV-like (or a combination of all three) they are entertainment services over these building next generation broadband networks is driving investment6. However, access networks. Governments and in most cases, given the high capital costs regulators are looking to incentivise involved and uncertainty about the investments because they believe that underlying commercial business models, next generation broadband will be critical significant public sector support and/or to their competitiveness. However, both policy and regulatory incentives have the long-term commercial case and the played a role in accelerating deployment wider economic benefits remain largely (see Chapter 8). unproven, suggesting that for both operators and governments the decision 2.3 In all of the countries listed above, to support next generation broadband it is argued that the availability of next deployment involves a leap of faith. generation broadband will deliver wider benefits to the economy, by encouraging innovation in new services and applications across the private and public sectors. Evidence of the existence of what economists would call positive externalities has yet to emerge, largely because these networks are only just being built. However, it should be noted that these services are primarily being deployed in high-density areas, with little expectation that they will be made universally available in the immediate future. If wider economic benefits do emerge they may not be distributed equally between urban and rural areas.
‘This debate is no longer hypothetical. Where operators can find a business case, based on commercial opportunity, commercial threat, or policy and regulatory incentives, they are building next generation broadband access networks.’
10 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
3. Why Broadband Matters
‘The last twenty-five years in technology other benefits, the progression to next In August 2002 Dataquest forecast have been the warm up act. Now we are generation broadband will have equal, if that ‘true broadband (greater than 10 going to the main event, by which I mean not even greater, economic implications. Mbps) could incrementally increase US an era in which technology will literally This assumption needs to be tested and GDP by up to US$500 billion for each transform every aspect of business, every its nuances articulated and this need of the next 10 years.’ 10 aspect of life and every aspect of society.’ underpins the recommendations at the end of the report, which address the A 2006 MIT study concluded that Carly Fiorina, quoted in The World is Flat, requirement to build an evidence base. ‘communities in which mass-market Thomas L. Friedman7. broadband was available experienced 3.3 The policy instinct where there is a lack more rapid growth in (1) employment, 3.1 Broadband is a key underlying of evidence will be to do nothing. (2) the number of businesses overall, infrastructure that enables the global However, if significant efficiency gains and (3) businesses in IT-intensive knowledge economy to function. Since are derived from next generation sectors’.11 the start of this decade, it has broadband then it is possible that nations accelerated technology diffusion into that opt for accelerated deployment will A 2007 report for the Scottish both residential and business markets and gain sustained competitive advantage of Executive concluded that the annual stimulated a huge amount of innovation nations that do not. Given the very long Gross Value Added (GVA) of Scotland’s across the public, private and third lead times involved in deploying next market sector in 2015 would be in the sectors. It has transformed the way generation broadband8, the risk of action order of £2 billion to £6 billion higher people live their lives. The following must be weighed against the risk of inaction. due to business take-up of broadband chapter provides a brief overview of some than it would have been otherwise (at of the social and economic impacts of Early forecasts about the economic and 2000 prices).12 broadband, in order to demonstrate why social impact of broadband the debate around next generation is of crucial importance to the UK. 3.4 A number of reports have been published forecasting the potential social and 3.2 This chapter unavoidably leaves one economic benefits likely to arise from crucial question unanswered – how the mass adoption of broadband. important, economically, socially, culturally, are the increments in speed of In 2002 the Momentum Group and communications associated with next Brookings Institution forecast that generation broadband? The underlying ‘business and government efficiencies assumption in this document is that just from broadband had the potential to as progressing from narrowband to produce US$500 billion in savings in broadband has substantial economic and the US by 2010’. 9 11 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
Broadband and innovation, competitiveness 3.9 The pace of innovation in lead sectors consistent with these qualitative surveys. and globalisation such as media and entertainment has MIT researchers found that communities increased dramatically over the last five where mass-market broadband was 3.5 Innovation in information and years with the global growth of available experienced more rapid growth communications technologies has been broadband. We are now seeing an intense in (1) employment, (2) the number of at the heart of globalisation over the last wave of innovation that is creating new businesses overall and (3) businesses in 15 years. business models and transforming old IT-intensive sectors. In addition it also ones. Digital convergence across the found higher market rates for rental ‘Hardware, software and networks were telecoms, media and technology (TMT) housing in broadband enabled areas.23 responsible for the economic boom that sector is predicted to lead to a trillion started in the United States and now dollar shift in value by 201016. Across 3.14 The broader impact of infrastructure is of reverberates throughout China, India and Europe the ICT sector continues to grow course conditional on how efficiently it is the rest of what was formerly known as faster than Europe’s overall economy, used24. Productivity benefits are derived the third world.’ according to the i2010 second annual from process transformation, but report. ICT contributed nearly 50% of EU technology is the underlying enabler and Reed Hunt, former Chairman of the US productivity growth between 2000 and broadband is one of the most important Federal Communications Commission 2004, with software and IT services change agents. (FCC) and now a senior advisor at currently the most dynamic growth area McKinsey & Company13 (5.9 per cent for 2006-2007)17. 3.15 A study on the impact of broadband on UK firms prepared for the OECD supports 3.6 Broadband has been a key factor in 3.10 Given the UK’s end-to-end strengths in this argument. This study showed a globalisation, enabling knowledge and the high-tech sector, creative industries strong correlation between broadband information to be shared rapidly and at and new media, this disruption represents adoption, automated business links and low cost around the globe, changing the a major economic opportunity for the UK an increase in productivity:25 way people trade goods and services. economy. As Intellect, the UK high tech Increasing public availability of trade association has argued, the UK ‘...average productivity of firms with information has enabled more effective has an opportunity to capitalise on multiple [automated business] links is competition and price convergence for convergence and become a net global higher than for firms without any links. traded goods and services. It has also producer of convergence products, ...firms with one automated business driven the integration of world markets services and applications rather than link and broadband are 31 per cent enabling specialisation and fragmentation. a net consumer18. more productive than their The internationalisation of production counterparts without broadband, and processes is increasingly feasible and Broadband impact on firm level productivity firms with five or more multiple links cost effective, for example, enabling a and broadband are 22 per cent more small software company based in 3.11 Since its deployment, small- and medium- productive than similar firms without Cornwall to exploit international market sized enterprises (SMEs) have been broadband.’ opportunities and compete globally.14 reporting strong benefits associated with broadband adoption. According to Ofcom ‘...early adopters were indeed more 3.7 Broadband is also an accelerator of wider in 2005 more than 73 per cent of SMEs productive by 22 per cent and early ICT adoption. In a global economy (where were using broadband to connect to the adoption strengthened this advantage. there are increasing rewards to innovation), internet19 with 84 per cent believing that Broadband used in conjunction with the importance of technology diffusion broadband offered good value for money. multiple automated business links also should not be underestimated. In its 2006 has a favourable impact on labour analysis of the long-term opportunities 3.12 According to an Institute of Directors productivity.’ and challenges for the UK, HM Treasury (IoD) survey of its members in 2004, identified rapid innovation and 84 per cent said they had seen ‘...a 10 per cent increase in broadband- technological diffusion as one of the improvements in productivity since internet enabled workforce raises five key long-term opportunities and installing broadband and 61 per cent said productivity by up to 12 per cent in IT challenges facing the UK over the next it had delivered cost savings. In all, 64 per intensive sectors.’ decade.15 It is, therefore, important that cent reported a link between broadband the public value of broadband networks is and increased profits. According to the IoD: 3.16 Overall, these findings suggest that fully understood and that close attention broadband makes good companies better. is paid to the long-term evolution of the ‘Broadband has established itself as UK’s communications infrastructure. an indispensable part of our business infrastructure. It is difficult to think of Innovation in ICT intensive sectors a comparable recent development in business equipment or techniques that 3.8 Broadband makes the internet work more has been so widely identified as a effectively and means that the processing positive factor in terms of business power and storage in PCs can be put to performance.’20 more productive use. That, in turn, means that innovation moves more quickly. 3.13 This study was backed up by similar Broadband doesn’t just speed up video surveys by the British Chamber of downloads, it speeds up the pace of Commerce21 and Intellect22. A 2005 MIT change across the global economy. It is study also found support for the a catalyst for innovation. conclusion that broadband positively affects economic activity in ways that are
12 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
Broadband impact on GDP 3.19 An Indepen case study27 looking at the Efficient and effective public services consumer surplus associated with 3.17 A number of studies examine the impact broadband penetration found that 3.21 Across the world, governments are of broadband at the macro-level, consumer benefit of broadband for the seeking to exploit the full potential of most specifically focusing on GDP and EU-15 where there was 70 per cent broadband-enabled ICT to improve the employment effects. In finding that household penetration would create a net quality of their public services while also broadband has a positive effect on GDP, present value of H966 billion, equivalent driving down the cost of delivery. This will these studies support the view that the to one per cent of annual contribution to enable them to either plough the savings widespread use of broadband can increase GDP for the EU 15. However, this back into the public sector to deliver even the output of GDP by improving the ability increased to H1,648 billion, equivalent to better outcomes in terms of health and of enterprises and individuals to network, 1.6 per cent GDP, with a penetration rate education, for example, or to reduce the collaborate and innovate together. of 90 per cent, suggesting that the tax base to increase the competitiveness consumer surplus increases with of their economies. As noted above, 3.18 The productive impact also depends upon penetration on more than a proportional there are many examples of private its integration into an existing set of basis due to strong network effects. The sector companies transforming their infrastructures, i.e. how it improves the extent to which these benefits are competitiveness through the full network26. In the case of broadband triggered by the forms of broadband exploitation of ICT. There is no access, it enables greater exploitation access currently provided and the extent fundamental reason why governments of both the capacity and capability to which they represent further gains cannot do the same. of the computer equipment in the dependent on faster rates of access is consumer/business premises (storage currently unclear. 3.22 One example of the potential positive and processing power) on the one side impact of broadband on public sector and the core network and internet Inward investment and greater dispersion of services is telehealth. In 2004 a servers, and so on, on the other. In other economic activity PriceWaterhouseCoopers study looked words, it significantly improves the whole at differences in costs of providing network and indicates that the scale of 3.20Regions with abundant infrastructure can outpatient pulmonary care to a rural the potential benefit that can be derived be more attractive to inward investment, population. The study compared the costs may well be larger than for other thereby enhancing their competitiveness. of patient referral to a specialist clinic; infrastructure investments. Attractiveness is a factor, irrespective of telemedicine where patients connected whether the infrastructure leads to via teleconference with the specialist clear productivity gains. There are clinic; and the use of onsite care at a local also examples, particularly in the US, of physician. Over a single year, the study higher property prices being well served found that telemedicine was the most by broadband. cost effective option ($335 per patient) compared with patient referral ($585 per patient) and on-site care ($1166 per patient).28
‘Broadband is a key underlying infrastructure that enables the global knowledge economy to function... It has transformed the way people live their lives.’
13 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
‘Given the very long lead times involved in deploying next generation broadband, the risk of action must be weighed against the risk of inaction.’
Social capital 3.26 There is evidence that broadband has automate, and therefore the more time been a driver of globalisation and and energy they have to innovate. 3.23 The value of infrastructure as a widespread innovation at many levels of The more they innovate, the more they contributor to higher living standards the economy. Broadband has been shown produce things that improve the platform. and quality of life is likely to be very to have a measurable impact on firm-level It is a virtuous cycle, one that you always high given that households and private productivity and on GDP. The widespread want to encourage to the greatest individuals are heavy users of diffusion of broadband, if harnessed degree possible.’ communications services. Consumers effectively, can be a key enabler for the should benefit from more choice and transformation of public services and can 3.29 This is why Friedman argues, ‘the lower prices. New media and generate inclusion and social capital. smartest countries and cities in the world communications services will bring the are offering their residents not just the potential for social as well as consumer 3.27 Electronic communications networks have fastest broadband, but at the lowest value. Networks generate inclusion and become an essential input into business prices to the widest areas.’31 social capital29. and society. It is difficult to imagine how the economy would function without 3.30Taking a similar line, Reed Hunt argues 3.24Technology influences how people live them. As users exploit these networks that governments have a responsibility their lives and lifestyles. In a 2003 study, to innovate on an almost constant basis, to ensure that their citizens do not come Intellect found that 98 per cent of SMEs it is clear that businesses, public services, off worst in the competitive battle reported that broadband had a beneficial consumers and citizens are becoming between countries, and that government effect on staff satisfaction, ‘giving staff ever more dependent upon these and regulators have an important role to the tools to do their job properly’. It also networks on a daily basis. help create an environment that supports allowed employees to work remotely and and enables efficient investment in the enabled them to achieve a better work- 3.28The importance of broadband was creation of high-quality, modern and life balance30. summed up by Thomas Friedman in The efficient broadband networks.32 World is Flat: the Globalized World in the Conclusions Twenty-First Century: 3.31 If significant efficiency gains are derived from next generation broadband then it is 3.25 At the start of the decade, many ‘Broadband and information technologies possible that nations that opt for accelerated predictions were made about the are important...because they are critical deployment will gain sustained potential social and economic impact of to advancing productivity and innovation competitive advantage over nations that broadband. Following the widespread and in every sector of the economy. The more do not. Given the very long lead times rapid adoption of broadband worldwide, you connect an educated population to involved in deploying next generation there is a now growing body of evidence the flat-world platform, in an easy and broadband, the risk of action must be that supports many of these claims. affordable way, the more things they can weighed against the risk of inaction.
14 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
4. The UK Broadband Market 2001 to 2006
4.1 After a slow start, the UK broadband 4.2 The UK leads the G7 in terms of the 4.3 Worldwide, the pace of broadband market has exceeded even the most availability of first generation broadband adoption has been phenomenal: bullish predictions. Since 2001, broadband with 99.6 per cent of homes connected to broadband take up has continued to adoption has grown from a few thousand an ADSL-enabled exchange34. BT had outstrip other communications services subscribers to more than 13 million. This achieved 10 million wholesale broadband and the trend is expected to continue35. represents around 50 per cent of UK’s lines by the end of 2006 (beating its own See Figure 2 (below) 24.4 million households, and it is growth estimates) and Virgin Media had estimated that 30 million people now reached over 3 million (with a footprint 4.4 In terms of broadband penetration, have access to broadband from home33. covering about 50 per cent of UK homes). the UK is currently ranked tenth in the In addition, alternative network providers OECD and second in the G7. The UK has (altnets) are now offering a wide range of experienced one of the highest sustained competing broadband services based on growth rates in broadband adoption in wholesale products provided by BT the G7 since 200436. See Figure 3 (below) Openreach, including 1.5 million connections based on Local Loop Unbundling (LLU).
Cellular subscribers (1985–1995) Broadband subscribers (1997–2003) 25 Narrow-band Internet subscribers (fixed network) (1992–2001) Canada ISDN subscribers (1989–1999) Million United Kingdom 200 20 United States 180 160 Japan 15 140 France 120 OECD 100 10 80 Germany 60 Italy 5 40 20 0 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 2001 2001-Q2 2002 2003-Q2 2003 2004-Q2 2004 2005-Q2 2005 2006-Q2 Source: OECD, 2005 Source: OECD
Figure 2: Broadband take-up compared with other communications services. Figure 3: G7 Broadband adoption, June 2006. Source: OECD Source: OECD
15 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
4.5 Falling prices, driven by strong retail and 4.8 This virtuous circle has led to a massive Planned evolution wholesale competition, have helped to increase in internet traffic over the last stimulate high levels of take up with some few years. According to the London 4.10 As demand for bandwidth continues to service providers bundling broadband Internet Exchange (LINX) the volume of increase, driven by the availability of access for free together with other internet traffic is now growing 50 per new innovative content, services and telephony or television packages (the cent year-over-year. Today, LINX handles applications, broadband operators will implications of which are discussed in more than 116 gigabits of traffic per continue to invest in the current generation Chapter 7). See Figure 4 (below) second. This growth is likely to continue of broadband access technologies. to increase as new video rich entertainment 4.6 Generally, customers currently report a services come online over the next 4.11 Several LLU operators are already high level of satisfaction with the cost, 12-18 months. See Figure 7 (below) deploying ADSL2+ technology in local value for money, speed and reliability of exchanges and will be able to deliver peak their internet services. See Figure 5 4.9 However, while total traffic growth is rate access speeds of up to 24 Mbps (below) growing rapidly, the vast majority of downstream and 1 Mbps upstream to users still do not use the headline residential customers. BT has also 4.7 In its first report in 2001, the BSG argued bandwidth that they have available. announced that it will start nationwide that broadband deployment would Average use is still quite low (e.g. around deployment of ADSL2+ in 2008 and will stimulate a ‘virtuous circle’, where industry 10-15 per cent of the headline rate), complete deployment in 2011. innovation drives user adoption and market although this is expected to increase over growth. The virtuous circle is evident in the the next 18 months as new video rich 4.12 However, ADSL2+ performance scope and scale of investments now being services are launched (see Chapter 7). diminishes over distance, meaning that made in new and innovative broadband These new services are likely to generate only a small number of customers living enabled online services and applications. very short and intense bursts of demand very close to their telephone exchange See Figure 6 (below) for bandwidth, making the peak access will be able to access these headline rate more important. speeds. BT estimates that 50 per cent of users will be able to get 8 Mbps or more, with the majority receiving between 8-12 Mbps downstream. See FIgure 8 (below)
Standard Very satisfied Downstream monthly Satisfied line rate Usage rental 100% ISP Coverage Conditions Contract (up to) cap (incl. VAT)
80% BSkyB LLU areas Must be an existing 12 months 2 Mbit/s 2Gb Free 39% Non LLU areas BSkyB customer 8 Mbit/s 40Gb £5.00 30% 31% 39% 60% 34% (from £15/month) 16 Mbit/s – £10.00 8 Mbit/s 40Gb £17.00 40% CPW LLU areas Must also take calls 18 months 8 Mbit/s 40Gb Free 51% 54% 54% 49% Non LLU areas and line rental 8 Mbit/s 40Gb £10.00 20% 47% (£19.99/month) Orange National 18 month mobile 18 months 8 Mbit/s 2Gb Free 0% contract >£30 Overall Cost VFM Speed Reliability
None 12 months 1 Mbit/s 2Gb £14.99 Source: Ofcom research, Q1 2006 8 Mbit/s 2Gb £17.99 8 Mbit/s – £27.99 Figure 5: Customer satisfaction with aspects of the internet. Tiscali National None 12 months 2 Mbit/s – £14.99 Source: Ofcom 8 Mbit/s – £17.99 Virgin.net National None None 1 Mbit/s 3Gb £14.99 8 Mbit/s 6Gb £17.99 8 Mbit/s – £24.99 Pipex National None 12 months 8 Mbit/s 15Gb £19.99 – £24.99 AOL National None 12 months 1 Mbit/s – £14.99 2 Mbit/s – £24.99 8 Mbit/s – £29.99 BT National None 12 months 8 Mbit/s 6Gb £22.99 40GB £26.99 NTL 50% UK homes None 12 months 2 Mbit/s – £17.99 4 Mbit/s – £24.99 10 Mbit/s – £34.99
[Source: Enders Analysis based on company websites]
Figure 4: Residential broadband offers from major players ranked by price, October 2006. Source: Enders Analysis
16 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
4.13 BT has also announced that it will start to deploy FTTH, capable of delivering 100 Mbps+ in a limited number of green field housing developments in 200838. Virgin Media is also trialling 20-50 Mbps+ services using DOCSIS 2 technology on its Hybrid Fibre Coax (HFC) network. It is also looking at the potential of deploying DOCSIS 3.0 in the future. However, it has not yet made any public commitments to deploy these technologies on a wide scale or to extend the reach of its fibre based network reach beyond the current footprint.
4.14 Further investment over the next five years in faster broadband services is unlikely to change this patchwork of availability across the UK. Unless BT accelerates the deployment of fibre or Virgin Media accelerates the deployment of DOCSIS 3.0, broadband speeds available to most residential consumers will vary between 1 and 24 Mbps, depending on location, and these will be predominantly asymmetric. Only a very small minority of users on new housing developments will be able to access very high-speed symmetrical services (100 Mbps +).
Growing demand drives investment in access networks
Growing use of Improved networks applications and services support innovation in drives demand services & applications
Figure 6: The broadband ‘virtuous circle‘. Source: Broadband Stakeholder Group
1000.00 30
ADSL 25
750.00 ADSL2+ 20
500.00 15
10 Downstream Mbits Downstream 250.00 5
0.00 0 Nov97 Nov98 Nov99 Nov00 Nov01 Nov02 Nov03 Oct04 Oct05 0123456 Line length (km)
Figure 7: Aggregated traffic volume on the AMS-IX platform doubled in 10 months Figure 8: Maximum downstream speed of ADSL and ADSL 2+ by line length. between November 2004 and September 2005. AMS-IX Annual Report 200537 Source: Analysys
17 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
5. Predicting Demand for Next Generation Broadband
5.1 Making predictions about the demand and 5.3 The headline results, shown in the figure 5.4 These conclusions are significant, uptake for any new technology is fraught below, were that: because they suggest a level of demand with difficulty and predicting demand for by 2012 from the most bandwidth bandwidth is particularly challenging. By 2008, the bandwidth demand intensive households for both upstream Future demand will be dependent upon a for the most bandwidth intensive and downstream capacity that is beyond range of variables, some of which we households could reach 18 Mbps the capability of existing access know and can predict, others that we downstream and 3 Mbps upstream. infrastructures. It would require know but cannot predict, and some that significant investment in next generation we simply do not know. As a result, views By 2012, the bandwidth demand for the access to make such services available vary about the level of bandwidth that most bandwidth intensive households ubiquitously across the UK. customers will require in the future. could reach 23 Mbps downstream and 14 Mbps upstream. 5.2 Prior to the start of this review, the BSG undertook its own analysis of potential demand and published a ‘Green Paper’ in March 200639 which considered eleven different household types and their
possible consumption of bandwidth in 25 Two adults, with children both 2008 and 2012, assuming an Two adults, young couple Single male, tele-worker unconstrained availability of bandwidth at 20 affordable cost40. The analysis did not
attempt to make a commercial case for 15 New applications deploying such services or estimate the Increase
value to the UK economy of such services 10 Bandwidth being available. drivers Improved compression 5 Decrease Local storage Max. downstream bandwidth (Mbit/s) bandwidth Max. downstream 0 2008 2012
Figure 9: Maximum downstream requirements (three most bandwidth intensive households) Source: BSG/Analysys
18 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
Key sensitivities Consultation on the Green Paper Recent developments in IPTV
5.5 Since future bandwidth demand will be 5.7 The analysis presented in the Green 5.10 There is currently a huge amount dominated by applications and services Paper was widely discussed with of investment taking place in new built on video flows and large file stakeholders during the consultation broadband enabled IPTV services. Many transfers, these findings are particularly on this report. While recognising the players from across the telecoms, media sensitive to the assumptions made about difficulties in predicting both consumer and technology (TMT) value chain are the introduction of high definition (HD) behaviour and the course of technological looking to bring new IPTV services direct video and consumer tolerance of delay in innovation, many respondents thought to the consumer’s PC and/or TV. download times. There are a number of that the conclusions reached in the Green Companies investing in this space include mitigating factors that could significantly Paper appeared realistic, at least for the content owners, content aggregators, reduce the bandwidth required to deliver most demanding of households in the network operators and device these applications and services, such as: short- to medium-term. manufactures, as well as a plethora of software developers and online retailers. Non-time critical applications could be 5.8 In summary, we believe that demand for Competition for value added upstream delivered more slowly, which could bandwidth will continue to increase as services, such as IPTV, is therefore likely significantly reduce upstream suggested in the Green Paper, driven by to be intense. bandwidth requirements. the development of new innovative content, services and applications and 5.11 Network traffic over the internet is Advances in compression technology the much more extensive, and sometimes already dominated by video traffic, with could lower the video bandwidth simultaneous, use of these of the services most of it (estimates suggest up to 80 requirements. by households. We believe there is likely per cent) being driven by pirated content to be significant demand, from many being exchanged over peer-to-peer sites. Improved streaming technologies and households across the UK, for broadband content distribution networks may services in excess of 20 Mbps 5.12 The availability of HD content has the emerge that enable more efficient downstream in the medium-term. potential to dramatically increase these content distribution. traffic volumes. There are reports that 5.9 This does not mean that all households encryption on HD-DVD and Blue Ray The use of HD video flows might will immediately take up such services, formats has already been broken and develop more slowly than was assumed. nor does it mean that households will be 20 GB video files are starting to appear willing to pay a significant price premium on the internet. HD content that was The development of hybrid solutions for next generation broadband. But, previously unavailable can now be copied exploiting local storage and intelligent before NGA investment to meet such and sent around the world on the internet personal video recorders (PVRs) could demands can be justified, operators need for free. The IP Development Network has temper the downstream time critical to know how many households will form estimated that the cost for an ISP to peak bandwidth requirements of some the most bandwidth-intensive sector, and deliver two hours of 1080p HD content entertainment services. how many of those would be willing to would be £2.1041. High volumes of pirated pay a price premium for fast access. HD content being exchanged over peer- There may be lower than expected These are at present unknowns, making to-peer networks could impose demand for HD content. it difficult for operators to determine how unsustainable costs on ISPs. extensive a network may be required, 5.6 However, there are a number of other or to construct a business case for that 5.13 All of the large UK broadcasters are factors that could further increase deployment. experimenting with the development of bandwidth requirements: new IPTV platforms, and services such as YouTube are looking to move from video Innovation is likely to lead to the clips to full format content. Many of these emergence of new unforeseen services IPTV services, including the BBC’s iPlayer, that could increase the requirement for Joost and Babelgum, will exploit peer-to- concurrent flows. peer architectures for distribution. This will put increasing pressure on the The development of user-generated upstream capability of access networks. content and peer-to-peer services and distributed business applications is 5.14 Currently, many investors developing likely to increase demand for upstream upstream services and applications simply as well as downstream bandwidth. assume that the market will deliver sufficient capacity in the access network to support their services. To a large degree, they are unaware of the commercial and regulatory issues further down the value chain that could hold back the deployment of next generation broadband access in the UK.
19 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
6. Next Generation Broadband Technologies
Definitions 6.3 We agree that this general definition is Cable (Hybrid Fibre Coax – HFC) probably most appropriate in order to 6.1 Defining broadband has always been progress the discussion on next 6.5 The cable network owned and operated by difficult. In 2001, the BSG agreed a generation broadband at this stage. In Virgin Media, which is available to just over ‘dynamic’ definition of broadband that practice this general definition currently 50% of UK households, is effectively a next was technology neutral and focused on suggests services that are capable of generation access network. However, Virgin the service characteristics required to providing in excess of 20 Mbps Media does not yet offer services above 10 utilise innovative forms of content, downstream (which would be sufficient to Mbps (although it is currently trialling a 50 services and applications rather than support services such as multiple HDTV Mbps service). In the cable network, fibre is specific peak rate access speeds: feeds using MPEG4, broadband internet deployed to the street cabinet (typically and voice services) as well as faster serving around 500 customer premises) and ‘Always on access, at work, at home, or on upstream access capable of supporting an combined coaxial cable and copper pairs are the move provided by a range of fixed line, increasing range of peer-to-peer deployed over the last few hundred metres wireless and satellite technologies to applications and interactive and user from the cabinet to the customer premises progressively higher bandwidths capable of generated services. to provide DTV, broadband and fixed supporting genuinely new and innovative telephony services. Cable uses DOCSIS- interactive content, applications and services Technology evolution based technology, the latest version of which and the delivery of enhanced public (DOCSIS 2.0) is capable of providing 20- services42.’ 6.4 There is a range of technologies capable 50Mbps downstream and potentially up to of delivering next generation broadband. 30 Mbps upstream. However, the next 6.2 For the purpose of its Next Generation Some are effectively evolutions of generation of DOCSIS (version 3.0, which is Access discussion document, Ofcom took a existing access infrastructures that have expected to be commercially available from similar approach to developing a general already been deployed (copper and late in 2008) could offer 220 Mbps definition of next generation broadband: cable), while others would involve the downstream and 120 Mbps upstream. Cable deployment of entirely new physical services are contended at the street cabinet ‘Broadband access services that are infrastructures. (i.e. a number of customers will capable of delivering sustained simultaneously share capacity at each bandwidths significantly in excess of cabinet). This will reduce the average peak those currently widely available using access rate available to any single customer. existing local access infrastructures and technologies.’ 43
20 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
6.6 In order to deploy DOCSIS 3.0, Virgin Asymmetric Digital Subscriber Line 6.12 The signal to noise ratio on any given Media would have to invest in new head- (ADSL and ADSL 2+) copper line in the access network can end equipment and upgrade the customer vary for a number of reasons: premises equipment (CPE) (customer 6.9 Most broadband connections in the UK cable modem/set top box). Although are currently provided using Asymmetric the length, quality and dimensions of actual costs are not yet clear and are Digital Subscriber Line (ADSL) technology the copper cable likely to decrease over time, an assumed over copper telephone wires. ADSL the amount of crosstalk (directly CPE upgrade cost of between £150-£200 services are available to 99.6 per cent of related to ‘cable fill’, the proportion per customer, would involve an UK households, offering a minimum of of pairs in the cables carrying DSL) investment of around £600 million in CPE 512Kbps and a maximum of 8 Mbps noise from sources in the home or costs alone. depending on copper line length and premises (including home wiring) other factors (see below). ADSL services noise picked up from the environment, 6.7 Given that most customers are less than are asymmetric, meaning that upstream eg radio frequency interference 500 metres from the street cabinet, speeds are significantly lower than any faults that might be present. Virgin Media could also deploy VDSL (see download speeds. below) from the street cabinet to the Geographic coverage achieved at a given customer premises on the copper pair 6.10 Several LLU operators, including Sky headline speed also depends on: portion of the HFC cable, which could (Easynet), Carphone Warehouse and O2 offer 20-50 Mbps symmetrically, and (Be)44 have deployed or are deploying the topology of the access network possibly more. As mentioned, above the ADSL2+ technology in some exchanges. the statistical distribution of line impact of contention will lower these ADSL2+ can provide up to 24 Mbps subject lengths. headline peak access rates in practice. to line length and other factors. Sky has announced that it is currently deploying 6.13 Although it is difficult to predict the other 6.8 While Virgin Media is exploring options to LLU in 771 exchanges and is aiming for 70 factors that affect the signal to noise extend its geographic reach, per centcoverage of the UK by the end of ratio, it is possible to estimate broadband commentators argue that it is more likely June 2007. Carphone Warehouse, with the performance by line length. According to to pursue an off net strategy using recent acquisition of AOL Broadband, is telecoms consultants, Point Topic, only 5 wholesale products provided by other targeting unbundling at 1000 exchanges by per cent of end users have local loops of operators rather than invest in further May 2007. BT will start to deploy ADSL2+ 1200 metres or less, 45 per cent have extending its HFC network. Off net in 2008 with the service being available to 3km or less, and 85 per cent are within options have the advantage of requiring half of UK homes from launch45, with 5km. The median line length in the UK is significantly lower capital investment. national deployment to be completed by estimated to be 3.25 km. However, no announcements have been the end of 2011. made in this regard. 6.14 Drawing from data provided by Point 6.11 International experience suggests that, Topic and others46 it is possible to in practice, the maximum line speed approximate the percentage of users that achieved over ADSL2+ seems to be about will have access to different service levels 18-20 Mbps downstream and 800 Kbps (bandwidths) from ADSL and ADSL2+. upstream. However, only a minority of users will be able to access even these headline speeds as performance on any given copper line depends upon the signal to noise ratio at the end of that line.
7 100%
6 80% 5 ADSL ADSL2+
4 60%
3 40%
Loop length (km) Loop 2
20% 1
0 0% 515253545556575859599 512k 2Mbs 4Mbs 6Mbs 10Mbs 15Mbs 24Mbs Percentage coverage of population Source: Point Topic, after BT
Figure 10: Distribution of telephone line (local loop) length in the UK. Figure 11: Peak rate access speeds of ADSL and ADSL 2+ available Source: Point Topic to UK households
21 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
6.15 This data suggests that 40 per cent of 6.22 The deployment of VDSL therefore Technology Incremental cost Cost to deploy to households will benefit from higher requires both the deeper deployment per household 90% households broadband download speeds through the of fibre and the provision of new street in UK (H) in UK (H) deployment of ADSL2+ (8 Mbps and cabinets that will need to be powered and above). However, only 10 per cent of secure. While FTTC/ VDSL does allow the ADSL2+ H60 H households would achieve 20 Mbps+. These possibility of competition through sub FTTC 300 FTTH H1000 H14 bn estimates are close to BT’s own estimate loop unbundling, the proliferation of
that 50 per cent of UK households will be street furniture may not be seen as Figure 12: Predicted deployment costs. able to access 8 Mbps or more47. desirable and access to limited space Source: Enders Analysis within street cabinets is likely to prove a 6.16 As a consequence of the above, there will practical inhibitor to sub loop unbundling. be an enduring patchwork of performance 6.27 Under current commercial and regulatory and availability, subject to line lengths FTTC and wireless conditions and in the face of demand and user density. uncertainty, FTTH is therefore probably 6.23 An alternative scenario could see an only commercially justified for new build 6.17 However, ADSL2+, when used in extension of fibre deeper into the access and very high-density areas at this stage. combination with a terrestrial or satellite network and then the use of wireless However, this could change. Digital Television (DTV) receiver and a solutions such as Wi-Max (IEEE 802.16) PVR-type local storage device, does and/or local/municipal Wi-Fi 802.11g or e, FTTH network options provide an effective solution for providing rather than copper, to provide the final time-shifted, on-demand, interactive DTV customer connection. However, this 6.28 A number of different network options services at a relatively low cost, making it would be dependent upon the availability can be used to deploy FTTH. Current an attractive option for companies of appropriate spectrum. For more on options include: passive optical networks wanting to offer new interactive TV-like wireless, see below. (PONs), Ethernet-based point to multi- entertainment services. point PONS and, ultimately, point-to-point Fibre to the Home (FTTH) fibre. These options each have 6.18 ADSL2+ is still an asymmetric service advantages and disadvantages for and, therefore, has limited capability to 6.24The deployment of fibre to the home is operators but can also have important support high-speed peer-to-peer services regarded as the ultimate next generation implications on the options for wholesale and other business applications that broadband solution. FTTH would be a one- and service competition. require higher upstream performance. off investment that could be exploited for None of the manufacturers we have many decades to come. Continued PON (Passive Optical Network) spoken to envisage any further innovation in fibre optic technology technological innovation that would means that once an end-to-end fibre 6.29A passive optical network (PON) is a increase the speed of DSL services over connection is in place, the local access system that brings optical fibre all or long line lengths. layer would no longer be a constraint in most of the way to the end user. It is a the network. point to multi-point topology typically Fibre to the cabinet (FTTC) and VDSL involving a single strand of fibre from the 6.25FTTH is regarded as more secure than local exchange to a passive optical 6.19 The natural evolution from the existing other options as it does not require active splitter in street furniture where its signal copper-based local access infrastructure street cabinets and the long-term is split to, for example, 32 different lines would involve the extension of fibre from operating costs would be lower than for to customers. the local exchange to the street cabinet other technology solutions. However, the and the use of VDSL to connect from up front capital costs of deploying fibre 6.30Currently, different PON-based systems there to the customer premises. would be very significant. are evolving. For example, North America is using Broadband PON (BPON) and 6.20VDSL can provide a significant 6.26In its report, ‘Very High Speed GigabitPON (GPON) and, in Japan, improvement in bandwidth over short Broadband: A Case For Intervention’, an Ethernet-based approach (EPON) is distances. According to the DSL Forum published in January 2007, Enders emerging. Typically, GPON can provide the peak access rate/distance Analysis49 estimated that, in comparison significant upstream and downstream relationship for VDSL is: to the incremental costs per household of bandwidth around 2.5 Gbps for localised H60 (£45) for ADSL2+, those costs could sharing providing up to 80 Mbps per 12 Mbps up to 1500 metres be around H300 (£250) for FTTC and user50. 26 Mbps up to 1000 metres H1000 (£800) for FTTH. They estimate 52 Mbps up to 300 metres the cost of deploying FTTH to 90% of UK Ethernet PON households to be H14bn. In large part this 6.21 DSL achieves these high bit rates by is due to the extensive civil infrastructure 6.31 The Ethernet PON is still a point-to- using more effective modulation required for its deployment (estimated to multipoint architecture, which uses an techniques and better frequency be up to 70 per cent of the overall costs). aggregation Ethernet router located in spectrum usage. Further evolutions of the These estimates do not include the the street cabinet, compared to PON, VDSL standard will be able provide even additional backhaul or core network costs which uses a passive splitter at this higher speeds over short distances48. that would be associated with such aggregation point. The final drop can still However, performance drops over longer investment. This estimate seems use copper. loop lengths, meaning that the access reasonable or possibly low given that nodes need to be located in street given the UK cable industry spent over 6.32 PONs are often seen as commercially cabinets or in-building i.e., closer to the £12bn to deploy the existing HFC attractive because they require less fibre customers’ premises rather than at the networks across 50 per cent the country. and no active equipment in outside plant. local telephone exchange. However, there is still a degree of risk of
22 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
contention in future due to the sharing of the impact of regulation applied to in-fill solution for locations that terrestrial the single fibre depending on the use by the spectrum, which could make it solutions cannot serve and is unlikely to customers beyond the optical splitter. unsuitable for some high-value provide an end-to-end solution for next content types. generation broadband. Point-to-point Mobile Other technology solutions 6.33 A point-to-point architecture involves a single connection to every customer’s 6.37 Mobile networks will also deliver faster 6.42In parallel with the development of the premises and is often regarded as peak rate access speeds. 3G using above access network options, network representing the most future-proof WCDMA will be able to offer 2-2.4 Mbps operators and service providers are using solution as it can provide virtually (although this could average out at 400- other solutions to improve performance unlimited bitrates to users. It also would 500Kbps due to contention between and manage bandwidth demands, such as enable fibre unbundling, which could users on the network at any time). localised caching and traffic load ultimately be an attractive option for Beyond this, 3G using HSDPA will offer 4- management including bandwidth caps. wholesale competition. 14 Mbps but average out at 1-2 Mbps and Such technologies could mitigate the 3.5G and Super 3G will offer up to 100 need for network upgrades in the short- Wireless Mbps but average out at 20 Mbps. to medium-term. (The implications of this are discussed in chapter 5). 6.34There is a great deal of interest in the 6.38Manufacturers and operators are potential for new wireless technologies to currently working on the Long Term Practical barriers provide alternative solutions for end-to- Evolution (LTE) for mobile, which could end next generation broadband access. lead to the development of much faster 6.43All access networks require some degree New broadband wireless access mobile services. However, these are not of passive/civil infrastructure. This is the technologies such as WiMax and WiBro expected to reach the market before the most significant element of capital are being deployed in a number of middle of the next decade, at the earliest. investment and the least replicable part different ways to provide higher To deliver higher bandwidths using LTE of an access network. There may be bandwidth services. However, it is unlikely would require additional spectrum (for various ways of reducing this barrier, by: that these solutions will replicate the example, 100 Mbps would require performance of the other next generation 2x20MHz compared to 2x5MHz for making better use of existing passive technologies described above51. Much of WCDMA today). LTE is not, therefore, infrastructures wherever practicable, the commercial interest lies in their expected to compete as a complete recognising the difficulties associated potential to provide mobile broadband in substitute for fixed next generation with duct sharing, although these will high-density urban areas using, for broadband. vary on a case-by-case basis and are example, the 802.16e standard, rather being actively addressed in other than as a direct substitute for fixed next 6.39However, the long-term evolution of countries, such as France. generation broadband access. mobile services could increase the mobile operators’ needs for fixed infrastructure considering whether new passive 6.35Wireless technologies can also be used to deeper into local areas. Mobile operators infrastructures should/could be provide broadband wireless access in could therefore benefit from the provided on a ‘multiple-user’ basis so rural areas. They can and are used to availability of wholesale next generation that infrastructure competition can be provide backhaul solutions, fixed link access products, if they were available, to provided without replicating all network components in the access network, or provide base station backhaul. elements. wireless access connections to the end user. If WiMax or other solutions are Satellite considering funding options for such adopted on an international scale, infrastructures, for example whether equipment costs will fall, making them 6.40Although satellite is used primarily as public sector funds could be directed more affordable as local access solutions. a platform for delivery of broadcast towards this area (in the form of services (e.g. from BSkyB), which can be public/private partnerships) rather 6.36However, there remains considerable used in conjunction with a terrestrial than towards complete networks, uncertainty about whether sufficient return path to provide interactivity, although each case should also be appropriate spectrum will be available to satellite providers, such as Astra, also considered on its merits. support such services. There are a provide two-way products that allow number of factors that could inhibit the broadband services to be provided to considering whether alternative ducting availability and/or use of suitable individual users. These are of particular approaches could reduce costs. For spectrum: relevance where first generation example, could the £100,000/km cost terrestrial ADSL or cable services are which has been quoted to us as a typical the timing of the release of spectrum unavailable. However, current products figure be reduced to, say, £30,000/km from other uses tend to be relatively narrow band52. with micro-ducting approach.
the volume of spectrum needed to 6.41 Satellite services have relatively high considering how other issues, such as provide very high bandwidth data rates latency (a delay in signal transmission) transport and non-domestic rating in local areas, or even for backhaul compared with other terrestrial solutions, regulations, could be eased to limit the where fixed network capacity might not which can be problematic for some cost of provision of these be available applications. They are also likely to infrastructures. remain relatively expensive compared to the suitability of the frequency band the existing terrestrial current generation for access solutions (depending upon broadband alternatives above. Satellite is, radio propagation characteristics) therefore, likely to remain an important
23 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
Conclusions 6.47Further planned investment over the next five years in faster broadband services is 6.44As demand for bandwidth continues to therefore likely to lead to a patchwork of increase, driven by the availability of new availability across the UK. Unless BT or innovative content, services and another operator accelerates the applications, broadband operators will deployment of fibre or Virgin Media continue to invest in new broadband accelerates the deployment of DOCSIS access technologies. Several LLU 3.0, broadband speeds available to most operators are already deploying ADSL2+ residential consumers will vary between 1 technology in local exchanges and will be and 24 Mbps, depending on location. It is able to deliver peak rate access speeds likely that only a very small minority of up to 24 Mbps downstream and 1 Mbps users, on new developments will be able upstream to residential customers. to access very high speed symmetrical BT has also announced that it will start services (100 Mbps+). nationwide deployment of ADSL2+ in 2008 and will complete deployment in 6.48There is a range of technologies capable 2011. However, ADSL2+ performance of delivering next generation broadband. decreases over distance, only a small Although wireless technologies will play a number of customers living very close to part, next generation broadband will their telephone exchange will be able to require the deployment of optical fibre access these headline speeds. BT deeper into the local access network, estimates that 50 per cent of users will either to the street cabinet or directly to be able to get 8 Mbps or more, with the the customer premises. This will require a majority receiving between 8-12Mbps huge capital investment. The cost of downstream. providing fibre to the home to 90 per cent of UK households has been 6.45BT has also announced that it will start estimated to be some H14bn. to deploy FTTH, capable of delivering 100 Mbps+ in a limited number of green field housing developments in 2008. Virgin Media is also trialling a number of upgrade technologies, including DOCSIS 2 which could deliver 20-50 Mbps+. However, it has not yet made any commitments to deploy these technologies.
6.46Despite continued innovation and investment in new fixed and mobile ‘Further planned investment wireless technologies, they are not expected to provide end-to-end over the next five years in substitutes for ‘last mile’ next generation broadband due to spectrum constraints. faster broadband services However, new wireless technologies may be incorporated into mixed technology solutions where the final connection is is therefore likely to lead to provided wirelessly to the end-user over a very short distance. a patchwork of availability across the UK.’
24 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
7. Commercial Challenges
7.1 While the move to next generation The broadband incentive problem 7.5 These structural and behavioural changes broadband may, in some ways, appear suggest that broadband traffic is different a natural evolution of the fixed broadband 7.3 Increased competition is not the only from narrowband traffic in several ways: market, it is in fact a much more complex problem that broadband operators face. and challenging transition dependent upon A 2005 White Paper53 published by the The dispersion among users will be a broad range of commercial factors, MIT Communications Futures Programme greater as penetration increases and market conditions and regulatory decisions. argued that broadband faces a crisis. the customer base comes to reflect the Today’s prevailing business models, diversity of the general population. 7.2 The traditional business models that have they argued, give wired and wireless sustained telecommunications services broadband operators little incentive to Convenience of always-on and the (voice minutes) and commercial free-to- invest in the new network upgrades availability of usage intensive air television (advertising) are coming necessary to support new innovative applications causes average traffic under increasing pressure as broadband high-bandwidth uses of the internet. per user to increase. enables new competitors to launch innovative services, such as voice and TV User behaviour is changing 7.6 These changes are more than over the internet. The telecoms, media hypothetical. In the most mature and technology (TMT) sector is 7.4 While popular flat fee pricing models have broadband markets, the mean traffic converging around a similar set of encouraged penetration, they have also per user is rising rapidly and aggregate services and applications. This means that led innovative users to adopt bandwidth- network traffic continues to increase, an increasing range of companies are intensive behaviours that impose even when subscriber growth slows now competing for revenue, including additional costs on network operators. As as the market moves toward established broadband operators, altnets, broadband diffuses in the market place, a saturation point. mobile operators, broadcasters, virtual growing number of users can be expected network operators, new media to exploit the capabilities offered by high companies, online retailers, and new peak rates. Some do this occasionally but wireless entrants. The business case for others are now doing it routinely54. next generation access therefore depends upon the structure and conditions in all of these related sectors.
25 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
Increasing broadband traffic raises Challenges for current revenue models Pricing tiered by traffic volume: operators’ costs 7.12 The simplicity and predictability of flat Access pricing schemes that 7.7 The cost of increased usage can take the fee pricing makes it very appealing to differentiate price tiers based on the form of operational or capital expenses. customers, which is particularly important monthly volume of traffic are becoming Additional capital expenses are required at the early stage of market development more common. Since the volume of when design limits are reached in the when penetration levels are increasing traffic is more closely related to the network components that the access rapidly. However, this ‘all you can eat’ providers’ costs, volume tiered pricing provider owns, such as in the internal model is likely to prove problematic in the has the potential to better align user access and aggregation network. long term, as a small minority of and provider incentives. However, the bandwidth intensive users can cause number of bytes sent and received by a 7.8 Operational expenses arise when access aggregate usage to keep rising even as digital communications application is providers lease capacity from others, penetration rates and corresponding largely invisible to, and beyond the such as for the communication links for revenues flatten out. As bandwidth control, of users. Fees based on actual backhaul transit. Increased usage can intensive behaviours and applications usage could therefore create a also raise operation expenses under other diffuse further into the customer base, disincentive for users to use and forms of operator interconnection. The this problem will get worse. If broadband explore new innovative services. rapid adoption of new applications that operators are not able to move away change the balance of the traffic flow, from flat rate pricing, they are likely to be Pricing tiered by quality: such as peer-to-peer video applications, motivated to limit rather than encourage can create operational expenses where many innovative uses of the network Operators may also be able to price none were expected. through traffic shaping techniques. their products on the basis of quality differentiators other than speed. Current broadband revenue models Can broadband operators move away from However, possible differentiators, such flat rate pricing? as contention ratios, tend to be highly 7.9 All broadband operators derive revenues technical and are not currently easily directly from the provision of network 7.13 As the broadband user base becomes understood by consumers. access to customers (although these more diverse, one-size-fits-all pricing may charges are sometimes bundled into a become less desirable and more difficult 7.14 However, despite the existence of these wider package of services). Some also to sustain. Broadband providers are pricing structures, consumers still find derive revenues in other ways, including increasingly using price to shape user the simplicity and predictability of flat directly from the customer for other behaviour as a solution to the problem rate very attractive and intense value-added services, or indirectly from of rising usage costs. Applied correctly, competition between broadband service other players in the value chain. these more sophisticated pricing providers makes it difficult for operators approaches should allow willing users to to unilaterally move away from this Access-based revenues pay more for traffic that costs more, thus approach. generating revenues needed for ongoing 7.10 Flat fee pricing is currently the dominant operator investments in network capacity. Recovering usage costs from non-access- industry model. Customers are given a There are a number of possible pricing based revenues choice of different recurring fees. Prices structures. are usually differentiated on the basis of 7.15 The two sources of non-access-based the peak access bit rate, overall monthly Pricing tiered by peak rates: revenues most commonly cited are traffic volume or both. However, volume- vertical integration and payments from based price tiers are not common. Where Where next generation broadband third-party affiliates. they do exist they are nominal and actual services have been deployed around enforcement can be quite variable55. the world alongside first generation Vertical Integration broadband services, there is not much Non-access-based revenues evidence to suggest that operators 7.16 Operators hope to be able to capture have been able to achieve a significant additional revenues by vertically 7.11 Non-access-based revenues come in price premium for the higher peak integrating into the provision of value many forms, although there are two that rate services56. added services and to use these revenues are seen as critical to the broadband to offset any additional costs imposed by incentive problem: vertical integration Peak rate tiers are not actually a very growing broadband traffic. into value-added services (VAS) and good proxy for the costs imposed by payments from third party affiliates. user traffic. In particular they do not protect broadband operators from high Value added services could include volume users. This problem will become Voice over IP, additional security and worse as broadband speeds increase. support services or IPTV type Peak rate tiering exposes operators to entertainment services. risk from heavy users since, as capacity expands, such users are capable of Third party affiliate payments can take sending ever larger volumes of traffic. various forms, including revenue share This increased risk creates a in return for promotion of an upstream disincentive for providers to make their service or application or where access networks capable of much operators offer content providers higher peak rates. different levels of quality of service to deliver their applications to consumers.
26 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
7.17 Vertical integration can bring a number of 7.19 However, the very different market Conclusion benefits to operators, including conditions in the UK mean that the economies of scope, where retailing costs debate about these issues has been much 7.23 The ‘all you can eat’ pricing models that are shared across a number of products less polarised. Many commercial players are common today create incentives for and services. Vertical integration can also across the value chain recognise that providers to limit broadband usage help broadband operators expand their traffic prioritisation could enable the growth rather than invest to support market reach and differentiate delivery of differentiated higher quality it. These incentives, while rational for themselves. There is evidence in the services to end consumers. If such broadband operators, are likely to be mobile and pay TV markets of companies agreements are offered on open, non- damaging for users and other upstream successfully raising ARPU through discriminatory terms, transparent to value-chain participants, as they will vertical integration. Service bundling can consumers and if effective service break the broadband virtuous circle. also help to reduce customer churn. migration (switching) agreements are in However, successful vertical integration place to protect consumers, it may be 7.24 In order for operators to have more also requires significant investment in that many of the perceived concerns confidence in their ability to recoup content acquisition and brand about traffic prioritisation could be investment, business models need to development, suggesting that scale will mitigated. Whatever the sector specific align interests across the value chain be critical to any vertical integration regulation, operators are likely to find by enabling monetization of usage that strategy. themselves constrained to some extent imposes costs on providers. Solutions by competition law in this regard. that achieve this alignment will produce 7.18 In addition, vertically integrated the revenues necessary to support operators will face significant market 7.20Another potential disadvantage is that ongoing operator investments, enabling competition for value added services. many bandwidth intensive applications innovation and growth to continue in all Broadband operators have to compete currently have no revenue generating parts of the value chain. with other providers of ‘over the top’ potential. Peer-to-peer applications that broadband-enabled value added services, are bandwidth intensive, such as 7.25 While the public value of next generation such as third party VOIP providers, BitTorrent or podcasting, have no broadband for society and the economy broadcasters and content aggregators, as potential for cost recovery by the as a whole is potentially high, the large well as other platforms such as free-to-air broadband operator. With no way to scale of investment combined with the terrestrial and satellite DTV services. 77 recover the costs imposed by bandwidth- significant number of uncertainties per cent of UK homes have some form of intensive applications of this sort, surrounding the prospects for recouping digital television. 3 million digital cable, providers will have every incentive to that investment, mean that the potential 7.9 million satellite, 8.5 million Freeview57. block the development and use of such private value available to investors is This competition will constrain the applications, despite their obvious value comparatively low. broadband operators’ ability to price their to users and innovators upstream59. VAS and limit the potential revenues 7.26 This gap between public and private value available to offset bandwidth costs. Engineering solutions is important given that the current to reduce traffic costs infrastructure, and planned investment in Payments from third party affiliates that infrastructure, seem unlikely to be 7.21 Economies of scale and price reductions able to support the probable demand for 7.18 Broadband operators may seek to over time resulting from technical bandwidth in the medium- to long-term. If negotiate commercial agreements with innovation, will reduce the cost of the UK wishes to be in the position to be content owners or content aggregators to delivering individual bits of traffic. able to capitalise on the potential benefits provide guaranteed quality of service. However, evidence suggests that the of next generation broadband, and retain Concerns about the implications of traffic rate of decline in costs is likely to be its position as a global knowledge prioritisation have led to calls for outstripped by the rise in traffic volumes. economy leader, steps will need to be regulatory intervention in the US to taken to address this imbalance which ensure so called ‘net neutrality’. 7.22 Local caching and mirroring techniques accelerate private investment. Revenues from third party affiliates may can also be employed to use existing be limited by actual or threatened legal or network capacity more efficiently by 7.27 The evidence base needed to assist in this regulatory interventions if it is evident moving ‘commonly accessed’ content decision-making process is limited at that operators have rational incentives to closer to the user. However, trends present. However, over the next two block or degrade third party applications towards increased personalisation and years, the picture is likely to become or services58. customisation, such as ad-insertion and clearer, as international deployments of videoconferencing, may limit the potential next generation broadband accelerate of technical solutions to offset the overall and as demand for high bandwidth impact of non-revenue generating traffic becomes more evident as a new wave of growth. Cutting costs is likely to be part bandwidth intensive services come to of the solution to the incentive problem, market. For this reason, we believe that but is unlikely to be enough in itself. there is a limited window of opportunity over the next 12-24 months in which to develop and implement a concerted and innovative approach to regulation and policy making to create the right balance of investment incentives and competition that will enable a market led transition to next generation broadband.
27 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
8. Regulatory Challenges
8.1 It is not yet clear how next generation 8.3 In the US, investments in local access 8.5 In Hong Kong, the regulator has scaled broadband services should be regulated. fibre infrastructures are completely back the more prescriptive ex-ante A number of initial regulatory approaches exempt from regulation and obligations regulation and is progressively replacing have been taken to enable the requiring incumbents to grant it with ex-post competition law where deployment of next generation competitors access to existing copper possible. Unbundling obligations on FTTx broadband access networks across the infrastructure have been largely reduced. are being phased out on the grounds that world, which have sought to strike a This decision by the FCC was justified by new network investments will only be balance between incentivising efficient the existence of extensive competition made if operators are allowed to achieve investment and ensuring effective from cable; a belief that the negative returns commensurate with the risks competition. consequences of regulation would involved. Once again, strong cable outweigh the negative consequences of competition was critical in allowing the Deregulation dominance; and an assumption that regulator to take such a laissez-faire market forces and technology would approach. 8.2 The most developed next generation reduce the market power of dominant broadband markets tend to be those players over time. 8.6 In all three cases, this deregulatory where, as a result of legacy regulation approach has had the desired effect of and investment, there is a high degree of 8.4 In Canada, a Regulatory Review Panel accelerating NGA investment decisions. competition for high speed broadband was set up to explore regulatory A 2006 study by the LSE concluded that access from cable. In several such approaches to infrastructure provision. incumbents’ investments in deregulated markets, recognising the need to Again, with extensive competition from markets in the USA and Canada exceed incentivise investment, regulators have cable the panel recommended that the investments in the EU’s more regulated decided that the existence of platform regulatory framework should focus on environment60. competition enables them to take a encouraging facilities-based competition laissez-faire approach to the regulation of and move away from unbundling (based new access networks, thus increasing the on the ladder of investment principle), incentive for incumbent operators to because, it was argued, it could invest in NGA deployment. Examples of undermine the achievement of facilities- countries taking a deregulatory approach based competition. include the US, Canada and Hong Kong.
28 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
8.7 In the Netherlands, with its high Regulated competition – the ladder 8.12 Already a successful LLU operator, Iliad population densities and strong of investment decided it could achieve sustainable first infrastructure competition between KPN, mover advantage in the triple-play (HDTV, the incumbent operator, and cable 8.10 Deregulation clearly works as a way of broadband, telephony) market in the (involving operators such as UPC and increasing the regulatory incentives to Paris region by being the first operator to @Home (previously known as Essent, bring forward NGA investment. However, deploy fibre to the home. Critical to this which has also recently merged with as the German example shows, it is much decision was the fact that DTV take-up in Casema and MultiKabel)), numerous next more difficult for regulators to take this France is comparatively low (35 per cent) generation broadband projects are approach in markets where there is and the ability of Iliad to secure underway, including some municipal limited competition from another fixed alternative wayleave access via the projects. These investments have not access platform (cable), as it risks sewage network, which significantly required significant regulatory incentives, undoing the benefits delivered by the reduced the capital cost of network although it is still unclear to what extent legacy approach of ex ante regulation, rollout. Following Illiad’s announcement OPTA, the regulator, will impose and effectively handing back monopoly Neuf Cegetel has also announced FTTH wholesale obligations on both platforms. power to the incumbent. deployments in Paris and other major metropolitan areas. 8.8 In Belgium, regional cable companies 8.11 A more sophisticated and nuanced have been deploying next generation regulatory approach is, therefore, required 8.13 However, this is the only country where broadband services based on EuroDOCSIS in markets with limited infrastructure altnets are climbing the ladder of 2. In the face of such competition, competition. The approach taken in Europe investment to NGA deployment, and in Belgacom has begun upgrading its has been based on the ladder of the vast majority of cases across Europe network to provide VDSL. Once again the investment concept. This was introduced alternative operators are designing their national regulator has taken a laissez- as the theoretical basis to argue that businesses around one of the existing five faire approach, for similar reasons to the alternative operators would move up the options and have expressed little interest FCC, and has not, so far, imposed any infrastructure ladder on the basis of five in moving higher up the ladder. The regulatory obligations on Belgacom to regulated forms of competition, including consequence of this is that competition offer wholesale access to this upgraded DSL resale, Bitstream, shared access, LLU, predominantly takes place on the existing network. However, it is understood that and naked DSL. This concept foresaw that infrastructure platform. Many observers the Belgian regulator is currently the five options would offer scope for argue that the ladder of investment will considering whether to impose access service differentiation giving altnets an only encourage altnets to deploy NGA in a obligations upon Belgacom. incentive to move up the next rung of the very limited number of situations where ladder and finally roll out their own other market factors and incentives are 8.9 The German government has also taken infrastructure. So far, the only example of particularly strong, as in the case in Iliad’s the view that stronger incentives are an altnet moving up to the deployment of announcement. required to enable the deployment of fibre is Iliad in France, which announced its next generation broadband services (in intention to deploy FTTH in Paris in 2006. this case VDSL). However, their decision to provide a regulatory holiday for Deutsche Telekom, through time limited forbearance of unbundling obligations on any new FTTx/VDSL services, is considerably more controversial due to the absence of any significant high speed broadband platform competition from cable61. The German approach is currently being challenged by the European Commission on the grounds that it contravenes the current EU Telecommunications Framework. Free will provide FTTH service at H 29.99 per month incl.:
• Unlimited very high speed access (50Mbps) • Free phone calls to French and selected international landlines Cover 4 Million households • HDTV • Offer will address residential • Over 10 million households and SME markets • Paris and suburbs, boroughs Ultra high bandwidth options of other cities (100Mbps+)
Free migrate 100% of its existing ADSL subscribers in fiber areas
Figure 13: FTTH deployment announcement by Iliad in France. Source: Iliad
29 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
Ofcom’s discussion document – key How should the market for NGA be defined? Will NGA constitute an enduring regulatory issues to be addressed economic bottleneck? 8.17 In addition to access, the business case 8.14 Any new regulatory framework will need for NGA will depend upon the market for 8.19 Wireline networks have traditionally been to strike the right balance between a wide range of value added services. viewed as enduring economic bottlenecks incentivising efficient investment and While there may be a limited number of and have been regulated accordingly in ensuring sustainable competition. As direct competitors providing end-to-end order to enable competition in the Ofcom’s recent discussion document on NGA services, there may be other partial delivery of services at retail and the ‘regulatory challenges posed by next competitors, making large scale interventions, wholesale level. The extent to which this generation networks’ highlighted, there capable of exerting significant influence on continues to be the case for next are many complex issues to be addressed. the behaviour of the NGA operator. generation access has yet to be The following section provides some determined. However, because of the initial responses to the questions posed 8.18 A NGA business case may depend upon high cost of the civil works required it by Ofcom. an operator’s ability to: seems likely that NGA infrastructure could become a non-replicable asset in What is the potential for widescale gain a price premium for next the long-term. competition in NGA deployment? generation broadband access service (versus current generation products) 8.20While next generation access networks 8.15 Currently, no UK operators have indicated gain a price premium for next may have the potential to become an an intention to deploy a national NGA generation access (versus current enduring economic bottleneck, initial NGA network. Given the high capital costs broadband access) deployment is likely to be small scale and involved and the substantial commercial provide new Value Added Services experimental, and national NGA risk in deploying a NGA network, it is increase market share at wholesale deployment will take time. In the short likely that, even in more densely or retail level term, if an NGA network co-exists with populated areas, there will only be a gain revenue for carriage from current generation access networks, it limited number of scale operators application or content providers. may not necessarily constitute a providing these services. However, if bottleneck. Regulators could take a Virgin Media and BT were to emerge as This suggests that the market should not relatively relaxed view on wholesale competitive NGA operators it would mean be defined too narrowly. More market access obligations and retail pricing while that competitive facilities-based services players will need to be taken into account operators are exploring options and would be available to half of the UK when assessing the level of prospective testing possibilities. We should not market. Nevertheless, it is clear that in competition and dominance findings on assume the existence of enduring some low-density areas, there may be any relevant next generation market. In economic bottlenecks prematurely. only one facilities-based provider of next determining a regulatory framework for generation access services. This suggests NGA, Ofcom needs to take account of the 8.21 In some countries, overhead distribution that there may be a case for impact of its approach on these business or alternative wayleaves (such as canals, geographically-differentiated regulation. case drivers. Working together with sewers and other utilities) have lowered operators and regulators, public sector the civil works part of the overall capital 8.16 New broadband wireless access bodies should explore potential models costs. This suggests that enduring technologies are being developed and for targeted, effective and well timed economic bottlenecks may not be the deployed in a number of different ways to interventions, which may be more widely network as a whole but may actually be a enable access to higher bandwidth applicable in due course. component of the network, i.e., the civil services. However, it is unlikely that these component. However, such options seem solutions will replicate the performance limited in the UK (see below) and so the of the other next generation underground duct network is likely to technologies. Nevertheless, wireless remain a non-replicable asset. technologies will form an important part of the technology mix and priority should 8.22Nevertheless, any determination of be given to the availability of sufficient Significant Market Power (SMP) will appropriate spectrum to support these ultimately depend upon the market services. Some of these wireless definition employed. As described above, technologies may seek to exploit narrowly defined market definitions will next generation broadband access make a finding of SMP more likely. for backhaul.
30 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
What are the prospects for alternative Can ex ante regulation create sufficient What should happen to legacy wholesale wayleaves or infrastructure deployment incentives to enable efficient investment? products following NGA deployment? reducing the bottleneck? 8.23This situation presents a challenge for 8.26 Existing LLU operators need clarity about 8.20Civil works can constitute up to 70 per Ofcom. Simply extending the current how the regulatory framework will evolve cent of the capital cost of deploying next regulatory framework to next generation following NGA deployment, and the generation networks. Any opportunity to access would fail to take full account of implications for their businesses, given mitigate these costs will have a the commercial uncertainty and risk their dependence upon access to first significant impact on the business case currently associated with NGA and could generation assets. Given the length of for NGA, as the Iliad example kill the business case for any investment time it will take to deploy any large-scale demonstrates. Operators are likely to altogether. However, failure to impose NGA networks, current generation explore all options for alternative any access obligations in the long-term services will be required to co-exist and wayleaves, duct sharing and new ducting could mean a return to a situation where compete with NGA for sometime to come. technologies on a case-by-case basis. an NGA operator could impose monopoly However, it would not be appropriate to rents for both access and carriage. expect them to be supported indefinitely. 8.21 As outlined above, achieving Competition at retail and wholesale level It should be possible for the regulator to infrastructure competition may not has been critical to the success of the signal to the market the likely time require replication of every element. If broadband market and there is little horizons for the termination of legacy open access civil infrastructure was more appetite for a return to monopoly network elements, without fettering its readily available to new entrants, it is provision of communications services. discretion, so that operators have a possible that more alternative access Ofcom’s challenge is to balance the need consistent approach that provides a infrastructure would be provided. to provide sufficient incentive to enable reasonable level of regulatory certainty. However, given the condition of the efficient investment in new services with existing UK duct network, it is not clear the need to ensure effective competition. Implications of functional separation that regulated solutions, such as obligations imposing duct sharing being 8.24Given the commercial challenges 8.27 In 2005 Ofcom agreed a new regulatory considered in France would be involved, it is clear that there are settlement with BT that led to a voluntary practicable, as much of the existing duct significant commercial risks for any entity agreement to implement a functional infrastructure is old, congested and, in contemplating any NGA investment, separation of its wholesale and retail many cases, poorly mapped. which would have to be taken into operations. BT agreed with Ofcom that it account by the regulatory framework. would establish in internal organisational 8.22The BSG has previously explored the structure called Openreach to guarantee potential for new civil infrastructure 8.25 If NGA networks are broadly deployed, operational separation and provision of utilities to emerge that would provide the provision of wholesale access should equivalent (wholesale) products to itself open access for operators to deploy their be encouraged, and if necessary required, and its wholesale customers in order to own ‘active’ network62. This remains a from all those operating at scale or with maintain an adequate level of compelling concept and various the benefit of public sector contributions. competition. The decision to companies are known to have explored If wholesale products are available, then institutionalise regulatory obligations potential business models in this area. retail markets should not need regulation, through an independent organisation However, as yet few have been able to especially where innovation in new within BT Group, with its own profit and develop a business case that does not products and applications which exploit loss account, has been seen as an depend, to some extent, on an element of increased bandwidth is to be encouraged innovative incentive-based regulatory public sector support. Nevertheless, this from multiple parties. approach to stimulating investment in is a concept that should be reviewed in current generation broadband in markets the course of Ofcom’s work on NGA. 8.26 As explained above, there may be a where there is relatively weak commercial case for a cable operator to infrastructure competition, and the voluntarily provide wholesale products on European Commission has advocated the normal non-discriminatory commercial potential benefits of similar approach in terms, without the regulator having to its discussions on the revision of the EU intervene to set wholesale terms and telecommunications framework. conditions.
31 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
8.28In a speech at a recent ITU event in Hong Conclusion Kong, Information Society Commissioner, Viviane Reding, said: 8.31 Any new regulatory framework will need to strike the right balance between ‘The most significant factor enabling incentivising efficient investment and broadband growth is the existence of ensuring sustainable competition. Given alternative infrastructures, in particular the high capital cost and the high degree cable. However, the wider conclusion for of commercial uncertainty and risk public policy makers is that regulation still involved, simply extending the current plays a very important role in the regulatory framework to next generation investment ladder, especially in Member broadband access would not achieve this States with no or weak infrastructural balance. competition. In countries where there has been more effective implementation of 8.32We need to ensure that potential efficient the Framework, including enforcement investment is not undermined by of full or shared access rules, there has regulatory uncertainty. While enduring also been more progress up the economic bottlenecks may emerge in the investment ladder.’63 long term, we should not assume that any NGA operator will quickly achieve a 8.29Functional separation is also finding position of SMP. In a converged market, support in the financial community. Bear there may be many other partial Sterns argued in 2006 that functional competitors able to exert influence over separation was a positive development the actions of an NGA operator. Market for telecoms operators: definitions should, therefore, not be set too narrowly. ‘The separation of wireline incumbents’ ‘last mile’ (e.g. BT’s Openreach) is widely 8.33 Given that competition for upstream regarded as another regulatory burden. value added services is likely to be On the contrary, we believe it delivers intense, there may be commercial significant benefits: first, it provides relief incentives that will encourage NGA on retail asset regulation; second, it operators to look for wholesale as well as encourages the market to re-rate the ‘last retail revenues. Even if SMP is mile’ assets to a higher utility multiple determined in some geographic markets, (for example 22% for BT); and third, it we should be very cautious about can produce a significant release of whether rate of return regulation should capital (we estimate as much as H123 be imposed. Any such obligations could billion across Europe)’64. be self-fulfilling, as they tend to have a negative indirect effect on the business 8.30As mentioned above, given the extent of models of other operators. Behavioural competition for value added service remedies based on functional separation revenues, such as IPTV in the UK market, are likely to be more benign. it seems unlikely that an operator will be able to build a business case for NGA 8.34 Meanwhile, open access to alternative deployment solely on a vertically wayleaves and passive network elements integrated business model. Both can mitigate a significant amount of the wholesale and retail revenues are, total capital cost of NGA deployment. therefore, likely to be critical to any NGA These should form the basis of any public business case. This suggests that there sector interventions that might be may be a commercial imperative for considered appropriate in time. operators of NGAs to provide wholesale services, which could avoid the need to pursue premature wholesale ex-ante regulation. This should be encouraged.
32 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
9. Policy Challenges
9.1 Broadband is having a significant impact 9.3 A second question is the impact on the 9.5 Finally, the fourth question is the extent on the economy today. It has not been UK economy of our global competitors to which government needs to take proven that next generation broadband moving to next generation broadband additional measures to encourage will have an equal impact but there is a deployment ahead of the UK. In the Far infrastructure investment in order to strong possibility that it could and the UK East, North America and Europe, meet the needs of the UK economy over needs to be in a position to take significant investments are now being the next twenty years. advantage of this possibility. It seems made in the deployment of next highly prudent, therefore, for central generation broadband. Initially the main What role for government? government to play close attention to the benefit of these services will be as evolution of the market and the prospects alternative infrastructures for delivering 9.6 In a situation where there is a probability, for next generation broadband TV and TV-like services. However, like the but not a certainty, that: a) next deployment and be prepared to take first generation of broadband, these generation access may deliver significant proactive steps if necessary. faster services are likely to lead to a new economic benefits; b) demand for wave of innovation by businesses, public bandwidth may exceed the capabilities 9.2 A first question to consider is whether the services and consumers that could have of current technologies; c) investment provision of ADSL2+ will be sufficient to an impact on national competitiveness. incentives for next generation broadband meet the requirements of the economy as may remain weak; the policy instinct will a whole. There are two issues. Firstly 9.4 A third question is the potential for long- be to leave the market to determine the ADSL2+ will lead to a patchwork of term market failure in certain geographic outcome. However, this also carries a risk. availability across the UK, with broadband areas and the requirement for some kind If significant efficiency gains are derived speeds varying considerably depending of minimum universal service. Although from next generation broadband, then it on location (between 1-20 Mbps) with only the UK leads the G7 in terms of the is possible that nations that opt for 40 per cent expected to get more than availability of first generation broadband, accelerated deployment will gain 8 Mbps. Some small businesses and it is unlikely that commercial operators competitive advantage over those that do consumers will benefit from higher will be able to deploy next generation not. So what should government do? speeds, which may well prove sufficient access technologies ubiquitously across for their needs. However, others will only the UK. Public sector support is likely to see a slight improvement in their peak be required to deliver next generation access rates at best. Secondly, it is access in low-density areas and a new possible, although again as yet unproven, form of universal service may need to be that demand for bandwidth will exceed defined to ensure a minimum level of even the headline capabilities of ADSL2+ connectivity for inclusion in a modern in the medium term. knowledge economy.
33 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
Recognise the significance of broadband for 9.11 In cooperation with stakeholders, the 9.16 The timing of any public sector the UK economy government should establish a target to intervention can have a significant ensure that by 2012 the UK remains in the impact. If interventions are made too 9.7 The evolution of the UK’s upper quartile of OECD nations in terms early, they risk distorting the market. If communications infrastructure should be of the range of broadband delivered made too late, they could lead to the of primary concern to policy makers. In services to which its people have ready development of distributional inequalities its recent report on ‘long-term access (Quality) and the proportion of the and the emergence of new urban/ rural opportunities and challenges for the UK’ population served by broadband (Reach). divides. However, public sector HM Treasury, recognised that rapid ‘Quality’ and ‘Reach’ should be defined intervention to promote next generation innovation and technological diffusion through a basket of metrics, similar to the broadband deployment that is ahead of was one of the five key opportunities and approach used to define the any commercial deployments (even in the challenges facing the UK in the next competitiveness and extensiveness most commercially attractive areas) and decade. However, the importance of targets set in 2001. ahead of the establishment of a new having a globally competitive regulatory framework is likely to be communications infrastructure was not 9.12 Regular published assessments of the premature. We therefore believe that discussed in the Treasury report. Indeed UK’s performance, benchmarked against the public sector should forbear from there seems to be an assumption that the our competitors, will enable to making large scale interventions to market will deliver all of the UK’s government, Ofcom and the industry to promote next generation broadband communications needs over the next assess whether further proactive steps deployment at this stage. decade. Currently, this does not look like are required to ensure that the UK is on a safe assumption to make. course to meet the 2012 target and does 9.17 However, public sector bodies need to not fall dangerously behind its be fully engaged in the debate with 9.8 Given the critical importance of international competitors. operators and regulators about the broadband as the key enabling prospects for and likely limitations of infrastructure of the knowledge economy, Do no harm – avoid premature interventions commercial next generation broadband a failure of broadband supply to meet that could distort the market investment so that they can scope the demand could stifle the pace of likely requirements for public sector innovation in the UK economy compared 9.13 A number of public sector organisations, support and agree best practice for to our global competitors. This risk should including RDAs, devolved administrations, possible solutions. It is essential that be recognised and addressed. and local authorities, are currently bodies responsible for the long-term considering whether or not to intervene economic development of regions of the Monitor international developments and to ensure the accelerated delivery of next UK have as much visibility as possible on benchmark progress generation broadband services. the likely evolution of their communications infrastructures. Working 9.9 To a large extent, the potential 9.14 There are a number of justifications that together with operates and regulators, risk/benefit to the UK economy depends can be made for such interventions, public sector bodies should explore upon how investments in next generation including the need to address market potential models for targeted, effective broadband are made and utilised in other failure, the need to ensure the equitable and well-timed interventions, which may countries and the extent to which distribution of welfare gains and the need be more widely applicable in due course. economic benefits start to emerge from to ensure regional competitiveness. these networks. Government should, However, there is a real risk that public 9.18 Where public sector interventions are therefore, begin to regularly monitor the sector interventions could pre-empt the made, they should focus on the provision deployment, use and exploitation of next market, distort competition and actually of non-replicable ‘passive’ infrastructure generation broadband in key leading deter or duplicate private investment that that can then be made available to economies. The evolution of the UK’s own might otherwise be made at a later date. private sector investments to provide communications infrastructure can then competition in services. be benchmarked against our global 9.15 This is not to say that public sector funding competitors. will have no role in the widespread 9.19 It is important that there are clear criteria provision on next generation broadband. for the use of public funds and the BSG 9.10 Many countries around the world have set On the contrary, there will almost certainly welcomes the Best Practice Guide aspirational targets for next generation be areas that will be non-commercial in the published by the DTI and Ofcom in broadband deployment, including targets long-term and public sector interventions February 200765. for FTTH adoption. Targets are valuable will need to be carefully targeted at areas because they help to focus policy where persistent market failure is most development and signal policy intent to likely. The problem is that, at this stage, stakeholders. when the commercial case for next generation access is so uncertain, it is difficult to determine where the line should be drawn.
34 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
Facilitate investment where possible 9.23 Each of these potential barriers to 9.25In a 2006 paper, the OECD argued that investment in new infrastructure seem as current funding arrangements for USO 9.20It is also important to address those non- valid now as they did when the BSG may be unsuitable for broadband and that sector specific policy or regulatory issues flagged them as concerns three years governments might want to consider that can inhibit investment because of ago. If the UK is serious about funding a USO from general taxation their impact on construction and/or accelerating the provision of critical (next revenue66. In the UK, it has been operational costs. Typically, the issues generation) access infrastructure, suggested that consideration should also that have previously been identified by government should work together with be given to whether a portion of the BBC the BSG as inhibitors are non-domestic industry to understand how investment licence fee could be used to support the rating costs, planning rules and provisions and business cases are undermined by provision of minimum connectivity levels related to access to highways. the above and to assess where to those areas where the market is improvements can be made to improve unlikely to deliver67. Another model could 9.21 For both fixed and wireless operators, investment flow, by, for example, be Canada where there is a proposals for non-domestic property rating of reducing rating costs and the costs a programme known as UCAN (Ubiquitous cable/duct infrastructure represents a associated with roadworks. Canadian Access Network) which has the substantial proportion of their operating objective of achieving near-universal costs, which cannot help the viability of Evolution of Universal Service broadband coverage by 2010 and involves business cases. In addition, newer targeted ‘smart subsidies’ – with least- operators will also claim that inconsistent 9.24There is a question about whether high- cost auctions – to determine which valuations create barriers to investment. speed broadband networks should be part service providers (telco, cable, wireless, of a Universal Service Obligation. satellite) can provide coverage at lowest 9.22 Interpretation of planning rules by local Currently only ‘functional’ internet access cost. authorities is also cited as a cause of is included under the terms of the current delay in construction, which will also USO Directive, which is due for review 9.26Ofcom’s consultation on universal access impact business cases. In terms of access from this year. It seems clear that this should address both the definition of to highways, whilst the New Roads and will need to be revised, in order to universal service and the future Street Works Act 1991 provides a national determine the minimum level of approaches to funding. Future definitions framework for regulating street works, its connectivity needed to ensure inclusion. of USO may also need to be more provisions, too, present barriers because technology neutral as broadband services of advance notice requirements and in very rural areas may be best delivered charges for prolonged works or for by wireless services rather than over occupation of the highway. fixed lines.
‘The government should establish a target to ensure that by 2012 the UK remains in the upper quartile of OECD nations in terms of the range of broadband delivered services to which its people have ready access (Quality) and the proportion of the population served by broadband (Reach).’
35 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
10. Conclusions and Recommendations
10.1 Broadband matters because it has an 10.3 Around the world, rapid broadband 10.4 Further investment is also expected in impact on the UK’s long-term adoption and massive innovation in the UK. Primarily, this will involve the competitiveness. To compete in a global broadband enabled content, services and deployment of ADSL2+ by BT and other knowledge economy, UK businesses and applications is driving huge growth in LLU operators and, possibly, DOCSIS 3.0 citizens need to have access to a world- network traffic. This trend is expected to by Virgin Media. BT has also announced class communications infrastructure. accelerate significantly in the next two that it will begin deploying FTTH in green years as a plethora of new video rich field locations from 2008. In practice, 10.2 The UK has been quick to embrace the services, often based on peer-to-peer however, over the next five years, this potential of broadband. Adoption rates technologies, reach the market. Next will mean that a patchwork of broadband have outstripped many of our G7 generation broadband services are now availability in the UK will continue to competitors and across the economy being deployed in a growing number of exist, where the broadband speeds people are exploiting broadband to countries around the world in anticipation available to the majority of consumers innovate and do things differently. The of this new wave of bandwidth-intensive will vary depending upon location UK has also been successful in ensuring video-rich services. In most cases between 1 and 24 Mbps downstream and that broadband access is available as significant public sector support and up to 1 Mbps upstream. Unless BT or widely as possible and leads the G7 in policy and regulatory incentives have another operator accelerates deployment terms of broadband availability. This has played an important role in accelerating of fibre or Virgin Media accelerates been important to ensure social inclusion the next generation broadband deployment of DOCSIS 3.0, it is likely that and the health of the rural economy. deployment. These interventions have a significant minority of users will see no However, we should not assume that been justified by the need to maintain real improvement in their broadband the UK will maintain this position. national competitiveness. access speeds during this time. Only a very small number of users on new developments will be able to access very high-speed symmetrical FTTH services.
36 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
10.5 Making predictions about demand for 10.7 This suggests that a gap is opening open 10.9 The issues are complex and there are bandwidth is difficult, but there is a up between the ‘public value’ to society few obvious solutions at this stage. The strong possibility that over the next five of next generation broadband and the lack of sufficient platform competition years demand for both upstream and ‘private value’ available to investors in from cable means that deregulation or downstream capacity will exceed the these services. Evidence of the positive regulatory forbearance would not be capabilities of existing and currently externalities resulting from next appropriate in the UK. Ofcom will need planned broadband infrastructure in the generation access has yet to emerge – to find an alternative approach that UK. In particular, the rapid development largely because these networks are only provides the right risk/reward balance of peer-to-peer services is likely to just being built. However, over the next to enable and, possibly, incentivise increase demand for upstream speeds. two years as international deployments efficient investment. At the same time, There is a real risk that upstream service of next generation broadband accelerate government should monitor the UK providers, businesses and consumers will and a new wave of bandwidth intensive market closely and benchmark progress find in time that broadband peak access are taken up by the mass market, the against our international competitors. speeds available to them are insufficient requirement for next generation In the short term the public sector to meet their needs. broadband in the UK is likely to should forbear from making premature become much more transparent. interventions in the market, but should 10.6 Our key concern is that incentives for be prepared to make carefully targeted operators to invest in next generation 10.8 For this reason, we believe that there interventions in the future in areas where broadband networks in the UK remain is a limited window of opportunity over persistent market failure is most likely. weak due to the high capital costs the next 12-24 months to develop and involved, the erosion of traditional implement a concerted and innovative revenue streams, increased competition approach to regulation and policy making for broadband enabled value added to create the right balance of investment services, and uncertainty about future incentives and competition that will commercial models. The strength of the enable a market led transition to UK DTV market is also a particular next generation broadband. challenge, as this weakens the market opportunity for new broadband enabled IPTV services that have been critical to commercial deployments in other markets such as France. These challenges are compounded by increased operating costs resulting from the rapid growth in network traffic.
‘There is a limited window of opportunity over the next 12-24 months to create the right balance of investment incentives and competition that will enable a market-led transition to next generation broadband.’
37 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
Recommendations for next steps
Recommendation 1 Recommendation 4 Recommendation 7 – Define the public value of – Explore alternative commercial – Identify models for efficient broadband networks models to support network investment public sector intervention
It will take years for a complete evidence Further work should be undertaken by While the BSG recommends that the public base to emerge to assess the full economic stakeholders to debate and explore alternative sector should forbear from intervening to and social value of broadband. However, it commercial models to support network promote NGA deployment at this stage, it is should be possible now to define a framework investment. Good solutions need to be found highly likely that public sector support will be to assess the potential public value of that align the interests of operators with required in areas where persistent market broadband, i.e., to identify the factors that upstream content and service providers and failure is most likely. Building on the Best should be taken into account when assessing end consumers whilst mitigating concerns Practice Guide published by the DTI and broadband’s impact on society and the about blocking or degrading third party Ofcom in February 2007, further work should economy. Once such an approach is agreed, applications and services. be undertaken to identify and experiment in evidence can be added in as it emerges and a the development of efficient and effective more accurate model developed for assessing Recommendation 5 models for public sector interventions in the public value of broadband. This should be – Develop a regulatory framework for collaboration with commercial stakeholders, a collaborative initiative involving industry, next generation broadband government and the regulator. academics, the DTI and Treasury. Discussion on the regulatory challenges posed Recommendation 8 Recommendation 2 by next generation access (NGA) networks has – Remove non-sector specific – Monitor demand for bandwidth only just begun in the UK. Ofcom opened up regulatory barriers the debate with its discussion document As a new wave of bandwidth intensive services published in November 2006. This document The deployment of next generation access come online over the next 12-24 months, close raised a broad range of complex issues, which infrastructure will inevitably require new civil attention should be paid to the actual growth need to be explored in more detail. Further infrastructure and will involve significant new in demand for bandwidth by households and informal discussions should be undertaken in street works across the country. DTI should businesses both in the UK and internationally. advance of a full public consultation by Ofcom. work together with relevant departments and Various approaches could be used to develop However, Ofcom needs to set out the public sector bodies and the industry to data in this area. However, this information principles of its regulatory approach to NGA develop streamlined approaches to NGA should be made publicly available to help within a 12 month time period, if the inhibiting related street works and planning issues to inform decision making by stakeholders across effects of regulatory uncertainty on minimise both the disruption caused and the the value chain. This should be coordinated investment are to be avoided. cost to operators of these works. The by Ofcom. government should also review the non- Recommendation 6 domestic rating applied to optical fibre. The Recommendation 3 – Explore options for access current approach provides a strong financial – Set a benchmarked target for 2012 to passive infrastructure disincentive to the use of deployed fibre.
The UK must have a communications As an input into Ofcom’s NGA pre- Recommendation 9 infrastructure that enables it to compete and consultation, a more detailed review should – Review universal service/universal access prosper in the global knowledge economy. be undertaken into the options for access to The government and Ofcom should, therefore, alternative passive infrastructure in the UK. The current universal service directive refers benchmark the UK’s communications This work should be taken forward by only to functional internet access. However, as infrastructure with our global competitors. stakeholders. the adoption of broadband continues to accelerate, this definition is starting to look Government should establish a target to outdated. Ofcom’s consultation on universal ensure that by 2012 the UK remains in the services should address both the definition of upper quartile of OECD nations in terms of the universal service and future approaches to range of broadband delivered services to funding universal service/ universal access. which its people have ready access (Quality) and the proportion of the population served by broadband (Reach)68. These two aspects of quality and reach should be defined through a basket of metrics, similar to the approach used to define the competitiveness and extensiveness targets in 2001. This work should be undertaken by government, in collaboration with stakeholders, and updates should be published bi-annually.
38 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
11. Glossary
ADSL GVA NGN Asymmetric Digital Subscriber Line (ADSL), a Gross Value Added Next Generation Network, referring to form of DSL, a data communications architectural evolution throughout the whole technology used for providing broadband HD telecommunications network High Definition ADSL2+ OECD ADSL2+ extends the capability of basic ADSL HDTV Organisation for Economic Cooperation and High Definition Television, a technology that Development Altnets provides viewers with better quality, high- Alternative network providers, ie not resolution pictures Ofcom incumbent operators The UK communications regulator HSDPA Bitstream High Speed Datalink Packet Access, an evolution PON A BT Group wholesale product of 3G mobile technology, often known as 3.5G, Passive Optical Network, a point-to-multipoint, which offers higher data speeds fibre to the premises network architecture BT Openreach A BT Group division created to guarantee IP PVR operational separation and provision of Internet Protocol, the packet data protocol Personal Video Recorder equivalent (wholesale) products to itself and used for routing and carriage of messages its wholesale customers in order to maintain across the Internet and similar networks SME an adequate level of competition, following Small to Medium sized Enterprise, a company Ofcom’s Strategic Telcommunications Review IPTV with fewer than 250 employees in 2002 Internet Protocol Television, a system where a digital television service is delivered using the SMP CPE Internet Protocol over a network Significant Market Power Customer Premises Equipment infrastructure Sub loop unbundling DOCSIS ISP Local loop unbundling taking place in the Data Over Cable Service Interface Internet Service Provider, a company that street cabinet Specification (DOCSIS), an international provides access to the internet standard employed by many cable operators TMT sector Kbps Telecommunications, Media and Technology Downstream Kilobit per second sectors Refers to the transfer speed by which data can be sent from the server to the client in an Knowledge Economy Upstream services (providers) internet connection An economy where the generation and use of Referring to services, and the providers of knowledge has come to play the predominant those services, which exist higher up the value DTV role in the creation of national wealth, chain than broadband access provision Digital Television achieved by effective use and application of all types of knowledge and technology, in all Upstream Ethernet manner of economic activity. Refers to the speed at which data can be Ethernet, a widely-installed local area network transferred from the client to the server technology LLU (uploading). Local Loop Unbundling, a process where FCC incumbent operators (in the UK, BT and VASs The Federal Communications Commission, the Kingston Communications) make their local Value Added Services, a telecommunications US communications regulator network (the lines that run from customers industry term for non-core services premises to the telephone exchange) available HFC to other communications providers. The VDSL Hybrid fiber-coaxial, a network which process requires the competitor to deploy its Very High Speed DSL, a DSL technology incorporates optical fibre and coaxial cable to own equipment in the incumbent’s local providing faster data transmission create a broadband network exchange and to establish a backhaul connection between this equipment and its VOIP FTTC core network Voice over Internet Protocol, a technology Fibre to the (street) cabinet that allows users to send calls using Internet Mbps Protocol, using either the public internet or FTTH Megabits per second private IP networks Fibre to the home Naked DSL WDMA FTTx A DSL broadband connection without a Wavelength Division Multiple Access Fibre to the x, a generic term for any network telephony service architecture that uses optical fibre to replace WiMAX all or part of the usual copper loop used for NGA A wireless MAN (metropolitan area network) telecommunications Next Generation Access, referring to key technology, based on the 802.16 standard. architectural evolutions in the access part of Available for both fixed and mobile data GDP the telecommunications network (from the applications Gross Domestic Product exchange to the subscriber) allowing higher bandwidth and greater symmetry than is currently possible with today’s most commonly deployed network architectures
39 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
12. Endnotes
1 See OECD Broadband Statistics broadband-enabled ICT makes the company Working Paper, 5 April 2006 www.oecd.org/sti/ict/broadband more productive, allowing it to take on more http://www.oecd.org business and grow. Broadband has enabled T- 2 30 million subscribers also includes business as Plan to reduce its turn around time on projects 26 ‘Infrastructure to 2030: Telecom, Land well as residential customers from 5 to 1.5 days. It enables faster more Transport, Water and Electricity’, OECD, 2006, effective research and easier competitor http://www.oecd.org 3 Very High Speed Broadband: A Case for analysis. It is also being used to transform client Intervention, Enders Analysis, January 2007 training operations, eliminating the need to run 27 http://www.indepen.co.uk/panda/docs/brt- expensive courses at physical locations. appendices.pdf http://endersanalysis.com/publications/publicati Broadband has become critical to T-Plan on.aspx?id=390 ‘without it we’d have to review our entire 28 ‘Technical assistance in bridging the digital operation...that’s not really an option.’ In 2004 divide: a cost benefit analysis for broadband 4 ‘Quality’ and ‘Reach’ to be defined through a T-Plan was recognised by Deloitte as one of the connectivity in Europe’, basket of metrics, similar to the approach used fastest growing technology companies in the PriceWaterhouseCoopers, Ovum and Frontier to define the competitiveness and extensiveness South East and gained a place in Deloitte’s Economics, October 2004 targets set in 2001. Technology Fast 50. According to Deloitte ‘The Fast 50 Programme has always been a reliable 29 Social capital consists of the stock of active 5 Organisations dependent on the availability of indicator of whether British innovation is leading connections among people: the trust, mutual broadband to deliver their services. to more growth and wealth creation. These understanding, and shared values and companies have demonstrated how to survive behaviours that bind the members of human 6 It is commonly argued that operators need a and thrive in today’s market by helping their networks and communities and make business case that can generate an ARPU of customers reduce their costs and improve their cooperative action possible. (Cohen and Prusak approximately H80 per month based on a performance.’ 2001: 4) combination of access and value added services (generally TV) in order to justify investment in 15 ‘Long-term opportunities and challenges for the 30 ‘BSG Annual Report’, BSG, January 2004 NGA. UK: analysis for the 2007 Comprehensive http://www.broadbanduk.org/ Spending Review’ HM Treasury, November 2006 7 ‘The World is Flat’ Thomas.L. Friedman, 2005, p. 31 The World is Flat’, Thomas.L. Friedman 2005, 233, (published by Farrar, Straus and Giroux) 16 ‘Show me the money; The Impact of p.350 (published by Farrar, Straus and Giroux) Convergence on the Consumer Electronics 8 Once a commercial decision to deploy next Sector’, Dave Tansley, Deloitte, Intellect 32 ‘Communications: the Next Decade’, Ofcom, generation broadband is taken, wide-scale Consumer Electronics Conference, July 2005 November 2006, p.11 deployment is likely to take many years to complete. 17 i2010 Annual Information Society Report, 33 This assumes an average of 2.4 persons per European Commission, 30 March 2007 household, http://www.statistics.gov.uk 9 ‘Net Impact Study: National Economic Benefit’, http://ec.europa.eu/information_society/eeurop Momentum Research Group, Brookings e/i2010/annual_report/index_en.htm 34 BT estimates that broadband is available over Institution and University of California-Berkeley, 99.6% of lines. This is based on three different http://www.netimpactstudy.com/nis_2002.html 18 ‘Capitalising on Convergence – Delivering value forms of assessment: the proportion of lines and driving growth in a digitally converged where broadband was required but could not be 10 Gartner Dataquest November, 2002, world’, Intellect, 2005 provided; a directional estimate of the http://www.gartner.com/5_about/press_releases http://www.intellectuk.org/policy/convergence/d proportion of problem lines based on line length /2002_11/pr20021113a.jsp efault.asp distribution, and a second estimate of problem lines based on data mining of line 11 ‘Measuring broadband’s economic impact’, Lehr, 19 ‘The Communications Market, 2006’ Ofcom, characteristics. These three different Osorio, Gillet and Sirbu, MIT October 2005 2006, p.180 assessments yield a range of 0.15 – 0.45% non- availability. A Community Broadband Network 12 Next Generation Broadband in Scotland, SQW 20 ‘Broadband: its impact on British business’, IoD survey in 2006 reported that there were 1200 Limited report for Scottish Executive, January Policy Paper, 2004 broadband ‘not spots’ spread throughout the UK. 2007 The four main reasons for not being able to http://www.scotland.gov.uk/Publications/2007/0 21 ‘The Benefits of Broadband to SMEs in the ICT access ADSL services reported by their survey 1/09153006/0 Sector’, Intellect, September 2003 were: distance from the exchange, line quality, http://www.broadbanduk.org/ line sharing and the existence of fibre-optic 13 ‘Communications: the Next Decade’, Ofcom, cables in the local loop. http://www.broadband- November 2006, p.197 22 ‘The Benefits of Broadband to SMEs in the ICT uk.coop Sector’, Intellect, September 2003, 14 T-Plan (www.T-Plan.co.uk) provides an excellent http://www.broadbanduk.org/ 35 OECD Broadband Statistics case study of the way in which an SME can www.oecd.org/sti/ict/broadband harness broadband to drive innovation, 23 ‘Measuring broadband’s economic impact’, Lehr, productivity and growth. T-Plan is an SME Osorio, Gillet and Sirbu, MIT October 2005 36 OECD Broadband Statistics providing test management solutions. The www.oecd.org/sti/ict/broadband availability of broadband in Cornwall enabled T- 24 ‘Infrastructure to 2030: Telecom, Land Plan to relocate out of the South East to take Transport, Water and Electricity’, OECD, 2006, 37 AMS-IX Annual Report 2005 https://www.ams- advantage of the lower costs and improved p.16 http://www.oecd.org ix.net/about/Jaarversl_2005%20def.pdf lifestyle available in Cornwall and to create new high-value jobs in a rural location. T-Plan has a 25 ‘Broadband availability, use and impact on 38 http://www.landsecuritieslink.com/news.asp? dozen virtual offices across the UK with all staff returns to ICT in UK firms’, Raffaella Sadun PageID=8&MediaID=59&InitialView=False connected using broadband. T-Plan believes that (CEP/LSE) and Shikeb Farooqui (ONS), OECD
40 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
39 ‘Predicting UK Future Residential Bandwidth the last mile communications to the home. 61 The current multi-level structure of cable Requirements’, Green Paper, Broadband Plextek concluded that wireless cannot networks in Germany, coupled with the upgrades Stakeholder Group and Analysys, realistically compete with fibre for the provision required in the Kabel Deutschland networks, has http://www.broadbanduk.org/component/option, of next generation broadband over the whole of seen competitive high speed offerings slower to com_docman/task,doc_details/gid,95/Itemid,9/ the last mile but that wireless would have emerge on a wide scale, although some newer application as a last mile feeder element, using city based networks are offering such services. 40 The analysis merely assumed the provision of Gb/s wireless as a fibre replacement and within services at affordable cost and made no the home, e.g. 802.11n. Wireless Last Mile Report, 62 ‘The challenge of financing the deployment of estimate of the propensity of consumers to pay Plextek, November 2006. next generation broadband networks in the a premium for faster broadband services. United Kingdom and the Civil Infrastructure http://www.ofcom.org.uk/research/technology/o Utility concept’, BSG Discussion Document, 41 http://blog.ipdev.net/2007/03/part-2-cost- verview/ese/lastmile/lastmile1.pdf December 2003, implications-of-video.html http://www.broadbanduk.org/content/view/99/ 52 For example, the Astra2Connect service offers 42 BSG Report and Strategic Recommendations, broadband internet services with a capability 63 ‘Connecting up the Global Village: a European November 2001 http://www.broadbanduk.org 1024kbit/s (max) download and 128kbit/s (max) View on Telecommunications Policy’, Viviane upload. Reding, European Commissioner for Information 43 Ofcom, Regulatory challenges posed by next Society and Media, ITU ‘Telecoms World 2006’ generation access networks 53 ‘The Broadband Incentive Problem’, MIT conference, Hong Kong, 4 December 2006, http://www.ofcom.org.uk/research/telecoms/rep Communications Futures Programme (CFP), http://ec.europa.eu/information_society/newsro orts/nga/nga.pdf September 2005. om (http://cfp.mit.edu/groups/broadband/docs/200 44 See BSkyB at Sky.com, http://phx.corporate- 5/Incentive_Whitepaper_09-28-05.pdf) 64 Bear Sterns European Equity Research – ir.net/phoenix, Carphone Warehouse at “Telecommunications Services: Wholesale http://www.cpwplc.com/phoenix and O2 at 54 “Consumers are now routinely uploading their Salvation”, 18 August 2006, http://o2.com/services own audio-visual content, watching IP-based TV http://www.bearsterns.com and other forms of on-demand or streaming 45 http://www.btplc.com/21CN/Theroadto21CN/ media, videoconferencing via Skype or 65 ‘Public broadband schemes – A best practice UKRollout/UKrollout.htm participating in other peer-to-peer file sharing or guide’, Ofcom and DTI, February 2007 distribution applications like BitTorrent, that are http://www.ofcom.org.uk/media/mofaq/telecoms 46 Including Analysys and IEEE data. capable of transferring data at the peak rate of /pbs/dti_pbs.pdf the access link on a more or less continual 47 In a March 2006 BT Group Industry Analyst basis.” The Broadband Incentive Problem, p. 5 66 Infrastructure to 2030: Telecom, Land Transport, Briefing on broadband access speeds in the fixed Water and Electricity, June 2006, network, BT reported that “Based on 25% cable 55 Some providers will simply generate a letter http://www.oecd.org fill and a DSL Max type of ranged product, we after several months to subscribers who estimate that ADSL2+ will give about 50% of ‘consistently’ exceed their volume tier, while 67 In his recent independent review of the future of customers 8Mb/s downstream and give a few others claim they will charge additional usage- broadcasting for the DCMS, Robin Foster argued downstream speeds of more than 18Mbit/s. As based fees in real time once customers exceed that “there could still be a powerful case for a with ADSL1, at least 50% of customers should their volume thresholds. shift in the aims of government intervention – get 0.5Mb/s upstream. These speeds will give changing the balance of funding so that less good sustainable throughput suitable for 56 See Exploiting the broadband opportunity: goes on creating new content, and more goes to applications involving video, for example.” Lessons from South Korea and Japan, DTI Global securing universal access to the infrastructure Watch Mission Report , March 2006, p. 24 and devices needed to take advantage of the http://www.btplc.com/Thegroup/Industryanalyst http://www.broadbanduk.org/content/view/182/ new broadband world. The challenge for the s/Industryanalystspresentations/BBinthefixednet 7/1/1/ future is to assess these different options in a work.pdf rational and rigorous way.” Future Broadcasting 57 Ofcom Digital Progress Report, Digital TV, Q4 Regulation 2006, Robin Foster for DCMS 48 In ideal conditions, VDSL 2 may be able to 2006 available at http://www.culture.gov.uk P. 50 provide 100 Mbps over 500 metres of copper. http://www.ofcom.org.uk/media/news/2007/03/ However, there is not much practical data yet nr_20070314 68 ‘Quality’ and ‘Reach’ to be defined through a on the impact of the real world on what will be basket of metrics, similar to the approach used achievable with VDSL 2. Nodes may need to be 58 In March 2005, the FCC ordered Madison River to define the competitiveness and extensiveness closer to the customer than existing street Communications, a small phone company in targets set in 2001. cabinet positions and RFI and intermod issues North Carolina to stop blocking the Vonage VOIP are unclear. service on the basis that the internet should remain open to all types of traffic. 49 ‘Very High Speed Broadband: A Case For Intervention?’, Enders Analysis, January 2007, 59 This is evident in the 3G market where operators http://www.endersanalysis.com/publications are trying to keep content and services as closely integrated with their networks as 50 Source FTTx Mini Guide possible and have not generally encouraged the http://www.telecommagazine.com/2007/Resear kind of third party innovations that have been ch/FTTx/ associated with fixed line broadband services.
51 Ofcom recently commissioned a report from 60 ‘USA Broadband after 10 years of confusing and Plextek to investigate the use of wireless confused regulatory policy’ May 25, 2006, technology as an alternative for the provision of Robert Crandall, London School of Economics
41 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
13. Annex (list of contributors)
The people listed have contributed to this report, through private discussions and attending the meetings below:
20 April 2006 – BSG Next Generation Access Review group meeting 25 May 2006 – BSG NGA Review group meeting 13 June 2006 – Workshop: Platforms for next generation networks 3 July 2006 – Colloquium ‘Platforms to deliver next generation services’ (run by BSAC and BSG) 17 November 2006 – Workshop: Platforms for next generation networks
Donald Pearce ABFL Groupe Intellex Len St Aubin Canadian High Commission Ed Brown Adit North East Louis LePage Canadian High Commission Dan Kiernan Alcatel Louise Foley Canadian High Commission Helen Simpson Alcatel Malcolm Andrew Canadian High Commission Jean Pierre Lartigue Alcatel Michael Tiger Canadian High Commission Mike Duffy Alcatel Alison Morris Channel 4 Brian McBride Amazon Louise Brown Channel 4 Matt Yardley Analysys Consulting Pastora Valero Cisco Systems Paul Sumner Analysys Consulting Richard Allan Cisco Systems Duncan O’Neill AOL UK Wolfgang Fischer Cisco Systems Mark Rogers Apple David Harrington CMA John Morgan AttachmateWRQ Sales UK Ben Constable Coldharbour Systems Matthew O’Connor Avanti Screenmedia Robin Saphra Colt Matthew Postgate BBC Brian Condon Community BB Network / Complexity Group Richard Cooper BBC Adrian Wooster Community BB Network / great-technology-company.com Richard Dawkins BBC Malcolm Corbett Community Broadband Network Emma Pike British Music Rights Shaun Fensom Community Broadband Network Richard Mollett British Phonographic Industry (BPI) William Brocklehurst Confederation of British Industry Paul Sanders British Phonographic Industry (BPI) / State 51 David Dalgoutte Corning Developments Amy Seely British Screen Advisory Council Meni Styliadou Corning Developments David Elstein British Screen Advisory Council Tadhg Leonard Corning Developments Fiona Clarke-Hackston British Screen Advisory Council Tim Watton Cyprus Consulting (UK) Ken Singleton Broadband Access Strategies LLP Chris Dawes Department for Culture, Media and Sport Kevin Collins Broadband Access Strategies LLP Helen Williams Department for Culture, Media and Sport Stephen Lowe Broadband Wireless Association Jon Zeff Department for Culture, Media and Sport Peter Radley Broadtech Associates Dave Tansley Deloitte Sheila Cassells BSkyB Trevor Forsythe Department of Enterprise, Trade & Investment (N.I.) Dave Simpson BSkyB / Easynet Andy Carter Department of Trade & Industry Toby Higho BSkyB / Easynet / UKCTA Anne Grikitis Department of Trade & Industry Andy Long BSkyB / Easynet Claire Hobson Department of Trade & Industry Clive Ansell BT Group David Hendon Department of Trade & Industry Dorothy Smith BT Group Mark Swarbrick Department of Trade & Industry Garry Miller BT Group Rachel Clark Department of Trade & Industry Peter McCarthy-Ward BT Group Simon Hicks Department of Trade & Industry Tim Parsons BT Group Mary Pitelli Discovery Communications Gordon Adgey Buckfastleigh Broadband Philip Jenner Discovery Communications Adam Kilgour Cable & Wireless UK Michael Ridley DLA Piper Rudnick Gray Cary Nick Harding Cable & Wireless UK Jan Pinkerton East of England Development Agency – EEDA Sam Sharps Cable & Wireless UK Laurence Ramsey East of England Development Agency – EEDA George Edwards Canadian High Commission Stuart Newstead Ellare Heather Dryden Canadian High Commission Doug Lucas EMI Group Joel Heise Canadian High Commission Kate Logan EMI Group
42 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
Sara John EMI Group Andy Walton One NorthEast John Cunliffe Ericsson Martin Burrage OpenHub John Newbold Ericsson Sean Kennedy Orange Home / UKCTA Alison Fennah European Interactive Advertising Association (EIAA) Tony Hart Packet Vision Charles Constable Five John McVay Pact Daire Magill Five Alex Graham Pact / Wall to Wall Dougald Robinson Global Crossing Tim Johnson Point Topic Gordon Ross Infocube.net Dominic McGonigal PPL Fred Perkins Information TV Bill Bush Premier League Jim Munro Intellect Oliver Weingarten Premier League Stephen Hearnden Intellect Joe Barrett Qualcomm Lucinda Fell ISPA UK Chris Marsden RAND Europe Simon Fell ITV Zahid Deen Scottish Executive Simon Pitts ITV Ada Muirhead Shepherd + Wedderburn John Long JPL Associates Ian Henry Shoreditch Community / Digital Bridge Huw Saunders Kingston Communications Mick O’Conchubair Shoreditch Community / Digital Bridge Len Waverman London Business School A Carter Sopra Newell & Budge Robin Foster London Business School Peter Waller South East England Development Agency (SEEDA) Allen Porter MaceCorp Gina Fegan South East Media Network (SEMN) Federico Bolza MCPS-PRS Alliance Nigel Hartnell South East Media Network (SEMN) Roy Gradwell MetroPoint Fabian King South West RDA Jim Beveridge Microsoft Richard Cadman Strategy & Policy Consultants Network Hamish Macleod Mobile Broadband Group Keith Bolland Syndesis UK Tim Cull Motorola Bob Franklin Telcoconsulting Angel Gambino MTV Nick Flynn TeraSpan Networks Sao Bui-Van MTV Dominic Carney Thus Jon Pettigrew NKA Films Domhnall Dods Thus / UKCTA David McConnell Nortel Campbell Cowie Time Warner Geoffrey Hall Nortel Michael Barford Tiscali / UKCTA Sarah Terry Nortel Robyn Durie T-Mobile (UK) Philip Southward NW Development Agency Casey Harwood Turner Broadcasting Mike Short O2 Barney Wragg Universal Music Alex Blowers Ofcom Aarne Aho Video Networks / Home Choice Andrew Heaney Ofcom Luke Kennedy Video Networks / Home Choice Clive Carter Ofcom Robert Spearpoint Video Networks / Home Choice Dougal Scott Ofcom Andy King Virgin Media /NTL Group / UCKTA John Lewis Ofcom Philip Kirby Vodafone Peter Ingram Ofcom Paul Kindred Welsh Assembly Government Sean Williams Ofcom Emma Ascroft Yahoo! UK Steve Unger Ofcom Colin Long Olswang
43 BROADBAND STAKEHOLDER GROUP PIPE DREAMS? PROSPECTS FOR NEXT GENERATION BROADBAND DEPLOYMENT IN THE UK
The BSG is the industry-government forum tackling strategic issues across the converging broadband value chain. It:
provides a neutral forum for collaboration for organisations across the converging broadband value-chain to discuss and resolve the issues related to the development and exploitation of broadband that affect them all.
aims to be a ‘critical friend’ of government and the regulator, and comprises companies from the telecoms and technology sectors through to content providers and rights holders. It also has direct representation from government departments and Ofcom.
focuses on strategic, medium- to long-term challenges that affect the whole broadband- enabled value chain, with the ultimate aim of helping to create a strong and competitive UK knowledge economy.
www.broadbanduk.org
The report was written by the BSG Secretariat: Antony Walker, Malcolm Taylor and Vicky Read